Q3 2012 Earnings Call
November 08, 2012 8:30 am ET
George P. Sakellaris - Founder, Chairman, Chief Executive Officer and President
Andrew B. Spence - Chief Financial Officer and Vice President
Zach Larkin - Stephens Inc., Research Division
Dale Pfau - Cantor Fitzgerald & Co., Research Division
David Giesecke - Wedbush Securities Inc., Research Division
Craig E. Irwin - Wedbush Securities Inc., Research Division
Amir Rozwadowski - Barclays Capital, Research Division
John Quealy - Canaccord Genuity, Research Division
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Thank you, Nancy, and good morning, everyone. Thank you for joining us today for Ameresco's Third Quarter 2012 Earnings Conference Call. I'm joined today by George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; and Andrew Spence, the company's Chief Financial Officer.
On today's call, management will share brief highlights from the prepared remarks we published this morning, and then take questions from the audience.
Before I turn the call over to George and Andrew, I would like to make a brief statement regarding forward-looking remarks. Today's call contains forward-looking information regarding future events and the future financial performance of the company. Ameresco cautions you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. Ameresco refers you to the company's press release issued this morning and its annual report on Form 10-K, filed with the SEC on March 15, 2012, which discusses important factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. Ameresco assumes no obligation to revise any forward-looking statements made on today's call. In addition, the company will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Our GAAP to non-GAAP reconciliation, as well as an explanation behind the use of non-GAAP financial measures is available in our press release, as well as our prepared remarks.
I will now turn the call over to George Sakellaris, Ameresco's President and CEO. George?
George P. Sakellaris
Thank you, Suzanne, and good morning, everyone. We had expected the third quarter 2012 financial results to be less than last year. However, we did not anticipate that market conditions will deteriorate further. We believe that uncertainty regarding the political environments in which our customers operate, the pending financial cliff and perceptions towards debt has caused our customers to behave more cautiously. There's also added pressure from their respective committees or boards that are responsible for approving energy efficiency projects. The result is that our customers have been proceeding with greater care and diligence, which further extended conversion times from awarded projects to signed contracts during the quarter. However, we continued to execute well on projects in construction and revenue from all other operating increased by 20%, helped by annuity-based revenues.
Further, awarded projects increased 46% year-over-year to $1.1 billion, a new record, as gross additions to backlog was $280 million for the quarter, also a new record. This more than offset a 27% decline in fully-contracted backlog.
In addition, total construction backlog reached a new record at nearly $1.5 billion. Project delays persist to an extent that is unprecedented in our experience. In response, we have reevaluated and updated our project timing conversion estimates. Based upon these updated estimates, we are revising our revenue and net income guidance for fiscal 2012. We remain confident about the long-term fundamentals of our business, as well as the demand for energy efficiency.
In addition, the trend in our pipeline and backlog growth, along with the strength within our other finance offerings continued to be encouraging. We believe that as customers gain greater clarity going forward, and as market uncertainties, including the elections and the fiscal cliff, are resolved, awarded projects will begin to convert at a pace more consistent with historical trends. In the meantime, we continue to focus on achieving our long-term strategic plan, improving our competitive position and offering innovative budget-neutral energy services for customers looking to cut operating costs while addressing their aging infrastructure needs.
And now, I do like to turn the call over to Andrew, our Chief Financial Officer, who can provide more details about our financial results. Andrew?
Andrew B. Spence
Thank you very much, George, and good morning, everyone. The financial highlights for the quarter are as follows. Third quarter revenue was down 28%. While we had expected 2012 third quarter revenue to decline year-over-year, we observed even more cautious customer behavior when committing to performance contracting solutions, which more than offset revenue performance from our annuity-based revenue offerings.
Year-to-date revenue was down 12.1%. Revenue from energy efficiency decreased 42.5% and decreased 18.4% year-to-date. Declines in Canada, Federal, Central and other U.S. regions during the third quarter, driven by a lengthening of project conversion times, offset an increase from organic and inorganic growth related to AIS.
Revenue from renewable energy increased 42% and increase 9.9% year-to-date. Strong contributions during the quarter came from renewable projects being developed for customers, small-scale infrastructure and O&M. Gross margin was 21.2% compared to 17.5% a year ago. The lower gross margin in the third quarter of 2011 reflected approximately $650,000 in onetime charges to direct expenses related to payments made to an energy efficiency customer and a renewable energy customer.