# Ameresco, Inc. (AMRC) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ameresco, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1488139/000148813922000014/amrc-20211231.htm
Accession: 0001488139-22-000014
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/AMRC/
All MD&A years: /company/AMRC/mda/
Next year: /company/AMRC/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included in Item 8 of this Report. Some of the information contained in this discussion and analysis are set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, and includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” included in Item 1A of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Ameresco is a leading clean technology integrator with a comprehensive portfolio of energy efficiency and renewable energy supply solutions. We help organizations meet energy saving and energy management challenges with an integrated, comprehensive approach to energy efficiency and renewable energy. Leveraging budget neutral solutions, including ESPCs and PPAs, we aim to eliminate the financial barriers that traditionally hamper energy efficiency and renewable energy projects.

Drawing from decades of experience, Ameresco develops tailored energy management projects for its customers in the commercial, industrial, local, state and federal government, K-12 education, higher education, healthcare, public housing sectors, and utilities.

We provide solutions primarily throughout North America and the U.K. and our revenues are derived principally from energy efficiency projects, which entail the design, engineering, and installation of equipment and other measures that incorporate a range of innovative technology and techniques to improve the efficiency and control the operation of a facility’s energy infrastructure; this can include designing and constructing a central plant or cogeneration system for a customer providing power, heat and/or cooling to a building, or other small-scale plant that produces electricity, gas, heat or cooling from renewable sources of energy. We also derive revenue from long-term O&M contracts, energy supply contracts for renewable energy operating assets that we own, integrated-PV, and consulting and enterprise energy management services.

In addition to organic growth, strategic acquisitions of complementary businesses and assets have been an important part of our growth enabling us to broaden our service offerings and expand our geographical reach. In December 2021, we completed the acquisition of Plug Smart, an Ohio-based energy services company that specializes in the development and implementation of budget neutral capital improvement projects including building controls and building automation systems. This acquisition allows us to expand our existing pipeline and solution offerings in the smart buildings sector. The pro forma effects of this acquisition were not material to our operations for the fiscal years presented.

Key Factors and Trends

The SCE Agreement

In October 2021, we entered into a contract with SCE to design and build three grid scale battery energy storage systems at existing substation parcels throughout SCE’s service territory in California. The engineering, procurement and construction price is approximately $892.0 million, in the aggregate, including two years of O&M revenues, subject to customary potential adjustments for changes in the work.

We are obligated under the SCE Agreement to achieve substantial completion of all facilities, subject to extension for customary force majeure events and customer-caused delays, no later than August 1, 2022 (the “Guaranteed Completion Date”). If we fail to achieve substantial completion of any of the facilities by the Guaranteed Completion Date, as extended, we are obligated to pay liquidated damages. In addition, we provided availability and capacity guarantees under the SCE Agreement, failure of which entitles the customer to liquidated damages. We expect a material portion of our revenue for 2022 will be generated from this SCE Agreement, and expect a material portion of the contract expenditures under this agreement will be incurred during the first half of 2022. If we fail to achieve the milestone dates or fail to meet the availability and capacity guarantees, we may be subject to liquidated damages and under certain circumstances SCE may have a right to terminate the agreement. See “The loss of SCE, which is one of our most significant customers or our failure to perform our contract with that customer in accordance with its terms could adversely affect us” in Item 1A, Risk Factors for further discussion.

COVID-19

Fiscal year 2020 was marked with unrivaled global challenges, including the public health and economic downturn caused by the COVID-19 pandemic. During the first half of 2020, after COVID-19 was declared a pandemic by the World Health Organization, we experienced some delays in our project award conversions and some construction slowdowns due to shelter-in-place

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restrictions, however, the opportunities to reduce emissions and limit the effects of climate change remained. We responded to the pandemic by ensuring the health and safety of our employees. We implemented a seamless transition to remote operations for many months, and, while following all CDC guidelines, continued front-line work at our essential facilities.

The resurgence of COVID-19 and its variants during the latter part of 2021 has caused some governments to extend travel and other restrictions. On September 9, 2021, President Biden issued an Executive Order requiring COVID-19 vaccinations for Federal employees. As a result, we implemented this mandate for our employees and subcontractors who work in our Federal business segment. This vaccine mandate was blocked by a federal district court in Texas in January 2022 and the directive is now on hold pending a Justice Department appeal of the ruling. Future vaccine requirements could result in a potential loss of employees or subcontractors who have not been vaccinated or impact our ability to retain and recruit critically skilled workforce. See “The Covid-19 pandemic has had and may continue to have an adverse effect on our business and future public health threats or outbreaks of communicable diseases could have a material adverse effect on our operations and financial results” in Item 1A. Risk Factors in this Form 10-K, for discussion of this risk.

