Ameresco, Inc. (NYSE:AMRC) Q4 2023 Earnings Call Transcript
Ameresco, Inc. (NYSE:AMRC) Q4 2023 Earnings Call Transcript February 28, 2024
Ameresco, Inc. beats earnings expectations. Reported EPS is $0.69, expectations were $0.6. Ameresco, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Ameresco Incorporated Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President, Marketing and Communications. Ms. Dillion, you may begin.
Leila Dillon: Thank you, Lisa, 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 of our supplemental information 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 reconciliations to these measures in our supplemental information. I will now turn the call over to George. George?
George Sakellaris: Thank you, Leila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for Ameresco. We not only achieved very positive revenue, adjusted EBITDA and net income growth but also our business development execution remained very strong. We exited 2023 with a record backlog and asset development metrics. These metrics together with our intense focus on execution point to 2024 being a year of achievable growth. Demand for energy efficiency and renewable solutions remains robust, and Ameresco ability to effectively compete and win new business demonstrates how well aligned our capabilities and offerings are with our clients' priorities. At the same time, we are also growing our assets in development at a strong pace, which together with our project backlog give us excellent multiyear visibility.
This supports our 2024 midpoint guidance for revenue and adjusted EBITDA growth of 20% and 38% respectively, and provides us with over $7 billion in multiyear visibility and of profitable revenue. Ameresco total project backlog was a record $3.9 million at the end of 2023, up approximately 50% versus 2022 with new awards for the year of $2.2 billion and proposal activity remains at record levels. During the year, we also placed 118 megawatts of assets into operation, bringing our operating energy assets to over 500 megawatts. We also added other 98 megawatts of assets in development in 2023, ending the year with 669 megawatts of Ameresco own assets in development and construction. Now, I would like to make some comments on the industry environment and what Ameresco is doing to address current challenges.
First and foremost, as I stated before, industry demand remains very healthy and elevated power prices, greater demand for electricity and green resiliency combined with attractive incentives have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand alone has also strained some parts of the system. The industry continues to experience some lengthening in award conversions interconnection and permitting delays supply chain disruptions and shortages of critical equipment and skilled labor with a focus on execution and cost efficiencies Ameresco continues to take steps to adapt to this new environment. We are optimizing our operational structure to bring more uniformity and scalability across all of our geographies in business units, taking a more conservative approach to our construction schedules, promoting knowledge sharing and increasing best practices across our teams and focusing our business development efforts on larger opportunities in our core markets and areas of expertise.
We also remain very focused on our working capital levels and liquidity. As part of this, we are prioritizing the timely conversion and execution of our tremendous project backlog. These actions are already yielding results. Our 40% project revenue growth in the fourth quarter was stop by the conversion of awards to contracts that had been previously doing. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion giving us good visibility into our 2024 revenue. Demand for our services remains very strong and Ameresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving the strong demand. One of these is the IRA legislation.
Looking at the Ameresco history, one can see that we have performed quite well regardless of the party in office. The main reason for this it is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers many without additional government incentives, especially in our project business. We also see tremendous support for our resiliency solutions from utility government and military customers. Again regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?
Doran Hole: Thank you, George, and good afternoon everyone. For additional financial information, please refer to the press release and especially our supplemental information that was posted to our website after the market closed today and which contains some new financial content that I will describe in more detail. We ended the year on a high note with total revenue for the quarter of $441 million, up 33% from the previous year. Each of our four business lines experienced double digit revenue growth. Our projects business had a particularly strong quarter as the company executed on a number of large contract conversions, some that had slipped from the previous quarter and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts.
We continue to make great strides in growing our European footprint. You will notice in our upcoming 10-K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and the significant contribution from our very successful Enerqos acquisition. We believe the European market remains highly fragmented and very economically attractive to Ameresco. Energy asset revenue grew 12% largely due to the greater number of operating assets compared to last year as well as higher RIN prices experienced during the quarter. We continue to bring assets into operation growing this important recurring revenue stream.
