UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
OR
|
| | |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________.
Commission File Number: 001-34811
Ameresco, Inc.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 04-3512838 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
111 Speen Street, Suite 410 Framingham, Massachusetts | | 01701 |
(Address of Principal Executive Offices) | | (Zip Code) |
(508) 661-2200
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | |
Large Accelerated Filer o | Accelerated Filer þ | Non-accelerated filer o | Smaller reporting company o |
| | (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
| |
Class | Shares outstanding as of November 1, 2013 |
Class A Common Stock, $0.0001 par value per share | 27,827,717 |
Class B Common Stock, $0.0001 par value per share | 18,000,000 |
AMERESCO, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| September 30, | | December 31, |
| 2013 | | 2012 |
| (Unaudited) | | |
ASSETS | | |
Current assets: | | | |
Cash and cash equivalents | $ | 18,790,233 |
| | $ | 63,347,645 |
|
Restricted cash | 25,817,232 |
| | 26,358,908 |
|
Accounts receivable, net | 79,043,751 |
| | 84,124,627 |
|
Accounts receivable retainage | 24,895,807 |
| | 23,197,784 |
|
Costs and estimated earnings in excess of billings | 64,020,703 |
| | 62,096,284 |
|
Inventory, net | 9,408,046 |
| | 9,502,289 |
|
Prepaid expenses and other current assets | 10,108,304 |
| | 9,600,619 |
|
Income tax receivable | 5,951,233 |
| | 5,385,242 |
|
Deferred income taxes | 4,503,551 |
| | 5,190,718 |
|
Project development costs | 11,877,141 |
| | 9,038,725 |
|
Total current assets | 254,416,001 |
| | 297,842,841 |
|
Federal ESPC receivable | 27,616,681 |
| | 91,854,808 |
|
Property and equipment, net | 9,362,245 |
| | 9,387,218 |
|
Project assets, net | 227,100,403 |
| | 207,274,982 |
|
Deferred financing fees, net | 5,554,225 |
| | 5,746,177 |
|
Goodwill | 55,615,137 |
| | 48,968,390 |
|
Intangible assets, net | 10,236,744 |
| | 9,742,878 |
|
Other assets | 7,255,009 |
| | 4,654,709 |
|
| 342,740,444 |
| | 377,629,162 |
|
| $ | 597,156,445 |
| | $ | 675,472,003 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 15,653,453 |
| | $ | 12,452,678 |
|
Accounts payable | 77,333,742 |
| | 101,007,455 |
|
Accrued expenses and other current liabilities | 11,847,160 |
| | 13,157,024 |
|
Billings in excess of cost and estimated earnings | 14,532,741 |
| | 22,271,655 |
|
Total current liabilities | 119,367,096 |
| | 148,888,812 |
|
Long-term debt, less current portion | 150,492,409 |
| | 201,922,172 |
|
Deferred income taxes | 22,677,085 |
| | 24,888,229 |
|
Deferred grant income | 7,736,754 |
| | 7,590,730 |
|
Other liabilities | 27,737,611 |
| | 30,362,869 |
|
| $ | 208,643,859 |
| | $ | 264,764,000 |
|
Commitments and contingencies (Note 7) |
| |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
|
| | | | | | | |
AMERESCO, INC. |
CONSOLIDATED BALANCE SHEETS — (Continued) |
| September 30, | | December 31, |
| 2013 | | 2012 |
| (Unaudited) | | |
Stockholders’ equity: | | | |
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2013 and December 31, 2012 | $ | — |
| | $ | — |
|
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 32,527,901 shares issued and 27,694,617 outstanding at September 30, 2013, 32,019,982 shares issued and 27,186,698 outstanding at December 31, 2012 | 3,253 |
| | 3,202 |
|
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000 shares issued and outstanding at September 30, 2013 and December 31, 2012 | 1,800 |
| | 1,800 |
|
Additional paid-in capital | 97,360,315 |
| | 93,141,432 |
|
Retained earnings | 178,010,011 |
| | 177,169,717 |
|
Accumulated other comprehensive income | 2,949,677 |
| | 713,194 |
|
Non-controlling interest | 3,005 |
| | (27,583 | ) |
Less - treasury stock, at cost, 4,833,284 shares | (9,182,571 | ) | | (9,182,571 | ) |
Total stockholders’ equity | 269,145,490 |
| | 261,819,191 |
|
| $ | 597,156,445 |
| | $ | 675,472,003 |
|
|
| | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
| | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Revenue: | |
| | |
|
Energy efficiency revenue | $ | 108,872,457 |
| | $ | 108,418,955 |
|
Renewable energy revenue | 52,776,356 |
| | 55,487,250 |
|
| 161,648,813 |
| | 163,906,205 |
|
Direct expenses: | | | |
|
Energy efficiency expenses | 88,500,003 |
| | 87,898,560 |
|
Renewable energy expenses | 43,084,980 |
| | 41,205,349 |
|
| 131,584,983 |
| | 129,103,909 |
|
Gross profit | 30,063,830 |
| | 34,802,296 |
|
Operating expenses: | | | |
|
Salaries and benefits | 10,374,465 |
| | 12,441,502 |
|
Project development costs | 4,013,498 |
| | 4,288,657 |
|
General, administrative and other | 8,093,904 |
| | 7,362,802 |
|
| 22,481,867 |
| | 24,092,961 |
|
Operating income | 7,581,963 |
| | 10,709,335 |
|
Other expenses, net (Note 9) | 1,589,360 |
| | 1,313,278 |
|
Income before provision for income taxes | 5,992,603 |
| | 9,396,057 |
|
Income tax provision | 1,447,486 |
| | 2,683,936 |
|
Net income | $ | 4,545,117 |
| | $ | 6,712,121 |
|
Net income per share attributable to common shareholders: | |
| | |
|
Basic | $ | 0.10 |
| | $ | 0.15 |
|
Diluted | $ | 0.10 |
| | $ | 0.15 |
|
Weighted average common shares outstanding: | |
| | |
|
Basic | 45,621,552 |
| | 44,788,160 |
|
Diluted | 46,605,360 |
| | 46,247,239 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
| | | | | | | |
| | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Revenue: | |
| | |
|
Energy efficiency revenue | $ | 263,944,074 |
| | $ | 341,620,742 |
|
Renewable energy revenue | 134,092,956 |
| | 132,958,737 |
|
| 398,037,030 |
| | 474,579,479 |
|
Direct expenses: | |
| | |
|
Energy efficiency expenses | 213,708,750 |
| | 275,391,607 |
|
Renewable energy expenses | 109,363,003 |
| | 104,003,905 |
|
| 323,071,753 |
| | 379,395,512 |
|
Gross profit | 74,965,277 |
| | 95,183,967 |
|
Operating expenses: | |
| | |
|
Salaries and benefits | 32,162,357 |
| | 38,369,446 |
|
Project development costs | 13,333,880 |
| | 12,335,875 |
|
General, administrative and other | 25,878,594 |
| | 22,085,897 |
|
| 71,374,831 |
| | 72,791,218 |
|
Operating income | 3,590,446 |
| | 22,392,749 |
|
Other expenses, net (Note 9) | 2,502,405 |
| | 3,833,761 |
|
Income before provision for income taxes | 1,088,041 |
| | 18,558,988 |
|
Income tax provision | 247,747 |
| | 5,292,453 |
|
Net income | $ | 840,294 |
| | $ | 13,266,535 |
|
Net income per share attributable to common shareholders: | |
| | |
|
Basic | $ | 0.02 |
| | $ | 0.30 |
|
Diluted | $ | 0.02 |
| | $ | 0.29 |
|
Weighted average common shares outstanding: | |
| | |
|
Basic | 45,472,517 |
| | 44,492,509 |
|
Diluted | 46,390,468 |
| | 46,010,138 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Net income | $ | 4,545,117 |
| | $ | 6,712,121 |
|
Other comprehensive income: | | | |
Unrealized gain (loss) from interest rate hedge, net of tax | 89,714 |
| | (91,023 | ) |
Foreign currency translation adjustments | 1,162,613 |
| | 1,086,724 |
|
Total other comprehensive income | 1,252,327 |
| | 995,701 |
|
Comprehensive income | $ | 5,797,444 |
| | $ | 7,707,822 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
| | | | | | | |
| | | |
| | | |
AMERESCO, INC. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Net income | $ | 840,294 |
| | $ | 13,266,535 |
|
Other comprehensive income: | | | |
Unrealized gain from interest rate hedge, net of tax | 2,620,900 |
| | 476,763 |
|
Foreign currency translation adjustments | (384,417 | ) | | 957,808 |
|
Total other comprehensive income | 2,236,483 |
| | 1,434,571 |
|
Comprehensive income | $ | 3,076,777 |
| | $ | 14,701,106 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | |
| | Preferred | | | | | | | | | | Additional | | | | | | | | | | Other | | Total |
| | Stock | | Class B Common Stock | | Class A Common Stock | | Paid-in | | Retained | | Treasury Stock | | Non-controlling | | Comprehensive | | Stockholders’ |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Interest | | Income | | Equity |
Balance, December 31, 2012 | | — |
| | $ | — |
