Ameresco Inc (AMRC) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ameresco second-quarter 2015 earnings results conference call. (Operator Instructions)

I'd now like to turn the conference over to host for today, Mr. Gary Dvorchak. Sir, you may begin.

Thank you, Ben; and good morning, everyone. Thank you for joining us today for Ameresco's second-quarter 2015 earnings conference call. I'm joined today by George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer, and John Granara, the Company's Chief Financial Officer.

On today's call, management will review the operating and financial highlights of the second quarter as well as discuss our outlook for the balance of the year. Following the highlights, we will take questions from the audience.

Before I turn the call over to George and John, 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 filed on Form 10-K with the SEC on March 6, 2015, 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 obligations 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, Gary, and good morning, everyone. Our solid Q2 results confirm to us that our recovery is on track and that our plan to restore revenue growth and improved profitability is gaining traction. Top-line growth of 7% exceeded our target range; and profitability was excellent, with adjusted EBITDA up 9% to over $11 million.

Importantly, our core project business sustained its momentum, with revenue growth of 13% and gross margin expansion to over 20%. Our sales and development teams performed well, with new awards of $189 million hitting the highest quarterly level in almost three years.

Revenue in our key segments of Federal and U.S. Regions posted robust growth of 17% and 19%, respectively, and renewable energy revenue rebounded from Q1. Overall, we saw all solid momentum that was impacted only by certain known issues in a couple of segments, which I will address later.

First, I would like to discuss what we are doing proactively to drive our business. The Federal segment was again our star performer, building on the solid growth it demonstrated in Q1. Revenue was up 17% as we performed work on an increasing portfolio of projects around the country.

One good example is the project we recently completed at the Army's Adelphi Lab in Maryland, which we announced on June 4. That project included energy savings, water conservation, rainwater harvesting, and 2 megawatts of rooftop and carport solar generating capacity. Since 2002 our multiphase partnership with Adelphi has helped to reduce their energy consumption by nearly 50% and provided more than 4 megawatts of on-site disputed generation.

This project shows the increasing leverage we get from follow-on work. The project was the third contract we fulfilled for the Adelphi Lab. Across our portfolio of clients, we focus on winning additional business after we demonstrate success and establish a good relationship.

Another example is phase-two work we recently started at the Department of Energy's Savannah River site. As you may recall, we first implemented an ESPC-funded project at the site in 2009, building and operating a 20-megawatt biomass cogeneration facility.

The follow-on work is for an additional steam plant that will produce more steam for power generation. This phase resulted in approximately $40 million of additional project revenue and additional stable O&M revenue after project construction is complete.

In general, the addressable market in Federal is getting larger and more attractive. Many agencies are bundling sites for which they are issuing RFPs, resulting in project opportunities that are now larger than what we used to see in the Federal sector.

Activity within the Department of Defense is particularly robust. For example, the Army Corps of Engineers announced in May that Ameresco was included in a short list of companies that are eligible to pursue $1.5 billion of various ESPC projects at DOD facilities and bases. This opportunity is being driven by the Army's objective to reduce energy usage by 30% and water consumption by 15%. The General Services Administration and Department of Veterans Affairs are also active with larger-than-average RFPs.

We were awarded a $54 million of Federal project business this quarter, which drove 17% growth in Federal backlog. We now have over $0.5 billion of total backlog in the Federal sector alone.

U.S. Regions, our other key segment, also showed strong momentum this quarter. Revenue of $73 million was up 19%.

Results were especially bright in the Central and Northwest regions with revenue growth over 40% in each of those areas. We are growing more confident in the prospects for growth across the country. In a trend that is similar to what we are seeing in our Federal sector, projects are getting more numerous and larger, indicating good growth in our addressable market.

For instance, in the Central and West regions, we are now working on larger bundled solar programs. Rather than small, one-off projects, we are winning multiple-site distributed generation assignments. These are typically higher dollar value to us and are appearing in both commercial and public-sector clients.

In addition to the larger size of opportunities, U.S. Regions should benefit from the opening of a new geography. We established ourselves in the state of Georgia by closing a relatively large energy services contract. Georgia only recently allowed its agencies to use ESPC contracts to fund efficiency initiatives. We are also winning more business in California and Texas, which have not been strong markets for us in the past.

Looking internationally, our prospects are improving. As we reported last quarter, results in Canada were impacted due to a large project that incurred significant cost overruns. We believe that situation is under control and have reserved for the anticipated losses.

Our team in Canada reports that activity levels are picking up, so we think in 2016 we can resume growth. For instance, in Canada, awarded backlog was up 26% sequentially.

Our current results were good; but we also excelled in building our pipeline for the future, not just in Canada but across the whole Company. In particular, the performance of our sales and development teams was top-notch this quarter.

