Prepared remarks
Good afternoon, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Ameresco Inc.'s Q4 2025 Earnings Conference Call. I would now like to turn the call over to Leila Dillon, Chief Marketing Officer. Please go ahead.
Thank you, Kelvin, and good afternoon, everyone. We appreciate you joining us for today's call. Our speakers on the call today will be George Sakellaris, Ameresco's Chairman and Chief Executive Officer; and Mark Chiplock, Chief Financial Officer. In addition, Josh Baribeau, our Chief Investment Officer, will be available during Q&A to help answer questions. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on Slide 2 of our supplemental information and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations of these measures and additional information in our supplemental slides that were posted to our website. Please note that all comparisons that we will be discussing today are on a year-over-year basis unless otherwise noted. I will now turn the call over to George.
Thank you, Leila, and good afternoon, everyone. I am pleased to report that our fourth quarter results represented a great finish to a year of strong performance with annual results reaching the mid- to high end of our revenue and profit guidance. Excellent execution by the Ameresco team, together with the recurring revenue contributions from our energy asset and O&M businesses were key drivers to our success. And this success was achieved even amid concerns surrounding potential Department of Government efficiency actions early in the year and the 6-week federal government shutdown in the fourth quarter. Importantly, our results were broad-based with growth across all 3 of our core business lines, including strong growth from our European operations. And while our team continues to be laser-focused on contract execution, converting a record $1.5 billion of project backlog into revenue this year, we also saw excellent new business activity, including meaningful project scope increases in our federal backlog. This helped to drive our total awarded backlog to over $2.5 billion, up 13% from last year. Also, Europe was a strong contributor this year and represents a real success story. We first entered Europe over 10 years ago with a small acquisition of a U.K.-based energy consulting firm. But more recently, we have focused on expanding our business in Continental Europe. As doing business in Europe requires a localized presence, our European growth strategy has been driven by opportunistic acquisitions such as Italy-based Enerqos and partnerships in various target countries. We focus on smaller opportunities and then use the power of Ameresco, our technology and process know-how and financial resources to accelerate and drive growth. Geographically, we have focused on Southern and Eastern Europe, areas which are experiencing higher rates of growth with fewer large domestic entrenched competitors. Our 51% owned joint venture with the Greek-based SUNEL Group is an excellent example of this approach. The joint venture was created in April of 2023 to pursue utility-scale PV and battery energy storage opportunities. After great success in Greece, the joint venture has since expanded this business, including a few recent large wins in Romania. We expect to continue to grow in Europe organically and through opportunistic acquisitions and partnerships. Europe not only represents an excellent growth market but it also provides important diversification as demand drivers in Europe are not subject to the same U.S. political and policy variables. We look forward to providing additional updates on this important aspect of our company's future growth. Before I hand the call over to Mark to cover our results and outlook, I would like to briefly highlight a number of key industry growth drivers and how we believe Ameresco can benefit from them for years to come. The first key driver is a rapidly growing demand for electricity. This has been driven by the electrification of buildings and transportation, the power needs for many high-technology industries and the growth in industrial manufacturing. Overall, electricity demand is expected to increase by 78% by 2050 needing 80 gigawatts of capacity added every year for the next 20 years. Meeting this demand will be a significant challenge to our aging system of centralized generation and the associated transmission infrastructure. As a result, many of our customers are choosing to install on-site behind-the-meter generation and storage solutions. Ameresco has been providing a portfolio of these solutions since the founding of the company, including not only solar but also battery energy storage systems, natural gas engines, gas turbines, fuel cells and microgrids. We are also exploring the next generation of energy infrastructure technologies like micro and small modular nuclear reactors. These power and storage solutions will be a key element to supporting ongoing global energy demand needs. Second, increasing energy costs is another key industry driver from which Ameresco is well positioned to benefit, particularly through our built-in efficiency solutions. As electricity prices rise, energy efficiency investments made by our customers deliver faster payback and stronger returns. Energy efficiency is often the most economical solution for existing buildings. According to Frost & Sullivan, Ameresco is the nation's largest provider of energy efficiency services, which represent nearly half of our current project backlog. Third, the increasing stress on the country's aging energy infrastructure from high demand and the critical nature of an interruptible power is quickly driving a growing demand for resilient energy solutions. High-quality power is not only a must-have for critical high-technology industries such as data centers but also for industrial customers where even limited downtime can have significant cost of production consequences. Advancements in lithium battery technologies as well as rapidly declining costs have driven tremendous growth in the use of battery energy storage solutions over the last 5 years. Ameresco has a very long track record of providing resilient solutions at military bases across the country, keeping their mission-critical functions running in case of grid power interruptions and thus making us a go-to provider across all end markets. As you can see, we believe Ameresco is very well positioned to benefit from these long-term trends that should help drive profitable growth for many more years to come. Now I would like to turn the call over to Mark to provide financial commentary on this quarter's excellent results as well as provide our outlook for 2026.
