Ameresco Inc (AMRC) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ameresco second-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Suzanne Messere. You may begin.

Thank you, LaToya, and good morning, everyone. Thank you for joining us today for Ameresco's second-quarter 2014 earnings conference call. I am joined today by George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer, and Andrew Spence, the Company's Chief Financial Officer.

On today's call management will share brief highlights from the prepared remarks we published this morning. Following the brief highlights from the quarter, management will take questions from the audience.

Before I turn the call over to George and Andrew I would like to make a brief statement regarding forward-looking remarks. Today's call contains forward-looking information regarding future events and the future financial performance of the Company. Ameresco cautions you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. Ameresco refers you to the Company's press release issued this morning and its annual report on Form 10-K filed with the SEC on March 17, 2014 which discusses important factors that could cause actual results to differ materially from those contained in the Company's projections or forward-looking statements. Ameresco assumes no obligation to revise any forward-looking statements made on today's call.

In addition, the Company will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A GAAP to non-GAAP reconciliation as well as an explanation behind the use of non-GAAP financial measures is available in our press release as well as our prepared remarks.

I will now turn the call over to George Sakellaris. George?

Thank you, Suzanne, and good morning, everyone. The second quarter was encouraging as positive trends continued. Both revenue and net income for the quarter were ahead of our expectations. We executed well by accelerating project revenue related to several construction projects and gross margin improved. We expect the effect of the accelerated project revenue to balance out over the remainder of the year.

Another positive trend was a year-over-year increase in contracted backlog of 23%. Five larger than average projects were assigned in the second quarter that together totaled over more than $49 million including a 2 MW solar installation for a leading healthcare service provider. While the year-over-year increase in contracted backlog is a welcome trend we remain cautiously optimistic about converting awarded projects to signed contracts as weighted average conversion times have not improved.

As mentioned last quarter, we are using our analytics driven software offering to capture new customers including C&I and lower acquisition costs. While we are building the relationship with a customer we gain an understanding of their energy usage and needs which allow us to identify project opportunities. One such example in the second quarter was a contract signed with a large food manufacturer which includes a subscription to our intelligent energy analytics platform and an energy efficiency project.

Another trend worth highlighting is distributed generation. We use distributed generation for projects that we either own and operate or develop for our customers. The projects include LSG wastewater to energy, rooftop and ground mounted solar, biomass and combined heating power.

Distributed generation revenue increased 20% year-over-year in 2013 and represented 22% of our total revenue. We see this as a continuing trend in our pipeline. For example, the dollar value of solar projects include in the awarded project portion of our total construction backlog at the end of the second quarter increased 27% year-over-year.

We remain on track to deliver 2014 financial results within our guidance and continue to expect revenues to be in the range of $560 million to $600 million and net income in the range of $8 million to $14 million. Please refer to our prepared remarks for updated assumptions. For Q3, we are expecting revenues to be in the range of $160 million to $170 million.

Now I do like to turn the call over to Andrew to provide more details about our financial results. Andrew?

Thank you very much, George, and good morning everyone. The financial highlights from the quarter are as follows. Revenues for the second quarter were $143 million compared to $126 million a year ago, an increase of 13%. The improvement in revenue was primarily due to an acceleration of revenue recognition for projects in construction and four new renewable energy plants that were placed into operation during the first half of 2014. Revenues from all other service offerings increased 13% in the second quarter.

We continue to expect revenues from all other service offerings to increase 6% in 2014. Revenues from small-scale infrastructure increased by 39%. Two renewable energy plants were placed into operation during the second quarter. We continue to expect revenue for small-scale infrastructure to increase more than 20% in 2014 due to the new plants placed in service. Revenue from integrated PV increased 10%. While second-quarter revenue growth was strong, we are beginning to see the effects of the US China solar tariff issue on the availability of supply. As such we now expect integrated PV revenues to be flat to slightly up for 2014.

O&M revenue was flat year-over-year. We continue to expect full-year O&M to be consistent with 2013. Year-to-date revenues increased 3%. The gross margin for the second quarter was 19.6% compared to 18.5% a year ago. Gross margin benefited from a favorable mix of higher margin projects and service offerings. The quarter also included $1 million received as a partial recovery related to the previously discussed customer warranty issue.

Operating expenses for the quarter decreased to $24 million from $25 million a year ago. The decrease was primarily attributable to lower professional fees, project development costs and salaries and benefits. Second-quarter 2014 operating income was $3.8 million compared to an operating loss of $1.9 million last year.

Year-to-date operating expenses decreased slightly to $49 million from $50 million a year ago. The decrease was primarily due to a $2 million decrease in salaries and benefits which was partially offset by severance charges recognized in the first quarter of 2014. The year-to-date operating loss was $3 million compared to an operating loss of $4 million a year ago. The year-over-year comparison improved due to a return to operating income in the second quarter which was partially offset by the operating loss in the first quarter.

Second-quarter EBITDA was $10 million compared to $3 million a year ago. The increase was primarily related to an improvement in operating income and a decrease in cash operating expenses. Year-to-date EBITDA was $9.4 million compared to $7.6 million a year ago. Year-to-date EBITDA improved for the same reasons as in quarter two.

