AMERESCO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2019 included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed onMarch 4, 2020 with theU.S. Securities and Exchange Commission ("SEC"). This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward looking statements include statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management, expected market growth and other characterizations of future events or circumstances. All statements, other than statements of historical fact, including statements that refer to our expectations as to the future growth of our business and associated expenses; our expectations as to revenue generation; the future availability of borrowings under our revolving credit facility; the expected future growth of the market for energy efficiency and renewable energy solutions; our backlog, awarded projects and recurring revenue and the timing of such matters; our expectations as to acquisition activity; the impact of any restructuring; the uses of future earnings; our intention to repurchase shares of our Class A common stock; the expected energy and cost savings of our projects; and the expected energy production capacity of our renewable energy plants; the results of theSEC's investigation into our revenue recognition and compensation practices in our software-as-a-service businesses; and other characterizations of future events or circumstances are forward-looking statements. Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on our financial condition, results of operations, cash flows and performance and the global economy and financial markets. The extent to which COVID-19 impacts us, suppliers, customers, employees and supply chains will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Forward looking statements are often, but not exclusively, identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," "target," "project," "predict" or "continue," and similar expressions or variations. These forward-looking statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Risks, uncertainties and factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors," set forth in Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , Item 1A of our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 and elsewhere in this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Subsequent events and developments may cause our views to change. However, while we may elect to update these forward looking statements at some point in the future, we have no current intention of doing so and undertake no obligation to do so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
Ameresco is a leading provider of energy efficiency solutions for facilities throughoutNorth America andEurope . We provide solutions that enable customers to reduce their energy consumption, lower their operating and maintenance costs and realize environmental benefits. Our comprehensive set of services includes upgrades to a facility's energy infrastructure and the construction and operation of small-scale renewable energy plants. In addition to organic growth, strategic acquisitions of complementary businesses and assets have been an important part of our historical development. Since inception, we have completed numerous acquisitions, which have enabled us to broaden our service offerings and expand our geographical reach. Key Factors and Trends COVID-19 Update InMarch 2020 , theWorld Health Organization categorized Coronavirus Disease 2019 as a pandemic, and the President ofthe United States declared the COVID-19 outbreak a national emergency. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it may impact our suppliers, customers, employees and supply chains. While we did not incur significant disruptions during the nine months endedSeptember 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the 35
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actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. Further, the overall impact of COVID-19 on our condensed consolidated results of operations for the nine months endedSeptember 30, 2020 was not material. However, the impact that COVID-19 will have on our consolidated results of operations throughout 2020 remains uncertain. We expect to experience delays in our project award conversions and potential construction slowdowns as a result of known shelter-in-place restrictions. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources. Effects of Seasonality We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months, such as the northernUnited States andCanada , 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. 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 of our Annual Report on Form 10-K for the year endedDecember 31, 2019 ("Annual Report"), and the risks described in Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. Backlog and Awarded Projects Total construction backlog represents projects that are active within our ESPC 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 54 months. Awarded backlog is created when a potential customer awards a project toAmeresco 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 sub-contractor, 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, however, depending upon the size and complexity of the project. Historically, approximately 90% of our awarded backlog projects have resulted in a signed contract. After the customer andAmeresco 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. Fully-contracted backlog begins converting into revenues generated from backlog over time using cost based input methods once construction has commenced. 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 in our Annual Report, and the risks described in Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. The overall impact of COVID-19 on our condensed consolidated results of operations for the nine months endedSeptember 30, 2020 was not material. However, the impact that COVID-19 will have on our consolidated results of operations throughout 2020 remains uncertain. We expect to experience delays in our project award conversions and potential construction slowdowns as a result of known shelter-in-place restrictions. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources. 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 in our Annual Report, and the risks described in Item 1A. Risk Factors in the Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 . As ofSeptember 30, 2020 , we had fully-contracted backlog of approximately$1,033.7 million in expected future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional$1,211.3 million . As ofSeptember 30 , 36
