Ameresco, Inc. (AMRC) on Q1 2022 Results - Earnings Call Transcript
Operator: Good day and welcome to the Q1 2022 Ameresco, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to turn the call over to Leila Dillon, Senior Vice President of Marketing. You may begin. Leila Dillon: Thank you, Michelle, and good afternoon, everyone. We appreciate you joining us for today’s call. Joining me here are; George Sakellaris, Ameresco’s Chairman, President and Chief Executive Officer; Doran Hole, Executive Vice President and Chief Financial Officer; and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on Slide 2, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. I will now turn the call over to George. George? George Sakellaris: Thank you, Leila, and good afternoon, everyone. We started 2022 with excellent quarterly performance as the team executed on our contracted backlog, we are also booking significant future opportunities across all of our lines of business. Its execution by our own employees, together with our customers were all the more impressive given the well-publicized supply chain and inflationary challenges faced by our industry. Now, I want to take some time to talk about our Southern California Edison project. First, as a reminder, the Southern California Edison project is actually three separate contracts which we are executing independently when it comes to individual budgets, procurement items and completion schedules. Second, Ameresco has a proven track record for completing some of the most complex energy projects in our industry. The actual engineering and construction of these battery projects are nowhere near as complex as well as we have successfully achieved in our other projects, such as the Savannah River Biomass plant or our various green gas plants, which we have been constructing and operating since 2001. I remain confident in our ability to deliver these three battery projects to our customer in a satisfactory and profitable manner. Third, when we signed the contract last year, we knew we were operating in a challenging COVID environment with a potential for supply chain disruptions. And like in all of our projects, we do risk materials and labor as much as possible before going to contract. However, given the scale of the Southern California Edison battery projects, we took extra precautions. We negotiated contract protections for potential COVID delays and included an appropriate contingency in our budget. In terms of the battery supply, we pre-negotiated firm very supply terms with priority slots at a factory for our bid. The majority of these customer batteries have been constructed, paid for, and the first shipment is already on the go as of this call. Importantly, the COVID delays that we are experiencing in China for the remaining batteries are not related to the battery cells, all of which have already been manufactured for us. We are actively working with Southern California Edison regarding the COVID -- the impact of the COVID related delays. Our contract with them allows for financial and delayed relief for force majeure events such as COVID, and we are in discussions with Southern California Edison. Based on this, together with the contingencies built into the projects, we do not expect our margin to be materially impacted by these delays. As noted in the April 10 press release, and as shown in our quarterly results, many significant milestones in the Southern California Edison projects progressed during the quarter, driving Q1 revenue ahead of our expectations. Major equipment has been sourced and construction-related activities are proceeding at all sites in preparation for battery delivery. Ameresco continues to actively work with the suppliers and Southern California Edison to avoid or mitigate potential delays, included working with the ports on the West Coast on expediated ship and container heavily. Apart from the battery deliveries, we expect to complete all other aspects of the three projects construction by the original, August 1 deadline, including the installation of the batteries that are currently in transit. We expect upto 300 megawatt of capacity to be online in August 2022 and the remainder to be online this year. While recent events might cause a shifting of our expected core revenue cadence, we remain confident in our annual guidance. Lastly, I would like to take a minute to recognize Southern California Edison as a true partner. They have been very helpful with the design and execution of the overall project. We wish to thank them and the State of California for their cooperation. Turning back to our Q1 highlights; the first quarter strong revenue growth was led by our projects business as we continue to execute through the Southern California Edison contracts. But equally important, we achieved good growth and profitability across all of our lines of business. And we not only have a great quarterly results but also continue to build upon our strong multi-year visibility. We added 60 megawatts of energy assets in development, including a 50-megawatt battery asset and a new R&D opportunity, while our O&M business booked over $100 million in additional multi-year contracts. During the quarter, we also added over $400 million in new project awards as customers continue to seek solutions to address their increasing energy costs, resiliency needs, and carbon reduction goals. One of these awards that I wanted to highlight is our currently announced partnership with the City of Bristol in U.K. This project is actually the second largest award in Ameresco's history, only behind the Southern California Edison contract. Once contracted, the unique 20-year partnership will encompass a full range of advanced technologies, energy efficiency and renewable solutions involving project work, O&M, as well as energy asset ownership. The Bristol City Leap project is targeting an ambitious 2030 carbon neutrality goal and is designed to attract approximately GBP1 billion of inward investment that could be shared between us and our partner . We anticipate that this project will service a blueprint for other series, campuses and corporations across the U.S. and Europe as they develop their own net zero and