Thank you, George. This was another strong quarter for Ameresco in a year defined by consistent execution. Despite the Q4 government shutdown, we delivered record quarterly revenue of $581 million, up 9% year-over-year with growth across all of our 4 business lines. These results underscore the durability of our diversified business model and the disciplined execution of our team. Projects revenue grew 11%, driven by strong backlog conversion and continued solid performance from our European joint venture with SUNEL. While we converted a significant amount of backlog in the quarter, we still maintained our total project backlog above $5 billion, reflecting sustained demand for our comprehensive energy infrastructure solutions. Energy asset revenue increased 5%, driven by the growth of our operating asset portfolio. We placed 87 megawatts into operation during the quarter, including our ninth RNG facility, a large military solar plus storage installation and the Nucor BESS system. For the year, we exceeded our guidance, placing 121 megawatts of energy assets into operations, bringing our total operating assets to 838 megawatts. We also added 30 megawatts to our energy assets in development, continuing to balance backfilling our energy asset pipeline with our disciplined financial approach to new asset opportunities. Our recurring O&M revenue increased 11%, reflecting continued attachment of long-term service agreements to our completed project work. Our long-term O&M revenue backlog now stands at approximately $1.5 billion. When you combine our project backlog and the future revenue streams from our recurring O&M business and portfolio of operating energy assets, we have over $10 billion in long-term revenue visibility. We believe that level of visibility is a real strength in this challenging environment. And finally, our other line of business, excluding the sale of our AEG business at the end of 2024, delivered solid year-over-year results. Gross margin was 16.2%, up both sequentially and year-over-year. This reflects continued improvement in project mix, higher quality backlog and disciplined cost management. Operating expenses in the fourth quarter were $50.9 million compared to $47.8 million last year. The increase reflects targeted investments in people, project development and execution support as we manage revenue growth, more complex infrastructure projects and continue replenishing backlog. Importantly, operating expenses are growing materially slower than gross profit, so we're still preserving operating leverage in the business. As we move into 2026, we expect to continue investing prudently to support demand and drive growth, which is reflected in our guidance. Net income attributable to common shareholders was $18.4 million with GAAP EPS of $0.34 and non-GAAP EPS at $0.39. Adjusted EBITDA was $70 million, resulting in a margin of 12%. As a reminder, last year's fourth quarter adjusted EBITDA results included the $38 million gain on the sale of AEG. Turning to our balance sheet, we ended the quarter with approximately $72 million in cash and corporate debt of approximately $300 million. Leverage under our senior secured facility was 2.7x, comfortably below the covenant level of 3.5x. During the quarter, we secured approximately $175 million in new project financing commitments. Adjusted cash flow from operations was approximately $36 million, including proceeds from ITC sales. On a longer-term basis, our 8-quarter rolling average adjusted cash from operations was approximately $54 million. Now let me move on to our 2026 guidance. We entered the year with strong business momentum and visibility, supported by continued strength across our end markets. Increased industry demand, combined with the recurring revenue from our growing energy asset and O&M businesses provides clear visibility into another year of strong growth. As detailed in our press release, for 2026, we are guiding to approximately $2.1 billion of revenue and $283 million of adjusted EBITDA at the midpoint of our ranges, representing growth of 9% and 19%, respectively. We expect to place approximately 100 to 120 megawatts of energy assets into service, including 2 RNG plants. For some quarterly shaping, the cadence of the year should follow our historical seasonal pattern with a heavier weighting towards the second half. We expect revenues in the second half of the year to represent approximately 60% of our total revenue for 2026. This is consistent with our performance from the past couple of years. As we look to the first quarter, which is seasonally our lowest revenue quarter, we expect revenue and adjusted EBITDA to be generally consistent with Q1 of last