WhenAmeresco Inc(NYSE: AMRC) released its first-quarter results on May 2, most close followers of the company were anticipating a small profit, leaving the market surprised when it reported a small $600,000 loss to start 2017, even though revenue was up year over year. But the company's first quarter tends to be its worst performing because of the timing of contract activity from the industries Ameresco serves, and accelerated investment into operating assets also played a role in the net loss the company reported.
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At the same time, Ameresco reported strong growth in its construction backlog, with more than $500 million in fully contracted work, and another $1.14 billion in awarded projects awaiting final contracts. Combined, this gives the company $1.64 billion in awarded projects, the most in its history.
Image source: Ameresco Inc.
Let's take a closer look at Ameresco's quarterly results, as well as what management says to expect going forward.
Revenue and net income in millions. Source: Ameresco Inc. YOY = year over year.
Two things played the biggest role in Ameresco delivering a small profit one year ago but a loss this quarter. On the earnings call, CFO John Granara said the company amended a contract with a major customer last year that negatively affected gross margin percent and revenue. He also said the company is intentionally spending more on operations to drive growth in both its project backlog and the portfolio of operating assets the company is building.
There's evidence that the increased operations expense is paying off. Year over year, the total backlog is up $250 million, with both contracted and awarded projects up. Sequentially, contracted backlog fell from $534 million to $505 million, but awarded projects increased $180 million to $1.14 billion. On the earnings call, Founder and CEO George Sakellaris said the company is also seeing more bid and award activity as well, both at the state and local level, as well as from federal agencies on the government side.
Ameresco announced a number of large contract awards, including a $150 million smart lighting project with the city of Chicago, to replace the city's streetlights with LED lights and implement an intelligent management and control system, which is expected to reduce power consumption by the city's streetlights by 50% to 75%. Sakellaris also described a major contract win with the New York City Housing Authority, worth $56 million, as well as a second phase project worth another $100 million.
The company was also one of 21 companies approved by the Department of Energy to participate in its new $55 billion IDIQ contract. The kinds of projects Ameresco will do through this DOE contract are exactly the sorts of "public-private partnerships" the Trump administration has touted as being an important part of its infrastructure improvement plans. And since Ameresco's ESPC -- energy service performance contracts -- don't require capital outlay and pay for themselves with cost savings, there's significant potential for the company in this new program.
Ameresco is also spending more to develop operating assets that will generate recurring revenues. The company had $207 million in assets in development at quarter end, down from $228 million sequentially, as the company brought a significant portion of those projects online during the first quarter. At the end of the quarter, the company had 172 megawatt equivalents of power-producing assets operating, and another 95 MWe under development. Of this total, about half is already under construction. On the balance sheet, project assets increased $20 million to $340 million. This is a combination of completed assets and those in some stage of construction with capital investments already committed.
Balance sheet in solid shape
Ameresco ended the quarter with $199 million in current assets, down $27 million from the end of the year. But its current liabilities -- that is, money it owes within the next 12 months -- decreased by more than $40 million. Combined, the company's working capital situation actually improved in the quarter. Its total balance sheet, which includes all assets and liabilities, improved by about $1 million, with improved working capital more than offsetting the $32 million increase in long-term debt.
Ameresco's first quarter wasn't exactly something to crow about, at least on the top and bottom lines. But beneath the surface, management is steadfastly investing in expanding its operating assets portfolio (which should help reduce the seasonal lulls common at the start of the year), while also making sure the company is participating in every opportunity for new contract awards as possible. The growth in both its backlog and owned operating assets indicate that this is paying off.
Management said the first quarter's results were inline with their internal projections, and it reaffirmed its full-year guidance of $665 million to $700 million in revenue and earnings per share of $0.37-$0.43, with the caveat that the ongoing bankruptcy proceedings of SunEdison, and some internal restructuring, could affect the results on a GAAP basis.
If the recent uptick in bid activity and contract awards continues, 2017 could be a great year for Ameresco and its investors.
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