New awards were $189 million, which is up 66% from last year and 125% sequentially. Our awarded backlog growth was particularly robust in our Federal and Southwest regions.

We also shined in converting awards to contracts, with 13% of our starting award backlog becoming contracted in the quarter. Of course, this conversion rate varies from quarter to quarter, but was quite good this period.

The strong performance by our sales and development teams was matched by our implementation crews. We recognized around 26% of our starting contracted backlog in the quarter; again, a solid rate of completion.

Beyond our core project business, we delivered good results in our recurring revenue streams. Energy revenue and O&M are important elements of our recurring revenue. As we point out regularly, throwing the recurring revenue is a strategic imperative for Ameresco.

O&M grew a healthy 6%. It was a bit slower than our project business, but in line with our expectations. Keep in mind, this is a very stable and higher-margin revenue source.

A great example of attractive O&M revenue is phase two at Savannah River, which we mentioned earlier. The O&M revenue will start at about $3 million per year in 2016 and extend out for over 15 years.

We are proud of our performance this quarter, but there is always room to improve. Two business segments reported lower revenue, which diluted our overall growth but is not causing us excessive concern. I already mentioned Canada, where revenue was down 30% as we clean up some legacy issues and properly size that unit.

Solar equipment sales were down 19% due to the slowdown in oil exploration and production. Much of our off-grid solar PV sales go into well-site micro-grid applications; and with the price of oil down, E&P CapEx has slowed. We cannot really predict when oil field activity will pick up, but we will manage this business cautiously until it does.

Let me now turn the call over to John to provide more details about our financial results and guidance. John?

Thank you, George, and good morning, everyone. As we get started with the financials, please note that unless otherwise stated all the amounts I reference relate to Q2 2015 and the comparisons are for the year-over-year changes. Also, I wanted to let you know that in the prepared remarks file on our website, we now include tables showing revenue and adjusted EBITDA by segment. We've been asked for this in the past and the revenues disclosed in our SEC filings, so we thought that you would find it more helpful to be able to see the numbers as we review them now.

Starting with the P&L, total revenues of $152.5 million were up 7%. As George discussed, this quarter was characterized by strong performance in our core project business, recovery in energy revenue within our Small-Scale Infrastructure segment, and stability in O&M. Those were partially offset by the issues that George just mentioned in Canada and solar PV sales.

In our core business of projects, 13% revenue growth was driven by ongoing strength in Federal, which was up 17%, and strong performance in our Central and Northwest regions, with each being up over 40%. Our Eastern and Southwest regions were flat and down 7% respectively. UK and other international contributed over $3 million, while Canada declined 30%, as we anticipated.

Recurring operations and maintenance revenue of $15.1 million was up 6%. That revenue stream is generally quite stable and visible due to the long-term nature of the contracts. As we disclosed last quarter, we have visibility on over $700 million of Federal O&M revenue extending out up to 18 years.

Energy revenue, which we report in our Small-Scale Infrastructure segment, comes from our landfill gas and solar projects. We sold $14.7 million worth of electricity in the quarter, a nice recovery of 19% from Q1, which is typically a seasonally low quarter.

Moving on to gross margin and operating expenses, gross margin for the second quarter was 20.3%. SG&A expenses were $25.8 million or 16.9% of revenue.

We grew operating expenses 7.2% sequentially despite a 32% sequential revenue increase. We expect further operating leverage as we grow our expected revenue in the second half of the year.

Operating income was $5.1 million, up 34%. Net income was $2 million or $0.04 per diluted share.

Net income declined when compared to last year due to taxes of $1.7 million, which were $1.5 million higher than last year. The tax rate was higher due to timing differences, and we still expect our full-year rate to be 25%. There are two possible tax incentives related to US projects that we expect to come into play before year-end which would offset the Canadian tax valuation allowance impact we discussed last quarter. Other expenses were also about $600,000 higher due mostly to higher net interest expense.

Adjusted EBITDA, a non-GAAP measure that we believe to be reflective of our economic performance, was $11.3 million or $0.24 per diluted share. Adjusted EBITDA growth of 9.4% was greater than our revenue growth, reflecting our focus on improving profitability.

Now let's turn to the balance sheet. As you would expect, some of our key metrics are improving as we move through our normal seasonal pattern. Cash was up by $1.7 million from Q1, and DSO declined sequentially.

Consolidated debt was $99.2 million at June 30. Removing project debt, which is nonrecourse to us, corporate debt was $25.6 million. We believe this is a reasonable level of debt for us because it gives us borrowing power to fund the expansion of our operating asset portfolio. During the quarter, we renewed and extended the maturity dates on our corporate revolving credit facility to 2020 and our term loan to 2018.