| | 18,000,000 |
| | $ | 1,800 |
| | 32,019,982 |
| | $ | 3,202 |
| | $ | 93,141,432 |
| | $ | 177,169,717 |
| | 4,833,284 |
| | $ | (9,182,571 | ) | | $ | (27,583 | ) | | $ | 713,194 |
| | $ | 261,819,191 |
|
Exercise of stock options | | — |
| | — |
| | — |
| | — |
| | 507,919 |
| | 51 |
| | 1,675,995 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,676,046 |
|
Stock-based compensation expense, including excess tax benefits of $417,612 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,542,888 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,542,888 |
|
Non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 30,588 |
| | — |
| | 30,588 |
|
Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (384,417 | ) | | (384,417 | ) |
Unrealized gain from interest rate hedge, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,620,900 |
| | 2,620,900 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 840,294 |
| | — |
| | — |
| | — |
| | — |
| | 840,294 |
|
Balance, September 30, 2013 | | — |
| | $ | — |
| | 18,000,000 |
| | $ | 1,800 |
| | 32,527,901 |
| | $ | 3,253 |
| | $ | 97,360,315 |
| | $ | 178,010,011 |
| | 4,833,284 |
| | $ | (9,182,571 | ) | | $ | 3,005 |
| | $ | 2,949,677 |
| | $ | 269,145,490 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Cash flows from operating activities: | |
| | |
|
Net income | $ | 4,545,117 |
| | $ | 6,712,121 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
| |
|
|
Depreciation of project assets | 2,902,714 |
| | 2,903,901 |
|
Depreciation of property and equipment | 855,727 |
| | 721,330 |
|
Amortization of deferred financing fees | 518,251 |
| | 95,667 |
|
Amortization of intangible assets | 1,467,873 |
| | 1,113,033 |
|
Provision for bad debts | 137,227 |
| | 6,024 |
|
Unrealized (gain) loss on interest rate swap | (124,980 | ) | | 59,061 |
|
Gain on sale of asset | (631,917 | ) | | — |
|
Stock-based compensation expense | 789,416 |
| | 853,866 |
|
Deferred income taxes | (682,904 | ) | | (951,974 | ) |
Excess tax benefits from stock-based compensation arrangements | (120,601 | ) | | (723,710 | ) |
Changes in operating assets and liabilities: |
|
| | |
(Increase) decrease in: |
|
| | |
Restricted cash draws | 11,013,725 |
| | 5,688,561 |
|
Accounts receivable | (2,106,271 | ) | | (5,633,607 | ) |
Accounts receivable retainage | (37,866 | ) | | 3,150,711 |
|
Federal ESPC receivable | (10,533,232 | ) | | (2,569,522 | ) |
Inventory | 2,800,877 |
| | 2,052,646 |
|
Costs and estimated earnings in excess of billings | (11,352,008 | ) | | (5,950,854 | ) |
Prepaid expenses and other current assets | 931,682 |
| | 2,564,642 |
|
Project development costs | (412,795 | ) | | (1,078,080 | ) |
Other assets | (1,839,224 | ) | | 312,248 |
|
Increase (decrease) in: |
|
| |
|
|
Accounts payable, accrued expenses and other current liabilities | 10,831,805 |
| | (2,942,065 | ) |
Billings in excess of cost and estimated earnings | (7,075,163 | ) | | (7,286,785 | ) |
Other liabilities | 1,882,477 |
| | 2,826,363 |
|
Income taxes payable | (52,156 | ) | | 1,155,924 |
|
Net cash provided by operating activities | 3,707,774 |
| | 3,079,501 |
|
Cash flows from investing activities: | | | |
|
Purchases of property and equipment | (790,427 | ) | | (1,715,410 | ) |
Purchases of project assets | (4,136,438 | ) | | (11,604,966 | ) |
Grant awards received on project assets | — |
| | 395,007 |
|
Proceeds from sales of assets | 3,504,000 |
| | — |
|
Acquisition, net of cash received | (599,375 | ) | | (3,677,393 | ) |
Net cash used in investing activities | $ | (2,022,240 | ) | | $ | (16,602,762 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
|
| | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Cash flows from financing activities: | |
| | |
|
Excess tax benefits from stock-based compensation arrangements | $ | 120,601 |
| | $ | 723,710 |
|
Payments of financing fees | — |
| | (164,753 | ) |
Proceeds from exercises of options | 426,294 |
| | 1,216,985 |
|
Proceeds from senior secured credit facility | 3,000,000 |
| | 12,017,429 |
|
Non-controlling interest | (10,042 | ) | | — |
|
Restricted cash | (2,349,555 | ) | | (1,454,199 | ) |
Payments on long-term debt | (1,643,787 | ) | | (1,245,455 | ) |
Net cash (used in) provided by financing activities | (456,489 | ) | | 11,093,717 |
|
Effect of exchange rate changes on cash | (68,775 | ) | | (303,643 | ) |
Net increase (decrease) in cash and cash equivalents | 1,160,270 |
| | (2,733,187 | ) |
Cash and cash equivalents, beginning of period | 17,629,963 |
| | 28,909,987 |
|
Cash and cash equivalents, end of period | $ | 18,790,233 |
| | $ | 26,176,800 |
|
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 2,058,223 |
| | $ | 2,073,848 |
|
Income taxes | $ | 2,449,775 |
| | $ | 753,889 |
|
Acquisition, net of cash received: | | | |
Accounts receivable | $ | — |
| | $ | 320,997 |
|
Inventory | 660,050 |
| | |
Prepaid expenses and other current assets | — |
| | 107,715 |
|
Property and equipment | — |
| | 43,115 |
|
Goodwill | — |
| | 2,291,163 |
|
Intangible assets | — |
| | 1,712,021 |
|
Other assets | — |
| | 100 |
|
Accounts payable and accrued expenses | (60,675 | ) | | (605,869 | ) |
Billings in excess of cost and estimated earnings | — |
| | (160,939 | ) |
Other liabilities | — |
| | (30,910 | ) |
| $ | 599,375 |
| | $ | 3,677,393 |
|
Noncash ESPC receivable financing | $ | 43,816,695 |
| | $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Cash flows from operating activities: | |
| | |
|
Net income | $ | 840,294 |
| | $ | 13,266,535 |
|
Adjustments to reconcile net income to cash (used in) provided by operating activities: |
|
| |
|
|
Depreciation of project assets | 9,781,865 |
| | 8,359,908 |
|
Depreciation of property and equipment | 2,465,981 |
| | 2,002,804 |
|
Amortization of deferred financing fees | 850,713 |
| | 367,145 |
|
Amortization of intangible assets | 3,256,948 |
| | 4,084,055 |
|
Provision for bad debts | 508,535 |
| | 83,767 |
|
Unrealized (gain) loss on interest rate swap | (1,378,039 | ) | | 178,813 |
|
Gain on sale of asset | (631,917 | ) | | (800,000 | ) |
Stock-based compensation expense | 2,125,276 |
| | 2,527,926 |
|
Deferred income taxes | (3,553,593 | ) | | (1,458,605 | ) |
Excess tax benefits from stock-based compensation arrangements | (417,612 | ) | | (2,375,223 | ) |
Changes in operating assets and liabilities: |
|
| |
|
|
(Increase) decrease in: |
|
| |
|
|
Restricted cash draws | 29,018,663 |
| | 29,841,218 |
|
Accounts receivable | 4,749,408 |
| | 6,936,036 |
|
Accounts receivable retainage | (1,610,440 | ) | | 5,230,093 |
|
Federal ESPC receivable | (24,317,877 | ) | | (28,345,258 | ) |
Inventory | 754,293 |
| | 1,542,422 |
|
Costs and estimated earnings in excess of billings | (1,420,819 | ) | | 6,246,532 |
|
Prepaid expenses and other current assets | (594,650 | ) | | 885,482 |
|
Project development costs | (2,843,145 | ) | | (2,234,165 | ) |
Other assets | (2,597,959 | ) | | (629,034 | ) |
Increase (decrease) in: |
|
| |
|
|
Accounts payable, accrued expenses and other current liabilities | (25,354,177 | ) | | (11,702,805 | ) |
Billings in excess of cost and estimated earnings | (6,703,710 | ) | | 957,105 |
|
Other liabilities | 2,376,895 |
| | 3,351,544 |
|
Income taxes payable | (417,194 | ) | | 4,239,382 |
|
Net cash (used in) provided by operating activities | (15,112,261 | ) | | 42,555,677 |
|
Cash flows from investing activities: | | | |
|
Purchases of property and equipment | (2,331,004 | ) | | (4,096,980 | ) |
Purchases of project assets | (35,755,383 | ) | | (31,303,607 | ) |
Grant awards and rebates received on project assets | 1,580,219 |
| | 4,233,773 |
|
Proceeds from sales of assets | 3,510,500 |
| | — |
|
Acquisitions, net of cash received | (9,944,976 | ) | | (3,677,393 | ) |
Net cash used in investing activities | $ | (42,940,644 | ) | | $ | (34,844,207 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
|
| | | | | | | |
| | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
| (Unaudited) | | (Unaudited and Restated) |
Cash flows from financing activities: | |