year. The quarter reflects normal project timing and the recent severe weather that has impacted execution across several regions. As noted in the earnings release, Q1 EPS is expected to be lower year-over-year, primarily reflecting higher interest and depreciation expenses from our growing energy asset portfolio as well as continued investment as we scale the business. Before closing on guidance, I want to briefly clarify how certain structural items impact both adjusted EBITDA and EPS. As George mentioned, we operate certain parts of our business through joint venture structures, including our SUNEL JV in Europe. Where we have control, we consolidate 100% of revenue and expenses. However, a portion of both adjusted EBITDA and net income is attributable to our JV partners and reflected as noncontrolling interest. As a result, the adjusted EBITDA and EPS we report reflect only Ameresco's ownership share of those consolidated entities. Given these factors have a significant impact on our results, we've provided estimated ranges for income attributable to noncontrolling interest in our 2026 guidance as detailed in our press release. In summary, 2025 demonstrated the durability of our model. We delivered consistent growth, expanded backlog, improved margins and maintained financial discipline. 2026 is shaping up to be another year of sustained profitable growth for the company as we believe we can continue to benefit from the many positive secular trends driving demand for our energy solutions.
Thank you, Mark. As Mark mentioned, during 2026, we will be building on our excellent momentum from 2025 to deliver another year of strong profitable growth. Our highly differentiated portfolio of energy infrastructure and built-in efficiency solutions are well aligned with customer demand. Over our 26-year history, Ameresco has proven to be one of the most consistent providers of these solutions. We are making targeted investments this year as we focus on technical innovation and drive long-term growth. As we have shared today, we are very excited about our growth prospects for 2026 and beyond. We look forward to seeing many of you at upcoming meetings and conferences. In closing, I would like to once again thank our employees, customers and stockholders for our great success in 2025 and for their continued support in 2026. Operator, we would like to open the call to questions.
Questions and answers
Your first question comes from the line of Noah Kaye of Oppenheimer.
There was a lot of anticipation. I understand that you don't provide formal guidance for the segments in the outlook, but could you offer some insights on the energy assets as considered in the guidance? The 121 megawatts that were put into service did exceed expectations. How should we consider the revenue trajectory there and the margin profile? It appears that it should lead to a significant improvement.
I believe that, similar to previous years, most of the assets we will bring into operation will occur towards the middle and later part of the year. This aligns with how the interconnection queues and development cycles typically function, especially the heavy construction that happens during the summer months. This year is expected to reflect that trend, with a significant portion of operational capacity weighted towards the fourth quarter, around 80-plus megawatts. While it may not reach that level again, it will again likely favor the second half of the year rather than being evenly distributed. Regarding margin contributions, there is no indication that the margins differ by segment, whether battery, gas, or solar, compared to historical averages, and the mix remains consistent with our expectations for this year. Additionally, most assets placed in service in any given year do not provide significant contributions until the following year, as they require time to become operational. This year will feel the effects of the assets we put into service in 2025, particularly since they are heavily weighted towards the latter half of the year. Similarly, the assets planned for 2026 will more significantly impact our 2027 figures, which we have yet to disclose.
Yes. Very clear. And then I think you mentioned in the prepared remarks, Mark, around kind of the first quarter shaping. You mentioned weather had an impact. Obviously, we all experienced firsthand, at least most of us that weather. So not a huge surprise, but can you maybe comment on what that meant for just some of the project work and kind of how you think about the sort of sequencing of getting rid of some of the associated labor inefficiencies and the like so that, that flows a little bit better in 2Q and the back half?