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2019, we had fully-contracted backlog of approximately$787.2 million in expected future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional$1,434.9 million . 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. As ofSeptember 30, 2020 and 2019, our 12-month project backlog was$605.9 million and$437.7 million , respectively. As ofSeptember 30, 2020 , we had O&M backlog of approximately$1,120.8 million in expected future revenues under signed multi-year customer contracts for the delivery of O&M services. As ofSeptember 30, 2019 , we had O&M backlog of approximately$908.9 million in expected future revenues under signed multi-year customer contracts for the delivery of O&M services. As ofSeptember 30, 2020 and 2019, our 12-month O&M backlog was$60.0 million and$60.6 million , respectively. Assets in development, which represents the potential design/build project value of small-scale renewable energy plants that have been awarded or for which we have secured development rights, were$784.6 million and$572.0 million as ofSeptember 30, 2020 and 2019, respectively. Critical Accounting Policies and Estimates This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. The most significant estimates with regard to these condensed consolidated financial statements relate to our estimates of final construction contract profit in accordance with accounting for long-term contracts under the revenue recognition requirements of contracts with our customers, allowance for credit losses, inventory reserves, realization of project development costs, leases, fair value of derivative financial instruments, accounting for business acquisitions, stock-based awards, impairment of long-lived assets and goodwill, income taxes, self-insurance reserves and potential liability in conjunction with certain commitments and contingencies. Actual results could differ from those estimates. Such estimates and assumptions are based on historical experience and on various other factors that management believes to be reasonable under the circumstances. Estimates and assumptions are made on an ongoing basis, and accordingly, the actual results may differ from these estimates under different assumptions or conditions. The following are certain critical accounting policies that, among others, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements: •Revenue Recognition; •Energy Assets; •Leases; •Goodwill and Intangible Assets; •Derivative Financial Instruments; and •Variable Interest Entities. Further details regarding our critical accounting policies and estimates can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report. In addition, please refer to Note 2, Summary of Significant Accounting Policies, of our Notes to the audited consolidated financial statements for the year endedDecember 31, 2019 , and notes thereto, included in the Company's Annual Report. The Company has determined that no material changes concerning our critical accounting policies have occurred sinceDecember 31, 2019 . Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies, of Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements. 37
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Results of Operations
The following tables set forth certain financial data from the condensed
consolidated statements of income expressed as a percentage of revenues for the
periods presented (in thousands):
Three Months Ended
2020 2019
Amount % of Revenues Amount % of Revenues
Revenues $ 282,507 100.0 % $ 212,026 100.0 %
Cost of revenues 231,133 81.8 % 167,333 78.9 %
Gross profit 51,374 18.2 % 44,693 21.1 %
Selling, general and administrative
expenses 26,859 9.5 % 31,231 14.7 %
Operating income 24,515 8.7 % 13,462 6.3 %
Other expenses, net 3,726 1.3 % 4,192 2.0 %
Income before provision from income taxes 20,789 7.4 % 9,270 4.4 %
Income tax provision 3,100 1.1 % 939 0.4 %
Net income 17,689 6.3 % 8,331 3.9 %
Net loss (income) attributable to
redeemable non-controlling interest 2,313 0.8 % 539 0.3 %
Net income attributable to common
shareholders $ 20,002 7.1 % $ 8,870 4.2 %
Nine Months Ended
2020 2019
Amount % of Revenues Amount % of Revenues
Revenues $ 717,956 100.0 % $ 560,321 100.0 %
Cost of revenues 588,628 82.0 % 439,857 78.5 %
Gross profit 129,328 18.0 % 120,464 21.5 %
Selling, general and administrative
expenses 82,403 11.5 % 87,396 15.6 %
Operating income 46,925 6.5 % 33,068 5.9 %
Other expenses, net 13,167 1.8 % 11,359 2.0 %
Income before provision from income taxes 33,758 4.7 % 21,709 3.9 %
Income tax provision 597 0.1 % 2,000 0.4 %
Net income 33,161 4.6 % 19,709 3.5 %
Net loss (income) attributable to
redeemable non-controlling interest (2,593) (0.4) % 2,524 0.5 %
Net income attributable to common
shareholders $ 30,568 4.3 % $ 22,233 4.0 %
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Year-Over-Year Period Comparison
Revenues
The following tables set forth a comparison of our revenues for the periods
presented (in thousands):
Three Months Ended September 30,
2020 2019 $ Change % Change
Revenues $ 282,507 $ 212,026 $ 70,481 33.2 %
Nine Months Ended September 30,
2020 2019 $ Change % Change
Revenues $ 717,956 $ 560,321 $ 157,635 28.1 %
Revenues increased for the three months ended September 30, 2020 compared to the
same period of 2019 primarily due to a $69.5 million increase in our project
revenue, a $4.5 million increase in our energy assets revenue, and a $0.1
million increase in our O&M revenue, partially offset by a $1.9 million decrease
in our integrated-PV revenue and a $1.8 million decrease in other revenue.