Looking at CapEx, we invested $7.8 million in renewable energy projects that we own and operate. For the remainder of the year we expect CapEx of approximately $60 million, which will primarily be related to assets in development. Our total project assets are now $223.8 million.

Looking at backlog and visibility, we started the quarter with $387 million in fully contracted backlog and ended the quarter with $398 million. Our teams did a great job in converting $113 million of awards into contracts; but our execution teams did nearly as well, recognizing $102 million. As George mentioned, we performed admirably in winning new awards with $189 million of awards, up 66% driven, by the Federal awards and energy asset wins.

I should also point out that the $398 million of contracted backlog is better than it may appear when compared to this time last year. Although it is flat versus last year, we absorbed a decline of $46 million or 50% in our Canadian contracted backlog; we expected this as we have backfilled the work in the problem project we referred to earlier. Excluding Canada, our contracted backlog is up 14% versus last year.

At this midpoint of the year our solid performance gives us greater confidence in our full-year guidance for 2015. We continue to expect revenues for the year to be in the range of $610 million to $640 million. We continue to expect double-digit revenue growth from both our Federal and U.S. Regions segments, which is being partially offset by decreases in Canada and our off-grid solar business.

Near-term visibility continued to improve this quarter, too. For the remainder of 2015, we now believe $240 million will come from contracted backlog, which is an increase of $60 million during the quarter. We expect $20 million to $40 million to come from awarded projects and pipeline; the remaining revenue would come from energy, O&M, and other revenues.

We still anticipate gross margin to be between 19% and 20%, and operating expenses should be around 16% to 17% of revenue. We anticipate the effective tax rate for the full year to be around 25%. This should all lead to EPS in the range of $0.16 to $0.24, and adjusted EBITDA to be in the range of $43 million to $48 million.

Now let's discuss our outlook for the third quarter. We expect revenues to be within a range of $165 million to $185 million, and adjusted EBITDA in a range of $13 million to $17 million.

Net income and EPS are uncertain at this time because we are not sure when we will complete the tax actions that I discussed earlier. Those actions could occur either in Q3 or Q4, or partially in both.

However, we do expect them to be completed this year, though. For the year, we still expect our tax rate to be 25%.

Now we'd like to open the line for your questions, so I'll turn the call back over to our coordinator, Ben, to run the Q&A session.

(Operator Instructions) Noah Kaye, Northland Capital.

Thank you, and good morning, George, John and Gary, and Ben. Maybe we could start a little bit with your views on the solar/renewable project backlog. I think last quarter you articulated aspirations for around 20 megawatts for the year.

Where are we (inaudible) at this point in the year? And with your CapEx figure around $60 million, if I just do that on a per-watt basis, are you expecting maybe a little bit better than 20 megawatts in solar, or are there other components that we should understand? Thanks.

Yes, there other components that you should understand. We are developing non-solar projects as well, which is in that number. We previously said that we expected to put 20 megawatts in service this year.

We're actually thinking -- while that's still achievable, we did incur some delays related to some legislation here in Massachusetts related to a cap in the net metering. However, we were encouraged that at least the Senate passed legislation which would lift that cap; so we're hoping that those projects are now going to be back on track. But if I were to hedge I would say we're probably going to be in the -- we might be closer to the 15-megawatt range.

But with regards to our pipeline, we said previously that our total pipeline was 80 megawatts; we're actually now up over 90, so we did incrementally grow the pipeline. So assuming we get those projects back on track, we should get closer to the 20.

And then of course we are building out the Fort Detrick project that we've talked about in the past. We've targeted that to be another 18 megawatts in Q1 of next year. So our pipeline is very much still active.

Is there an added component here of landfill gas or other assets that we should think about where (multiple speakers)?

We are developing -- I think we did mention it in the last call. We have two and potentially three sites that they look better for us now to develop them for the green gas and take advantage of the RIN market, the Renewable Identification Numbers.

We have a couple sites, definitely we are developing them to sell green gas and they look pretty good right now. And we are expending some dollars associated with those two particular sites.

The other thing, why the capital investment is a little bit larger than if you were to relate it to the 15 megawatts that will be installed this year is due to the fact that we are doing some work, like the Fort Detrick for example and some other projects, that will not become online until next year. But the 15 megawatts that John was pointing out, it was projects that will come in-line this year. Actually, as we started this quarter we turned on capital projects already, and we have in queue to have another two to three I think will go online this quarter.

Great.

The delay on the (inaudible) you probably know -- some of you know the issue. In the state of Massachusetts, in the National Grid territories we reduced a cap, the Net Metering cap, and we have four projects that were impacted. So they've been delayed.

Like John pointed out, it was good that the Senate increased the cap, but it has to go through the House and then the Governor has to sign it. But we are optimistic that we will get those projects under contract.