We continue to monitor the impact of COVID-19 on our operations, financial results, and liquidity. The impact to our future operations and results, however, remains uncertain and will depend on a number of factors, including, but not limited to, the emergence and spread of more transmissible variants, the overall duration and severity of the pandemic and its impact on the global economy, our customers, and business and workforce disruptions.

Supply Chain Disruptions

During the second half of the year ended December 31, 2021, we experienced supply chain disruptions resulting in delays in the timely delivery of material to customer sites and delays and disruptions in the completion of certain projects. This negatively impacted our results of operations during this time. We expect this trend to continue into 2022. See “We may be unable to complete or operate our projects on a profitable basis or as we have committed to our customers”, “Failure of third parties to manufacture quality products or provide reliable services in a timely manner could cause delays in the delivery of our services and completion of our projects, which could damage our reputation, have a negative impact on our relationships with our customers and adversely affect our growth”, and “The COVID-19 pandemic has had and may continue to have an adverse effect on our business and future public health threats or outbreaks of communicable diseases could have a material adverse effect on our operations and financial results” in Item 1A. Risk Factors..

The Energy Act of 2020

On December 27, 2020, the President signed the Consolidated Appropriations Act, 2021 into law, a legislative package that included the Energy Act of 2020, reauthorizing a number of U.S. Department of Energy programs, with a $2.3 trillion spending bill containing appropriations for fiscal year 2021, COVID-19 relief funds, and extensions of a number of expiring tax incentives important to the energy sector. It includes $35 billion in energy research and development programs, a two-year extension of the 26% Investment Tax Credit (“ITC”) rate for solar power that will retain the current 26% credits for solar projects that begin construction through the end of 2022. In addition, the Section 179D Energy Efficient Commercial Building Deduction, which historically has impacted our tax rate significantly, was made permanent under the tax code.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

On March 27, 2020, the U.S. government enacted the CARES Act which includes modifications to the limitation on business interest expense and net operating loss provisions and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The payment of $2.3 million of employer payroll taxes otherwise due in 2020 was paid in December 2021 and the remaining $2.3 million is due by December 31, 2022. The CARES Act permitted net operating losses from the 2018, 2019, and 2020 tax years to be carried back to the previous five tax years (beginning with the earliest year first). We received a federal income tax refund of approximately $4.0 million as a result of the CARES Act which permitted us to carry our 2018 operating loss back to previous years and utilize Alternative Minimum Tax Credits.

Climate Change and Effects of Seasonality

The global emphasis on climate change and reducing carbon emissions has created opportunities for our industry. Sustainability has been at the forefront of our business since its inception and we are committed to staying at the leading edge of innovation taking place in the energy sector. We believe the next decade will be marked by dramatic changes in the power infrastructure with resources shifting to more distributed assets, storage, and microgrids to increase overall reliability and resiliency. The sustainability efforts are impacted by regulations, and changes in the regulatory climate may impact the demand for our products and offerings. See “Our business depends in part on federal, state, provincial and local government support for energy efficiency

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and renewable energy, and a decline in such support could harm our business” and “Compliance with environmental laws could adversely affect our operating results” in Item 1A, Risk Factors..

Climate change also brings risks, as the impacts have caused us to experience more frequent and severe weather interferences, and this trend may continue. We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months, such as the northern United States and Canada, and climates that experience extreme weather events, such as wildfires, storms or flooding, or at educational institutions, where large projects are typically carried out during summer months when their facilities are unoccupied. In addition, government customers, many of which have fiscal years that do not coincide with ours, typically follow annual procurement cycles and appropriate funds on a fiscal-year basis even though contract performance may take more than one year. Further, government contracting cycles can be affected by the timing of, and delays in, the legislative process related to government programs and incentives that help drive demand for energy efficiency and renewable energy projects. As a result, our revenues and operating income in the third and fourth quarter are typically higher, and our revenues and operating income in the first quarter are typically lower, than in other quarters of the year, however, this may become harder to predict with the potential effects of climate change. As a result of such fluctuations, we may occasionally experience declines in revenues or earnings as compared to the immediately preceding quarter, and comparisons of our operating results on a period-to-period basis may not be meaningful.

Our annual and quarterly financial results are also subject to significant fluctuations as a result of other factors, many of which are outside our control. See “Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse effect on our operating results” in Item 1A, Risk Factors.

Stock-based Compensation

During the year ended December 31, 2021, we granted 1,341,500 common stock options to certain employees under our 2020 Stock Incentive Plan. As a result, our stock-based compensation expense increased from $1.9 million for the year ended December 31, 2020 to $8.7 million for the year ended December 31, 2021. The increase in the number of stock options granted and higher grant date fair value resulted in the increased stock-based compensation in 2021. In addition, our unrecognized stock-based compensation expense increased from $12.1 million at December 31, 2020 to $41.1 million at December 31, 2021, and is expected to be recognized over a weighted-average period of three years. See Note 14 “Stock-based Compensation and Other Employee Benefits” for additional information.

