Ameresco Inc (AMRC 2.38%) released its fourth quarter and full 2014 financial results on March 5, and much like last quarter, the news was moderately positive. The highlights:
- Sales of $181 million in the quarter, up 3% from last year and at high end of company's guidance.
- Total sales of $593 million, up 3% from last year; Adjusted organic project revenue up 8%.
- Full-year net income and gross margin percent both increased from year-ago period.
Overall, the company seems to finally be building some momentum after nearly four years of declining results. Let's take a closer look at the three biggest takeaways from the report.
It's been a long time
Ameresco investors have watched a business with seemingly enormous potential flounder over the past several years:
AMRC Revenue (TTM) data by YCharts
As you can see in the chart, revenue and net income have both mostly declined since 2011, but things look to have turned around, with both metrics increasing in 2014. Yes: sales and profits are still well off their highs, but 2014 marked steady improvement in a number of key metrics that -- hopefully -- are signs of sustainable growth going forward.
Source: Ameresco earnings release.
1. Gross margins up
Profit margins increased almost 10% in 2014, to 19.7% from 18% in 2013, driven up by "more favorable product and service mix." While a 1.7% increase in the gross margin percent might look small, it can really have a big impact on the bottom line. Combined with revenue growth, better margins led to a doubling of the company's operating income, to $13.2 million for the year.
Operating expenses, however, increased notably in the quarter and for the year, up more than 7%. Some of this was due to one-time costs related to last quarter's restructuring of its Canadian operations, and the reversal of $1.7 million in capitalized costs, but the company expects they will remain around $2 million higher than prior quarterly averages going forward, largely resulting from the acquisition of U.K.-based Energyexcel LLP in the third quarter. While it bears watching operating expense expansion, if the company is going to reignite growth, operating expense will likely continue to increase, especially right after an acquisition. However, over time it should increase at a slower rate than sales growth.
2. U.S. Federal business rebounding; backlog growing
Revenue of $99.9 million for 2014 in this segment represented 30% growth versus 2013. And while this business can be choppy based on a number of factors, it's a positive sign that there was sustained growth all year and helped make up for a 13% decline in U.S. private sector business.
Furthermore, the company's fully contracted backlog is up about 8% versus the year-ago period, at $386 million, and the awarded backlog -- i.e. deals the company has "won" but yet to sign contracts for -- is $853.8 million. This is the largest contracted backlog the company has had to start a year since 2012.
3. Developing and retaining a solar asset portfolio
Ameresco made an important strategic decision in 2014, to retain more of the solar assets that in the past it would sell off. This had a significant impact on sales results in 2014, costing potentially another 5% in sales growth for the full year. However, retaining these assets will mean more over the long run. From the release:
As of December 31, 2014, we had a solar asset portfolio of approximately 11 megawatts (MWs). We have identified a total development opportunity of 86 MWs, of that, there are 20 MWs of assets in development that are expected to go into operation in 2015, and 18 MWs of assets in development that are expected to go into operation after 2015.
By retaining these assets, the company can sell the power produced to companies interested in solar, that may lack the physical resources to support it. This is a relatively small part of the business today, but a growing one that will provide stable, predictable, and profitable revenue going forward.
Looking long-term
3% sales growth isn't fantastic, but it's a start. Furthermore, improving margins, and shifts in strategy like the focus on developing solar assets, are good signs for the future of the business. The backlog is growing as well, though it's still well below levels from 2011, as is total sales and net income.
But looking ahead, the moderate improvements in sales could foreshadow even more growth in coming years. The economies in the U.S. and Canada are relatively strong, and from a cyclical perspective the company is in a good position. Frankly, one could have said the same thing in 2012, and things just went backwards, but at some point infrastructure and energy efficiency spending will rebound. When that does finally happen, Ameresco should be one of the biggest beneficiaries.
