10-K 1 amrc1231201810-k.htm 10-K Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)                                
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number: 001-34811
Ameresco, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
04-3512838
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
111 Speen Street, Suite 410
Framingham, Massachusetts
 
01701
(Address of Principal Executive Offices)
 
(Zip Code)
(508) 661-2200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A Common Stock,
par value $0.0001 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K.   o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o
Accelerated Filer  þ
Non-accelerated filer  o
Smaller reporting company o
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuent to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on the New York Stock Exchange on June 30, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, was $250,154,040.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
Class
Shares outstanding as of March 7, 2019
Class A Common Stock, $0.0001 par value per share
28,300,506
Class B Common Stock, $0.0001 par value per share
18,000,000


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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2019 annual meeting of stockholders are incorporated by reference into Part III.
 
 



AMERESCO, INC.
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NOTE ABOUT FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). All statements, other than statements of historical fact, including 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 are forward-looking statements. These 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 include, among other things, statements about:
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.
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 the 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 this Annual Report on Form 10-K and elsewhere in this report. The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K.


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Item 1. Business
Company Overview
Founded in 2000, Ameresco, Inc. is a leading independent provider of comprehensive energy services, including energy efficiency, infrastructure upgrades, energy security and resilience, asset sustainability and renewable energy solutions for businesses and organizations throughout North America and Europe. Ameresco’s sustainability services include capital and operational upgrades to a facility’s energy infrastructure and the development, construction, ownership and operation of renewable energy plants. Ameresco has successfully completed energy saving, environmentally responsible projects with federal, state and local governments, healthcare and educational institutions, housing authorities, and commercial and industrial customers. With its corporate headquarters in Framingham, MA, Ameresco has more than 1,100 employees across more than 70 offices providing local expertise in the United States, Canada, and the United Kingdom.
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.
Our principal service is the development, design, engineering and installation of projects that reduce the energy and operations and maintenance (“O&M”) costs of our customers’ facilities. These projects generally include a variety of measures that incorporate innovative technology and techniques, customized for the facility and designed to improve the efficiency of major building systems, such as heating, ventilation, cooling and lighting systems, while enhancing the comfort and usability of the buildings. Such measures may include a combination of the following: water reclamation, light-emitting diode (“LED”) lighting, smart metering, intelligent micro-grids, battery storage, combined heat and power (“CHP”) or the installation of renewable energy, such as solar photovoltaic (“PV”). We also offer the ability to incorporate analytical tools that provide improved building energy management capabilities and enable customers to identify opportunities for energy cost savings. We typically commit to customers that our energy efficiency projects will satisfy agreed upon performance standards upon installation or achieve specified increases in energy efficiency. In most cases, the forecasted lifetime energy and operating cost savings of the energy efficiency measures we install will defray all or almost all of the cost of such measures. In many cases, we assist customers in obtaining third-party financing, grants or rebates for the cost of constructing the facility improvements, resulting in little or no upfront capital expenditure by the customer. After a project is complete, we may operate, maintain and repair the customer’s energy systems under a multi-year O&M contract, which provides us with recurring revenue and visibility into the customer’s evolving needs.
We also serve certain customers by developing and building small-scale renewable energy plants located at or close to a customer’s site. Depending upon the customer’s preference, we will either retain ownership of the completed plant or build it for the customer. Most of our small-scale renewable energy plants to date consist of solar PV installations and plants constructed adjacent to landfills, that use landfill gas (“LFG”) to generate energy. We have also designed and built, as well as own, operate and maintain, plants that utilize biogas from wastewater treatment processes. Our largest renewable energy project that we operate for a customer uses biomass as the primary source of energy. In the case of most of the plants that we own, the electricity, thermal energy or processed renewable gas fuel generated by the plant is sold under a long-term supply contract with the customer, which is typically a utility, municipality, industrial facility or other purchaser of large amounts of energy. For information on how we finance the projects that we own and operate, please see the disclosures under Note 2, “Summary of Significant Accounting Policies”, Note 8, “Long-Term Debt” and Note 10, “Investment Funds” to our Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K.
As of December 31, 2018, we had backlog of approximately $726.6 million in expected future revenues under signed customer contracts for the installation or construction of projects, which we sometimes refer to as fully-contracted backlog. We also had been awarded projects for which we had not yet signed customer contracts, which we sometimes refer to as awarded projects, with estimated total future revenues of an additional $1,241.4 million. As of December 31, 2017, we had backlog of approximately $572.5 million in expected future revenues under signed customer contracts for the installation or construction of projects. We also had been awarded projects for which we had not yet signed customer contracts, with estimated total future revenues of an additional $1,199.0 million. As of December 31, 2016, we had backlog of approximately $534.1 million in expected future revenues under signed customer contracts for the installation or construction of projects. We also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $957.6 million. 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. Where we have been awarded a project, but have not yet signed a customer contract for that project, we would not begin recognizing revenue unless and until a