Just turning to the projects business, you made some good comments on the Federal piece and in particular DOD, I think, as well as some activity that DOE is undertaking. Can you just help us understand how the scope and potentially the size of projects in Federal is evolving?

Are you looking at more micro-grid opportunities? Are you looking at more comprehensive measures, including not only energy conservation but also solar and other DG? Just give us a sense of where the types of projects are heading.

It's a very good question. I think the Federal market -- and we'll talk a little bit about the people that are running the programs and the goals that they have. They are getting much more familiar with the concept and much more comfortable.

The only bottleneck is that they do not have enough to move some of the projects through the pipeline, and that's why it's a long gestation period. It takes long to convert them.

But you're right. The projects are getting a little bit more sophisticated as to what kind of technologies they're implementing, and we see more micro-grid opportunities. We even have a couple storage batteries and more of a comprehensive offering.

Like I said, the Adelphi project, of the 4 megawatts of PV installation as well as a very comprehensive electric savings, gas savings, and substantial water savings. So -- and that's why, and I mentioned it last time, we feel Ameresco is well positioned because of the deep technical expertise that we have in the Company and we can take advantage of those opportunities.

In the Federal sector especially they are looking for more comprehensive projects. Because they have the energy efficiency goals as well as the water-savings goals and the renewable target that they have to meet. So to the extent that we can package all those things together, it makes a project more attractive.

And the new technologies that are evolving, whether it's the LEDs or the micro-grids, the battery storage, or the micro-turbines, they're making this business much more cost effective and we get better traction in the marketplace.

It's a very good question. The market is evolving, and I think we have evolved with the market, and I think it's beginning to pay off. It's early to tell.

But that's why I alluded our success rate lately, it's been pretty good. We feel good about it, but we'd like to see a few more quarters like this.

Okay, great. Thank you so much for the color.

(Operator Instructions) Jim Giannakouros, Oppenheimer.

Thanks. Good morning, everyone. A quick clarification here. I'm looking at your total project backlog last year.

Sure.

I had a $1.3 billion number. You guys are posting a $1.324 billion. I know it's minor, but I'm just tracking your backlog change and it affects my calc. Is there a restatement there or a re-categorization of backlog that I should be aware of?

Jim, that's a good catch. I did not mention it on the call or in the prepared remarks, but our prior-year amounts have all been restated to break out and remove the items that we now included in our assets in development. So we did restate those amounts that were in prior year in that category, so that you would get a pure apples-to-apples comparison.

So a portion of the $152 million of assets in development that we have this year are actually included in our awarded backlog last year, because at that time we were developing them for a potential sale or developing for others; but we pulled them back, and we now plan to own and operate those ourselves primarily. So that's the primary difference there.

Got it. Okay.

And that number now stands at $152 million, projects in development.

Understood; okay. Then also, as far as -- I understand that your revenue recognition is improving. I'm just trying to understand the ebbs and flows. Your backlog is building clearly; it seems that demand is certainly improving.

But your revenue recognition is improving which is kind of offsetting that. So in trying to think longer-term and the setup, are your efforts in revenue recognition -- bearing fruit clearly. Is it more in Federal, or is it in smaller projects? Is it across-the-board?

It's --

It was across-the-board, Jim. We saw our acceleration -- in particular, the month of June was a strong month for us, so we exceeded our internal expectations.

We do, obviously, a fair amount of work in schools in K-12. And we were able to gain access to the sites a little bit earlier than we thought and mobilize some of the projects. So that's where we saw it, and it was really in particular the month of June was a very strong month versus our internal targets.

I would say that we expect, in terms of the ebbs and flows as you said, that probably came -- that probably doesn't -- it's not incremental to the year. It will just reduce the amount of revenue we recognize in Q3 because we were able to get into some of those sites early.

Got it. Okay. That's all I had, guys. Thank you.

(Operator Instructions) I'm showing no further questions. I'd like to turn the conference back over to Mr. George Sakellaris for any closing remarks.

Thank you very much, Ben. Let me close the call by reiterating that at the midpoint of 2015 we are meeting expectations for improved growth and profitability, and we intend to continue to drive the recovery. Despite the lingering impact of the Canadian project, our overall results are good.

Our Federal sector business has revived its growth and we are executing across most U.S. Regions. We are winning new contracts in our core project business at an attractive rate, and we think visibility can continue to improve. Our performance in the first half gives us confidence that we can continue to meet our expectations in the quarters ahead.

I also want to mention an upcoming investor event. On Monday, August 10, John will be presenting and hosting one-on-one meetings at the Jefferies Industrial Conference in New York. We invite any of you attending the conference to schedule a meeting with us through your salesperson at Jefferies.

Thank you all again. This concludes the call, and you may now disconnect and have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.