Business Overview: A Diverse and Resilient Service Offering

Ameresco Inc. (AMRC) is a leading energy solutions provider dedicated to helping customers navigate the energy transition. The company offers a comprehensive portfolio of services, including implementing smart energy efficiency solutions, upgrading aging infrastructure, and developing, constructing, and operating distributed energy resources. With a diversified customer base spanning federal, state, and local governments, utilities, educational and healthcare institutions, housing authorities, and commercial and industrial clients, Ameresco has established itself as a trusted partner in the evolving energy landscape.

Ameresco was organized as a Delaware corporation on April 25, 2000, with the mission to provide comprehensive energy services, including energy efficiency, infrastructure upgrades, energy security and resilience, asset sustainability, and renewable energy solutions for businesses and organizations. In its early years, the company focused primarily on energy efficiency projects, which involved designing, engineering, and installing innovative technologies to improve energy efficiency and control building energy and water consumption.

As the company grew, it expanded its service offerings to include the development and construction of small-scale renewable energy plants generating electricity, gas, heat, or cooling from renewable sources. Ameresco further diversified its business by providing long-term operations and maintenance (O&M) contracts for customers' energy systems.

To support its growth and expand its geographical reach, Ameresco has completed several strategic acquisitions of complementary businesses and assets over the years. These acquisitions have enabled the company to broaden its service offerings and establish a presence in new markets.

Today, Ameresco's core service offerings can be divided into three main segments: Smart Energy Solutions Projects, Operations and Maintenance (O&M), and Ameresco-owned Energy Assets. The company has a team of over 1,500 dedicated energy and business professionals operating out of approximately 60 offices to deliver tailored energy solutions to its customers across North America and Europe.

Throughout its history, Ameresco has faced and overcome various challenges, including managing project execution risks, navigating complex regulatory environments, and mitigating the impacts of economic conditions and global events on its supply chain and operations. Despite these obstacles, the company has maintained a resilient business model that has enabled it to weather various market conditions and continue its growth trajectory.

Robust Financial Performance: Consistent Growth and Improving Profitability

Ameresco has demonstrated a track record of consistent financial performance, with strong growth in both revenue and profitability. Over the past three fiscal years, the company has reported the following results:

• Fiscal Year 2024 (FY2024): - Revenue: $1.77 billion - Net Income: $53.9 million - Adjusted EBITDA: $225.3 million - Operating Cash Flow: $117.6 million - Free Cash Flow: -$320.7 million

• Fiscal Year 2023 (FY2023): - Revenue: $1.37 billion - Net Income: $62.5 million - Adjusted EBITDA: $152.5 million - Operating Cash Flow: -$70.0 million - Free Cash Flow: -$621.8 million

• Fiscal Year 2022 (FY2022): - Revenue: $1.82 billion - Net Income: $94.9 million - Adjusted EBITDA: $189.9 million - Operating Cash Flow: -$338.3 million - Free Cash Flow: -$666.2 million

The company's revenue growth has been driven by the consistent execution of its project backlog, the expansion of its recurring O&M business, and the increasing contribution from its growing portfolio of energy assets. Ameresco's adjusted EBITDA margin has also improved, reflecting the company's focus on operational efficiency and the scalability of its business model.

It's worth noting that Ameresco's free cash flow has been negative in recent years due to the capital-intensive nature of the company's energy asset development activities. However, Ameresco has demonstrated its ability to finance these investments through a combination of debt, tax equity, and the sale of environmental attributes, while maintaining a strong liquidity position.

In the most recent quarter (Q4 2024), Ameresco reported revenue of $532.7 million, representing a year-over-year growth of 20.7%. Net income for the quarter was $37.1 million, an increase of 15.0% compared to the same period in the previous year. The revenue growth was driven by strong performance in the projects and energy asset businesses, as well as the successful sale of the AEG business unit. However, the company experienced cost overruns on two large legacy projects, which negatively impacted gross profit by approximately $20 million in Q4 and $38 million for the full year.

Diversified Customer Base and Geographic Reach

Ameresco serves a diverse customer base, with a significant presence in the public sector. Approximately 67% of the company's revenues in FY2024 were derived from federal, state, provincial, or local government entities, including public housing authorities, public universities, and municipal utilities. This customer diversification has provided Ameresco with a stable source of revenue and mitigated the impact of any single customer or market segment.

In addition to its strong presence in North America, Ameresco has been expanding its geographic reach, with operations in Canada, the United Kingdom, and Europe. In FY2024, the company generated 14.2% of its revenues from its European operations, highlighting the success of its international growth strategy.

Robust Project Backlog and Contracted Pipeline

Ameresco's strong project development capabilities and customer relationships have enabled the company to maintain a robust project backlog and contracted pipeline. As of December 31, 2024, Ameresco's total project backlog stood at $4.82 billion, comprising $2.54 billion in fully-contracted backlog and $2.27 billion in awarded, but not yet signed, customer contracts. This represents a record growth of 24% year-over-year in project backlog.

The company's 12-month project backlog, which represents the estimated amount of revenue expected to be recognized over the next 12 months, stood at $1.15 billion as of the same date. This provides Ameresco with a high degree of revenue visibility and supports the company's growth trajectory.