Backlog and Awarded Projects

Backlog is an important metric for us because we believe strong order backlogs indicate growing demand and a healthy business over the medium to long term, conversely, a declining backlog could imply lower demand.

The following table presents our backlog:

[[GREPCENT_TABLE]]
[["","As of December 31,"],["(In Thousands)","2021","","2020"],["Project Backlog"],["Fully-contracted backlog","$","1,509,300","","","$","895,660"],["Awarded, not yet signed customer contracts","1,542,760","","","1,318,660"],["Total project backlog","$","3,052,060","","","$","2,214,320"],["12-month project backlog","$","1,296,410","","","$","593,860"],["O&M Backlog"],["Fully-contracted backlog","$","1,131,660","","","$","1,131,110"],["12-month O&M backlog","$","70,306","","","$","63,980"]]
[[/GREPCENT_TABLE]]

Total project backlog represents energy efficiency projects that are active within our sales cycle. Our sales cycle begins with the initial contact with the customer and ends, when successful, with a signed contract, also referred to as fully-contracted backlog. Our sales cycle recently has been averaging 18 to 42 months. Awarded backlog is created when a potential customer awards a project to Ameresco following a request for proposal. Once a project is awarded but not yet contracted, we typically conduct a detailed energy audit to determine the scope of the project as well as identify the savings that may be expected to be generated from upgrading the customer’s energy infrastructure. At this point, we also determine the subcontractor, what equipment will be used, and assist in arranging for third party financing, as applicable. Recently, awarded projects have been taking an average of 12 to 24 months to result in a signed contract and convert to fully-contracted backlog. It may take longer, as it depends on the size

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and complexity of the project. Historically, approximately 90% of our awarded backlog projects have resulted in a signed contract. After the customer and Ameresco agree to the terms of the contract and the contract becomes executed, the project moves to fully-contracted backlog. The contracts reflected in our fully-contracted backlog typically have a construction period of 12 to 36 months and we typically expect to recognize revenue for such contracts over the same period.

Our O&M backlog represents expected future revenues under signed multi-year customer contracts for the delivery of O&M services, primarily for energy efficiency and renewable energy construction projects completed by us for our customers.

We define our 12-month backlog as the estimated amount of revenues that we expect to recognize in the next twelve months from our fully-contracted backlog. See Note 2 “Summary of Significant Accounting Policies” for our revenue recognition policies. See “We may not recognize all revenues from our backlog or receive all payments anticipated under awarded projects and customer contracts” and “In order to secure contracts for new projects, we typically face a long and variable selling cycle that requires significant resource commitments and requires a long lead time before we realize revenues” in Item 1A, Risk Factors.

Assets in Development

Assets in development, which represents the potential estimated design/build construction value of small-scale renewable energy plants that have been awarded or for which we have secured development rights, was $1,247.5 million as of December 31, 2021 and $1,021.8 million as of December 31, 2020. This is another important metric because it helps us gauge our future capacity to generate electricity or deliver renewable gas fuel which contributes to our recurring revenue stream.

Results of Operations

The following table sets forth certain financial data from the consolidated statements of income for the periods indicated (1):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Year-Over-Year Change"],["(In Thousands)","Dollar Amount","","% of Revenues","","Dollar Amount","","% of Revenues","","Dollar Change","","% Change"],["Revenues","$","1,215,697","","","100.0","%","","$","1,032,275","","","100.0","%","","$","183,422","","","17.8","%"],["Cost of revenues","985,340","","","81.1","%","","844,726","","","81.8","%","","140,614","","","16.6","%"],["Gross profit","230,357","","","18.9","%","","187,549","","","18.2","%","","42,808","","","22.8","%"],["Selling, general and administrative expenses","134,923","","","11.1","%","","116,050","","","11.2","%","","18,873","","","16.3","%"],["Operating income","95,434","","","7.9","%","","71,499","","","6.9","%","","23,935","","","33.5","%"],["Other expenses, net","17,290","","","1.4","%","","15,071","","","1.5","%","","2,219","","","14.7","%"],["Income before income taxes","78,144","","","6.4","%","","56,428","","","5.5","%","","21,716","","","38.5","%"],["Income tax benefit","(2,047)","","","(0.2)","%","","(494)","","","\u2014","%","","(1,553)","","","314.4","%"],["Net income","$","80,191","","","6.6","%","","$","56,922","","","5.5","%","","$","23,269","","","40.9","%"],["Net income attributable to redeemable non-controlling interest","$","(9,733)","","","(0.8)","%","","$","(2,870)","","","(0.3)","%","","$","(6,863)","","","239.1","%"],["Net income attributable to common shareholders","$","70,458","","","5.8","%","","$","54,052","","","5.2","%","","$","16,406","","","30.4","%"],["(1) A comparison of our 2020 and 2019 results can be found in Item 7 of our 2020 Form 10-K filed with the SEC."]]
[[/GREPCENT_TABLE]]

Our results of operations for the year-ended December 31, 2021 reflect year-over-year growth in terms of revenues, operating income, and net income attributable to common shareholders. All financial result comparisons are against the prior year period.

