Q2 2019 Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the Ameresco Inc. second quarter 2019 earnings call.
At this time all participants on a listen only mode. Later, we will conduct a question and answer session and instructions will follow with their time.
As a reminder, this conference call is being recorded.
I would now like to turn the conference Oh Wow.
This is Leila Dylan Vice President marketing and communications are still in you may begin.
Thank you and good morning, everyone. We appreciate you joining us for today's call. Joining me here are Jordan cycle Arab Emirates goes Chairman, President and Chief Executive Officer, Mark Chip Locke, Vice President corporate controller, and Chief Accounting Officer, and during home Senior Vice President and Chief Financial Officer.
Before I turn the call over to George I would like to make a brief statement regarding forward looking remarks.
This call contains forward looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based upon managements current expectations or beliefs.
Actual results may differ materially as a result of risks and uncertainties that pertain to our business.
We refer you to the company's press release issued this morning and to our FCC filing.
These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or forward looking statements.
We assume no obligation to revise any forward looking statements made on today's call.
In addition, we 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 and in the appendix of the slide which can be downloaded from our website.
I will now turn the call over to George George taken Leila and good morning, everyone.
Our second quarter results were solid.
And in line with our expectations.
Further.
We are on track for strong second half comparisons and have outstanding the visibility for 2020 and beyond.
And my Esko continues to execute on its long term strategy of growing recurring revenue businesses.
We are doing this by leveraging our institutional knowledge of innovative technology and our broad geographic footprint.
Yeah. This year second quarter, we succeed after posting a 6% increase in net income and a 10% increase in adjusted EBITDA was modest revenue growth.
This is the result of the continued shift towards higher margin energy assets and no and hamburgers.
The contribution from these businesses more than offset our investment in acquiring and developing the strong dollar.
We need that to compete in the advanced technology markets.
Our energy has a business continues to show impressive pipeline growth.
Total assets in development more than doubled from the second quarter of 2018.
Region.
Good.
I'll turn 58 megawatts equivalent like quotas and.
Our interest in developing now exceed the number of megawatts are we getting Andy Campion operation.
Excluding this pipeline.
Executing on this pipeline will lead to continued visibility and growth.
During the quarter, we placed an additional 14 megawatts in operation.
Bringing our year to date total body worn megawatts.
Diversification of technology, a geography continues to be a priority for the company energy acid business.
We have that once you started concentration of new England based solar assets with our viral gas assets spread throughout the country.
We are now supplemented this base with solar and other distributed energy resources in all regions.
If you want.
We began commercial operation all Phoenix Ariz viewpoint.
And we can do even got a ceremony in Q2.
This S. It is their largest bio gas to our LNG facility, it's a waste water treatment plant in the U.S.
It provides the city with substantial economic benefits.
And helps us to achieve its ambitious sustainability goals.
We continue to actively pursue large arinze you opportunities around the country.
Have a good pipeline will green gas projects for you now reported assets in development metric as well as the five to six earlier stage projects, we have spoken about in previous calls.
In addition market data indicates that there is a healthy available market to bio gas facilities fad by landfill gas sewage treatment plant and now they're feedstocks.
We believe our technical expertise expertise and client relationships will allow us to grow our leading market share you know this space.
We see increased market to work this bio gas with many government and institutional clients actively looking with its resource because their renewable energy mix.
As with any energy project Green gas projects have some variability in fighting to get pricing.
However, we maintain a positive outlook for renewable fuels and continue to take a disciplined approach to developing this asset class.
Well Oh, they are as you'd be operations continue to rapidly grow.
Solar remains an important contributor to that might ask was energy asset business.
We were pleased to have fast that hundred mega with milestone for operating solar assets during the quarter.
We continue to aggressively leverage our existing footprint across North America to expand this business.
Moving to our smart energy project business.
At the end of the second quarter, our contracted backlog was up 16% year over here.
To $789 million.