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customer contract has been signed and we treat the project as fully-contracted backlog. Recently, awarded projects typically have been taking 12 to 24 months from award to having a signed contract and thus convert to fully-contracted backlog. It may take longer, however, depending upon the size and complexity of the project. Generally, the larger and more complex the project, the longer it takes to take it from award to signed contract. Historically, approximately 90% of our awarded projects ultimately have resulted in a signed contract.
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 of this Annual Report on Form 10-K.
Revenues generated from backlog, which we refer to as project revenues, were $545.1 million, $506.6 million and $454.2 million for the twelve months ended December 31, 2018, 2017 and 2016, respectively.
We also expect to realize recurring revenues both from long-term O&M contracts and from energy output sales for renewable energy operating assets that we own. In addition, we expect to generate revenues from the sale of photovoltaic solar energy products and systems (“integrated-PV”) and other services, such as consulting services and enterprise energy management services. Information about revenues from these other service and product offerings may be found in Note 19, “Business Segment Information” of our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.
Ameresco’s Lines of Business
Projects
Our principal service is energy efficiency projects, which entails the design, engineering and installation of, and assisting with the arranging of financing for an ever-increasing array of innovative technologies and techniques to improve the energy efficiency, and control the operation, of a building’s energy- and water- consuming systems. In certain projects, we also design and construct for a customer a central plant or cogeneration system providing power, heat and/or cooling to a building, or a small-scale plant that produces electricity, gas, heat or cooling from renewable sources of energy. Our projects generally range in size and scope from a one-month project to design and retrofit a lighting system to a more complex 30-month project to design and install a central plant or cogeneration system or other small-scale plant. Projects we have constructed or are currently working on include designing, engineering and installing energy conservation measures across school buildings; large, complex energy conservation and energy security projects for the federal government; and municipal-scale street lighting projects incorporating smart-city controls.
O&M
After an energy efficiency or renewable energy project is completed, we often provide ongoing O&M services under a multi-year contract. These services include operating, maintaining and repairing facility energy systems such as boilers, chillers and building controls, as well as central power and other small-scale plants. For larger projects, we frequently maintain staff on-site to perform these services.
Energy Assets
Our service offering also includes the sale of electricity, processed renewable gas fuel, heat or cooling from the portfolio of assets that we own and operate.
We have constructed and are currently designing and constructing a wide range of renewable energy plants using LFG, wastewater treatment biogas, solar, biomass, other bio-derived fuels, wind and hydro sources of energy. Most of our renewable energy projects to date have involved the generation of electricity from solar PV and LFG or the sale of processed LFG. We purchase the LFG that otherwise would be combusted or vented, process it, and either sell it or use it in our energy plants. We have also designed and built, as well as own, operate and maintain, plants that take biogas generated in the anaerobic digesters of wastewater treatment plants and turn it into renewable natural gas that is either used to generate energy on-site or that can be sold through the nation’s natural gas pipeline grid. Where we own and operate energy producing assets, we typically enter into a long-term power purchase agreement (“PPA”) for the sale of the energy.
As of December 31, 2018, we owned and operated 87 small-scale renewable energy plants and solar PV installations. Of the owned plants, 23 are renewable LFG plants, 2 are wastewater biogas plants, and 62 are solar PV installations. The 87 small-

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scale renewable energy plants and solar PV installations that we own have the capacity to generate electricity or deliver renewable gas fuel producing an aggregate of more than 228 megawatt equivalents.
Other
Our service and product offerings also include integrated-PV and consulting and enterprise energy management services.
Customer Arrangements
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. These performance commitments are typically based on the design, capacity, efficiency or operation of the specific equipment and systems we install. Depending on the project, the measurement and demonstration may be required only once, upon installation, based on an analysis of one or more sample installations, or may be required to be repeated at agreed upon intervals generally over periods of up to 23 years. We often assist these customers in identifying and obtaining financing, through rebate programs, grant programs, third-party lenders and other sources.
Under our contracts, we typically do not take responsibility for a wide variety of factors outside of our control and exclude or adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather, facility occupancy schedules, the amount of energy-using equipment in a facility and the failure of the customer to operate or maintain the project properly. Typically, our performance commitments apply to the aggregate overall performance of a project rather than to individual energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be offset by other measures that overperform during the same period. In the event that an energy efficiency project does not perform according to the agreed upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or modifying the installed equipment, installing additional measures to provide substitute energy savings or paying the customer for lost energy savings based on the assumed conditions specified in the agreement. Many of our equipment supply, local design and installation subcontracts contain provisions that enable us to seek recourse against our vendors or subcontractors if there is a deficiency in our energy reduction commitment. See “We may have liability to our customers under our ESPCs if our projects fail to deliver the energy use reductions to which we are committed under the contract” in Item 1A, Risk Factors.
The projects that we perform for governmental agencies are governed by particular qualification and contracting regimes. Certain states require qualification with an appropriate state agency as a precondition to performing work or appearing as a qualified energy service provider for state, county and local agencies within the state. Most of the work that we perform for the federal government is performed under indefinite delivery, indefinite quantity (“IDIQ”) agreements between government agencies and us or our subsidiaries. These IDIQ agreements allow us to contract with the relevant agencies to implement energy projects, but no work may be performed unless we and the agency agree on a task order or delivery order governing the provision of a specific project. The government agencies enter into contracts for specific projects on a competitive basis. We and our subsidiaries and affiliates are currently party to two IDIQ agreements with the U.S. Department of Energy. The earlier IDIQ was awarded in 2008 and expires in December 2019, with an aggregate maximum potential ordering amount of $5 billion of which we have been awarded approximately $1.3 billion to date. The latter IDIQ was awarded in April 2017 and has a base ordering period of 60 months (expiring in 2022) with one 18-month option period. There is no guarantee the option will be exercised. The maximum value of the latter IDIQ is $55 billion and is allocated across all 4 contract holders and is inclusive of both the base and option period. We are also party to similar agreements with other federal agencies, including the U.S. Army Corps of Engineers and the U.S. General Services Administration. Payments by the federal government for energy efficiency measures are based on the services provided and products installed, but are limited to the savings derived from such measures, calculated in accordance with federal regulatory guidelines and the specific contract terms. The savings are typically determined by comparing energy use and O&M costs before and after the installation of the energy efficiency measures, adjusted for changes that affect energy use and O&M costs but are not caused by the energy efficiency measures.
Sales and Marketing
Our sales and marketing approach is to offer customers customized and comprehensive energy efficiency solutions tailored to meet their economic, operational and technical needs. The sales, design and construction process for energy efficiency and renewable energy projects recently has been averaging from 18 to 54 months. We identify project opportunities through referrals, requests for proposals (“RFPs”), conferences and events, website, online campaigns, telemarketing and repeat