Revenues increased $157.6 million , or 28.1% to $718.0 million for the nine
months ended September 30, 2020 compared to the same period of 2019 primarily
due to a $153.3 million increase in our project revenue, a $10.5 million
increase in our energy asset revenue, and a $4.5 million increase in our O&M
revenue, partially offset by a $6.3 million decrease in our integrated-PV
revenue and a $4.3 million decrease in other revenue.
Cost of Revenues and Gross Profit
The following tables set forth a comparison of our cost of revenues and gross
profit for the periods presented (in thousands):
Three Months Ended September 30,
2020 2019 $ Change % Change
Cost of revenues $ 231,133 $ 167,333 $ 63,800 38.1 %
Gross margin 18.2 % 21.1 %
Nine Months Ended September 30,
2020 2019 $ Change % Change
Cost of revenues $ 588,628 $ 439,857 $ 148,771 33.8 %
Gross margin 18.0 % 21.5 %
Cost of revenues increased $63.8 million , or 38.1%, to $231.1 million and gross
margin percentage decreased to 18.2%, from 21.1% for the three months ended
September 30, 2020 compared to the same period of 2019. Cost of revenues
increased $148.8 million , or 33.8%, to $588.6 million and gross margin
percentage decreased to 18.0%, from 21.5%, for the nine months ended September
30, 2020 compared to the same period of 2019. The increase in cost of revenues
for the three and nine months ended September 30, 2020 is primarily due to the
increases in project revenues. The decrease in gross margin for both periods is
primarily due to a higher proportion of lower margin projects as part of the
revenue mix which includes increased levels of design-build work and lower
margin energy and incentive revenue compared to the prior year.
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Selling, General and Administrative Expenses The following tables set forth a comparison of our selling, general and administrative expenses for the periods presented (in thousands):
Three
Months Ended
2020 2019 $ Change % Change
Selling, general and administrative
expenses $ 26,859 $ 31,231 $ (4,372) (14.0) %
Nine Months Ended September 30,
2020 2019 $ Change % Change
Selling, general and administrative
expenses $ 82,403 $ 87,396 $ (4,993) (5.7) %
Selling, general and administrative expenses decreased $4.4 million , or 14.0%,
to $26.9 million for the three months ended September 30, 2020 , compared to the
same period of 2019 due to a decrease in salaries and benefits of $2.1 million
primarily resulting from higher utilization, lower professional fees of $ 1.0
million and a decrease in travel expenses of $0.7 million . For the nine months
ended September 30, 2020 , selling, general and administrative expenses decreased
$5.0 million , or 5.7%, to $82.4 million compared to the same period of 2019,
primarily due to a decrease in salaries and benefits of $5.3 million resulting
from increased utilization, a decrease in travel expense of $1.5 million and a
decrease in professional fees of $1.2 million partially offset by a gain of $2.2
million on the deconsolidation of a variable interest entity recognized during
the first quarter of 2019.
Amortization expense of intangible assets related to customer relationships,
non-compete agreements, technology and trade names is included in selling,
general and administrative expenses in the condensed consolidated statements of
income. For the three months ended September 30, 2020 and 2019, we recorded
amortization expense related to these intangible assets of $0.2 million . For the
nine months ended September 30, 2020 and 2019, we recorded amortization expense
related to these intangible assets of $0.5 million .
Other Expenses, Net
Other expenses, net, includes gains and losses from derivatives and foreign
currency transactions, interest income and expenses, amortization of deferred
financing costs, and certain government incentives. Other expenses, net
decreased $0.5 million to $3.7 million for the three months ended September 30,
2020 compared to the same period of 2019, primarily due to government incentives
of $0.7 million received at the commercial operation date of certain solar
assets which were recorded as other income. Other expenses, net increased $1.8
million to $13.2 million for the nine months ended September 30, 2020 compared
to the same period of 2019, primarily due to higher interest expenses of $3.0
million partially offset by government incentives of $1.5 million received which
were recorded as other income.