This growth was driven by strong performance in our U.S. region.
As well as great execution in our federal business.
Our people continued to win and execute the technically difficult projects.
Its comprehensive projects comprise a greater percentage of our pipeline.
And these projects not only save our customers money, but they also provide the resiliency and security along with measurable environmental benefits.
Multiple factors are driving demand for energy and water solutions that include or Ed resilient sheet to Newport existing projects.
The department of defense.
Supports it Michael they're shooting energy security and energy resiliency for couldn't agree with you that precious for a minimum of 14 days with military basis unfolds.
In addition, many municipalities universities hospitals and other institutional clients are investing in new Jersey pretty as units you program such as micro grids.
She HP and battery storage.
He says Mr technologies are becoming more common in the projects, we are winning and executing.
And of course, this trend plays very well into him or as good core technical competency.
One project, which perfectly highlights. This trend is our recently completed 91 million dollar project, yes. It more mcorp's. Yeah. This is Dave just replenish contract installation and third aside.
The system will ensure a reliable secure energy supplies to the base, while reducing lifecycle operating costs and manage in future commodity price volatility.
The project combines distributor generation battery storage and stick to Microgrids clinicals.
This gives the facility the ability to continue its operations even in the event of the store or other related losses will insisted from the local agree.
The project will say $6.9 million in annual utility in a protection of course reduce.
And its utility energy demand by 75% in water consumption by 25%.
And I might ask what will operate and maintain this project onto it and don't get too do you have contracts.
Cost savings and the environmental benefits of renewable energy continued to be important considerations for our customers.
One example, our recent solar project is not supposed to facilitate and Wallops Island, Virginia.
We reduced the facilities carbon footprint by over 4000 metric tons per year.
The combination of our earlier efficiency projects.
Additionally, for suction upgrades and the new solar projects lower the energy spending by $3.6 million annually.
In summary.
The second quarter was a period of solid execution for whatever that's to say the state stage for healthy growth is it for years ahead.
Before I turn the call over to Mark to review the financials I would like to thank you for your stylists work as our interim CFO for beauty in our search precious.
Mark remains a key part of the Ameresco team as Vice President corporate controller, and Chief Accounting Officer.
I would also like to formally welcome our new Chief Financial Officer Doron coal.
Doron join us for Maranatha Paula.
Global renewable energy company, where he most recently served as.
Chief Executive Officer, North America, and group Vice President of strategy.
Previously daughter, he has held many financial it rolls through how throughout his career. He has a long history in the renewable energy industry Norton, we'd like to say a few words Darren.
Thanks, George and good morning, everyone.
Hi, just quickly want to say that I'm very happy to be joining the team here.
Clean energy market is entering a new growth phase and Ammar ESCO is well positioned to capitalize on this because it has the right ambitions.
And it has a platform that can execute with conviction.
I really look forward to meeting you all in the near future.
Thanks, Laura No Mark will review, our second quarter financial results Mark.
Thank you George and good morning, everyone I'm pleased to review the company's second quarter financial performance, which supports the expectations. We had when providing full year 2019 guidance earlier this year.
Please refer to our press release and supplemental slides from our complete financial information.
All numbers relate to Q2, unless we state otherwise.
Revenue was up slightly year over year, reflecting positive momentum in our energy asset business and integrated PV sales included in our other category.
We continued to see year over year growth in revenue and EBITDA being generated by our operating portfolio of energy assets.
Recurring revenues represented approximately 21% of our total revenue.
Up 150 basis points from the same period last year.
This growth helped offset lower project revenue, which was primarily due to timing issues in our federal segment and in certain geographies.
Gross margin of 21.8% was similar to last year.
Operating expenses were $30 million, 4% ahead of last year's level.
As we stated at the end of last year, we will continue to invest in strategic and technical resources throughout the country.
These investments will ensure that we have the ability to implement increasingly complex projects as well as to support future growth in our recurring revenue streams.