Our strong operating results are due to the following:

•Revenue: total revenues increased primarily due to a $139.4 million, or 18%, increase in our project revenue attributed to the timing of revenue recognized as a result of the phase of active projects versus the prior year, including our SCE battery storage project, a $33.1 million, or 28%, increase in our energy asset revenue attributed to the continued growth of our operating portfolio, strong renewable gas production and higher pricing on RINs generated from certain non-solar distributed generation assets in operation, and a $6.3 million increase in O&M revenue.

•Cost of Revenues and Gross Profit: the increase in cost of revenues is primarily due to the increase in project revenues described above. The increase in gross profit as a percentage of revenue increased as our revenue mix continued to shift towards our higher margin recurring Energy Assets and O&M businesses.

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•Selling, General and Administrative Expenses: the increase is primarily due to higher net salaries and benefits of $18.4 million as a result of increased headcount and an increase in non-cash stock-based compensation expense.

•Other Expenses, Net: Other expenses, net, includes gains and losses from derivatives transactions, foreign currency transactions, interest expense, interest income, amortization of deferred financing costs and certain government incentives. Other expenses, net increased primarily due to a foreign currency transaction loss of $0.9 million compared to a foreign currency transaction gain of $0.5 million in 2020, a loss on derivatives of $0.2 million compared to a gain of $0.7 million in 2020, and a decrease in government incentives of $0.8 million, partially offset by lower interest expenses of $1.1 million related to a lower average balance on our senior secured debt facility and lower interest rates on this facility.

•Income before Income Taxes: the increase is due to reasons described above.

•Income Tax Benefit: the benefit for income taxes is based on various rates set by federal, state, provincial, and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The effective tax benefit rate was lower in 2021 as compared to 2020 primarily due to increases in the benefits associated with energy efficiency tax incentives including Section 48 Solar Investment Tax Credits, deductions associated with the Section 179D Commercial Buildings Energy Efficiency Tax Deduction and compensation deductions resulting from employee stock option disqualifying dispositions. The tax benefit rate for 2020 was favorable, which was affected by the release of a previously established valuation allowance on the Canadian tax assets and the benefit of employee stock option compensation. We additionally realized tax rate benefits associated with net operating loss carrybacks made possible by the passing of the CARES Act on March 27, 2020 and tax basis adjustments on certain partnership flip transactions.

•Net Income and Earnings Per Share: Net income attributable to common shareholders increased due to the reasons described above. Basic earnings per share for 2021 was $1.38 an increase of $0.25 per share compared to 2020. Diluted earnings per share for 2021 was $1.35, an increase of $0.25 per share, compared to 2020. The equity offering in March 2021 increased the weighted average shares outstanding by approximately 2,333,000 shares, which lowered basic and diluted earnings per share by $0.07 and $0.06 per share, respectively.

Business Segment Analysis

Our reportable segments for the year ended December 31, 2021 were U.S. Regions, U.S. Federal, Canada, Non-Solar Distributed Generation (“Non-Solar DG”), and All Other. On January 1, 2021, we changed the structure of our internal organization, and our U.S. Regions segment now includes our U.S.-based enterprise energy management services previously included in our “All Other” segment. As a result, previously reported amounts have been reclassified for comparative purposes. See Note 20 “Business Segment Information” for additional information about our segments.

Revenues

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year-Over-Year Change"],["(In Thousands)","2021","","2020","","Dollar Change","","% Change"],["U.S. Regions","$","528,293","","","$","404,152","","","$","124,141","","","30.7","%"],["U.S. Federal","392,948","","","377,882","","","15,066","","","4.0"],["Canada","49,457","","","47,797","","","1,660","","","3.5"],["Non-Solar DG","137,243","","","106,417","","","30,826","","","29.0"],["All Other","107,756","","","96,027","","","11,729","","","12.2"],["Total revenues","$","1,215,697","","","$","1,032,275","","","$","183,422","","","17.8","%"]]
[[/GREPCENT_TABLE]]

•U.S. Regions: the increase is primarily due to a $116.0 million, or 33%, increase in project revenues attributable to the timing of revenue recognized as a result of the phase of active projects, including our SCE battery storage project, versus the prior year and a $5.1 million, or 15%, increase in revenue from the growth of our energy assets in operation.