Navigating Federal Government Opportunities and Challenges

Ameresco has a significant presence in the federal government market, which accounted for 21% of the company's total revenues in FY2024. The company's expertise in energy savings performance contracts (ESPCs) and other federal contracting mechanisms has enabled it to secure a strong foothold in this important customer segment.

However, the company has recently faced some challenges in its federal business due to policy changes and workforce disruptions under the new administration. Ameresco has reported delays and cancellations on a few federal projects, which have been incorporated into the company's FY2025 guidance.

Despite these short-term headwinds, Ameresco remains optimistic about the long-term prospects of its federal business. The company believes that its budget-neutral solutions, which provide significant cost savings and infrastructure upgrades for government agencies, remain well-aligned with the priorities of the current administration.

Investing in the Energy Transition: Growth in Renewable Natural Gas and Energy Storage

Ameresco has been actively investing in the growth of its renewable natural gas (RNG) and energy storage businesses, positioning the company to capitalize on the ongoing energy transition.

In the RNG segment, Ameresco has been developing and operating a portfolio of plants that convert biogas from landfills, wastewater treatment facilities, and agricultural sources into renewable natural gas. The company has also been leveraging various government incentives, such as the Section 45Z Clean Fuels production tax credit, to enhance the profitability of these assets.

Similarly, Ameresco has been expanding its energy storage capabilities, with a focus on battery energy storage systems (BESS). The company has been integrating BESS into its renewable energy projects, providing customers with improved grid resiliency and the ability to better manage their energy consumption.

These strategic investments in RNG and energy storage align with the growing demand for decarbonization and energy resilience solutions, positioning Ameresco as a key player in the evolving energy landscape. In 2024, Ameresco added a record 241 megawatts of energy assets, bringing their total operating energy assets to 731 megawatts.

Organizational Structure and Segment Performance

Ameresco's business is primarily organized into four reportable segments: North America Regions, U.S. Federal, Renewable Fuels, and Europe. Each segment offers a range of energy efficiency products and services, renewable energy solutions, and operations and maintenance services tailored to their respective markets.

In fiscal year 2024, the segment contributions to total revenue were as follows:

• North America Regions: $878.8 million (49.7% of total)
• U.S. Federal: $372.5 million (21.0% of total)
• Renewable Fuels: $173.3 million (9.8% of total)
• Europe: $250.6 million (14.2% of total)
• All Other: $94.7 million (5.3% of total)

The company's gross profit for the year was $256.1 million, representing a gross margin of 14.5%. Operating income was $108.8 million, with varying contributions from each segment.

Financial Position and Liquidity

As of December 31, 2024, Ameresco maintained a solid financial position with:

• Cash on hand: $108.5 million
• Available credit under revolving credit facility: $21.1 million
• Debt/Equity ratio: 1.68
• Current ratio: 1.46
• Quick ratio: 1.45

These metrics indicate that Ameresco has maintained a relatively strong liquidity position, enabling the company to fund its operations and pursue growth opportunities.

Risks and Challenges

While Ameresco has demonstrated resilience and growth, the company faces several risks and challenges that investors should be aware of:

1. Regulatory and Policy Uncertainty: Changes in government policies, such as the recent executive orders impacting the federal market, can create uncertainty and disrupt Ameresco's operations.

2. Supply Chain Disruptions: The company has been affected by global supply chain challenges, which have led to delays and cost overruns on some projects.

3. Project Execution Risks: Ameresco's projects can be complex, and the company may face unexpected challenges during the construction and installation phases, which could impact profitability. This was evident in the cost overruns experienced on two large legacy projects in 2024.

4. Reliance on Government Incentives: Many of Ameresco's renewable energy projects rely on government incentives, such as tax credits and renewable energy certificates. Changes or reductions in these incentives could adversely affect the company's financial performance.

5. Competition: Ameresco operates in a highly competitive industry, and the company may face increased competition from both traditional and emerging players in the energy services market.

Outlook and Conclusion

Ameresco's strong financial performance, diversified customer base, and strategic investments in the energy transition have positioned the company for continued growth. For 2025, Ameresco is guiding for revenue of $1.9 billion and adjusted EBITDA of $235 million at the midpoint of their guidance ranges. The company expects to place 100-120 megawatts of new energy assets into operation in 2025, including 1-2 RNG plants.

Ameresco anticipates capital expenditures of $350-400 million for 2025, which they plan to fund primarily with energy asset debt, tax equity, and tax credit sales. The company expects the first quarter of 2025 to be the seasonally lowest in terms of revenue and to have negative EPS, with the second half of the year representing around 60% of the total 2025 revenue.

It's worth noting that Ameresco's 2025 guidance does not include the potential impact of a change in accounting principle related to sale-leaseback arrangements, which could result in lower annual interest and other expenses of an estimated $20 million.

Despite the near-term challenges in the federal market, Ameresco's resilient business model, focus on operational excellence, and commitment to innovation should enable the company to capitalize on the growing demand for energy efficiency, renewable energy, and energy infrastructure solutions. As Ameresco continues to execute on its strategic priorities, the company is well-poised to deliver sustainable value for its shareholders over the long term.