Net income attributable to common shareholders of $9.2 million increased 6% from $8.7 million last year EPS of 19 cents was flat.
Adjusted EBITDA significantly outpaced revenue growth, increasing 10% to $23.6 million.
Our recurring revenue business accounted for 58% of this years second quarter, adjusted EBITDA and 65% year to date.
Visibility in our projects business remained strong with awarded project backlog levels of approximately $1.2 billion at the end of the second quarter.
We continue to backfill our contracted projects with New awards.
Our contracted project backlog increased 16% to $789 million.
Importantly, we are seeing an increase in gross margins embedded in our backlog has lower margin contracts progress and are replaced with higher margin contracts.
We believe the increasing complexity of both government and institutional projects will continue to lead to not only larger but higher margin awards.
Our 250 megawatt equivalent of operating assets and our own EMD business provide us with multi year visibility.
At the end of Q2 these lines of business represented over $1.8 billion and contracted revenue with a weighted average life of almost 15 years.
At the end of the second quarter, our energy asset pipeline of 258 megawatt equivalent.
With more than doubled to 114 megawatt in development at the same time last year.
So were assets comprise the majority of energy assets in development.
Rescos liquidity remains strong with ample cash and available credit to execute our asset development pipeline plans.
During the quarter, we improved our senior credit facility and now have the larger and more flexible credit line to support our growth.
Turning to outlook, we are reaffirming our 2019 full year guidance, namely for revenue to be in the range of 845 million to $885 million adjusted EBITDA of 95 million to $103 million and EPS of 77 cents to 85 cents.
Now I would like to turn the call back to George for closing comments.
Before we move onto your questions I would like to make a few closing comments and my uncle has the technical know how and has built a great corporate platform to take advantage of the expanding advanced technology market.
In particular, the demand for solutions with added resiliency, including micro grids battery storage CHP and other distributed energy resources is rapidly growing.
Projects, incorporating these technologies tend to be larger and more profitable.
He said Vince acknowledges are just beginning to be rolled out.
Continued cost declines and greater familiarity will increase their penetration.
At the same time.
We continue to execute on our long term business model of growing recurring revenue.
We are looking ahead to strong second half on a year on year revenue and earnings growth.
Vicki first cost metrics provide excellent visibility and support our long term growth outlook.
Namely contracted backlog increased 16% from year ago levels and energy assets in development more than doubled year over year and I will attempt.
The call over to the operator for your questions.
Okay. Thank you ladies and gentlemen at this time if you have a question. Please press Star then the one key on your Touchtone telephone.
That's star one to ask the question. If your question has been answered and you wish to remove yourself from the queue. You may do so by pressing the pound key.
Our first question comes from the line of Chris Van Horn.
With B. Riley your line is open.
Good morning, Thanks for taking my call and congrats on the quarter.
Okay. Thanks, Chris.
I was wondering if you could you know just to dig into the guidance a little bit you know some of the puts and takes of of your of your revenue and adjusted EBITDA range is the timing of projects is it dependent on some of the.
Recurring mix, just any sort of clarity there on the on the the range.
Yeah, I mean, we so we reaffirmed because we feel we feel pretty good about the full year outlook.
Coming into the year, we knew that.
A large portion was going to be backend weighted so second half weighted but you know we have really strong visibility, we expect about 80% of the revenues in the second half to come from contracted sources with the rest coming out of our awarded backlog. So again, we've got pretty strong visibility and we feel pretty good about that about both the revenue range. There were no real triggers to you to move anything on the I mean, EBITDA, we've come in kind of where we'd expected in the first half and die and so we feel pretty good about the EBITDA range as well.
Okay got it and then on the recurring mix I think you started its around 24% I'm wondering you know how that might look in the next 12 to 18 months or maybe even further out as a if you can give some more visibility there.