•U.S. Federal: the increase is primarily due to a $13.1 million, or 4%, increase in project revenue attributable to the timing of revenue recognized as a result of the phase of active projects compared to the prior year.

•Canada: the increase is primarily due to favorable foreign exchange rates.

•Non-Solar DG: the increase is primarily due to a $26.7 million, or 35%, increase in energy asset revenues resulting from the continued growth of our operating portfolio, increased renewable gas production levels and higher pricing on RINs generated from certain non-solar distributed generation assets in operation.

•All Other: the increase is primarily due to an increase in project revenues in the U.K. related to an increase in volume and progression of certain active projects, partially offset by a decrease in project revenues in Greece.

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Income before Taxes and Unallocated Corporate Activity

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year-Over-Year Change"],["(In Thousands)","2021","","2020","","Dollar Change","","% Change"],["U.S. Regions","$","40,051","","","$","28,339","","","$","11,712","","","41.3","%"],["U.S. Federal","52,386","","","44,560","","","7,826","","","17.6"],["Canada","1,584","","","2,560","","","(976)","","","(38.1)"],["Non-Solar DG","26,345","","","13,040","","","13,305","","","102.0"],["All Other","6,195","","","8,117","","","(1,922)","","","(23.7)"],["Unallocated corporate activity","(48,417)","","","(40,188)","","","(8,229)","","","20.5"],["Income before taxes","$","78,144","","","$","56,428","","","$","21,716","","","38.5","%"]]
[[/GREPCENT_TABLE]]

•U.S. Regions: the increase is primarily due to the increase in revenues described above, a $1.8 million decrease in project development costs, a $1.5 million decrease in bad debt expense, partially offset by an increase of $3.8 million in salary and benefit costs resulting from increased headcount and higher health insurance costs.

•U.S. Federal: the increase is due to the increase in revenues described above, partially offset by an increase in salaries and benefits of $2.3 million resulting from increased average salaries and higher health insurance costs.

•Canada: the decrease is primarily due to a $0.5 million increase in salaries and benefits, a $0.8 million increase in project development costs, partially offset by an increase in revenues described above.

•Non-Solar DG: the increase is primarily due to the higher contribution attributed to the increase in higher margin energy asset revenue described above, partially offset by higher mark to market losses on our unhedged commodity gas swaps, and higher interest expense.

•All Other: the decrease is due to higher operating expenses, primarily salaries and benefits and project development costs, partially offset by higher revenues noted above.

•Unallocated corporate activity includes all corporate level selling, general and administrative expenses and other expenses not allocated to the reportable segments. We do not allocate any indirect expenses to the segments. Corporate activity increased primarily due to higher salaries and benefit costs of $9.3 million, which includes a $6.8 million increase in non-cash stock-based compensation expense due to increased option grants with a higher grant date fair value.

Liquidity and Capital Resources

Overview

Since inception, we have funded operations primarily through cash flow from operations, advances from Federal ESPC projects, our senior secured credit facility and various forms of other debt (see “Project Financing” below). In addition, in March 2021, we completed an underwritten public offering of 2,875,000 shares of our Class A Common Stock, for total net proceeds of $120.1 million. See below, Note 9 “Debt and Financing Lease Liabilities”, and Note 13 “Equity and Earnings per Share” for additional information.

Working capital requirements, which can be susceptible to fluctuations during the year due to seasonal demands, generally result from revenue growth, our solar equipment purchase patterns, the timing of funding under various contracts, or advances from Federal ESPC projects, and payment terms for receivables and payables.

We expect to incur additional expenditures in connection with the following activities:

•equity investments, project asset acquisitions and business acquisitions that we may fund from time to time

•capital investment in current and future energy assets

•material, equipment, and other expenditures for our SCE battery storage project, particularly during the first half of 2022

We regularly monitor and assess our ability to meet funding requirements. We believe that cash and cash equivalents, working capital and availability under our revolving senior secured credit facility, combined with our right (subject to lender consent) to increase our revolving credit facility by $100.0 million, and our general access to credit and equity markets, will be sufficient to fund our operations for twelve months from filing this Report and thereafter. However, we consistently evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate and that we can meet our capital requirements during these uncertain times. This may include limiting discretionary spending across the organization and re-

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prioritizing our capital projects amid times of international political unrest and for the time periods we expect to fund significant capital expenditures for our SCE battery storage project and depending on the evolution of the COVID-19 pandemic.