| | |
|
Excess tax benefits from stock-based compensation arrangements | $ | 417,612 |
| | $ | 2,375,223 |
|
Book overdraft | — |
| | (7,297,122 | ) |
Payments of financing fees | (504,985 | ) | | (185,078 | ) |
Proceeds from exercises of options | 1,676,046 |
| | 3,016,256 |
|
Proceeds from senior secured credit facility | 18,000,000 |
| | 4,160,287 |
|
Proceeds from long-term debt financing | 9,434,434 |
| | — |
|
Non-controlling interest | 30,588 |
| | 7,700 |
|
Restricted cash | (7,547,832 | ) | | (6,252,306 | ) |
Payments on long-term debt | (8,384,516 | ) | | (3,380,412 | ) |
Net cash provided by (used in) financing activities | 13,121,347 |
| | (7,555,452 | ) |
Effect of exchange rate changes on cash | 374,146 |
| | (256,584 | ) |
Net decrease in cash and cash equivalents | (44,557,412 | ) | | (100,566 | ) |
Cash and cash equivalents, beginning of year | 63,347,645 |
| | 26,277,366 |
|
Cash and cash equivalents, end of period | $ | 18,790,233 |
| | $ | 26,176,800 |
|
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for: | | | |
Interest | $ | 4,880,816 |
| | $ | 4,100,251 |
|
Income taxes | $ | 3,350,455 |
| | $ | 1,260,810 |
|
Acquisitions, net of cash received: | | | |
Accounts receivable | $ | 558,621 |
| | $ | 320,997 |
|
Accounts receivable retainage | 248,072 |
| | — |
|
Costs and estimated earnings in excess of billings | 657,595 |
| | — |
|
Inventory | 660,050 |
| | — |
|
Prepaid expenses and other current assets | 1,710 |
| | 107,715 |
|
Property and equipment | 137,952 |
| | 43,115 |
|
Goodwill | 6,010,177 |
| | 2,291,163 |
|
Intangible assets | 3,697,509 |
| | 1,712,021 |
|
Other assets | — |
| | 100 |
|
Accounts payable and accrued expenses | (1,029,214 | ) | | (605,869 | ) |
Billings in excess of cost and estimated earnings | (30,431 | ) | | (160,939 | ) |
Income taxes payable | (256,938 | ) | | — |
|
Deferred tax liabilities | (710,127 | ) | | — |
|
Other liabilities | — |
| | (30,910 | ) |
| $ | 9,944,976 |
| | $ | 3,677,393 |
|
Noncash ESPC receivable financing | $ | 88,556,004 |
| | $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Ameresco, Inc. (including its subsidiaries, the “Company”) was organized as a Delaware corporation on April 25, 2000. The Company is a provider of energy efficiency solutions for facilities throughout North America. The Company provides solutions, both products and services, that enable customers to reduce their energy consumption, lower their operating and maintenance costs and realize environmental benefits. The Company’s comprehensive set of services includes upgrades to a facility’s energy infrastructure and the construction and operation of small-scale renewable energy plants. It also sells certain photovoltaic equipment worldwide. The Company operates in the United States, Canada and Europe.
The Company is compensated through a variety of methods, including: 1) direct payments based on fee-for-services contracts (utilizing lump-sum or cost-plus pricing methodologies); 2) the sale of energy from the Company’s generating assets; and 3) direct payment for photovoltaic equipment and systems.
The condensed consolidated financial statements as of September 30, 2013 and December 31, 2012, and for the three and nine months ended September 30, 2013 and 2012, include the accounts of Ameresco Inc., its wholly owned subsidiaries and one subsidiary for which there is a minority shareholder. All significant intercompany transactions have been eliminated. The condensed consolidated financial statements as of September 30, 2013, and for the three and nine months ended September 30, 2013 and 2012, are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. The interim condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation in conformity with GAAP. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, and notes thereto, included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on March 18, 2013 (the “2012 Form 10-K”). The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restatement
As reported in the Company’s 2012 Form 10-K, the Company restated its historical consolidated financial statements as of and for the years ended December 31, 2011 and 2010, and historical unaudited quarterly information for the quarters in the years ended December 31, 2012, 2011 and 2010. These restatements are the result of an error in the Company’s accounting treatment for a certain derivative transaction under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging.
ASC 815-20-25 requires that all derivative instruments be recorded on the balance sheet as either an asset or liability measured at its fair value, and that changes in the derivatives’ fair values be recognized currently in earnings unless specific hedge accounting criteria are met. The Company previously had designated a floating-to-fixed interest rate swap entered into in March 2010 as a hedge using the “short cut” method. The Company determined, however, that the March 2010 interest rate swap does not qualify for hedge accounting because the Company inappropriately applied the “short cut” method to evaluate this swap for hedge accounting purposes from the date of inception. Accordingly, the change in the fair value of this interest rate swap derivative is required to be recognized as a component of earnings for the periods commencing in March 2010. The accounting error has no effect on cash flows from operating, investing or financing activities or on the Company’s debt covenant calculations.
Effective March 29, 2013, the Company has designated the March 2010 interest rate swap as a hedge using the “long-haul” method.
See Note 2 of “Notes to Consolidated Financial Statements” appearing in Item 8 of the Company’s 2012 Form 10-K for additional information about the restatement.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
The following table sets forth selected restated unaudited condensed consolidated statement of income data for the quarter and year-to-date periods ended September 30, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2012 | | Nine Months Ended September 30, 2012 |
| As Reported | | Restatement | | As Restated | | As Reported | | Restatement | | As Restated |
Total revenue | $ | 163,906,205 |
| | $ | — |
| | $ | 163,906,205 |
| | $ | 474,579,479 |
| | $ | — |
| | $ | 474,579,479 |
|
Direct expenses | 129,103,909 |
| | — |
| | 129,103,909 |
| | 379,395,512 |
| | — |
| | 379,395,512 |
|
Operating expenses | 24,092,961 |
| | — |
| | 24,092,961 |
| | 72,791,218 |
| | — |
| | 72,791,218 |
|
Total expenses | 153,196,870 |
| | — |
| | 153,196,870 |
| | 452,186,730 |
| | — |
| | 452,186,730 |
|
Operating income | 10,709,335 |
| | — |
| | 10,709,335 |
| | 22,392,749 |
| | — |
| | 22,392,749 |
|
Other expenses, net | 1,254,217 |
| | 59,061 |
| | 1,313,278 |
| | 3,654,948 |
| | 178,813 |
| | 3,833,761 |
|
Income before provision for income taxes | 9,455,118 |
| | (59,061 | ) | | 9,396,057 |
| | 18,737,801 |
| | (178,813 | ) | | 18,558,988 |
|
Income tax provision | 2,683,936 |
| | — |
| | 2,683,936 |
| | 5,292,453 |
| | — |
| | 5,292,453 |
|
Net income | $ | 6,771,182 |
| | $ | (59,061 | ) | | $ | 6,712,121 |
| | $ | 13,445,348 |
| | $ | (178,813 | ) | | $ | 13,266,535 |
|
Net income per share attributable to common shareholders: | | | | | | | | | | | |
Basic | $ | 0.15 |
| | $ | — |
| | $ | 0.15 |
| | $ | 0.30 |
| | $ | — |
| | $ | 0.30 |
|
Diluted | $ | 0.15 |
| | $ | — |
| | $ | 0.15 |
| | $ | 0.29 |
| | $ | — |
| | $ | 0.29 |
|
Weighted average common shares outstanding: | | | | | | | | | | | |
Basic | 44,788,160 |
| | 44,788,160 |
| | 44,788,160 |
| | 44,492,509 |
| | 44,492,509 |
| | 44,492,509 |
|
Diluted | 46,247,239 |
| | 46,247,239 |
| | 46,247,239 |
| | 46,010,138 |
| | 46,010,138 |
| | 46,010,138 |
|
Codification
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board. The FASB sets generally accepted accounting principles that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the condensed consolidated financial statements are to the FASB Accounting Standards Codification.