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business from existing customers. Our direct sales force develops and follows up on customer leads. As of December 31, 2018, we had 117 employees in direct sales.
In preparation for a proposal, our team typically conducts a preliminary audit of the customer’s needs and requirements, and identifies areas to enhance efficiencies and reduce costs. We collect and analyze the customer’s utility bill and other data related to energy use. If the bills are complex or numerous, we often utilize Ameresco’s enterprise energy management software tools to scan, compile and analyze the information. Our experienced engineers visit and assess the customer’s current energy systems and infrastructure. Through our knowledge of the federal, state, local governmental and utility environment, we assess the availability of energy, utility or environmental-based payments for usage reductions or renewable power generation, which helps us optimize the economic benefits of a proposed project for a customer. Once awarded a project, we perform a more detailed audit of the customer’s facilities, which serves as the basis for the final specifications of the project and final contract terms.
For renewable energy plants that are not located on a customer’s site or use sources of energy not within the customer’s control, the sales process also involves the identification of sites with attractive sources of renewable energy and obtaining necessary rights and governmental permits to develop a plant on that site. For example, for LFG projects, we start with gaining control of a LFG resource located close to the prospective customer. For solar and wind projects, we look for sites where utilities are interested in purchasing renewable energy power at rates that are sufficient to make a project feasible. Where governmental agencies control the site and resource, such as a landfill owned by a municipality, the customer may be required to issue an RFP to use the site or resource. Once we believe we are likely to obtain the rights to the site and the resource, we seek customers for the energy output of the potential project, with whom we can enter into a long-term PPA.
Customers
In 2018, we served customers throughout the United States, Canada and the United Kingdom (“U.K”). Historically, including for the years ended December 31, 2018, 2017 and 2016, approximately 77% of our revenues have been derived from federal, state, provincial or local government entities, including public housing authorities and public universities. Our federal customers include various divisions of the U.S. federal government. The U.S. federal government, which is considered a single customer for reporting purposes, constituted 31.3%, 32.0% and 27.3% of our consolidated revenues for the years ended December 31, 2018, 2017 and 2016, respectively. For the year ended December 31, 2018, our largest 20 customers accounted for approximately 58.5% of our total revenues. Other than the U.S. federal government, no one customer represented more than 10% of our revenues during this period.
See “Provisions in our government contracts may harm our business, financial condition and operating results” in Item 1A, Risk Factors for a discussion of special considerations applicable to government contracting.
Competition
While we face significant competition from a large number of companies, we believe few offer the objective technical expertise and full range of services that we provide.

Our principal competitors for our core business include Constellation NewEnergy (and Exelon Company), Energy Systems Group, Honeywell, Johnson Controls, NORESCO, Schneider Electric, Siemens Building Technologies, and Trane. We compete primarily on the basis of our comprehensive, independent offering of energy efficiency and renewable energy services and the breadth and depth of our expertise.

For renewable energy plants, we compete primarily with many large independent power producers and utilities, as well as a large number of developers of renewable energy projects. In the LFG market, our principal competitors include national project developers and owners of landfills who self-develop projects using LFG from their landfills. In the solar PV market, our principal competitors are Borrego Solar, BlueWave Solar, Citizens Energy, Clean Energy Collective, Nexamp, SunPower Corp., Solect Energy, and Syncarpha Capital. We compete for renewable energy projects primarily on the basis of our experience, reputation and ability to identify and complete high quality and cost-effective projects.

For O&M services, our principal competitors are EMCOR Group, Comfort Systems USA, Honeywell, Johnson Controls and Veolia. In this area, we compete primarily on the basis of our expertise and quality of service.


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See “We operate in a highly competitive industry, and our current or future competitors may be able to compete more effectively than we do, which could have a material adverse effect on our business, revenues, growth rates and market share” in Item 1A, Risk Factors for further discussion of competition.
Regulatory
Various regulations affect the conduct of our business. Federal and state legislation and regulations enable us to enter into ESPCs with government agencies in the United States. The applicable regulatory requirements for ESPCs differ in each state and between agencies of the federal government.
Our projects must conform to all applicable electric reliability, building and safety, and environmental regulations and codes, which vary from place to place and time to time. Various federal, state, provincial and local permits are required to construct an energy efficiency project or renewable energy plant.
Renewable energy projects are also subject to specific governmental safety and economic regulation. States and the federal government typically do not regulate the transportation or sale of LFG unless it is combined with and distributed with natural gas, but this is not uniform among states and may change from time to time. States regulate the retail sale and distribution of natural gas to end-users, although regulatory exemptions from regulation are available in some states for limited gas delivery activities, such as sales only to a single customer. The sale and distribution of electricity at the retail level is subject to state and provincial regulation, and the sale and transmission of electricity at the wholesale level is subject to federal regulation. While we do not own or operate retail-level electric distribution systems or wholesale-level transmission systems, the prices for the products we offer can be affected by the tariffs, rules and regulations applicable to such systems, as well as the prices that the owners of such systems are able to charge. The construction of power generation projects typically is regulated at the state and provincial levels, and the operation of these projects also may be subject to state and provincial regulation as “utilities.” At the federal level, the ownership and operation of, and sale of power from, generation facilities may be subject to regulation under the Public Utility Holding Company Act of 2005 (“PUHCA”), the Federal Power Act (“FPA”), and Public Utility Regulatory Policies Act of 1978 (“PURPA”). However, because all of the plants that we have constructed and operated to date are small power “qualifying facilities” under PURPA, they are subject to less regulation under the FPA, PUHCA and related state utility laws than traditional utilities.
If we pursue projects employing different technologies or with a single project electrical capacity greater than 20 megawatts, we could become subject to some of the regulatory schemes which do not apply to our current projects. In addition, the state, provincial and federal regulations that govern qualifying facilities and other power sellers frequently change, and the effect of these changes on our business cannot be predicted.
LFG power generation facilities require an air emissions permit, which may be difficult to obtain in certain jurisdictions. See “Compliance with environmental laws could adversely affect our operating results” in Item 1A, Risk Factors. Renewable energy projects may also be eligible for certain governmental or government-related incentives from time to time, including tax credits, cash payments in lieu of tax credits, and the ability to sell associated environmental attributes, including carbon credits. Government incentives and mandates typically vary by jurisdiction.
Some of the demand reduction services we provide for utilities and institutional clients are subject to regulatory tariffs imposed under federal and state utility laws. In addition, the operation of, and electrical interconnection for, our renewable energy projects are subject to federal, state or provincial interconnection and federal reliability standards also set forth in utility tariffs. These tariffs specify rules, business practices and economic terms to which we are subject. The tariffs are drafted by the utilities and approved by the utilities’ state, provincial or federal regulatory commissions.
Employees
As of December 31, 2018, we had a total of 1,116 employees in offices located in 34 states, the District of Columbia, four Canadian provinces and the U.K.
Seasonality
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 and “Overview — Effects of Seasonality” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of seasonality in our business.
Segments and Geographic Information