Equity Offering

On March 9, 2021, we closed on an underwritten public offering of 2,500,000 shares of our Class A common stock at a public offering price of $44.00 per share. Net proceeds from the offering were $104.3 million, after deducting offering costs of $5.7 million. On March 15, 2021, we closed on the underwriters’ option to purchase 375,000 additional shares of our Class A common stock from us at $44.00 per share, resulting in net proceeds of $15.8 million after deducting offering costs of $0.7 million. In the offering, selling shareholders sold 805,000 shares of our Class A Common Stock at a public offering price of $44.00 per share, less the underwriting discount. We did not receive any proceeds from the sale of the shares by the selling stockholders. We used $80.0 million of the net proceeds to repay in full the outstanding U.S. dollar balance under our senior secured revolving credit facility and used the remaining proceeds for general corporate purposes.

Senior Secured Credit Facility — Revolver and Term Loan

In June 2021, we entered into an amendment to our senior secured revolving credit facility with three banks which increased the amount of the revolving commitment by the lenders under the credit facility from $115.0 million to $180.0 million. The amendment also increased the total funded debt to EBITDA covenant ratio from a maximum of 3.25 to 3.50, and decreased the Eurocurrency rate floor from 1% to 0%. At December 31, 2021, our senior secured credit facility outstanding was $97.8 million, and we had funds of $121.2 million available under the revolving credit facility.

Project Financing

Construction and Term Loans

We have entered into a number of construction and term loan agreements for the purpose of constructing and owning certain renewable energy plants. The physical assets and the operating agreements related to the renewable energy plants are generally owned by wholly owned, single member “special purpose” subsidiaries of Ameresco. These construction and term loans are structured as project financings made directly to a subsidiary, and upon commercial operation and achieving certain milestones in the credit agreement, the related construction loan converts into a term loan. While we are required under generally accepted accounting principles (“GAAP”) to reflect these loans as liabilities on our consolidated balance sheets, they are generally non-recourse and not direct obligations of Ameresco, Inc. As of December 31, 2021, our construction and term loans outstanding were $249.8 million.

Our project financing facilities contain various financial and other covenant requirements which include debt service coverage ratios and total funded debt to EBITDA, as defined. Any failure to comply with the financial or other covenants of our project financings would result in inability to distribute funds from the wholly-owned subsidiary to Ameresco, Inc. or constitute an event of default in which the lenders may have the ability to accelerate the amounts outstanding, including all accrued interest and unpaid fees.

Federal ESPC Liabilities

We have arrangements with certain third-parties to provide advances to us during the construction or installation of projects for certain customers, typically federal governmental entities, in exchange for our assignment to the lenders of our rights to the long-term receivables arising from the ESPCs related to such projects. These financings totaled $532.3 million in principal amounts as of December 31, 2021 and $440.2 million as of December 31, 2020. Under the terms of these financing arrangements, we are required to complete the construction or installation of the project in accordance with the contract with our customer, and the liability remains on our consolidated balance sheets until the completed project is accepted by the customer.

We are the primary obligor for financing received, but only until final acceptance of the work by the customer. At this point recourse to us ceases and the ESPC receivables are transferred to the investor. The transfers of receivables under these agreements do not qualify for sales accounting until final customer acceptance of the work, so the advances from the investors are not classified as operating cash flows. Cash draws that we received under these ESPC agreements were $159.2 million during the year ended December 31, 2021 and are recorded as financing cash inflows. The use of the cash received under these arrangements is to pay project costs classified as operating cash flows and totaled $249.7 million during the year ended December 31, 2021. Due to the manner in which the ESPC contracts with the third-party investors are structured, our reported operating cash flows are materially impacted by the fact that operating cash flows only reflect the ESPC contract expenditure outflows and do not reflect any inflows from the corresponding contract revenues. Upon acceptance of the project by the federal customer the ESPC receivable and corresponding ESPC liability are removed from our consolidated balance sheets as a non-cash settlement. See Note 2, “Summary of Significant Accounting Policies”, to our consolidated financial statements in this Report.

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Sale-Leaseback and Financing Liabilities

We have entered into sale-leaseback arrangements for solar PV energy assets with multiple investors and in accordance with Topic 842, Leases, all sale-leaseback transactions that occurred after December 31, 2018, were accounted for as failed sales and the proceeds received from the transactions were recorded as long-term financing facilities. See Notes 8 “Leases” and 9 “Debt and Financing Lease Liabilities” for additional information on these financing facilities. As of December 31, 2021, our financing leases and financing liabilities outstanding were $123.8 million, and $228.6 million remained available under these lending commitments, although this full amount is not expected to be used.