Our O&M business and other lines of business grew 13% and 12% respectively. Gross margin of 17% dipped during the quarter, as project mix impacted this quarter's results. Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter ranging from higher margin performance contracts to lower margin design-build revenue. While gross margin can vary from quarter-to-quarter and year-to-year we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage, over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter, with non-GAAP EPS almost doubling last year's results of key -- a key driver of tax benefits.
We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution, but also for business development with other over $500 million of new project awards in the quarter. Our project backlog represents a very well balanced mix of performance contracts and design-build work with particular strength from the federal government sector. During the quarter we also placed 63 megawatts of energy assets into operation and added 198 megawatts to assets in development and construction, with a diversified mix of solar, battery, RNG and biofuel assets, supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website.
First let me spend a few minutes on our debt. As many of you are already aware, Ameresco carries two distinct types of debt: Corporate Debt and Energy Asset Debt. The vast majority of our debt is energy asset debt, supported by our large and growing portfolio of profitable energy assets. As most of our assets are backed by multiyear offtake agreements, banks are willing to lend a high portion of the cost of these assets, at competitive rates. Given the long-term nature of contracted cash flows, they're expected to generate. As of year end, our energy asset debt represents only 72% of the bookvalue of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15 to 20 year term of the Offtake contracts.
Matching our debt with our contracted revenue flows for these assets. And for a significant portion of our assets in construction and development we have already lined up long-term debt financing through our existing sale leaseback, RNG and other portfolio financing facilities. In addition, given the strength of our asset development efforts, we are continuing to pursue a, develop and sell business model for a portion of our assets in development. This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts which instead, generate project revenue and more immediate positive operating cash flow. Even with these develop and sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20% plus.
Lenders and investors have continued to fund these attractive assets at competitive rates, allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term-loans and revolving line of credit, is the minority of our total debt. At year end, our corporate debt was $280 million with a leverage ratio of 3.3 times, below our bank covenant level of 3.75 times. It is important to note that our corporate debt covenants do not include energy asset debt, as part of the leverage ratio calculation. In the end, the vast majority of our debt is covered by our strong and profitable energy asset business, backed by multiyear contracted revenue streams. And our corporate debt should decline, as we bill and collect on the SoCalGas projects.
Another consistent topic of discussion with investors and analysts is, our cash flow generation. Our quarterly cash flows can be quite volatile, given the variations in the timing of collections and outlays on our contracts. Because of this, we are providing a quarterly moving average of adjusted cash flow from operations over an eight quarter period, which is broadly representative of our implementation cycle. In our supplemental information, we have provided a longer term chart of this metric, over the past several years, which clearly shows, the temporary impact of the working capital we needed for the SoCalGas contract. We expect this metric to improve back towards its historical positive trend, as we bill and collect from SoCalGas. Now turning to 2024, we are guiding to revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively.
Included in our non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than in prior years. Given the operating environment, we believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop and sell transactions, as well as the pace of implementation of our contracted back project backlog. Other important variables include the timing of bringing our new energy assets into operation, realized written pricing and tax benefits. We anticipate placing approximately 200 megawatts of energy assets in service during 2024 including our large component asset and united power battery assets. Our 2024 asset guidance also includes placing three RNG plants in operation, one of which went COD already in January.
Our expected CapEx for 2024 is $350 million to $400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and adjusted EBITDA to be in the range of $225 million to $275 million and $20 million to 30 million, respectively with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter impacting our Q1 guidance. We expect the remainder of the year to follow a more normal quarterly seasonal cadence. Now, I'd like to turn the call back over to George for closing comments.
George Sakellaris: Thank you Doran. We ended the year on a high note even in light of a difficult industry environment in that positive momentum has continued into the New Year and whereas with outlook for 2024 reflects a strong visibility from our backlog, recovery energy asset, and O&M revenue streams. And focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. In closing, I would like to once again thank our employees, customers and stockholders for their continued support. Operator, we would like to open the call to questions now.
See also 15 Countries with Most Car Accidents per Capita and 25 Companies with the Best Benefits and Perks.
To continue reading the Q&A session, please click here.