A summary of the significant accounting policies consistently applied in the preparation of the accompanying condensed consolidated financial statements follows.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Ameresco, Inc., its wholly owned subsidiaries and one subsidiary for which there is a minority shareholder. All significant intercompany accounts and transactions have been eliminated. Gains and losses from the translation of all foreign currency financial statements are recorded in the accumulated other comprehensive income account within stockholders’ equity.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions used in these condensed consolidated financial statements relate to management’s estimates of final construction contract profit in accordance with accounting for long-term contracts, allowance for doubtful accounts, inventory reserves, project development costs, fair value of derivative financial instruments and stock-based awards,
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
impairment of long-lived assets, income taxes and potential liability in conjunction with certain commitments and contingencies. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash includes cash on deposit, overnight repurchase agreements and amounts invested in highly liquid money market funds. Cash equivalents consist of short term investments with original maturities of three months or less. The Company maintains accounts with financial institutions and the balances in such accounts, at times, exceed federally insured limits. This credit risk is divided among a number of financial institutions that management believes to be of high quality. The carrying amount of cash and cash equivalents approximates their fair value.
Restricted Cash
Restricted cash consists of cash held in an escrow account in association with construction draws for energy savings performance contracts (“ESPCs”) and construction of project assets, as well as cash required under term loans to be maintained in debt service reserve accounts until all obligations have been indefeasibly paid in full.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and management’s evaluation of outstanding accounts receivable at the end of the year. Bad debts are written off against the allowance when identified. Changes in the allowance for doubtful accounts for the nine months ended September 30, 2013 and 2012 are as follows:
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2013 |
| 2012 |
Allowance for doubtful accounts, beginning of period | | $ | 1,174,458 |
| | $ | 1,135,391 |
|
Charges to costs and expenses | | 508,535 |
| | 83,767 |
|
Account write-offs and other | | (63,476 | ) | | (124,634 | ) |
Allowance for doubtful accounts, end of period | | $ | 1,619,517 |
| | $ | 1,094,524 |
|
At September 30, 2013 and December 31, 2012, no one customer accounted for more than 10% of the Company’s total accounts receivable.
During the three and nine months ended September 30, 2013 and 2012, no one customer accounted for more than 10% of the Company’s total revenue.
Accounts Receivable Retainage
Accounts receivable retainage represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from five percent to ten percent of the total invoice.
Inventory
Inventories, which consist primarily of photovoltaic solar panels, batteries and related accessories, are stated at the lower of cost (“first-in, first-out” method) or market (determined on the basis of estimated net realizable values). Provisions have been made to reduce the carrying value of inventory to the net realizable value.
Prepaid Expenses
Prepaid expenses consist primarily of short-term prepaid expenditures that will amortize within one year.
Federal ESPC Receivable
Federal ESPC receivable represents the amount to be paid by various federal government agencies for work performed and earned by the Company under specific ESPCs. The Company assigns certain of its rights to receive those payments to third-party lenders that provide construction and permanent financing for such contracts. The receivable is recognized as revenue as each project is constructed. Upon completion and acceptance of the project by the government, typically within 24 months of
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
construction commencement, the assigned ESPC receivable and corresponding related project debt is eliminated from the Company’s condensed consolidated financial statements.
Project Development Costs
The Company capitalizes as project development costs only those costs incurred in connection with the development of energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and travel, if incurred after a point in time where the realization of related revenue becomes probable. Project development costs incurred prior to the probable realization of revenue are expensed as incurred. The Company classifies project development costs as a current asset as the development efforts are expected to proceed to construction activity in the twelve months that follow. The Company periodically reviews these balances and writes off any amounts where the realization of the related revenue is no longer probable.
Property and Equipment
Property and equipment consists primarily of office and computer equipment, and is recorded at cost. Major additions and improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation and amortization of property and equipment are computed on a straight-line basis over the following estimated useful lives:
|
| | |
Asset Classification | | Estimated Useful Life |
Furniture and office equipment | | Five years |
Computer equipment and software costs | | Five years |
Leasehold improvements | | Lesser of term of lease or five years |
Automobiles | | Five years |
Land | | Unlimited |
Project Assets
Project assets consist of costs of materials, direct labor, interest costs, outside contract services and project development costs incurred in connection with the construction of small-scale renewable energy plants that the Company owns and the implementation of energy savings contracts. These amounts are capitalized and amortized over the lives of the related assets or the terms of the related contracts.
The Company capitalizes interest costs relating to construction financing during the period of construction. The interest capitalized is included in the total cost of the project at completion. The amount of interest capitalized for the three months ended September 30, 2013 and 2012 was $595,611 and $252,879, respectively. The amount of interest capitalized for the nine months ended September 30, 2013 and 2012 was $1,311,005 and $687,305, respectively.
Routine maintenance costs are expensed in the current year’s condensed consolidated statements of income to the extent that they do not extend the life of the asset. Major maintenance, upgrades and overhauls are required for certain components of the Company’s assets. In these instances, the costs associated with these upgrades are capitalized and are depreciated over the shorter of the remaining life of the asset or the period until the next required major maintenance or overhaul. Gains or losses on disposal of property and equipment are reflected in general, administrative and other expenses in the condensed consolidated statements of income.
The Company evaluates its long-lived assets for impairment as events or changes in circumstances indicate the carrying value of these assets may not be fully recoverable. The Company evaluates recoverability of long-lived assets to be held and used by estimating the undiscounted future cash flows before interest associated with the expected uses and eventual disposition of those assets. When these comparisons indicate that the carrying value of those assets is greater than the undiscounted cash flows, the Company recognizes an impairment loss for the amount that the carrying value exceeds the fair value.
From time to time, the Company applies for and receives cash grant awards from the U.S. Treasury Department (the “Treasury”) under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the “Act”). The Act authorized the Treasury to make payments to eligible persons who place in service qualifying renewable energy projects. The grants are paid in lieu of investment tax credits. All of the cash proceeds from the grants were used and recorded as a reduction in the cost basis of the applicable project assets. If the Company disposes of the property, or the property ceases to qualify as specified
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
energy property, within five years from the date the property is placed in service, then a prorated portion of the Section 1603 payment must be repaid.
The Company received $1,580,219 in Section 1603 grants during the nine months ended September 30, 2013, and $395,007 and $2,946,773 in Section 1603 grants during the three and nine months ended September 30, 2012, respectively. No grant awards were received during the three months ended September 30, 2013.
For tax purposes, the Section 1603 payments are not included in federal and certain state taxable income and the basis of the property is reduced by 50% of the payment received. Deferred grant income of $7,736,754 and $7,590,730 recorded in the accompanying condensed consolidated balance sheets at September 30, 2013 and December 31, 2012, respectively, represents the benefit of the basis difference to be amortized to income tax expense over the life of the related property.
The Company has received cash rebates from a utility company, which were accounted for as reductions in the book value of the related project assets. The rebates were one-time payments based on the cost and efficiency of the installed units, and are earned upon installation and inspection by the utility. The payments are not related to, or subject to adjustment based on, future operating performance. The rebates were payable from the utility to the Company and are applied against the cost of construction, thereby reducing the book value of the corresponding project assets and have been treated as an investing activity in the accompanying condensed consolidated statements of cash flows. No rebates were received during the nine months ended September 30, 2013. The Company received a rebate of $1,287,000 during the nine months ended September 30, 2012.
Deferred Financing Fees
Deferred financing fees relate to the external costs incurred to obtain financing for the Company. All deferred financing fees are amortized over the respective term of the financing using the effective interest method.
Goodwill and Intangible Assets
The Company has classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions. The Company has recorded intangible assets related to customer contracts, customer relationships, non-compete agreements, trade names and technology, each with defined useful lives. The Company assesses the impairment of goodwill and intangible assets that have indefinite lives on an annual basis (December 31st) and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company would record an impairment charge if such an assessment were to indicate that the fair value of such assets was less than their carrying values. Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets.
Factors that could indicate that an impairment may exist include significant underperformance relative to plan or long-term projections, significant changes in business strategy, significant negative industry or economic trends or a significant decline in the base price of the Company’s publicly traded stock for a sustained period of time. Although the Company believes goodwill and intangible assets are appropriately stated in the accompanying condensed consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance. The Company recorded a goodwill impairment charge of $1,016,325 for the year ended December 31, 2012. See Note 4 for additional disclosure.