While we are required under GAAP to reflect these lease payments as liabilities on our consolidated balance sheets, they are generally non-recourse and not direct obligations of Ameresco Inc., except that we have guaranteed certain obligations relating to taxes and project warranties, operation, and maintenance.

Other

We issue letters of credit and performance bonds, from time to time, with our third-party lenders, to provide collateral.

Selected Measures of Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["","December 31,"],["(In Thousands)","2021","","2020"],["Cash and cash equivalents","$","50,450","","","$","66,422"],["Working capital","$","164,361","","","$","107,618"],["Availability under revolving credit facility","$","121,176","","","$","50,011"]]
[[/GREPCENT_TABLE]]

Cash Flows

The following table summarizes our changes in cash and cash equivalents:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In Thousands)","2021","","2020"],["Cash flows used in operating activities","$","(172,296)","","","$","(102,583)"],["Cash flows used in investing activities","(205,257)","","","(181,015)"],["Cash flows provided by financing activities","365,461","","","305,169"],["Effect of exchange rate changes on cash","309","","","2"],["Net (decrease) increase in cash, cash equivalents, and restricted cash","$","(11,783)","","","$","21,573"]]
[[/GREPCENT_TABLE]]

Our service offering also includes the development, construction, and operation of small-scale renewable energy plants. Small-scale renewable energy projects, or energy assets, can either be developed for the portfolio of assets that we own and operate or designed and built for customers. Expenditures related to projects that we own are recorded as cash outflows from investing activities. Expenditures related to projects that we build for customers are recorded as cash outflows from operating activities as cost of revenues.

Cash Flows from Operating Activities

Our cash flow from operating activities in 2021 decreased over 2020 primarily due to a $132.7 million increase in unbilled revenue (costs and estimated earnings in excess of billings) due to the timing of when certain projects are invoiced, including our SCE battery storage project, and an increase of $22.7 million in Federal ESPC receivables, partially offset by an increase of $54.4 million in accounts payable, accrued expenses and other current liabilities and an increase of $23.3 million in net income.

Cash Flows from Investing Activities

During 2021, we paid $14.9 million, net of cash received, for the acquisition of Plug Smart and also contributed $9.0 million to an equity investment. We also spent $4.9 million related to purchases of other property and equipment, which is $2.7 million more than last year and made capital investments, net of grant proceeds, of $178.1 million related to the development and acquisition of renewable energy plants, which is comparable to last year.

We currently plan to invest approximately $225.0 million to $275.0 million in capital investments in 2022, principally for the construction or acquisition of new renewable energy plants.

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Cash Flows from Financing Activities

Our primary sources of financing during 2021 were proceeds of $186.0 million from long-term debt financings, $161.2 million from advances on Federal ESPC projects and energy assets and net proceeds of $120.1 million from our equity offering. These proceeds were partially offset by repayments of long-term debt totaling $98.2 million.

During 2020, proceeds from Federal ESPC projects and energy assets provided $250.3 million in cash and received long-term debt financing proceeds of $116.1 million. These proceeds were partially offset by repayments of long-term debt totaling $73.6 million.

We currently plan additional financings of $175.0 million to $225.0 million in 2022 to fund the construction or acquisition of new renewable energy plants as discussed above.

We may also, from time to time, finance our operations through issuance or offering of equity or debt securities.

Critical Accounting Policies and Estimates

Preparing our consolidated financial statements in accordance with GAAP involves us making estimates and assumptions that affect reported amounts of assets and liabilities, net sales, and expenses, and related disclosures in the accompanying notes at the date of our financial statements. We base our estimates on historical experience, industry and market trends, and on various other assumptions that we believe to be reasonable under the circumstances. However, by their nature, estimates are subject to various assumptions and uncertainties, and changes in circumstances could cause actual results to differ from these estimates, sometimes materially.

We believe that our policies and estimates that require our most significant judgments are considered our critical accounting policies and are discussed below. In addition, refer to Note 2 “Summary of Significant Accounting Policies” for further details.

Revenue Recognition

As described in Note 2, we recognize revenue from the installation or construction of projects over time using the cost-based input method. We use the total costs incurred on the project relative to the total expected costs to satisfy the performance obligation. When the estimate on a contract indicates a loss or claims against costs incurred reduce the likelihood of recoverability of such costs, we record the entire estimated loss in the period the loss becomes known. In addition, some contracts contain an element of variable consideration, including liquidated damages and/or penalties, which requires payment to the customer in the event that construction timelines or milestones are not met. We estimate the total consideration payable by the customer when the contracts contain variable consideration provisions, based on the most likely amount anticipated to be recognized for transferring the promised goods or services. As a result, we may constrain revenue to the extent that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

To the extent a contract is deemed to have multiple performance obligations, we allocate the transaction price of the contract to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

Significant judgement is required to estimate the total expected costs and variable consideration for projects that typically have a construction period of 12 to 36 months. Any increase or decrease in estimated costs to complete a performance obligation without a corresponding change to the contract price could impact the calculation of cumulative revenue to date and gross profit on the project. Similarly, if we recognize revenue based upon our current estimate of variable consideration, and our estimate is later adjusted, we may be required to increase or decrease cumulative revenue to date and gross profit on the project. Factors that may result in a change to our estimates include unforeseen engineering problems, construction delays, the performance of contractors and major material suppliers, and unusual weather conditions, among others.