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Financial information about our domestic and international operations and about our segments may be found in Note 15, “Geographic Information” and 19, “Business Segment Information” respectively, of our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.
Additional Information
Ameresco was incorporated in Delaware in 2000 and is headquartered in Framingham, Massachusetts.
Periodic reports, proxy statements and other information are available to the public, free of charge, on our website, www.ameresco.com, as soon as reasonably practicable after they have been filed with the Securities and Exchange Commission (“SEC”), and through the SEC’s website, www.sec.gov. We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website. None of the material on our website is part of this Annual Report on Form 10-K.
Executive Officers
The following is a list of our executive officers, their ages as of March 1, 2019 and their principal positions.
Name
 
Age
 
Position (s)
George P. Sakellaris
 
72

 
Chairman of the Board of Directors, President and Chief Executive Officer
David J. Anderson
 
58

 
Executive Vice President and Director
Michael T. Bakas
 
50

 
Executive Vice President, Distributed Energy Systems
Nicole A. Bulgarino
 
46

 
Executive Vice President and General Manager, Federal Solutions
David J. Corrsin
 
60

 
Executive Vice President, General Counsel and Secretary and Director
Joseph P. DeManche
 
62

 
Executive Vice President, Engineering and Operations
Louis P. Maltezos
 
52

 
Executive Vice President
Mark A. Chiplock
 
49

 
Vice President, Interim Chief Financial Officer and Treasurer
George P. Sakellaris: Mr. Sakellaris has served as chairman of our board of directors and our president and chief executive officer since founding Ameresco in 2000.
David J. Anderson: Mr. Anderson has served as our executive vice president as well as a director, since 2000 and oversees business development, government relations, strategic marketing and communications, as well as several U.S. business units and U.K. operations.
Michael T. Bakas: Mr. Bakas has served as our executive vice president, distributed energy systems, since November 2017. Mr. Bakas previously served as our senior vice president, renewable energy, from March 2010 to September 2017 and our vice president, renewable energy from 2000 to February 2010.
David J. Corrsin: Mr. Corrsin has served as our executive vice president, general counsel and secretary, as well as a director, since 2000.
Nicole A. Bulgarino: Ms. Bulgarino has served as our executive vice president and general manager of federal solutions since May 2017. Ms. Bulgarino previously served as our senior vice president and general manager of federal solutions from May 2015 to May 2017; vice president and general manager of federal solutions from February 2014 to May 2015; vice president, federal group operations from December 2012 to February 2014; director, implementation from May 2010 to December 2012; and senior engineer from June 2004 to May 2010.
Joseph P. DeManche: Mr. DeManche has served as our executive vice president, engineering and operations since 2002.
Louis P. Maltezos: Mr. Maltezos has served as executive vice president since April 2009 and oversees Central and Northwest Regions and Canada operations. Mr. Maltezos has also served as the chief executive officer of Ameresco Canada since September 2015 and served as the president of Ameresco Canada from September 2014 to September 2015.
Mark A. Chiplock: Mr. Chiplock has served as our Interim Chief Financial Officer and Treasurer since October 2018 and has served as Vice President of Finance and Corporate Controller since April 2016. Mr. Chiplock joined the Company as Corporate Controller in June 2014. Prior to Ameresco, he served as Vice President, Finance of GlassHouse Technologies, a data center infrastructure consulting firm, from June 2012 to May 2014.

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Item 1A. Risk Factors
Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements. Any or all of our forward-looking statements in this Annual Report on Form 10-K and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may differ materially from those anticipated in forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. You should, however, consult any further disclosure we make in our reports filed with the SEC.
Risks Related to Our Business
If demand for our energy efficiency and renewable energy solutions does not develop as we expect, our revenues will suffer and our business will be harmed.
We believe, and our growth plans assume, that the market for energy efficiency and renewable energy solutions will continue to grow, that we will increase our penetration of this market and that our revenues from selling into this market will continue to increase over time. If our expectations as to the size of this market and our ability to sell our products and services in this market are not correct, our revenues will suffer and our business will be harmed.
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.
The sales, design and construction process for energy efficiency and renewable energy projects recently has been taking from 18 to 54 months on average, with sales to federal government and housing authority customers tending to require the longest sales processes. Our existing and potential customers generally follow extended budgeting and procurement processes, and sometimes must engage in regulatory approval processes related to our services. Our customers often use outside consultants and advisors, which contributes to a longer sales cycle. Most of our potential customers issue an RFP, as part of their consideration of alternatives for their proposed project. In preparation for responding to an RFP, we typically conduct a preliminary audit of the customer’s needs and the opportunity to reduce its energy costs. For projects involving a renewable energy plant that is not located on a customer’s site or that uses sources of energy not within the customer’s control, the sales process also involves the identification of sites with attractive sources of renewable energy, such as a landfill or a favorable site for solar PV, and it may involve obtaining necessary rights and governmental permits to develop a project on that site. If we are awarded a project, we then perform a more detailed audit of the customer’s facilities, which serves as the basis for the final specifications of the project. We then must negotiate and execute a contract with the customer. In addition, we or the customer typically need to obtain financing for the project.
This extended sales process requires the dedication of significant time by our sales and management personnel and our use of significant financial resources, with no certainty of success or recovery of our related expenses. A potential customer may go through the entire sales process and not accept our proposal. All of these factors can contribute to fluctuations in our quarterly financial performance and increase the likelihood that our operating results in a particular quarter will fall below investor expectations. These factors could also adversely affect our business, financial condition and operating results due to increased spending by us that is not offset by increased revenues.