Second-quarter net income was $2.7 million compared to a net loss of $1.8 million a year ago. Net income growth is primarily related to higher revenue and improved operating efficiencies.

Second-quarter 2014 net income per share was $0.06 compared to a loss of $0.04 a year ago. They year-to-date net loss was $5.6 million compared to a net loss of $3.7 million in 2013. Higher operating income was offset by an increase in both other expenses and income taxes. The increase in other expenses was primarily related to interest expense while year-to-date income taxes included a small income tax provision compared to an income tax benefit of $1.2 million in 2013.

The year-to-date net loss per share was $0.12 compared to a net loss of $0.08 a year ago. The second-quarter effective tax rate was 8.9%, the year-to-date effective tax rate was 0.6%. We expect the effective tax rate in 2014 to be in the range of between 1% and 3%. The difference between the statutory rate and the effective rate is related to tax credits.

We generated $5.9 million in cash from operating activities year to date. Adjusted free cash flow was $18.7 million for the year to date which reflects $14 million in proceeds from Federal ESPC projects.

We invested $2.6 million in renewable energy project assets during the second quarter and $11 million year to date. We now expect to invest $15 million to $25 million in new assets this year.

During the second quarter, we paid $8 million on the revolver portion of our senior secured credit facility which brought that balance down to zero and we ended the second quarter with contracted backlog of $399 million which was an increase of 23% year-over-year. During the second quarter, we converted approximately $95 million of awards to signed contracts and project revenues from backlog was $90 million.

The weighted average conversion time of an awarded project to a signed contract was 15 months which is consistent with the first quarter. The average project size for projects signed in the second quarter was $3 million compared to $5 million in the first quarter.

With that I will turn the discussion back to George.

Thank you, Andrew. The US energy policy and regulatory environment continues to be generally favorable toward supporting near-term and long-term market opportunities for energy efficiency, distributed generation and renewable energy as demonstrated by the three recent federal announcements.

In May, President Obama announced an additional $2 billion goal for the federal government's use of energy savings performance contracts and utility energy service contracts through 2016 as part of the President's Better Buildings Challenge. We believe Ameresco is well positioned to support this renewed federal goal.

In June, the EPA released a proposal aimed at reducing carbon emissions from the US Power sector by 30% by 2030 from the 2005 levels. The EPA has proposed state specific emission reduction goals and has included demand side energy efficiency and distributed generation within the four building blocks that can be utilized by the states in their carbon reduction plans. We believe Ameresco is well positioned to support energy efficiency and distributed generation initiatives that are expected to develop over the long term as the EPA works towards finalizing this proposal and implementing its plans.

In July, the EPA released its final rule for renewable fuel centers, also known as RFS, which expanded the number of renewable fuels that qualify as cellulosic. Compressed natural gas, liquefied natural gas and electricity used to power electric vehicles produced from biogas from landfills or digesters now qualify for cellulosic RINs, which fuel producers may purchase to help meet RFS volume requirements.

While there are a number of projects with specific variables to analyze in order to determine the opportunity, the more significant variable is that biogas must contain the proper quality and quantity to be economically processed into high BTU gas of similar specifications to natural gas. Ameresco is experienced with operating the technology used to convert biogas to high BTU gas as it is similar to a process we are using currently for a wastewater to energy facility.

In anticipation of this rule, we have been exploring the possibility of making the necessary capital improvements in the near term that will allow us to convert the landfill gas output to high BTU gas for a few of our assets where we believe there is an opportunity. We will provide an update on our progress over the next few quarters.

Going forward we believe that the option for converting raw landfill gas and wastewater digester output to high BTU gas and potentially sold as RINs, could improve the overall economics of landfill and digester biogas projects and increase demand as a result.

We remain confident in our ability to meet the demand that aging infrastructure and distributed generation creates. A favorable policy environment helps to reinforce that confidence while also enhancing awareness across our customer base.

Ameresco is well positioned to take advantage of opportunities in the market as a trusted sustainability partner due to our comprehensive service offerings that drive bottom-line results; our broad technical expertise that leads to project versatility and stronger qualifications; our innovative approach that can address the customers' entire spectrum of energy requirements while supporting their financial goals and our great geographic coverage.

As a result we believe that over time we will create greater shareholder value, while benefiting from a strong market position.

Now we do like to answer your questions and I will turn the call back over to our call coordinator, LaToya.

(Operator Instructions). John Quealy, Canaccord.

Good morning, folks. A couple of questions. First, George, on the software sale on the SaaS side, can you comment about what that revenue opportunity or ASP was or how should we think about that?

The contract that we signed I would say was on the lower end of our range of projects like we said the last quarter, the average size of the projects we signed was $3 million so that was considerably lower than that. But remember the software that we use, we use as an introduction to the particular customers that we have otherwise it is a way to get into the particular customers and then buy themselves the software even though we are making money, it is a cheap way of acquiring a particular customer that hopefully we will do more energy efficiency projects with this particular customer. We signed an energy efficiency project but this customer has many, many more facilities and we are hoping that this particular project will lead to more projects down the road.