Income Before Taxes
Income before taxes increased $11.5 million , or 124.3%, to $20.8 million for
the three months ended September 30, 2020 compared to the same period of
2019, due to the reasons described above. Income before taxes increased $12.1
million , or 55.5%, to $33.8 million for the nine months ended September 30, 2020
compared to the same period of 2019, due to the reasons described above.
Provision (Benefit) from Income Taxes
The provision for income taxes was $3.1 million for the three months ended
September 30, 2020 , compared to $0.9 million for the three months ended
September 30, 2019 . The estimated effective annualized tax rate impacted by
period discrete items applied for the three months ended September 30, 2020 was
14.9% compared to 10.1% for the three months ended September 30, 2019 .
The provision for income taxes was $0.6 million for the nine months ended
September 30, 2020 , compared to $2.0 million for the nine months ended September
30, 2019 . The estimated effective annualized tax rate impacted by period
discrete items applied for the nine months ended September 30, 2020 was 1.8%
compared to 9.2% for the nine months ended September 30, 2019 .
The principal reasons for the difference between the statutory rate and the
estimated annual effective rate for 2020 were the effects of investment tax
credits to which the Company is entitled from solar plants which have been
placed into service or are forecasted to be placed into service during 2020, tax
deductions related to Section 179D deductions, 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. The principal reason for the difference between the statutory rate
and the estimated annual
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effective rate for 2019 was the effects of investment tax credits to which the Company is entitled from solar plants which were placed into service or were forecasted to be placed into service during 2019. We estimate the discrete benefit associated with the net operating loss provisions of the CARES Act to be approximately$2.0 million , an estimated refund of taxes paid in prior years of approximately$1.7 million and the carryback provides an additional refund of approximately$3.6 million related to Alternative Minimum Tax. The investment tax credits and production tax credits to which the Company may be entitled fluctuate from year to year based on the cost of the renewable energy plants the Company places or expects to place in service and production levels at Company owned facilities in the respective year. As part of the Tax Extender and Disaster Relief Act of 2019, signed into lawDecember 20, 2019 Section 179D was extended throughDecember 31, 2020 . Net Income and Earnings Per Share Net income attributable to common shareholders increased$11.1 million , or 125.5%, to$20.0 million for the three months endedSeptember 30, 2020 compared to$8.9 million for the same period of 2019. Net income attributable to common shareholders increased$8.3 million , or 37.5%, to$30.6 million for the nine months endedSeptember 30, 2020 compared to$22.2 million for the same period of 2019. Basic earnings per share for the three months endedSeptember 30, 2020 was$0.42 , an increase of$0.23 per share compared to the same period of 2019. Diluted earnings per share for the three months endedSeptember 30, 2020 was$0.41 , an increase of$0.22 per share, compare to the same period of 2019. Basic earnings per share for the nine months endedSeptember 30, 2020 was$0.64 an increase of$0.16 per share compared to the same period of 2019. Diluted earnings per share for the nine months endedSeptember 30, 2020 was$0.62 , an increase of$0.15 per share, compared to the same period of 2019. Business Segment Analysis We report results under ASC 280, Segment Reporting. Our reportable segments for the three and nine months endedSeptember 30, 2020 areU.S. Regions,U.S. Federal,Canada and Non-Solar Distributed Generation ("DG"). OurU.S. Regions,U.S. Federal andCanada segments offer energy efficiency products and services, which 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 solutions and services, which include the construction of small-scale plants that we own or develop for customers that produce electricity, gas, heat or cooling from renewable sources of energy; and O&M services. For our energy efficiency projects, we typically enter into energy savings performance contracts ("ESPCs"), under which we agree to develop, design, engineer and construct a project and also commit that the project will satisfy agreed upon performance standards that vary from project to project. When we are not providing a commitment to the customer for long-term performance standards, we may refer to the project as "Design-Build." Our Non-Solar DG segment sells electricity, processed renewable gas fuel, heat or cooling, produced from renewable sources of energy, other than solar, and generated by small-scale plants that we own; and O&M services for customer-owned small-scale plants. The "All Other" category offers enterprise energy management services, consulting services and integrated-PV. These segments do not include results of other activities, such as corporate operating expenses not specifically allocated to the segments.U.S. Regions Three Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 92,944 $ 84,079 $ 8,865 10.5 % Income before taxes$ 7,225 $ 3,350 $ 3,875 115.7 % Nine Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 266,373 $ 227,896 $ 38,477 16.9 % Income before taxes$ 15,960 $ 5,530 $ 10,430 188.6 % Revenues for ourU.S. Regions segment increased$8.9 million , or 10.5%, to$92.9 million for the three months endedSeptember 30, 2020 compared to the same period of 2019. Revenues for ourU.S. Regions segment increased$38.5 million , or 16.9%, to$266.4 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019 primarily due to an increase in project revenues attributable to timing of revenue recognized as a result of the phase of active projects versus the prior year and an increase in revenue from the growth of our energy assets in operation. 41
