Energy-efficiency and infrastructure expert Ameresco Inc. (NYSE:AMRC) reported first-quarter earnings on May 5. It was a bit of a bounce-back quarter, as the company looks to have recovered from missteps in its Canadian operations in 2015 that took a big bite out of profits. Furthermore, the company ended the quarter with a strong backlog of both signed and contracted business, and awarded deals that aren't yet signed, putting it in a position to continue driving earnings growth for the remainder of 2016.
|Metric||Q1 2016||Q1 2015||Change|
|Earnings per share||$0.02||$(0.09)||550%|
What happened in the quarter
Ameresco reported improvements in two key segments of its operations -- Federal and Canadian operations -- driving higher revenue, stronger orders and awarded contracts, and generally better profitability:
- Project revenue of $85 million, up 24%
- Federal group project revenue was up 75%.
- Canadian project revenue up 43%, to $12 million.
- More importantly, Canadian segment generated positive EBITDA after last year's big losses.
- $133 million in new projects awarded in the quarter, 59% higher than year-ago quarter.
- Awarded backlog of $1 billion, up 19% from last year, and up 8% sequentially.
- Larger projects (more than $5 million) are a key driver to backlog growth.
- Operations and maintenance revenue was up 23%, and tends to be recurring, stable revenue.
- Federal segment O&M revenue was up 31% year over year.
- Board approved $10 million share-buyback program based on recent operating cash flows improvement, and what management views as the intrinsic value of the business.
What management said
Here's what Ameresco founder and CEO George Sakellaris said regarding the strong growth in both revenue and the company's backlog:
We continued to improve our visibility, with strong new awards. The awarded backlog grew by 19%, and total backlog grew by over 11%. Our core line of business, projects, continues to perform exceptionally well, with revenue up 24%. Our key recurring revenue streams of operation and maintenance and energy sales from our assets grew 23% and 18%, respectively. Overall, we are pleased with our performance this quarter...
... As we look ahead in our project business, we are enthusiastic about our new award wins. We were awarded over $133 million in new projects, an amount 59% greater than the new awards we captured a year ago. Our awarded backlog is now over $1 billion, 19% higher than a year ago, and 8% higher than where we started the year.
The CEO commented on one area where they are seeing some cyclical softness related to a weak oil and gas industry:
We continue, however, to see a lag in our integrated PV sales, which were down 32%. That business had been selling mainly into oilfield microgrid applications, a market that is still under real pressure. So let's review the operating highlights by line of business, starting with our core business of projects.
Sakellaris also spoke about the importance of continuing to grow Ameresco's recurring revenue streams, reducing the company's reliance on its project backlog, and also providing more stable cash flows:
While we drove high growth in our core project business, we did not lose focus on continuing to build recurring revenue. In fact, these lines of business performed exceptionally well in the quarter. Operations and maintenance grew 23%, an impressive amount considering the inherent stability of this revenue source. The incremental O&M revenue was contributed by the federal segment, where O&M grew 31% year over year, and 14% sequentially.
Meanwhile, energy sales grew 18% year over year and 10% sequentially, as the Fort Detrick solar-installation plant was in operation for the full quarter. We are optimistic about the outlook of these two lines of business.
CFO John Granara also mentioned that the company invested $8.6 million in capital expenditures in the first quarter in renewable-energy projects that the company plans to own and operate. These are exactly the sorts of investments that will provide recurring revenue for Ameresco going forward.
The company reaffirmed its full-year guidance in the earnings release, with expectations of revenue between $645 million and $680 million, and earnings per share of $0.25-$0.30. This would be a nice improvement from the $631 million in revenue and $0.06 in earnings per share in 2015.
The company pointed out that there could be some impact from SunEdison's recent bankruptcy. The company took a $1 million writedown of amounts due from the company in the quarter, and Granara said that they have another $3 million in exposure to the company. They are still assessing the company's ability to collect, so it's possible there may be further writedowns in coming quarters, as SunEdison's bankruptcy progresses through the courts.
Even with that impact, it looks like Ameresco's business is starting to perform relatively well. Operating costs were up slightly, but declined as a percent of revenue, while gross margin percent also improved. The company is likely to benefit from tax credits for renewable-energy projects. Those credits, which were set to expire at year-end, were extended for several more years.