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We may not recognize all revenues from our backlog or receive all payments anticipated under awarded projects and customer contracts.
As of December 31, 2018, we had backlog of approximately $726.6 million in expected future revenues under signed customer contracts for the installation or construction of projects, which we sometimes refer to as fully-contracted backlog; and we also had been awarded projects for which we do not yet have signed customer contracts with estimated total future revenues of an additional $1,241.4 million. As of December 31, 2017, we had fully-contracted backlog of approximately $572.5 million; and we also had awarded projects for which we had not yet have signed customer contracts with estimated total future revenues of an additional $1,199.0 million. As of December 31, 2016, we had fully-contracted backlog of approximately $534.1 million; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $957.6 million.
Our customers have the right under some circumstances to terminate contracts or defer the timing of our services and their payments to us. In addition, our government contracts are subject to the risks described below under “Provisions in government contracts may harm our business, financial condition and operating results.” The payment estimates for projects that have been awarded to us but for which we have not yet signed contracts have been prepared by management and are based upon a number of assumptions, including that the size and scope of the awarded projects will not change prior to the signing of customer contracts, that we or our customers will be able to obtain any necessary third-party financing for the awarded projects, and that we and our customers will reach agreement on and execute contracts for the awarded projects. We are not always able to enter into a contract for an awarded project on the terms proposed. As a result, we may not receive all of the revenues that we include in the awarded projects component of our backlog or that we estimate we will receive under awarded projects. If we do not receive all of the revenue we currently expect to receive, our future operating results will be adversely affected. In addition, a delay in the receipt of revenues, even if such revenues are eventually received, may cause our operating results for a particular quarter to fall below our expectations.
Revenue recognition accounting pronouncements may materially adversely affect our reported results of operations.
We continuously review our compliance with all new and existing revenue recognition accounting pronouncements. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance. We adopted this guidance and its subsequent amendments effective as of January 1, 2018 using the modified retrospective transition approach beginning with our Quarterly Report on Form 10-Q for the first quarter of 2018. Under this approach, the new standard would apply to all new contracts initiated on or after January 1, 2018. For existing contracts that had remaining obligations as of January 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s then current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings. Specifically we expect and have experienced up to a 6 month delay in the timing of revenue recognition related to solar renewable energy credits (“SRECs”) or renewable energy attributes, as well as changes in the timing of revenue recognition on contracts with uninstalled materials if a significant delay is anticipated between purchasing and installation. See Recent Accounting Pronouncements in Note 2, “Summary of Significant Accounting Policies” and Note 3, “Revenue from Contracts with Customers” to the Consolidated Financial Statements for further information regarding ASU 2014-09.
Our business depends in part on federal, state, provincial and local government support for energy efficiency and renewable energy, and a decline in such support could harm our business.
We depend in part on legislation and government policies that support energy efficiency and renewable energy projects that enhance the economic feasibility of our energy efficiency services and small-scale renewable energy projects. This support includes legislation and regulations that authorize and regulate the manner in which certain governmental entities do business with us; encourage or subsidize governmental procurement of our services; encourage or in some cases require other customers to procure power from renewable or low-emission sources, to reduce their electricity use or otherwise to procure our services; and provide us with tax and other incentives that reduce our costs or increase our revenues. Without this support, on which projects frequently rely for economic feasibility, our ability to complete projects for existing customers and obtain project commitments from new customers could be adversely affected.


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A substantial portion of our earnings are derived from the sale of renewable energy certificates (“RECs”) and other environmental attributes, and our failure to be able to sell such attributes could materially adversely affect our business, financial condition and results of operation.
    
A substantial portion of our earnings are attributable to our sale of renewable energy certificates (“RECs”) and other environmental attributes generated by our energy assets. These attributes are used as compliance purposes for state-specific or U.S. federal policy.

We own and operate solar PV installations which derive a significant portion of their revenues from the sale of solar renewable energy certificates (“SRECs”), which are produced as a result of generating electricity. The value of these SRECs is determined by the supply and demand of SRECs in the states in which the solar PV installations are installed. Supply is driven by the amount of installations and demand is driven by state-specific laws relating to renewable portfolio standards.
 
We also own and operate renewable natural gas plants that may deliver biofuels into to the nation’s natural gas pipeline grid. Such biofuel may qualify for certain environmental attribute mechanisms, such as renewable identification numbers (“RINs”) which are used for compliance purposes under the Renewable Fuel Standard (“RFS”) program. The RFS is a U.S. federal policy that requires transportation fuel to contain a minimum volume of renewable fuel. The U.S. Environmental Protection Agency (“EPA”) administers the RFS program and may periodically undertake regulatory action involving the RFS, including annual volume standards for renewable fuel.
We sometimes seek to sell forward a portion of our SRECs and other environmental attributes under contracts to fix the revenues from those attributes for financing purposes or hedge against future declines in prices of such environmental attributes. If our renewable energy facilities do not generate the amount of renewable energy attributes sold under such forward contracts or if for any reason the renewable energy we generate does not produce SRECs or other environmental attributes for a particular state, we may be required to make up the shortfall of SRECs or other environmental attributes under such forward contracts through purchases on the open market or make payments of liquidated damages.
RECs are created through state law requirements for utilities to purchase a portion of their energy from renewable energy sources and changes in state laws or regulation relating to RECs may adversely affect the availability of RECs or other environmental attributes and the future prices for RECs or other environmental attributes, which could have an adverse effect on our business, financial condition and results of operations.

A significant decline in the fiscal health of federal, state, provincial and local governments could reduce demand for our energy efficiency and renewable energy projects.

Historically, including for the years ended December 31, 2018, 2017 and 2016, more than 77% of our revenues have been derived from sales to federal, state, provincial or local governmental entities, including public housing authorities and public universities. We expect revenues from this market sector to continue to comprise a significant percentage of our revenues for the foreseeable future. A significant decline in the fiscal health of these existing and potential customers may make it difficult for them to enter into contracts for our services or to obtain financing necessary to fund such contracts, or may cause them to seek to renegotiate or terminate existing agreements with us. In addition, if there is a partial or full shutdown of any federal, state, provincial or local governing body this may adversely impact our financial performance.
Provisions in our government contracts may harm our business, financial condition and operating results.
A significant majority of our fully-contracted backlog and awarded projects is attributable to customers that are government entities. Our contracts with the federal government and its agencies, and with state, provincial and local governments, customarily contain provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts, including provisions that allow the government to:
terminate existing contracts, in whole or in part, for any reason or no reason;
reduce or modify contracts or subcontracts;
decline to award future contracts if actual or apparent organizational conflicts of interest are discovered, or to impose organizational conflict mitigation measures as a condition of eligibility for an award;