Yes, the weather affected our ability to access certain sites and impacted our assets. This primarily influenced the timing and pace of conversion. We anticipate that revenue from the project side will come in during Q2 as conditions improve. It's important to approach Q1 with the best visibility we have from our backlog, but this situation was unusual due to the severe weather. However, we are confident that this is just a matter of timing, and we expect to see that revenue return as we move beyond Q1 and into the later part of the year.
If I may add a little bit there, Noah. We had the freeze-up on 3 of our assets, the renewable gas assets, and that's correct, and that's not really recoverable. That's gone. But we have taken all that into account for our guidance for the year and the numbers for the first quarter.
Your next question comes from the line of George Gianarikas of Canaccord Genuity.
I'd like to focus a little bit on Europe and the momentum you're seeing now. In order to scale further, do you expect to do it organically? Or are you looking at maybe adding acquisitions to bolster your scale?
We are actively seeking strategic acquisitions that are accretive and will take a very opportunistic approach in that area, as well as expanding our partnership with SUNEL. Our success in Romania has been notable, and we are exploring opportunities in a few other countries. We anticipate some RFPs will be issued, and we intend to pursue that business with SUNEL. The growth potential in Europe, particularly in solar and the emerging battery storage sector, is promising due to the extensive solar and wind installations in these countries, and we are well-positioned to capitalize on this. This presents excellent growth opportunities for us in Europe, providing a beneficial diversification from the current political climate in the U.S.
And maybe as a follow-up, just to ask a little bit about recent momentum in data centers. You specifically mentioned momentum in behind-the-meter. Any update on what you're seeing in the data center market?
Look, we're getting more requests than we can handle once we announce a little more data center opportunities. And of course, we have, I would say, a little bit of strategic advantage from the other competitors, a, we can put the package together and provide high-quality power for data centers. Otherwise, they might have gas turbines or might need battery storage and a microgrid; we are a company that has been doing that for a long time. And we have a great pipeline. That's all I can say. But as you know, we're a little bit conservative when we announce a particular project. But we think it's going to be a great contributor for us down the line this year and much more in the next couple of years.
Yes. Maybe what I'll just add to that, when we think about the timing of when those opportunities can start to come into backlog, we're going to really maintain some strong discipline in risk management as we look at those projects. There's a number of gating items that we need to make sure are derisked like engineering, permitting, equipment sourcing, financing, commercial structuring. And so a lot goes into making sure that those opportunities are real, and I think that's the approach we've been taking in bringing these assets or bringing these projects into the backlog. So as George said, the pipeline is strong, but conversion timing is going to reflect how well we can derisk some of these gating items.
Your next question comes from the line of Ben Kallo of Baird.
Just maybe following on, I know that you put in a very high, if not record number of assets in service in Q4. Regarding the timing of adding new projects to the backlog related to data centers, when should we expect to see some of this in the backlog? Also, could you address any tightness in labor, equipment, or other factors that might be affecting your speed to market?
Yes. I take the first one.
I take the second.
Yes, I think as George mentioned, the pipeline is really strong for these behind-the-meter data center load opportunities. We're really trying to maintain some strong discipline at how we manage these projects from a risk management perspective. There's a lot of gating items that you need to go through from engineering, permitting, and how we source the equipment. We obviously need to work out commercial terms. So it's going to take time, and we want to make sure that these opportunities are grounded in something real before we start to bring them into the backlog. So as we work through derisking those gating items, you'll start to see more of those opportunities come out of the pipeline and into our reported backlog.
And as far as the supply, we still have some challenges, but it has gotten better than what it used to be during COVID, but we are not 100% there where we should be. We have challenges. We managed through it, but it has been a little bit better. And I think some of the things that trip us up, besides the tariffs, are like, for example, what's happening with the lithium prices and so on. So far, we have learned to live with them, and we have incorporated into our forecast and our guidance as much as possible.