cost-savings initiatives. We are particularly excited about other similar opportunities in Europe given the elevated energy prices there, ongoing geopolitical risks, and the drive to net zero. As one of the largest energy services companies in the U.K., Ameresco is very well positioned to continue winning and executing on such transformative projects. I will now turn over the call to Doran to provide some comments on our financial performance. Doran? Doran Hole: Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today. As George noted, the Ameresco team overcame continued industry-wide supply chain and inflationary pressures to deliver excellent results. And while our projects business led to very impressive top line growth, it is important to note that all four of our lines of business grew nicely during the quarter. Just as important, our continued robust new business activity allowed us to grow our total project backlog even while converting a record amount of backlog to revenue during the quarter. Our total project backlog along with the expected future revenues from our energy assets and O&M businesses gives us over $5.3 billion in revenue visibility. The impressive growth in our Q1 total revenue was led by our projects business. Aspects of the SoCalEd project's custom procurement and construction milestones progressed more quickly than anticipated, driving stronger revenue during the quarter. Adjusted cash from operations was impacted by the working capital needs of the SoCalEd project; though subsequent to quarter-end, we collected $99 million that we had previously invoiced. Overall, we had anticipated these temporary uses of cash from the onset of the contract, and I'm pleased to announce that during the quarter, we amended our senior credit facility to improve our short-term liquidity needs and provide more financial flexibility to continue to scale our business. The amendment resulted in a $262 million increase, bringing the Ameresco's credit facility total to $495 million. Not unlike recent quarters, the year-over-year increase in revenue from our energy asset business was driven by improved performance of our existing operating assets, the growth of new assets placed in service and strength in RIN prices. Despite lower overall gross margins due to the SoCalEd project, we still achieved an impressive year-over-year adjusted EBITDA growth. This contract is a prime example of our strong operating leverage in practice, demonstrating our ability to add gross profit dollars without adding direct incremental operating expenses. Now, I'll move to our project backlog. We're very pleased to have increased our total project backlog to a record $3.1 billion, increasing 1% sequentially and 34% year-over-year. Customer interest in bidding activity remains strong, and we are pursuing and winning many large complex projects, including our recently announced Bristol City collaboration in the U.K. During the quarter, we placed 10 megawatts of assets into operation while also backfilling our assets in development, which now stands at 464 megawatts. I'd like to provide some commentary around the high-profile industry-wide supply chain and inflation issues, and the ways that Ameresco has been able to overcome many of these challenges. First and foremost is the tremendous flexibility inherent in our diversified business model. As our investors know, Ameresco leverages the most advanced technologies across all suppliers to meet the unique needs of each customer; this reduces our exposure to any one manufacturer or technology. Our projects are also comprehensive, incorporating dozens or more different technologies in any given installation. So if there is a delay in receiving one type of product, work can generally continue on other aspects of the project. Likewise, because we are working on so many projects around the country, plus Europe and Canada, every quarter we're able to also opportunistically move products and human capital around to maximize execution efficiency. And finally, our contracts generally provide force majeure type protections if we face disruptions, like the delivery delays caused by the COVID-related shutdowns in Shanghai. Ameresco proactively protects itself by securing and contracting a significant portion of the products and labor needed for any given project, well in advance of moving from an award into a contract, helping us to mitigate unanticipated cost overruns. We also leverage our scale and balance sheet to volume purchase critical components for our projects and assets. For example, Ameresco proactively purchased a large supply of solar panels in previous years, and we still have a supply of these panels in the U.S. to meet our near-term needs. Lastly, as a reminder, approximately 60% to 70% of our EBITDA generally comes from contracted recurring revenue business lines demonstrating the overall resiliency inherent in our business model. As George discussed above, the delays arising from COVID restrictions in China are impacting the delivery of certain batteries to the SoCalEd sites. To be clear, the issue at hand is timing, and we have contractual protections for force majeure events such as COVID, which we believe apply here. Importantly, the widely observed recent increase in the prices of raw materials used in battery cells have not impacted the pricing of the batteries for the SoCalEd project. And we, again, did not anticipate any material impact on our margin on these projects. So while we certainly see and even experience some of these global issues, the diversified business model that we have created, the processes we have in place, and our excellent team of professionals helped to minimize the impact on the company's results. I'm therefore pleased to reaffirm our 2022 annual guidance and can provide our current outlook for the remaining quarterly cadence. We now expect Q2 revenue to be about 10% to 15% higher than Q1, with gross margins still expected to be approximately 14%. Q3 revenue is expected to be slightly greater than Q4, and we expect gross margins to be approximately 18% for both quarters. Now, I'd like to turn the call back over to George for closing comments. George Sakellaris: Thank you, Doran. In