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Income before taxes for ourU.S. Regions segment increased$3.9 million , or 115.7%, to$7.2 million for the three months endedSeptember 30, 2020 compared to a$3.4 million for the same period of 2019 primarily due to a decrease in operating expenses attributed to lower salary and benefit costs of$2.2 million resulting from lower headcount and higher utilization, partially offset by lower profit margin attributed to a higher mix of lower margin project revenues. Income before taxes for ourU.S. Regions segment increased$10.4 million , or 188.6%, to$16.0 million for the nine months endedSeptember 30, 2020 compared to$5.5 million for the same period of 2019 primarily due to the increase in revenues described above and a decrease in operating expenses attributed to lower salary and benefit costs of$5.2 million resulting from lower headcount and higher utilization.U.S. Federal Three Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 118,303 $ 71,258 $ 47,045 66.0 % Income before taxes$ 16,121 $ 10,967 $ 5,154 47.0 % Nine Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 271,539 $ 169,337 $ 102,202 60.4 % Income before taxes$ 33,162 $ 26,631 $ 6,531 24.5 % Revenues for ourU.S. Federal segment increased$47.0 million , or 66.0%, to$118.3 million for the three months endedSeptember 30, 2020 compared to the same period of 2019. Revenues for ourU.S. Federal segment increased$102.2 million , or 60.4%, to$271.5 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019. The increase in revenues for the three and nine months endedSeptember 30, 2020 were primarily due to an 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. Income before taxes for ourU.S. Federal segment increased$5.2 million , or 47.0%, to$16.1 million for three months endedSeptember 30, 2020 compared to$11.0 million for the same period of 2019, which relates to the increase in revenues described above and a decrease in project development costs of$0.5 million . Income before taxes for ourU.S. Federal segment increased$6.5 million , or 24.5%, to$33.2 million for nine months endedSeptember 30, 2020 compared to$26.6 million for the same period of 2019 due to the increase in revenues described above, a decrease in salaries and benefits of$0.8 million resulting from increased utilization and a decrease project development costs of$0.7 million , partially offset by an increase in interest expense of$0.8 million . Canada Three Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 12,263 $ 12,665 $ (402) (3.2) % Income before taxes$ 446 $ 1,577 $ (1,131) (71.7) % Nine Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 32,690 $ 27,696 $ 4,994 18.0 % Income before taxes$ 741 $ 1,529 $ (788) (51.5) % Revenues for ourCanada segment decreased to$12.3 million for the three months endedSeptember 30, 2020 compared to$12.7 million the same period of 2019. Revenues for ourCanada segment increased to$32.7 million for the nine months endedSeptember 30, 2020 compared to$27.7 million the same period of 2019. The decrease for the three months endedSeptember 30, 2020 was primarily due to a decrease in our other revenue. The increase in revenues for the nine months endedSeptember 30, 2020 was primarily due to an increase in project revenues related to the progression of certain active projects and an increase in revenue from the growth of our energy assets in operation. Income before taxes for ourCanada segment decreased$1.1 million for the three months endedSeptember 30, 2020 to$0.4 million compared to a$1.6 million for the same period of 2019. The decrease is due primarily to the decrease in revenue 42
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described above and an increase in interest expense of$0.8 million , partially offset by a decrease in salaries and benefits of$0.1 million . Income before taxes for ourCanada segment decreased by$0.8 million for the nine months endedSeptember 30, 2020 to$0.7 million compared to$1.5 million for the same period of 2019. The decrease is primarily due to lower profit margin attributed to a higher mix of lower margin project revenues and an increase in interest expense of$0.8 million . Non-Solar DG Three Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 28,251 $ 21,875 $ 6,376 29.1 % Income before taxes$ 2,391 $ 977 $ 1,414 144.7 % Nine Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 74,104 $ 66,370 $ 7,734 11.7 % Income before taxes$ 6,964 $ 5,758 $ 1,206 20.9 % Revenues for our Non-Solar DG segment increased$6.4 million , or 29.1%, to$28.3 million for the three months endedSeptember 30, 2020 compared to the same period of 2019 primarily due to an increase in project revenues related to the progression of certain active projects. Revenues for our Non-Solar DG segment increased$7.7 