During the second quarter of 2013, the Company entered into a stock purchase agreement to acquire, through a wholly owned subsidiary, 100% of the capital stock of The Energy Services Partnership Limited and ESP Response Limited (together, “ESP”). During the first quarter of 2013, the Company acquired substantially all of the assets of Ennovate Corporation (“Ennovate”). During the third quarter of 2012, the Company’s wholly owned subsidiary Ameresco Canada Inc. entered into a stock purchase agreement to acquire 100% of the capital stock of FAME Facility Software Solutions, Inc. (“FAME”). The net purchase price for each acquisition has been allocated to the net identified assets acquired based on the respective fair values of such acquired assets at the dates of each acquisition. The residual amounts were allocated to goodwill. The acquisition of ESP resulted in the Company recording goodwill totaling $5,089,049. The acquisition of Ennovate resulted in the Company recording goodwill totaling $921,128. The acquisition of FAME resulted in the Company recording goodwill totaling $1,886,945. Acquired intangible assets other than goodwill that are subject to amortization include customer contracts and customer relationships, as well as software/technology, trade names and non-compete agreements. The intangible assets are amortized over periods ranging from one to fourteen years from their respective acquisition dates. See Notes 3 and 4 for additional disclosures.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Other Assets
Other assets consist primarily of notes and contracts receivable due to the Company from various customers as well as the fair value of interest rate swaps. See Note 11 for additional disclosure.
Asset Retirement Obligations
The Company recognizes a liability for the fair value of required asset retirement obligations (“AROs”) when such obligations are incurred. The liability is estimated on a number of assumptions requiring management’s judgment, including equipment removal costs, site restoration costs, salvage costs, cost inflation rates and discount rates and is credited to its projected future value over time. The capitalized asset is depreciated using the convention of depreciation of plant assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement cost incurred is recognized as an operating gain or loss in the condensed consolidated statements of income. As of September 30, 2013 and December 31, 2012, the Company had no AROs.
Other Liabilities
Other liabilities consist primarily of deferred revenue related to multi-year operation and maintenance contracts which expire as late as 2031. Other liabilities also include the fair value of interest rate swaps, as well as deferred compensation relating to 2011 acquisitions . See Notes 7 and 11 for additional disclosures.
Revenue Recognition
The Company derives revenue from energy efficiency and renewable energy products and services. Energy efficiency products and services include the design, engineering, and installation of equipment and other measures to improve the efficiency, and control the operation, of a facility’s energy infrastructure. Renewable energy products and services include the construction of small-scale plants that produce electricity, gas, heat or cooling from renewable sources of energy, the sale of such electricity, gas, heat or cooling from plants that the Company owns, and the sale and installation of solar energy products and systems.
Revenue from the installation or construction of projects is recognized on a percentage-of-completion basis. The percentage-of-completion for each project is determined on an actual cost-to-estimated final cost basis. Maintenance revenue is recognized as related services are performed. In accordance with industry practice, the Company includes in current assets and liabilities the amounts of receivables related to construction projects realizable and payable over a period in excess of one year. The revenue associated with contract change orders is recognized only when the authorization for the change order has been properly executed and the work has been performed and accepted by the customer.
When the estimate on a contract indicates a loss, or claims against costs incurred reduce the likelihood of recoverability of such costs, the Company records the entire expected loss immediately, regardless of the percentage of completion.
At September 30, 2013 and December 31, 2012, billings in excess of cost and estimated earnings represents advanced billings on certain construction contracts. Costs and estimated earnings in excess of billings represent certain amounts under customer contracts that were earned and billable but not invoiced.
The Company sells certain products and services in bundled arrangements, where multiple products and/or services are involved. The Company divides bundled arrangements into separate deliverables and revenue is allocated to each deliverable based on the relative selling price. The relative selling price is determined using third party evidence or management’s best estimate of selling price.
The Company recognizes revenue from the sale and delivery of products, including the output from renewable energy plants, when produced and delivered to the customer, in accordance with specific contract terms, provided that persuasive evidence of an arrangement exists, the Company’s price to the customer is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from operations and maintenance (“O&M”) contracts and consulting services as the related services are performed.
For a limited number of contracts under which the Company receives additional revenue based on a share of energy savings, such additional revenue is recognized as energy savings are generated.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Direct Expenses
Direct expenses include the cost of labor, materials, equipment, subcontracting and outside engineering that are required for the development and installation of projects, as well as preconstruction costs, sales incentives, associated travel, inventory obsolescence charges, amortization of intangible assets related to customer contracts and, if applicable, costs of procuring financing. A majority of the Company’s contracts have fixed price terms; however, in some cases the Company negotiates protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.
Direct expenses also include the costs of maintaining and operating the small-scale renewable energy plants that the Company owns, including the cost of fuel (if any) and depreciation charges.
Income Taxes
The Company provides for income taxes based on the liability method. The Company provides for deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using the enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return.
The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.
The Company’s liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process.
The Company considers matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews; the Company has no plans to appeal or litigate any aspect of the tax position; and the Company believes that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. The Company also accrues for potential interest and penalties, related to unrecognized tax benefits in income tax expense. See Note 5 for additional information on the Company’s income taxes.
Foreign Currency Translation
The local currency of the Company’s foreign operations is considered the functional currency of such operations. All assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the year. Translation adjustments are accumulated as a separate component of stockholders’ equity. Foreign currency translation gains and losses are reported in the condensed consolidated statements of comprehensive income.
Financial Instruments
Financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, long-term contract receivables, accounts payable, long-term debt and interest rate swaps. The estimated fair value of cash and cash equivalents, restricted cash, accounts receivable, long-term contract receivables and accounts payable approximates their carrying value. See below for fair value measurements of long-term debt. See Note 10 for fair value measurement of interest rate swaps.
Stock-Based Compensation Expense
Stock-based compensation expense results from the issuances of shares of restricted common stock and grants of stock options to employees, directors, outside consultants and others. The Company recognizes the costs associated with restricted stock and option grants using the fair value recognition provisions of ASC 718, Compensation - Stock Compensation on a straight-line basis over the vesting period of the awards.
Stock-based compensation expense is recognized based on the grant-date fair value. The Company estimates the fair value of the stock-based awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
of stock-based awards requires the use of highly subjective assumptions, including the fair value of the common stock underlying the award, the expected term of the award and expected stock price volatility.
The assumptions used in determining the fair value of stock-based awards represent management’s estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors change, and different assumptions are employed, the stock-based compensation could be materially different in the future. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected life of the stock options.
The Company has no history of paying dividends. Additionally, as of each of the grant dates, there was no expectation that the Company would pay dividends over the expected life of the options. The expected life of the awards is estimated using historical data and management’s expectations. Because there was no public market for the Company’s common stock prior to the Company’s initial public offering, management lacked company-specific historical and implied volatility information. Therefore, estimates of expected stock volatility were based on that of publicly traded peer companies, and it is expected that the Company will continue to use this methodology until such time as there is adequate historical data regarding the volatility of the Company’s publicly traded stock price.
The Company is required to recognize compensation expense for only the portion of options that are expected to vest. Actual historical forfeiture rate of options is based on employee terminations and the number of shares forfeited. These data and other qualitative factors are considered by the Company in determining the forfeiture rate used in recognizing stock compensation expense. If the actual forfeiture rate varies from historical rates and estimates, additional adjustments to compensation expense may be required in future periods. If there are any modifications or cancellations of the underlying unvested securities or the terms of the stock option, it may be necessary to accelerate, increase or cancel any remaining unamortized stock-based compensation expense.
The Company also accounts for equity instruments issued to non-employee directors and consultants at fair value. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is complete. No awards to individuals who were not either an employee or director of the Company occurred during the nine months ended September 30, 2013 or during the year ended December 31, 2012.
Fair Value Measurements
The Company follows the guidance related to fair value measurements for all of its non-financial assets and non-financial liabilities, except for those recognized at fair value in the financial statements at least annually. These assets include goodwill and long-lived assets measured at fair value for impairment assessments, and non-financial assets and liabilities initially measured at fair value in a business combination.
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, interest rate swaps, accounts payable, accrued expenses, equity-based liabilities and short- and long-term borrowings. Because of their short maturity, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value. The carrying value of long-term variable-rate debt approximates fair value. As of September 30, 2013, the carrying value of the Company’s fixed-rate long-term debt exceeds its fair value by approximately $2,613,138. This is based on quoted market prices or on rates available to the Company for debt with similar terms and maturities.