Your next question comes from the line of Stephen Gengaro of Stifel.
So 2 things for me. The first, just based on your guide, you have kind of a bit of upward momentum on the margin side. Can you just talk about what's driving that? Is it a specific segment? Is it just execution on certain areas? What's the big driver we should be thinking about for margins in '26?
Yes. I think it's a great question. I think it's discipline and it's execution. We've been talking about this for the last couple of years, but we've really tightened our discipline in terms of how we select projects, how we price them, how we manage the cost. And so we are starting to see that coming through in some of the margin improvements. I think as we continue to take that approach to bringing new projects through the backlog and converting them, as well as bringing more assets online and just growing out those recurring streams, I think that's where we're starting to get confidence in more of the quality of earnings and what we're seeing in this gradual improvement in margins.
Great. And the follow-up to that is, I might have to go back and look historically to get the snapshot exactly. But when you look at your total project backlog that you show in the presentation, are there any subsegments of that pie chart that tend to have higher margins or is the project size at all fairly similar?
Yes, I believe that as we see larger and more complex infrastructure projects come in, the margin profile will increase somewhat. It may not lead to a significant spike in margins, but the mix of these projects entering the backlog does contribute to a higher margin profile.
Your next question comes from the line of Manish Somaiya of Cantor Fitzgerald.
Two questions. One is, if you could just help us understand on the operating cash flow. Just give us a sense as to, I guess, how we should think about working capital in particular as we think about '26.
Sure. If we examine Q4, cash flow can be inconsistent. In Q4, the cash flow reflected normal project timing and changes in working capital, as it was a period of heavy construction. The best way to assess our cash generation is over multiple quarters. That's why we provide that metric, as it gives a more accurate picture of our implementation cycle. Cash flow can vary each quarter due to construction timing and milestone billings. Our working capital has been somewhat tighter due to larger projects that are unbilled and linked to milestones. As we continue to advance those projects and reach those milestones, we will see unbilled amounts convert into accounts receivable and cash, which will be reflected in our cash from operations. While timing may fluctuate from quarter to quarter, we anticipate our working capital will stabilize throughout the year, and we expect to maintain or even increase our cash generation level.
Okay. That's super helpful. And then on the guidance, what gets you to the top end of the guidance? What are some of the milestones that we should be kind of looking for?
Yes. I mean I think that's going to really come down to just execution, right? I think that the backlog is there, the opportunities are there. When we try to put our guidance together, we need to take a bit of a prudent look at how we think things can progress through the backlog and into the P&L. So I think if we can execute on these projects, we don't have other delays like some of the weather stuff we're seeing early in the year. Yes, I think it always just comes down to our ability to execute and kind of stay disciplined on how we manage costs. And I think that could represent an opportunity. But we feel really good about the midpoints just based on how anchored it is to our visibility coming out of backlog, assets we're bringing on, etc.
And then maybe last one for George. High level, obviously, you look at the backlog; it's pretty impressive, a lot of opportunities ahead. You talked about growth in Europe. So as I think about the business the next couple of years out, I mean, how does Ameresco evolve as far as... go ahead. Sorry, George.
I think you will see us doing more and more infrastructure projects and a good chunk of business in Europe. The potential is there. And that's why we made the investment in the last couple of quarters and this quarter, we added a considerable amount of people with the engineering, development people as well as financial and execution, construction management, especially senior-level management construction management people to execute on these larger projects because I think you will see us doing more data centers, more storage or resiliency plans for the industrial customers, especially because the industrial sector for a long time tried to move energy efficiency projects that were very difficult. But now, because they are concerned about resiliency and the higher cost of electricity, we're getting some good traction. So I think you will see us doing less on some of that; much work, but the company will become much larger and driven by these larger opportunities, I would say, in the energy infrastructure sector.
Your next question comes from the line of an indiscernible speaker. There are no appearing questions at this time. And with that, ladies and gentlemen, concludes today's conference call. We thank you for participating. You may now disconnect.