Ameresco, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Revenue from Contracts with Customers

Revenue from Contracts with Customers

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

REVENUE FROM CONTRACTS WITH CUSTOMERS

Adoption

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, (Topic 606) using the modified retrospective method applied to those contracts which were not completed as of December 31, 2017. Results for reporting periods beginning January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company recorded a net decrease to beginning retained earnings of $4,454 on January 1, 2018 due to the cumulative impact of adopting Topic 606, as detailed below.



	January 1, 2018
	As Reported			606 Adjustments				Adjusted Balances
Assets:
Costs and estimated earnings in excess of billings		$	104,852		$	(9,194	)		$	95,658
Prepaid expenses and other current assets		14,037			4,343				18,380
Deferred income taxes, net		—			1,003				1,003
Liabilities:
Accrued expenses and other current liabilities		23,260			1,190				24,450
Deferred income taxes, net		584			(584		)		—
Shareholders' Equity:
Retained earnings		235,844			(4,454		)		231,390

In accordance with Topic 606, the disclosure of the impact of adoption to the Company’s consolidated statements of income and balance sheets was as follows:



	Impact of changes in accounting policies
	12/31/2019									12/31/2018
	As Reported			Balances without adoption of Topic 606			Effect of Change Higher/(Lower)			As Reported		Balances without adoption of Topic 606		Effect of Change Higher/(Lower)
Revenues	$	866,933		$	871,409		$	(4,476	)	$	787,138	$	784,316	$	2,822
Cost of revenues	698,815			701,397			(2,582		)	613,526		610,229		3,297
Gross profit	168,118			170,012			(1,894		)	173,612		174,087		(475		)
Operating expenses:
Selling, general and administrative expenses	116,504			116,504			—			114,513		114,513		—
Operating income	51,614			53,508			(1,894		)	59,099		59,574		(475		)
Other expenses, net	15,061			15,061			—			16,709		16,709		—
Income before provision for income taxes	36,553			38,447			(1,894		)	42,390		42,865		(475		)
Income tax (benefit) provision	(3,748		)	(3,256		)	(492		)	4,813		4,998		(185		)
Net income	40,301			41,703			(1,402		)	37,577		37,867		(290		)
Net loss attributable to redeemable non-controlling interests	4,135			4,135			—			407		407		—
Net income attributable to common shareholders	$	44,436		$	45,838		$	(1,402	)	$	37,984	$	38,274	$	(290	)
Basic income per share	$	0.95		$	0.98		$	(0.03	)	$	0.83	$	0.84	$	(0.01	)
Diluted income per share	$	0.93		$	0.96		$	(0.03	)	$	0.81	$	0.82	$	(0.01	)



	December 31, 2019							December 31, 2018
	As Reported		Balances without adoption of Topic 606		Effect of Change Higher/(Lower)			As Reported		Balances without adoption of Topic 606		Effect of Change Higher/(Lower)
Assets:
Costs and estimated earnings in excess of billings	$	202,243	$	213,091	$	(10,848	)	$	86,842	$	93,214	$	(6,372	)
Prepaid expenses and other current assets	29,424		25,776		3,648			11,571		10,644		927
Liabilities:
Accrued expenses and other current liabilities	31,356		30,147		1,209			35,947		34,877		1,070
Deferred income taxes, net	115		2,378		(2,263		)	4,352		6,123		(1,771		)
Shareholders' Equity:
Retained earnings	314,459		320,605		(6,146		)	269,806		274,550		(4,744		)

The impact in revenue recognition due to the adoption of Topic 606 is primarily from the timing of revenue recognition for uninstalled materials, amortization of contract acquisition costs over the contract term, and timing of revenue recognition from renewable energy credits. See Note 2 for a summary of the Company’s significant policies for revenue recognition.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by line of business and geographical region, by reportable segments, for the year ended December 31, 2019.



	US Regions		U.S. Federal		Canada		Non-Solar DG		All Other		Total
Line of Business
Year ended December 31, 2019
Project revenue	$	321,973	$	240,656	$	27,995	$	9,221	$	11,219	$	611,064
O&M revenue	15,753		41,599		5		9,183		169		66,709
Energy assets	24,897		3,652		3,306		65,365		822		98,042
Other	2,437		1,519		6,604		914		79,644		91,118
Total revenues	$	365,060	$	287,426	$	37,910	$	84,683	$	91,854	$	866,933

Geographical Regions
Year ended December 31, 2019
United States	$	364,987	$	287,426	$	3,007	$	84,683	$	75,302	$	815,405
Canada	—		—		34,830		—		201		35,031
Other	73		—		73		—		16,351		16,497
Total revenues	$	365,060	$	287,426	$	37,910	$	84,683	$	91,854	$	866,933

The following table provides information about disaggregated revenue by line of business and geographical region, by reportable segments, for the year ended December 31, 2018.



	US Regions		U.S. Federal		Canada		Non-Solar DG		All Other		Total
Line of Business
Year ended December 31, 2018
Project revenue	$	296,226	$	202,286	$	29,571	$	4,550	$	12,420	$	545,053
O&M revenue	17,814		39,250		37		8,135		—		65,236
Energy assets	18,442		4,062		2,604		69,599		1,069		95,776
Other	1,862		711		6,770		371		71,359		81,073
Total revenues	$	334,344	$	246,309	$	38,982	$	82,655	$	84,848	$	787,138

Geographical Regions
Year ended December 31, 2018
United States	$	334,344	$	246,309	$	2,557	$	82,655	$	68,883	$	734,748
Canada	—		—		36,425		—		303		36,728
Other	—		—		—		—		15,662		15,662
Total revenues	$	334,344	$	246,309	$	38,982	$	82,655	$	84,848	$	787,138

For the years ended December 31, 2019 and 2018, approximately 92% and 93%, respectively, of revenue is recognized over time, and the remainder is for products and services transferred at a point in time.