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suspend or debar the contractor from doing business with the government or a specific government agency; and
pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions unique to government contracting.
Under general principles of government contracting law, if the government terminates a contract for convenience, the terminated company may recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default, the defaulting company is entitled to recover costs incurred and associated profits on accepted items only and may be liable for excess costs incurred by the government in procuring undelivered items from another source. In most of our contracts with the federal government, the government has agreed to make a payment to us in the event that it terminates the agreement early. The termination payment is designed to compensate us for the cost of construction plus financing costs and profit on the work completed.
In ESPCs for governmental entities, the methodologies for computing energy savings may be less favorable than for non-governmental customers and may be modified during the contract period. We may be liable for price reductions if the projected savings cannot be substantiated.
In addition to the right of the federal government to terminate its contracts with us, federal government contracts are conditioned upon the continuing approval by Congress of the necessary spending to honor such contracts. Congress often appropriates funds for a program on a September 30 fiscal-year basis even though contract performance may take more than one year. Consequently, at the beginning of many major Governmental programs, contracts often may not be fully funded, and additional monies are then committed to the contract only if, as and when appropriations are made by Congress for future fiscal years. Similar practices are likely to also affect the availability of funding for our contracts with Canadian, as well as state, provincial and local government entities. If one or more of our government contracts were terminated or reduced, or if appropriations for the funding of one or more of our contracts is delayed or terminated, our business, financial condition and operating results could be adversely affected.
Our senior credit facility, project financing term loans and construction loans contain financial and operating restrictions that may limit our business activities and our access to credit.
Provisions in our senior credit facility, project financing term loans and construction loans impose customary restrictions on our and certain of our subsidiaries’ business activities and uses of cash and other collateral. These agreements also contain other customary covenants, including covenants that require us to meet specified financial ratios and financial tests.
We have a $85 million revolving senior secured credit facility that matures June 2020, subject to the quarter end ratio covenant described below. This facility may not be sufficient to meet our needs as our business grows, and we may be unable to extend or replace it on acceptable terms, or at all. Under the revolving credit facility we are required to maintain a maximum ratio of total funded debt to EBITDA (as defined in the agreement) of less than 3.0 to 1.0 as of the end of each fiscal quarter ending June 30, 2018 and thereafter. We are also required to maintain a debt service coverage ratio (as defined in the agreement) of at least 1.5 to 1.0. EBITDA for purposes of the facility excludes the results of certain renewable energy projects that we own and for which financing from others remains outstanding.
In addition, our project financing term loans and construction loans require us to comply with a variety of financial and operational covenants.
Although we do not consider it likely that we will fail to comply with any material covenants for the next twelve months, we cannot assure that we will be able to do so. Our failure to comply with these covenants may result in the declaration of an event of default and cause us to be unable to borrow under our credit facility. In addition to preventing additional borrowings under this facility, an event of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under it or the applicable project financing term loan, which would require us to pay all amounts outstanding. If an event of default occurs, we may not be able to cure it within any applicable cure period, if at all. Certain of our debt agreements also contain subjective acceleration clauses based on a lender deeming that a “material adverse change” in our business has occurred. If these clauses are implicated, and the lender declares that an event of default has occurred, the outstanding indebtedness would likely be immediately due and owing. If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all.
The LIBOR calculation method may change and LIBOR is expected to be phased out after 2021.


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Our senior credit facility and certain of our project financing term loans permit or require interest on the outstanding principal balance to be calculated based on LIBOR. On July 27, 2017, the U.K. Financial Conduct Authority (the "FCA") announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. In the meantime, actions by the FCA, other regulators, or law enforcement agencies may result in changes to the method by which LIBOR is calculated. At this time, it is not possible to predict the effect of any such changes or any other reforms to LIBOR that may be enacted in the U.K. or elsewhere.
The projects we undertake for our customers generally require significant capital, which our customers or we may finance through third parties, and such financing may not be available to our customers or to us on favorable terms, if at all.
Our projects for customers are typically financed by third parties. For small-scale renewable energy plants that we own, we typically rely on a combination of our working capital and debt to finance construction costs. If we or our customers are unable to raise funds on acceptable terms when needed, we may be unable to secure customer contracts, the size of contracts we do obtain may be smaller or we could be required to delay the development and construction of projects, reduce the scope of those projects or otherwise restrict our operations. Any inability by us or our customers to raise the funds necessary to finance our projects could materially harm our business, financial condition and operating results.
Project development or construction activities may not be successful, and we may make significant investments without first obtaining project financing, which could increase our costs and impair our ability to recover our investments.
The development and construction of small-scale renewable energy plants and other energy infrastructure projects involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, legal and other expenses before we can determine whether a project is feasible, economically attractive or capable of being built. In addition, we will often choose to bear the costs of such efforts prior to obtaining project financing, prior to getting final regulatory approval and prior to our final sale to a customer, if any.
Successful completion of a particular project may be adversely affected by numerous factors, including: failures or delays in obtaining desired or necessary land rights, including ownership, leases and/or easements; failures or delays in obtaining necessary permits, licenses or other governmental support or approvals, or in overcoming objections from members of the public or adjoining land owners; uncertainties relating to land costs for projects; unforeseen engineering problems; access to available transmission for electricity generated by our small-scale renewable energy plants; construction delays and contractor performance shortfalls; work stoppages or labor disruptions and compliance with labor regulations; cost over-runs; availability of products and components from suppliers; adverse weather conditions; environmental, archaeological and geological conditions; and availability of construction and permanent financing.
If we are unable to complete the development of a small-scale renewable energy plants or fail to meet one or more agreed target construction milestone dates, we may be subject to liquidated damages and/or penalties under the Engineering Procurement and Construction agreement or other agreements relating to the power plant or project, and we typically will not be able to recover our investment in the project. We expect to invest a significant amount of capital to develop projects whether owned by us or by third parties. If we are unable to complete the development of a project, we may write-down or write-off some or all of these capitalized investments, which would have an adverse impact on our net income in the period in which the loss is recognized.
Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse effect on our operating results.
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, 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 revenue 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.