That is fair in terms of seeding the market and getting that up and running but on a run rate basis as more customers are expected to do this, is the sort of a $10,000 or a $20,000 or a $30,000 per year type of revenue opportunity for you folks or how do we couch this?

We are not disclosing that number but it is considerably higher than that particular number that you mentioned.

Okay, that is fair.

It is not going to be a driver. We are not going to get $100 million of this software business but on the other hand it would not be reasonable to assume that you will be in the $10 million to $25 million over the next few years.

Okay, that is good.

That is on the software part.

Right, right. The estimate for upgrading landfill gas and digesters, any ballpark if you had to do that right now on your existing fleet what it would cost?

All of the existing fleet will not qualify but we have identified a few sites that we think the potential is there and this particular site we haven't done all the economic analysis and so on in order to determine the amount of dollars. But it will not be unreasonable to assume -- and we increased our capital investment for the particular year. As you saw it went from $15 million to a range to $25 million in equity that we may have to provide in essence that we invest ourselves. But I don't have specific numbers right now to give out. That is why I said we will be looking at it and we will update you in the next quarter or so.

Okay, great. And then lastly so with those concession assets we have talked in the past about the potential of a new financial structure, yield cos, REITs they are becoming all increasingly prevalent. Can you give us an update on your and the Board's expectations there? Thanks.

Yes, we had a big discussion with the Board and we are talking as you probably know with some outside investors but we are not ready to make any announcements yet. But we are working very hard to see how basically we can have what we call an efficient financing mechanism for all of our offerings and how also to maximize the value associated with the particular assets we have in our books right now.

But as you can see, that is why I like to have assets on our books because things happen that the value increases and basically what has happened with this range now, the fuel standards, we think that the value of some of our assets has increased because there are additional opportunities.

So the bottom line I would say to you that we are evaluating all our alternatives and I think it will not be that far down the road that you will be probably hearing that we will be doing something.

(Operator Instructions). Jim Giannakouros, Oppenheimer.

Good morning. A question on just how your backlog is evolving over the last six months. I see that awarded backlog is kind of hanging in versus where you were coming into the year. Meanwhile you have been doing a good job I think where you kind of set out to kind of fuel that contracted backlog. So I'm just curious looking just on the sequential progression and just the complexion of your current backlog, how should we be thinking about prospects for awarded backlog to actually increase to kind of boost our conviction that growth is maybe here to stay?

I will say this much, the proposal activity, Jim, is up considerably from where it was last year at this point in time but I would not pay as much attention to the awarded projects right now. I would pay more attention to what the activity is because for a while we have been focusing more in converting the many projects that we had in the awarded category to the executed contract. So it is a matter of focus I would say that the last year or so but the last couple of quarters we start picking up the proposal activity because we see there is some good rate of conversion on the award to the executed contract. So it is a balance that we did in the past and what I value much more and I watch very carefully right now it's the proposal activity and what is happening to our win rate in the marketplace. And I will say this to the proposal activity gets picked up pretty much with the exception of Canada and all other regions including the federal government and our win rate stays constant to maybe a slight increase.

Got it. Thank you. And as far as margin, it looks like you had a nice gross margin benefit just on mix of projects I guess either closed during the quarter. Can you talk about the margin mix in your current backlog, how we should be thinking about gross margin in the second half of this year and maybe even just what that margin profile looks like for your overall book?

Okay, we can answer it in a -- I will give you an overall perspective and then I will let Andrew give you more details about the second half of the year.

The overall perspective, we still see similar margins on the energy efficiency projects that we did in the past and similar margins on the O&M as well as all the other assets that we have in our books. Then I think I did mention it on the last call or the call before to keep some people busy the last year or so, we did take a couple of projects that they were lower margin than where we were accustomed to and we are working those projects through and probably will take another six months or so. But the overall business though I will say the margin is pretty much stable.

And in the second half of the year, we should see an improvement in the overall -- we saw a little bit in the second quarter but as the volume increases we will see an improvement in the overall mix of projects coming out of construction.

Some new projects are coming in with better margins but as that activity improves, we currently have projects that are in construction that have a little bit of slightly lower margins and the impact of those will be felt less in the second half of the year.

So we should see some improvement over what we saw in the second quarter and we should see that continue in quarter three and quarter four.

Okay, got it. And then just moving down the P&L on your OpEx, it looks like it was lower across the board. Have you reset your expense base lower or is there a timing benefit as far as (multiple speakers)?

We made some reductions in the first quarter, did some restructuring and we saw some of those benefits in quarter two. I think in terms of the run rate, we are going to continue the fine tuning that we talk about and we also do a little better at utilization rates improve in the second half of the year as the construction activity starts to improve. So I would use more or less first and second quarter, we are better in the second quarter, use that as a guide to [load] $24 million range for the quarters going forward.

Got it. Thank you.

(Operator Instructions). There are no further questions at this time. I will turn the call back over for closing remarks.

With that I do like to thank you for joining us on today's call and have a nice day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.