million , or 11.7%, to$74.1 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019, primarily due to an increase in project revenues related to the progression of certain active projects. Income before taxes for our Non-Solar DG segment increased$1.4 million , or 144.7%, to$2.4 million for the three months endedSeptember 30, 2020 compared to the same period of 2019 primarily due to the increase in revenues described above partially offset by an impairment charge of$1.0 million recorded during the quarter related to one of our landfill gas to energy assets. Income before taxes for our Non-Solar DG segment increased$1.2 million , or 20.9%, to$7.0 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019 primarily due to the increase in revenues described above. All Other & Unallocated Corporate Activity Three Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 30,746 $ 22,149 $ 8,597 38.8 % Income before taxes$ 3,967 $ 881 $ 3,086 350.3 % Unallocated corporate activity$ (9,361) $ (8,482) $ (879) (10.4) % Nine Months Ended September 30, 2020 2019 $ Change % Change Revenues$ 73,250 $ 69,022 $ 4,228 6.1 % Income before taxes$ 7,035 $ 7,592 $
(557) (7.3) %
Unallocated corporate activity
Revenues for our All Other segment increased$8.6 million , or 38.8%, to$30.7 million for the three months endedSeptember 30, 2020 compared to the same period of 2019. Revenues for our All Other segment increased$4.2 million , or 6.1%, to$73.3 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019. The increase in revenues for the three and nine months endedSeptember 30, 2020 were primarily due to an increase in project revenues related to the progression of certain active projects partially offset by a decrease in our integrated-PV revenues, which is a result of weakened sales to our oil and gas customers. Income before taxes for our All Other segment increased$3.1 million , or 350.3%, to$4.0 million for the three months endedSeptember 30, 2020 compared to the same period of 2019 primarily due to lower operating expenses attributed to lower salary and benefit costs of$0.5 million , lower project development costs of$0.5 million and the recovery of a previously reserved customer receivable of$1.2 million . Income before taxes for our All Other segment decreased$0.6 million , or 7.3%, to$7.0 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019 due to the increase in revenues described above 43
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offset by a mix of revenue from projects with lower gross margins and a gain of$2.2 million recognized on the deconsolidation of a variable interest entity during the first quarter of 2019. Unallocated corporate activity includes all corporate level selling, general and administrative expenses and other expenses not allocated to the segments. We do not allocate any indirect expenses to the segments. Liquidity and Capital Resources Sources of Liquidity Since inception, we have funded operations primarily through cash flow from operations, advances from Federal ESPC projects and various forms of debt. We believe that the cash and cash equivalents and availability under our revolving senior secured credit facility, combined with our access to credit markets, will be sufficient to fund our operations through the next twelve months and thereafter. See Note 2 of the audited consolidated financial statements for the year endedDecember 31, 2019 , and notes thereto, included in the Company's Annual Report. We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. This includes limiting discretionary spending across the organization and re-prioritizing our capital projects amid the COVID-19 pandemic. OnMarch 27, 2020 , theU.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("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. We estimate the payment of approximately$5 million of employer payroll taxes otherwise due in 2020 will be delayed with 50% due byDecember 31, 2021 and the remaining 50% byDecember 31, 2022 . The CARES Act permits 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 estimate the discrete benefit associated with the net operating loss provisions of the CARES Act to be approximately$2,000 , an estimated refund of taxes paid in prior years of approximately$1,700 and the carryback provides an additional refund of approximately$3,600 related to Alternative Minimum Tax credits. Proceeds from our Federal ESPC projects are generally received through agreements to sell the ESPC receivables related to certain ESPC contracts to third-party investors. We use the advances from the investors under these agreements to finance the projects. Until recourse to us ceases for the ESPC receivables transferred to the investor, upon final acceptance of the work by the government customer, we are the primary obligor for financing received. 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 receive under these ESPC agreements are recorded as financing cash inflows. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows. 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 condensed consolidated balance sheet as a non-cash settlement. 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. The amount of interest capitalized relating to construction financing during the period of construction for the nine months endedSeptember 30, 2020 and 2019 was$2.9 million and$2.2 million , respectively. 44
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