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We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.
Our provision for income taxes is subject to volatility and could be adversely affected by changes in tax laws or regulations, particularly changes in tax incentives in support of energy efficiency. For example, certain deductions relating to energy efficiency have expiration dates which could significantly alter the existing tax code, including the removal of these credits prior to their scheduled expiration. The 30% investment tax credit (“ITC”) relating to the installation of solar power was extended through 2019, after which it will fall to 26 percent in 2020, 22 percent in 2021, and 10 percent in 2022 and future years. 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.
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. Section 179D was extended through December 31, 2017 as part of the Bipartisan Budget Act which became law on February 9, 2018. There is no assurance that Section 179D will continue to be extended retroactively or otherwise and were the deduction not available it would significantly affect our tax rate.
In addition, like other companies, we may be subject to examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities; our U.S. federal tax returns for 2015 through 2017 are subject to audit by federal, state and foreign tax authorities. Though we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our net income.
Changes in the laws and regulations governing the public procurement of ESPCs could have a material impact on our business.
We derive a significant amount of our revenue from ESPCs with our government customers. While federal, state and local government rules governing such contracts vary, such rules may, for example, permit the funding of such projects through long-term financing arrangements; permit long-term payback periods from the savings realized through such contracts; allow units of government to exclude debt related to such projects from the calculation of their statutory debt limitation; allow for award of contracts on a “best value” instead of “lowest cost” basis; and allow for the use of sole source providers. To the extent these rules become more restrictive in the future, our business could be harmed.
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.
Our success depends on our ability to provide services and complete projects in a timely manner, which in part depends on the ability of third parties to provide us with timely and reliable products and services. In providing our services and completing our projects, we rely on products that meet our design specifications and components manufactured and supplied by third parties, as well as on services performed by subcontractors.We also rely on subcontractors to perform substantially all of the construction and installation work related to our projects; and we often need to engage subcontractors with whom we have no experience for our projects.
If any of our subcontractors are unable to provide services that meet or exceed our customers’ expectations or satisfy our contractual commitments, our reputation, business and operating results could be harmed. In addition, if we are unable to avail ourselves of warranty and other contractual protections with providers of products and services, we may incur liability to our customers or additional costs related to the affected products and components, which could have a material adverse effect on our business, financial condition and operating results. Moreover, any delays, malfunctions, inefficiencies or interruptions in these products or services could adversely affect the quality and performance of our solutions and require considerable expense to establish alternate sources for such products and services. This could cause us to experience difficulty retaining current customers and attracting new customers, and could harm our brand, reputation and growth.
We may have liability to our customers under our ESPCs if our projects fail to deliver the energy use reductions to which we are committed under the contract.
For our energy efficiency projects, we typically enter into ESPCs under which we commit that the projects will satisfy agreed-upon performance standards appropriate to the project. These commitments are typically structured as guarantees of increased energy efficiency that are based on the design, capacity, efficiency or operation of the specific equipment and systems

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we install. Our commitments generally fall into three categories: pre-agreed, equipment-level and whole building-level. Under a pre-agreed efficiency commitment, our customer reviews the project design in advance and agrees that, upon or shortly after completion of installation of the specified equipment comprising the project, the pre-agreed increase in energy efficiency will have been met. Under an equipment-level commitment, we commit to a level of increased energy efficiency based on the difference in use measured first with the existing equipment and then with the replacement equipment upon completion of installation. A whole building-level commitment requires future measurement and verification of increased energy efficiency for a whole building, often based on readings of the utility meter where usage is measured. Depending on the project, the measurement and verification may be required only once, upon installation, based on an analysis of one or more sample installations, or may be required to be repeated at agreed upon intervals generally over periods of up to 23 years.
Under our contracts, we typically do not take responsibility for a wide variety of factors outside our control and exclude or adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather, facility occupancy schedules, the amount of energy-using equipment in a facility, and failure of the customer to operate or maintain the project properly. We rely in part on warranties from our equipment suppliers and subcontractors to back-stop the warranties we provide to our customers and, where appropriate, pass on the warranties to our customers. However, the warranties we provide to our customers are sometimes broader in scope or longer in duration than the corresponding warranties we receive from our suppliers and subcontractors, and we bear the risk for any differences, as well as the risk of warranty default by our suppliers and subcontractors.
Typically, our performance commitments apply to the aggregate overall performance of a project rather than to individual energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be offset by other measures that overperform during the same period. In the event that an energy efficiency project does not perform according to the agreed-upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or modifying the installed equipment, installing additional measures to provide substitute energy savings, or paying the customer for lost energy savings based on the assumed conditions specified in the agreement. However, we may incur additional or increased liabilities or expenses under our ESPCs in the future. Such liabilities or expenses could be substantial, and they could materially harm our business, financial condition or operating results. In addition, any disputes with a customer over the extent to which we bear responsibility to improve performance or make payments to the customer may diminish our prospects for future business from that customer or damage our reputation in the marketplace.
We may assume responsibility under customer contracts for factors outside our control, including, in connection with some customer projects, the risk that fuel prices will increase.
We typically do not take responsibility under our contracts for a wide variety of factors outside our control. We have, however, in a limited number of contracts assumed some level of risk and responsibility for certain factors — sometimes only to the extent that variations exceed specified thresholds — and may also do so under certain contracts in the future, particularly in our contracts for renewable energy projects. For example, under a contract for the construction and operation of a cogeneration facility at the U.S. Department of Energy Savannah River Site in South Carolina, a subsidiary of ours is exposed to the risk that the price of the biomass that will be used to fuel the cogeneration facility may rise during the 19-year performance period of the contract. Several provisions in that contract mitigate the price risk. In addition, although we typically structure our contracts so that our obligation to supply a customer with LFG, electricity or steam, for example, does not exceed the quantity produced by the production facility, in some circumstances we may commit to supply a customer with specified minimum quantities based on our projections of the facility’s production capacity. In such circumstances, if we are unable to meet such commitments, we may be required to incur additional costs or face penalties. Despite the steps we have taken to mitigate risks under these and other contracts, such steps may not be sufficient to avoid the need to incur increased costs to satisfy our commitments, and such costs could be material. Increased costs that we are unable to pass through to our customers could have a material adverse effect on our operating results.
Our business depends on experienced and skilled personnel and substantial specialty subcontractor resources, and if we lose key personnel or if we are unable to attract and integrate additional skilled personnel, it will be more difficult for us to manage our business and complete projects.
The success of our business and construction projects depend in large part on the skill of our personnel and on trade labor resources, including with certain specialty subcontractor skills. Competition for personnel, particularly those with expertise in the energy services and renewable energy industries, is high. In the event we are unable to attract, hire and retain the requisite personnel and subcontractors, we may experience delays in completing projects in accordance with project schedules and budgets. Further, any increase in demand for personnel and specialty subcontractors may result in higher costs, causing us to