The Company accounts for its interest rate swaps as derivative financial instruments in accordance with the related guidance. Under this guidance, derivatives are carried on the Company’s consolidated balance sheets at fair value. The fair value of the Company’s interest rate swaps are determined based on observable market data in combination with expected cash flows for each instrument.
Derivative Financial Instruments
In the normal course of business, the Company utilizes derivatives contracts as part of its risk management strategy to manage exposure to market fluctuations in interest rates. These instruments are subject to various credit and market risks. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. The Company seeks to
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
manage credit risk by entering into financial instrument transactions only through counterparties that the Company believes to be creditworthy.
Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates. The Company seeks to manage market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. As a matter of policy, the Company does not use derivatives for speculative purposes. The Company considers the use of derivatives with all financing transactions to mitigate risk.
During 2007, the Company entered into two fifteen-year interest rate swap contracts under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional principal amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swaps cover initial notional amounts of $13,080,607 and $3,256,395, each a variable rate note at fixed interest rates of 5.4% and 5.3%, respectively, and expire in March 2024 and February 2021, respectively. These interest rate swaps qualified, but were not designated, as cash flow hedges until April 1, 2010. Since April 2010, they have been designated as hedges. Accordingly, the Company recognized the change in fair value of these derivatives in the condensed consolidated statements of income prior to April 1, 2010, and in the condensed consolidated statements of comprehensive income thereafter. Cash flows from derivative instruments were reported as operating activities in the condensed consolidated statements of cash flows.
In March 2010, the Company entered into a fourteen-year interest rate swap contract under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swap covers an initial notional amount of approximately $27,900,000 variable rate note at a fixed interest rate of 6.99% and expires in December 2024. This swap was not designated as a hedge until March 2013.
In July 2011, the Company entered into a five-year interest rate swap contract under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swap covers an initial notional amount of $38,571,429 variable rate note at a fixed interest rate of 1.965% and expires in June 2016.
In October 2012, the Company entered into two eight-year interest rate swap contracts under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swaps cover an initial notional amount of $16,750,000 variable rate note at a fixed interest rate of 1.71%. This notional amount increased to $42,247,327 on September 30, 2013 and expires in March 2020.
In October 2012, the Company also entered into two eight-year forward starting interest rate swap contracts under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount. The swaps cover an initial notional amount of $25,377,063 variable rate note at a fixed interest rate of 3.70%, with an effective date of March 31, 2020, and expires in June 2028.
Following its entry into new interest rate swaps during the fourth quarter of 2012, the Company conducted a review of its portfolio of eight swaps. As a result of that review, the Company determined that the March 2010 interest rate swap does not qualify for hedge accounting because the Company inappropriately applied the “short cut” method to evaluate this swap for hedge accounting purposes from the date of inception. Accordingly, the change in the fair value of this interest rate swap derivative is required to be recognized as a component of earnings for the periods commencing in March 2010. The accounting error has no effect on cash flows from operating, investing or financing activities or on the Company’s debt covenant calculations. The unrealized gain or loss associated with the changes in fair value of this interest rate swap derivative is recorded as other expenses, net in the condensed consolidated statements of income. See also Restatement above.
See Note 11 for additional information on the Company’s derivative instruments.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Earnings Per Share
Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares, including vested restricted shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using: the weighted-average outstanding common shares; the dilutive effect of convertible preferred stock, under the “if converted” method; and the treasury stock method with regard to warrants and stock options; all as determined under the treasury stock method.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
| | | (Restated) | | | | (Restated) |
Basic and diluted net income | $ | 4,545,117 |
| | $ | 6,712,121 |
| | $ | 840,294 |
| | $ | 13,266,535 |
|
Basic weighted-average shares outstanding | 45,621,552 |
| | 44,788,160 |
| | 45,472,517 |
| | 44,492,509 |
|
Effect of dilutive securities: | |
| | |
| | | | |
Preferred stock | — |
| | — |
| | — |
| | — |
|
Stock options | 983,808 |
| | 1,459,079 |
| | 917,951 |
| | 1,517,629 |
|
Diluted weighted-average shares outstanding | 46,605,360 |
| | 46,247,239 |
| | 46,390,468 |
| | 46,010,138 |
|
For the three and nine months ended September 30, 2013, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares as the effect would be anti-dilutive was 1,813,431 and 1,837,791, respectively. For the three and nine months ended September 30, 2012, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares as the effect would be anti-dilutive was 691,688.
Business Segments
The Company reports four segments: U.S. federal, central U.S. region, other U.S. regions and Canada. Each segment provides customers with energy efficiency and renewable energy solutions. The other U.S. regions segment is an aggregation of four regions: northeast U.S., southeast U.S., southwest U.S. and northwest U.S. These regions have similar economic characteristics — in particular, expected and actual gross profit margins. In addition, they sell products and services of a similar nature, serve similar types of customers and use similar methods to distribute their products and services. Accordingly, these four regions meet the aggregation criteria set forth in ASC 280, Segment Reporting. The “all other” category includes activities, such as certain O&M and sales of renewable energy and certain other renewable energy products, that are managed centrally at the Company’s corporate headquarters. It also includes all amortization of intangible assets and all corporate operating expenses — salaries and benefits, project development costs and general, administrative and other — not specifically allocated to the segments. For the three months ended September 30, 2013 and 2012, unallocated corporate expenses were $10,429,443 and $11,244,873, respectively. Income before taxes and unallocated corporate expenses for all other for the three months ended September 30, 2013 and 2012, was $3,353,990 and $6,311,328, respectively. For the nine months ended September 30, 2013 and 2012, unallocated corporate expenses were $33,740,196 and $33,899,622, respectively. Income before taxes and unallocated corporate expenses for all other for the nine months ended September 30, 2013 and 2012, was $14,017,019 and $15,082,850, respectively. See Note 12 for additional disclosures.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new recurring disclosures and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently assessing the impact of this ASU on its consolidated financial statements.
3. BUSINESS ACQUISITIONS AND RELATED TRANSACTIONS
In June 2013, the Company acquired ESP, comprising two energy management consulting companies and located in Castleford, United Kingdom. The Company made an initial cash payment of $8,829,213 to acquire all of the outstanding stock
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
of the ESP companies. The purchase price is subject to post-closing adjustments for working capital and for certain indemnity obligations of the selling stockholders. The Company deposited approximately $777,710 of the initial cash payment with a third-party escrow agent as security for these matters.
In February 2013, the Company acquired substantially all of the assets of Ennovate Corporation, an energy service company active throughout Colorado, Nebraska, Kansas, Montana and Wyoming, serving customers that include schools, higher education facilities, municipalities and counties. The Company made an initial cash payment of approximately $1,800,000 to acquire these assets. The purchase price is subject to post-closing adjustments for working capital and for certain indemnity obligations of the seller. The Company deposited approximately $1,200,000 of the initial cash payment with a third-party escrow agent as security for these matters.
In July 2012, the Company’s wholly owned subsidiary Ameresco Canada Inc. acquired FAME, a privately held company offering infrastructure asset management solutions serving both public and private sector customers primarily in western Canada. The Company made a cash payment of $4,486,950 to acquire all of the outstanding stock of FAME. The Company deposited approximately $900,000 of the purchase price with a third-party escrow agent as security for the selling stockholders’ indemnification obligations under the terms of the acquisition agreement.
The Company’s acquisitions in 2013 and 2012 were accounted for in accordance with ASC 805, Business Combinations. The purchase price for each has been allocated to the assets based on their estimated fair values at the date of each acquisition as set forth in the table below. The excess purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. Intangible assets identified have been recorded and are being amortized over periods ranging from one to fourteen years. See Note 4 for additional information.
|
| | | | | | | | | | | |
| 2013 | | 2012 |
| ESP | | Ennovate | | FAME |
Cash | $ | 1,291,697 |
| | $ | — |
| | $ | 809,557 |
|
Accounts receivable and accounts receivable retainage | 360,924 |
| | 445,769 |
| | 320,997 |
|
Costs and estimated earnings in excess of billings | 546,608 |
| | 110,987 |
| | — |
|
Prepaid expenses and other current assets | — |
| | 1,710 |
| | 107,715 |
|
Property and equipment and project assets | 75,054 |
| | 62,898 |
| | 43,115 |
|
Goodwill | 5,089,049 |
| | 921,128 |
| | 1,886,945 |
|
Intangible assets | 3,087,509 |
| | 610,000 |
| | 2,099,990 |
|
Other assets | — |
| | — |
| | 100 |
|
Accounts payable | (47,625 | ) | | (313,976 | ) | | (5,713 | ) |
Accrued liabilities | (606,938 | ) | | — |
| | (617,731 | ) |
Billings in excess of cost and estimated earnings | — |
| | (30,431 | ) | | (158,025 | ) |
Other liabilities | (967,065 | ) | | — |
| | — |
|
Purchase price | $ | 8,829,213 |
| | $ | 1,808,085 |
| | $ | 4,486,950 |
|
Total, net of cash received | $ | 7,537,516 |
| | $ | 1,808,085 |
| | $ | 3,677,393 |
|
Total fair value of consideration | $ | 8,829,213 |
| | $ | 1,808,085 |
| | $ | 4,486,950 |
|
The allocation of the purchase price for each of the 2013 acquisitions is preliminary, based on management’s current best estimates, and subject to revision.