We have a long history of working with multiple types of projects and preparing cost estimates, and we rely on the expertise of key personnel to prepare what we believe are reasonable best estimates given available facts and circumstances. Due to the nature of the work involved, however, judgment is involved to estimate the costs to complete and the amounts estimated could have a material impact on the revenue we recognize in each accounting period. We cannot estimate unforeseen events and circumstances which may result in actual results being materially different from previous estimates.

Impairment Assessments

We evaluate our long-lived assets, including goodwill and intangible assets, for impairment as events or changes in circumstances indicate the carrying value of these assets may not be fully recoverable, and at least annually (December 31st) for goodwill and

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intangible assets that have indefinite lives. Examples of such triggering events applicable to our assets include a significant decrease in the market price of a long-lived asset or asset group, a current-period operating or cash flow loss combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group, or adverse industry or economic trends.

We evaluate recoverability of long-lived assets and definite-lived intangible assets by estimating the undiscounted future cash flows 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, we recognize an impairment loss for the amount that the carrying value exceeds the fair value.

The process of evaluating the potential impairment of long-lived assets, goodwill and intangible assets requires significant judgment. For goodwill, we estimate the reporting unit’s fair value and compare it with the carrying value of the reporting unit, including goodwill. If the fair value is greater than the carrying value of its reporting unit, no impairment is recorded. Fair value is determined using both an income approach and a market approach. The estimates and assumptions used in our calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash flows, expected tax rates and an estimated discount rate to determine present value of expected cash flows. These estimates are based on historical experiences, our projections of future operating activity and our weighted-average cost of capital. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge.

Based on our goodwill impairment assessment, all of our reporting units with goodwill had estimated fair values that exceeded their carrying values by at least 61% as of December 31, 2021 and 67% as of December 31, 2020. During the year ended December 31, 2021, we recognized a long-lived asset impairment charge of $1.9 million on one of our energy asset groups. See Note 7 “Energy Assets” for additional information.

Income Taxes

We are subject to income taxes in the U.S. and five foreign jurisdictions. Significant judgment is required in determining income tax expense, deferred tax assets and liabilities and uncertain tax positions. The underlying assumptions are also highly susceptible to change from period to period. We took advantage of the Safe Harbor commence-construction provisions contained in IRS Notice 2018-59 by pre-purchasing solar equipment in 2019 thereby preserving the ability to take 30% ITC for projects placed in service before 2024. If these or other deductions and credits expire without being extended, or otherwise are reduced or eliminated, our effective tax rate would increase, which could increase our income tax expense and reduce our net income. In addition, our tax rate has historically been significantly impacted by the IRC Section 179D deduction. This deduction is related to energy-efficient improvements we provide under government contracts. The Consolidated Appropriations Act, 2021 made permanent the Section 179D Energy Efficient Commercial Building Deduction. That Act made changes to the way the deduction is calculated. If those changes result in lower levels of energy efficiency improvements, it could impact the deduction available and the tax rate.

We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we have made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues and may require an extended period of time to resolve. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have an impact on our results of operations.

On a quarterly basis, we assess our current and projected earnings by jurisdiction to determine whether or not our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future tax benefits. Should we determine that we would not be able to realize all or part of our net deferred tax asset in a particular jurisdiction in the future, a valuation allowance to the deferred tax asset would be charged to income in the period such determination was made. This valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable based on available evidence at the time the estimate is made. In 2020 we determined that it was more likely than not that the non-capital net operating loss carryforwards at our Canadian parent company would be realized before they expire. In 2020 we reversed the previously established valuation allowance on the tax assets associated with the carryforwards. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence, including our historical financial results, the source and consistency of those results, whether they

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should be adjusted for certain one-time or nonrecurring items, whether losses cumulatively exceed income over a reasonable period of time, the availability of tax planning strategies, availability of carryback and carryforward periods, and other factors, including our expectations of future taxable income. Adjustments to income tax expense to the extent we establish a valuation allowance or adjust this allowance in a period could have a material impact on our financial condition and results of operations.

Recent Accounting Pronouncements

See Note 2 of the “Notes to Consolidated Financial Statements” for a discussion of recent accounting standards.