Yeah, I mean, I think that you know as we continue to put more of the assets that are currently in the development pipeline into operations. You know we could we could see that that person has become a little higher but we're also seeing some some pretty strong growth in the investing the backlog and the size of the projects and so you know again I think it might be somewhat balanced I think it'll depend on how quickly we move assets out of the development pipeline going into operation and I think what we've said before is that the.
The existing pipeline, we we put that into operations over the next 12 to 30 months and so on I think the timing of that will somewhat dictate.
The growth in that in that recurring number so.
Okay got it I'll jump back in the queue. Thank you so much.
Youre welcome.
Thank you.
Our next question comes from the line of Noah.
No Okay with Oppenheimer. Your line is open.
Thanks. Good morning. So you you mentioned I believe you placed 14 megawatts in service. This quarter is the outlook still to place 50 to 60 megawatts in service this year.
And will that mostly be in the solar space, how should we think about that yes, yeah, we feel pretty good about that that targets Noah and yeah that would not have it all come from store so.
Okay.
Okay, and then you mentioned Uh huh.
A very healthy development pipeline for our LNG.
And also that you were taking a disciplined approach to development can you expand on on that a little bit, particularly in terms of.
How youre, taking a disciplined approach you know certainly we're all seeing the RIN.
Price fluctuations in the market you know how does the Emirates go go about developing these projects.
You know to mitigate some of that risk.
Basically every time with their own project, we look in the market than the estimate or sometimes we get the quotes as to what the future prices might be what's the potential for hedging.
This particular prices and.
Then if they meet those hurdle rates of return and we will actually get them if not we will put them aside.
And the ones that we have to develop and right now we are talking to various individuals to see how we can hedge some of that obviously, that's a good thing that's happening about.
Yeah Green gas business in what I call. It has no many institutions government.
Entities and so on they are interested even in some of the gas utility companies interested in purchasing a degree and guess outflows and that to US is very very encouraging and we are talking to some actually we have a couple and we are working with some long term contracts you know to cashless awesome.
Okay. That's helpful. And then you know you talked about the mix improvement in the back half partly based on her project size and complexity.
In the contracted backlog. So you know just about how much uplift you know are or should we be contemplating sequentially on the gross margin line.
Thats part one of that and then the other part of that is.
Does that carry forward into kind of some of the earlier stage projects you have in development or you're seeing quoting activity on.
Yeah, I wouldn't I wouldn't expect a big uplift in margin in the <unk> in the second half I think that bad you know I think we are seeing some positive trends in the in the awarded backlog with our margins as some of the larger projects you know the more complex projects start to come in but you know we're still we still have some some large button somewhat lower margins, you know kind of lower than our average margins are progressing through the backlog and progressing through the contracted backlog. So that will be part of that second half mix that I think will help to kind of keep the gross margins balance so I wouldn't really sector.
Significant uplift in the second half, but again as as these projects progress through the backlog and die and we start to convert some of the larger awarded projects into contracted then I think you know on a go forward basis, we'd see some maybe some gradual increasing into margin. That's right. There's really a 2020 and beyond story. So in other words no no real sequential change in gross margin here in the back half.
Launched because it leads to the pick up on the second path is driven primarily by project revenues.
Yes, and that's why.
No we feel very good about the second path because of the 16% increase on the project backlog.
Seven.
You know that we have under contract in fact, we know that that puts us in a pretty good position.
Okay, great. Thanks, very much color.
Thanks Noah.
Thank you as a reminder, ladies and gentlemen, if youd like to ask the question. At this time you May Press Star then the one key on your Touchtone telephone.
I'm showing no further questions at this time I would now like to turn the call back over to.
CEO George Sakellaris.
Thank you.
And thank you all for participating on today's call. We look forward to speaking with you throughout the quarter again, Thank you very much and good doctors.
Ladies and gentlemen that concludes today's call. Thank you for participating you may now disconnect everyone have a wonderful day.