The results of the acquired companies since the dates of the acquisitions have been included in the Company’s operations as presented in the accompanying condensed consolidated statements of income, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows.
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
4. GOODWILL AND INTANGIBLE ASSETS
The following table presents goodwill balances included in total assets by segment. There were two acquisitions during the nine months ended September 30, 2013. Goodwill consisted of the following at September 30, 2013 and December 31, 2012:
|
| | | | | | | | | | | | | | | |
| December 31, 2012 | | Acquisitions | | Foreign Currency Translation and Other Adjustments | | September 30, 2013 |
U.S. Federal | $ | 3,374,967 |
| | $ | — |
| | $ | — |
| | $ | 3,374,967 |
|
Central U.S. Region | 1,972,415 |
| | 921,128 |
| | — |
| | 2,893,543 |
|
Other U.S. Regions | 21,736,140 |
| | — |
| | — |
| | 21,736,140 |
|
Canada | 3,827,112 |
| | — |
| | 429,958 |
| | 4,257,070 |
|
All Other | 18,057,756 |
| | 5,089,049 |
| | 206,612 |
| | 23,353,417 |
|
Total | $ | 48,968,390 |
| | $ | 6,010,177 |
| | $ | 636,570 |
| | $ | 55,615,137 |
|
Customer contracts are amortized ratably over the period of the acquired customer contracts (ranging in periods from approximately one to five years). All other intangible assets are amortized over periods ranging from approximately four to fourteen years, as defined by the nature of the respective intangible asset. The following table presents intangible asset balances included in total assets by segment. There were two acquisitions during the nine months ended September 30, 2013. Intangible assets, net, consisted of the following as of September 30, 2013 and December 31, 2012:
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | Acquisitions | | 2013 Amortization | | Foreign Currency Translation | | September 30, 2013 |
Central U.S. Region: | | | | | | | | | |
Customer contracts | $ | — |
| | $ | 62,000 |
| | $ | (46,546 | ) | | $ | — |
| | $ | 15,454 |
|
Customer relationships | — |
| | 288,000 |
| | (57,897 | ) | | — |
| | 230,103 |
|
Non-compete agreements | — |
| | 260,000 |
| | (96,265 | ) | | — |
| | 163,735 |
|
Other U.S. Regions: | | | | | | | | | |
Customer relationships | 2,138,969 |
| | — |
| | (740,962 | ) | | — |
| | 1,398,007 |
|
Non-compete agreements | 843,235 |
| | — |
| | (319,753 | ) | | — |
| | 523,482 |
|
Technology | 148,662 |
| | — |
| | (38,052 | ) | | — |
| | 110,610 |
|
Canada: | | | | | | | | | |
Customer contracts | 634,389 |
| | — |
| | (150,505 | ) | | (24,274 | ) | | 459,610 |
|
Customer relationships | 305,477 |
| | — |
| | (32,901 | ) | | (5,306 | ) | | 267,270 |
|
Non-compete agreements | 211,144 |
| | — |
| | (83,947 | ) | | (13,538 | ) | | 113,659 |
|
Technology | 590,366 |
| | — |
| | (110,031 | ) | | (17,745 | ) | | 462,590 |
|
Trade names | 70,189 |
| | — |
| | (7,691 | ) | | (1,240 | ) | | 61,258 |
|
All Other: |
| | | | | | | |
|
Customer contracts | 1,308,710 |
| | 1,245,891 |
| | (755,994 | ) | | 46,570 |
| | 1,845,177 |
|
Customer relationships | 1,916,334 |
| | 1,420,099 |
| | (318,476 | ) | | 53,082 |
| | 3,071,039 |
|
Non-compete agreements | 385,916 |
| | 421,519 |
| | (145,966 | ) | | 15,756 |
| | 677,225 |
|
Technology | 933,768 |
| | — |
| | (266,525 | ) | | — |
| | 667,243 |
|
Trade names | 255,719 |
| | — |
| | (85,437 | ) | | — |
| | 170,282 |
|
Total | $ | 9,742,878 |
| | $ | 3,697,509 |
| | $ | (3,256,948 | ) | | $ | 53,305 |
| | $ | 10,236,744 |
|
Amortization expense for the three months ended September 30, 2013 and 2012 related to customer contracts was $499,112 and $400,084, respectively, and is included in energy efficiency expenses in the condensed consolidated statements of income. Amortization expense for the nine months ended September 30, 2013 and 2012 related to customer contracts was
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
$953,045 and $2,033,797, respectively, and is included in energy efficiency expenses in the condensed consolidated statements of income. Amortization expense for the three months ended September 30, 2013 and 2012 related to customer relationships, non-compete agreements, technology and trade names was $968,761 and $712,949, respectively, and is included in general, administrative and other expenses in the condensed consolidated statements of income. Amortization expense for the nine months ended September 30, 2013 and 2012 related to customer relationships, non-compete agreements, technology and trade names was $2,303,903 and $2,050,258, respectively, and is included in general, administrative and other expenses in the condensed consolidated statements of income.
5. INCOME TAXES
The provision for income taxes was $1,447,486 and $2,683,936, for the three months ended September 30, 2013 and 2012, respectively. The provision for income taxes was $247,747 and $5,292,453, for the nine months ended September 30, 2013 and 2012, respectively. The estimated 2013 effective tax rate changed to 24.2% for the three months ended September 30, 2013 from a 28.6% estimated annual effective tax rate for the three months ended September 30, 2012. The estimated 2013 effective tax rate changed to 22.8% for the nine months ended September 30, 2013 from a 28.5% estimated annual effective tax rate for the nine months ended September 30, 2012.
At September 30, 2013 and December 31, 2012, the Company had approximately $4,900,000 of total gross unrecognized tax benefits. Of the total gross unrecognized tax benefits as of September 30, 2013 and December 31, 2012, approximately $3,400,000 (net of the federal benefit on state amounts) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.
6. STOCK INCENTIVE PLAN
In 2000, the Company’s Board of Directors approved the Company’s 2000 Stock Incentive Plan (the “2000 Plan”) and between 2000 and 2010 authorized the Company to reserve a total of 28,500,000 shares of its then authorized common stock, par value $0.0001 per share (“Common Stock”) for issuance under the 2000 Plan. The 2000 Plan provided for the issuance of restricted stock grants, incentive stock options and nonqualified stock options. The Company will grant no further stock options or restricted stock awards under the 2000 Plan.
The Company’s 2010 Stock Incentive Plan (the “2010 Plan”), which became effective upon the closing of the Company’s initial public offering, was adopted by the Company’s Board of Directors in May 2010 and approved by its stockholders in June 2010. The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards. Upon its effectiveness, 10,000,000 shares of the Company’s Class A common stock were reserved for issuance under the 2010 Plan. As of September 30, 2013, the Company had granted options to purchase 1,527,504 shares of Class A common stock under the 2010 Plan.
Stock Option Grants
The Company has granted stock options to certain employees and directors, including its principal and controlling stockholder, under the 2000 Plan. The Company will grant no further stock options or restricted stock awards under the 2000 Plan. The Company has also granted stock options to certain employees and directors under the 2010 Plan. At September 30, 2013, 8,566,927 shares were available for grant under the 2010 Plan. The following table summarizes the collective activity under the 2000 Plan and the 2010 Plan:
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
|
| | | | | | | |
| | Number of Options | | Weighted-Average Exercise Price |
Outstanding at December 31, 2012 | | 4,778,143 |
| | $ | 6.794 |
|
Granted | | 563,360 |
| | 9.036 |
|
Exercised | | (507,919 | ) | | 3.300 |
|
Forfeited | | (100,206 | ) | | 11.810 |
|
Outstanding at September 30, 2013 | | 4,733,378 |
| | $ | 7.329 |
|
Options exercisable at September 30, 2013 | | 3,193,796 |
| | $ | 5.847 |
|
Expected to vest at September 30, 2013 | | 1,520,676 |
| | $ | 10.420 |
|
Options exercisable at December 31, 2012 | | 3,309,722 |
| | $ | 4.986 |
|
The weighted-average remaining contractual life of all options expected to vest at September 30, 2013 was 8.49 years. The total intrinsic value of options exercised during the nine months ended September 30, 2013 was $2,855,548.