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:



	December 31, 2019		December 31, 2018
Accounts receivable, net	$	95,863	$	85,985
Accounts receivable retainage, net	16,976		13,516
Contract Assets:
Costs and estimated earnings in excess of billings	202,243		86,842
Contract Liabilities:
Billings in excess of cost and estimated earnings	32,178		30,706

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 5% to 10% of the total invoice. The Company classifies as a current asset those retainages that are expected to be billed in the next twelve months. Unbilled revenue, presented as costs and estimated earnings in excess of billings, represent amounts earned and billable that were not invoiced at the end of the fiscal period.

Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. The Company’s rights to consideration are generally unconditional at the time its performance obligations are satisfied.

At the inception of a contract, the Company expects the period between when it satisfies its performance obligations, and when the customer pays for the services, will be one year or less. As such, the Company has elected to apply the practical expedient which allows the Company to not adjust the promised amount of consideration for the effects of a significant financing component, when a financing component is present.

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs incurred and advance payments received on project contracts. As of December 31, 2019 and 2018, the Company classified $5,560 and $6,342, respectively, as a non-current liability, included in other liabilities on the consolidated balance sheets, for those performance obligations expected to be completed beyond the next twelve months.

The increase in contract assets for the year ended December 31, 2019 was primarily due to revenue recognized of $535,021, offset in part by billings of approximately $431,717. The increase in contract liabilities was primarily driven by the receipt of advance payments from customers, and related billings, exceeding recognition of revenue as performance obligations were satisfied. For the year ended December 31, 2019, the Company recognized revenue of $75,070, and billed customers $73,675 that was previously included in the beginning balance of contract liabilities. Changes in contract liabilities are also driven by reclassifications to or from contract assets as a result of timing of customer payments.

The decrease in contract assets for the year ended December 31, 2018 was primarily due to billings of approximately $510,470, offset in part by revenue recognized of $485,143. The increase in contract liabilities was primarily driven by the receipt of advance payments from customers, and related billings, exceeding recognition of revenue as performance obligations were satisfied. For the year ended December 31, 2018, The Company recognized revenue of $95,318, and billed customers $80,007, that was previously included in the beginning balance of contract liabilities. Changes in contract liabilities are also driven by reclassifications to or from contract assets as a result of timing of customer payments.

Contracts are often modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from the existing performance obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis.

The Company elected to utilize the modified retrospective transition practical expedient which allows the Company to evaluate the impact of contract modifications as of the adoption date rather than evaluating the impact of the modifications at the time they occurred prior to the adoption date.

Performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. Performance obligations are satisfied as of a point in time or over time and are supported by contracts with customers. For most of the Company’s contracts, there are multiple promises of goods or services. Typically, the Company provides a significant service of integrating a complex set of tasks and components such as design, engineering, construction management, and equipment procurement for a project contract. The bundle of goods and services are provided to deliver one output for which the customer has contracted. In these cases, the Company considers the bundle of goods and services to be a single performance obligation. The Company may also promise to provide distinct goods or services within a contract, such as a project contract for installation of energy conservation measures and post-installation O&M services. In these cases the Company separates the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation.

Backlog - The Company’s remaining performance obligations (hereafter referred to as “backlog”) represent the unrecognized revenue value of the Company’s contract commitments. The Company’s backlog may vary significantly each reporting period based on the timing of major new contract commitments and the backlog may fluctuate with currency movements. In addition, our customers have the right, under some circumstances, to terminate contracts or defer the timing of the Company’s services and their payments to us. At December 31, 2019, the Company had backlog of approximately $2,249,970. Approximately 28%, of our December 31, 2019 backlog is anticipated to be recognized as revenue in the next twelve months and the remaining, thereafter. The remaining performance obligations relate primarily to the energy efficiency and renewable energy construction projects, including the long-term O&M services related to these projects. The long-term services have varying initial contract terms, up to 25 years.

The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

Contract acquisition costs

In connection with the adoption of Topic 606, the Company is required to account for certain acquisition costs over the life of the contract, consisting primarily of commissions. Commission costs are incurred commencing at contract signing. Commission costs are allocated across all performance obligations and deferred and amortized over the contract term on a progress towards completion basis.

As of December 31, 2019 and 2018, included in other assets in the accompanying consolidated balance sheets, the Company capitalized $1,735 and $927, respectively, in commission costs related to contracts that were not completed. For contracts that have a duration of less than one year, the Company follows a practical expedient and expenses these costs when incurred. During the years ended December 31, 2019 and 2018, the amortization of commission costs related to contracts were not material and have been included in the accompanying consolidated statements of income.

The Company analyzed the impact of adoption of Topic 606 on the Company’s project development costs and determined no change in the Company’s accounting policy was required. During the years ended December 31, 2019 and 2018, $35,172 and $15,672, respectively, of project development costs were recognized in the consolidated statements of income on projects that converted to customer contracts.

No impairment charges in connection with the Company’s commission costs or project development costs were recorded during the years ended December 31, 2019 and 2018.