closing, I want to again, take a moment to thank the entire Ameresco team for the dedication and outstanding execution. We also want to recognize the ongoing support of our customers and long-term stockholders. As we discussed during our recent Investor Day, we continue to benefit from a large and growing addressable market. Our portfolio of innovate solutions matched with our technical and financial expertise makes Ameresco a preferred partner for the most complex and comprehensive advanced clean tech solutions. Operator, I would now like to open the call to questions. Operator: Our first question comes from Joseph Osha with Guggenheim Partners. Your line is open. Joseph Osha: Hello and thank you for taking my question. I just wanted to refer to the line in your press release that talked about continuing discussions with SCE. When might we get some clarity on SCE's position as regards to these force majeure issues? Thank you. George Sakellaris: Well, it's very hard to say exactly when we will get completely resolve the situation there. But we are in discussions with them, we do believe we have a COVID situation and the contract provides for relief. And if I were abetterment , I would say most likely the third quarter. We will get to know -- we have a clear indication of where we stand. Operator: Our next question comes from Noah Kaye with Oppenheimer. Your line is open. Noah Kaye: Thank you. Just one related to the SCE contract and then one not related, and it's really just around puts and takes of the guide. So with some of the associated battery storage project revenue shifting into 2H, but keeping the gross margin guide at 14%. Is there anything else we should be attentive to for the second quarter in terms of mix or different revenue streams coming online, any seasonality to be aware of? Mark Chiplock: No, this is Mark. No, I don't think so. I mean Q2 will still have -- will still be substantially impacted by the SoCalEd project, but nothing outside of that that would -- that's notable, that would impact the margins. So that's why we felt pretty good about kind of giving that guidance back out again. Operator: Our next question comes from Stephen Gengaro with Stifel. Your line is open. Stephen Gengaro: Thanks. Good afternoon, everybody. George Sakellaris: Good afternoon. Stephen Gengaro: I'm curious, you talked a little bit about this in the prepared remarks, but I'm curious if you could add a little bit of color and help us understand the City of Bristol contract and agreement, and sort of how that relationship will play out? And also, is that reflected in the backlog? And if so, just curious by what amount at this point? George Sakellaris: Yes. I would say about half of the awards that we mentioned in our press release and our scripts comes from that contract. It's basically a concession agreement, and we have as our partners. And those are -- they are very -- they have great expertise in the steam distribution system, so I will most likely see a good part of the work comes through them. And the projects that we have identified today and we reported as awards is projects we identified were very with them -- that they will be done and that's what we would be doing, the work that we would be doing associated that we reported. And we have basically a 10-year plan where we will get them to carbon neutrality. Operator: Our next question comes from Eric Stine with Craig-Hallum. Your line is open. Eric Stine: Hi, everyone. Maybe just sticking with City of Bristol; just curious if you could comment on whether that was a competitive win. And then, as you think about this potentially expanding to other areas in Europe, maybe if you could just think about -- or just talking about what the pipeline might look like? George Sakellaris: Sure. No, it was a very, very competitive -- competition there. It took us two years; they did superb job hiring consultants and evaluating the various proposals that they had. I think the fact that we've been -- have established Ameresco now as a U.K. as one of the top energy services companies. We rate as number one, two or three depending on what analysis you look at. It just as tremendously and the fact that we have developed the company to be able to do what I call, the holistic approach of the particular solutions, whether it's a or a particular industrial customer, not do only the energy efficiency, but all the renewables associated with all the advanced technologies, and that helped us a lot in order to be able to win this particular project. And like I said in my commentary, I think this is only the beginning. Of what's going on in the industry; I think this will become a blueprint for other major cities, towns . And I would say this much, after the win, we mentioned a couple of members in the United States, they said they loved the concept but it takes time for institutional momentum for those people to move; it will take some time but at the end, it's going to happen. In Europe, because of the energy prices, the way they are right now, I don't know if it's exactly the same form, but you will see more projects coming out of Europe. And we are focusing core in that part of the world. Operator: Thank you -- this concludes our question-and-answer session. Thank you for participating in today's conference. You may now disconnect. Everyone, have a great day.AMRC Ratings Summary
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The analysts see the company's energy asset additions in 2024 and beyond driving earnings above current expectations in the medium to long term. Recent delays, including with the SoCal Edison project, have contributed to investor fatigue, creating what the analysts view as a buying opportunity. The completion of the SoCal project, expected in late Q3, is identified as a near-term catalyst for the stock.
Ameresco Shares Drop 15% Following Worse Than Expected Q4 Results
Ameresco (NYSE:AMRC) shares plunged more than 15% on Tuesday (partly recovered today) following the company’s reported Q4 results, with EPS of $0.34 missing the Street estimate of $0.38. Revenue was $331.7 million, worse than the Street estimate of $367.2 million.
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