The following table summarizes information about stock options outstanding at September 30, 2013:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Outstanding Options | | Exercisable Options |
Related Plan | | Exercise Price | | Number Outstanding | | Weighted-Average Remaining Contractual Life | | Weighted-Average Exercise Price | | Number Exercisable | | Weighted-Average Exercise Price |
2000 Plan | | $ | 1.875 |
| | 100,000 |
| | 0.04 | | $ | 1.875 |
| | 100,000 |
| | $ | 1.875 |
|
2000 Plan | | 2.750 |
| | 391,731 |
| | 0.75 | | 2.750 |
| | 391,731 |
| | 2.750 |
|
2000 Plan | | 3.000 |
| | 13,600 |
| | 1.32 | | 3.000 |
| | 13,600 |
| | 3.000 |
|
2000 Plan | | 3.250 |
| | 583,144 |
| | 2.44 | | 3.250 |
| | 583,144 |
| | 3.250 |
|
2000 Plan | | 3.410 |
| | 446,562 |
| | 3.30 | | 3.410 |
| | 446,562 |
| | 3.410 |
|
2000 Plan | | 4.220 |
| | 214,050 |
| | 3.92 | | 4.220 |
| | 214,050 |
| | 4.220 |
|
2000 Plan | | 6.055 |
| | 966,500 |
| | 5.75 | | 6.055 |
| | 796,100 |
| | 6.055 |
|
2010 Plan | | 7.150 |
| | 30,000 |
| | 9.56 | | 7.150 |
| | — |
| | 7.150 |
|
2010 Plan | | 8.390 |
| | 50,000 |
| | 9.66 | | 8.390 |
| | — |
| | 8.390 |
|
2010 Plan | | 8.480 |
| | 100,000 |
| | 9.94 | | 8.480 |
| | — |
| | 8.480 |
|
2010 Plan | | 8.860 |
| | 24,360 |
| | 9.69 | | 8.860 |
| | — |
| | 8.860 |
|
2010 Plan | | 9.450 |
| | 359,000 |
| | 9.81 | | 9.450 |
| | — |
| | 9.450 |
|
2010 Plan | | 10.750 |
| | 50,000 |
| | 8.67 | | 10.750 |
| | 10,000 |
| | 10.750 |
|
2010 Plan | | 10.950 |
| | 140,000 |
| | 7.96 | | 10.950 |
| | 72,000 |
| | 10.950 |
|
2010 Plan | | 11.630 |
| | 155,093 |
| | 8.71 | | 11.630 |
| | 31,009 |
| | 11.630 |
|
2010 Plan | | 11.980 |
| | 449,650 |
| | 8.57 | | 11.980 |
| | 89,930 |
| | 11.980 |
|
2000 Plan | | 13.045 |
| | 571,000 |
| | 6.57 | | 13.045 |
| | 410,200 |
| | 13.045 |
|
2010 Plan | | 14.810 |
| | 60,000 |
| | 7.65 | | 14.810 |
| | 24,000 |
| | 14.810 |
|
2010 Plan | | 16.290 |
| | 28,688 |
| | 7.32 | | 16.290 |
| | 11,470 |
| | 16.290 |
|
| | | | 4,733,378 |
| | | | | | 3,193,796 |
| | |
During the nine months ended September 30, 2013, a total of 507,919 shares were issued upon the exercise of options under the 2000 Plan at an average price of $3.300 per share. Cash received from option exercises under all stock-based payment arrangements for the nine months ended September 30, 2013 and 2012 was $1,676,046 and $3,016,256, respectively.
Under the 2000 Plan and the 2010 Plan, all options expire if not exercised within ten years after the grant date. Historically, options generally provided for vesting over five years, with 20% vesting on the first anniversary of the grant date and five percent vesting every three months thereafter. During 2011, the Company began awarding options generally providing for
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
vesting over five years, with 20% vesting on each of the first five anniversaries of the grant date. From time to time, the Company awards options providing for vesting over three years, with one-third vesting on each of the first three anniversaries of the grant date. If the employee ceases to be employed by the Company for any reason before vested options have been exercised, the employee has 90 days to exercise options that have vested as of the date of such employee’s termination or they are forfeited.
The Company uses the Black-Scholes option pricing model to determine the weighted-average fair value of options granted. The Company will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award.
The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The following table sets forth the significant assumptions used in the model during 2013 and 2012:
|
| | | | |
| | Nine Months Ended September 30, | | Year Ended December 31, |
| | 2013 | | 2012 |
Future dividends | | $ - | | $ - |
Risk-free interest rate | | 1.03%-2.18% | | 0.82%-1.25% |
Expected volatility | | 34%-38% | | 32% |
Expected life | | 6.0-6.5 years | | 6.5 years |
The Company will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to the stock-based compensation on a prospective basis, and incorporating these factors into the Black-Scholes pricing model. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant. In addition, any changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period that the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the accompanying condensed consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the accompanying condensed consolidated financial statements. These expenses will affect the direct expenses, salaries and benefits and project development costs expenses.
For the three months ended September 30, 2013 and 2012, the Company recorded stock-based compensation expense of $789,416 and $853,866, respectively, in connection with stock-based payment awards. For the nine months ended September 30, 2013 and 2012, the Company recorded stock-based compensation expense of $2,125,276 and $2,527,926, respectively, in connection with stock-based payment awards. The compensation expense is allocated between direct expenses, salaries and benefits and project development costs in the accompanying condensed consolidated statements of income based on the salaries and work assignments of the employees holding the options. As of September 30, 2013, there was $6,612,695 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.93 years.
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in a variety of claims and other legal proceedings generally incidental to its normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on its financial condition or results of operations.
Solar Tariff Contingency
In October 2012, the U.S. Department of Commerce (“Commerce”) announced its final determination in the anti-dumping and countervailing duty investigations of imports of solar cells manufactured in the People’s Republic of China (“PRC”), including solar modules containing such cells. Commerce’s final determination confirmed its previously published anti-
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
dumping duty of 249.96%, in the case of the Company, and increased its countervailing duty from 3.61% to 15.24%; both duties are applied to the value of imports of solar modules containing PRC cells. Under Commerce’s determination, the anti-dumping and countervailing duties both were to apply retroactively 90 days from the date each preliminary decision was published to February 25, 2012 and December 21, 2011, respectively. On November 7, 2012, the International Trade Commission announced its final determination upholding the duties, but eliminating the retroactive periods. Since early 2012, the Company has been importing solar modules containing PRC cells, though it ceased doing so in July 2012 in response to these duties. The Company is monitoring and evaluating its alternatives for obtaining a separate and reduced anti-dumping duty rate. Depending on whether the maximum anti-dumping duty rate of 249.96% or some lower rate applies, the Company may be liable for combined duties of up to approximately $3.3 million.
The Company has established a reserve reflecting its current estimate of its ultimate exposure to these assessments.
Commitments as a Result of Acquisitions
Related to the Company’s acquisition of FAME in the third quarter of 2012 (see Note 3), the former stockholders of FAME, who are now employees of the Company, may be entitled to receive up to an estimated $865,000 in additional consideration if FAME meets certain financial performance milestones. As of September 30, 2013 the Company had not recorded any accrual based on the valuation of the current commitment.
Related to the Company’s acquisition of Applied Energy Group, Inc., (“AEG”) in the third quarter of 2011, the former stockholders of AEG, who are now employees of the Company, may be entitled to receive up to $5,000,000 in additional consideration if AEG meets certain financial performance milestones. As of September 30, 2013 the Company had recorded $1,075,112 as a liability for the valuation of the current estimate.
8. GEOGRAPHIC INFORMATION
The Company attributes revenue to customers based on the location of the customer. The composition of the Company’s long-lived assets at September 30, 2013 and December 31, 2012 and revenues from sales to unaffiliated customers for the three and nine months ended September 30, 2013 and 2012 between those in the United States and those in other locations, is as follows:
|
| | | | | | | |
| September 30, | | December 31, |
| 2013 | | 2012 |
Long-lived assets: | | | |
United States | $ | 218,445,196 |
| | $ | 198,485,075 |
|
Canada | 17,927,670 |
| | 18,143,844 |
|
Other | 89,782 |
| | 33,281 |
|
| $ | 236,462,648 |
| | $ | 216,662,200 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Revenue: | | | | | | | |
United States | $ | 139,999,757 |
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