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exceed the budget on a project. Either of these circumstances may have an adverse effect on our business, financial condition and operating results, harm our reputation among and relationships with our customers and cause us to curtail our pursuit of new projects.
Our future success is particularly dependent on the vision, skills, experience and effort of our senior management team, including our executive officers and our founder, principal stockholder, president and chief executive officer, George P. Sakellaris. If we were to lose the services of any of our executive officers or key employees, our ability to effectively manage our operations and implement our strategy could be harmed and our business may suffer.
If we cannot obtain surety bonds and letters of credit, our ability to operate may be restricted.
Federal and state laws require us to secure the performance of certain long-term obligations through surety bonds and letters of credit. In addition, we are occasionally required to provide bid bonds or performance bonds to secure our performance under energy efficiency contracts. In the future, we may have difficulty procuring or maintaining surety bonds or letters of credit, and obtaining them may become more expensive, require us to post cash collateral or otherwise involve unfavorable terms. Because we are sometimes required to have performance bonds or letters of credit in place before projects can commence or continue, our failure to obtain or maintain those bonds and letters of credit would adversely affect our ability to begin and complete projects, and thus could have a material adverse effect on our business, financial condition and operating results.
We operate in a highly competitive industry, and our current or future competitors may be able to compete more effectively than we do, which could have a material adverse effect on our business, revenues, growth rates and market share.
Our industry is highly competitive, with many companies of varying size and business models, many of which have their own proprietary technologies, competing for the same business as we do. Many of our competitors have longer operating histories and greater resources than us, and could focus their substantial financial resources to develop a competitive advantage. Our competitors may also offer energy solutions at prices below cost, devote significant sales forces to competing with us or attempt to recruit our key personnel by increasing compensation, any of which could improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, cause us to lower our prices in order to compete, and reduce our market share and revenues, any of which could have a material adverse effect on our financial condition and operating results. We can provide no assurance that we will continue to effectively compete against our current competitors or additional companies that may enter our markets.
In addition, we may also face competition based on technological developments that reduce demand for electricity, increase power supplies through existing infrastructure or that otherwise compete with our products and services. We also encounter competition in the form of potential customers electing to develop solutions or perform services internally rather than engaging an outside provider such as us.
We may be unable to complete or operate our projects on a profitable basis or as we have committed to our customers.
Development, installation and construction of our energy efficiency and renewable energy projects, and operation of our renewable energy projects, entails many risks, including:
failure to receive critical components and equipment that meet our design specifications and can be delivered on schedule;
failure to obtain all necessary rights to land access and use;
failure to receive quality and timely performance of third-party services;
increases in the cost of labor, equipment and commodities needed to construct or operate projects;
permitting and other regulatory issues, license revocation and changes in legal requirements;
shortages of equipment or skilled labor;
unforeseen engineering problems;
failure of a customer to accept or pay for renewable energy that we supply;
weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism; and accidents involving personal injury or the loss of life;

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labor disputes and work stoppages;
mishandling of hazardous substances and waste; and
other events outside of our control.
Any of these factors could give rise to construction delays and construction and other costs in excess of our expectations. This could prevent us from completing construction of our projects, cause defaults under our financing agreements or under contracts that require completion of project construction by a certain time, cause projects to be unprofitable for us, or otherwise impair our business, financial condition and operating results.
Our small-scale renewable energy plants may not generate expected levels of output.
The small-scale renewable energy plants that we construct and own are subject to various operating risks that may cause them to generate less than expected amounts of processed LFG, electricity or thermal energy. These risks include a failure or degradation of our, our customers’ or utilities’ equipment; an inability to find suitable replacement equipment or parts; less than expected supply of the plant’s source of renewable energy, such as LFG or biomass; or a faster than expected diminishment of such supply. Any extended interruption in the plant’s operation, or failure of the plant for any reason to generate the expected amount of output, could have a material adverse effect on our business and operating results. In addition, we have in the past, and could in the future, incur material asset impairment charges if any of our renewable energy plants incurs operational issues that indicate that our expected future cash flows from the plant are less than its carrying value. Any such impairment charge could have a material adverse effect on our operating results in the period in which the charge is recorded.
We have not entered into long-term offtake agreements for a portion of the output from our small-scale renewable energy plants.

We have not entered into long-term offtake agreements for a portion of the output from our small-scale renewable energy plants, particularly LFG plants, and we are required to sell the processed LFG or electricity produced by the facility at wholesale prices, which are exposed to market fluctuations and risks. The failure to sell such processed LFG or electricity at a favorable price could have a material adverse effect on our business and operating results.

We may not be able to replace expiring offtake agreements with contracts on similar terms. If we are unable to replace an expired offtake agreement with an acceptable new contract, we may be required to remove the small-scale renewable energy plant from the site or, alternatively, we may sell the assets to the customer.
We may not be able to replace an expiring offtake agreement with a contract on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. If we are unable to replace an expiring offtake agreement with an acceptable new revenue contract, the affected site may temporarily or permanently cease operations or we may be required to sell the power produced by the facility at wholesale prices which are exposed to market fluctuations and risks. In the case of a solar photovoltaic installation that ceases operations, the offtake agreement terms generally require that we remove the assets, including fixing or reimbursing the site owner for any damages caused by the assets or the removal of such assets. Alternatively, we may agree to sell the assets to the site owner, but the terms and conditions, including price, that we would receive in any sale, and the sale price may not be sufficient to replace the revenue previously generated by the small-scale renewable energy plant.

We plan to expand our business in part through future acquisitions, but we may not be able to identify or complete suitable acquisitions.

Historically, acquisitions have been a significant part of our growth strategy. We plan to continue to use acquisitions of companies or assets to expand our project skill-sets and capabilities, expand our geographic markets, add experienced management, increase our product and service offerings and add to our energy producing asset portfolio. However, we may be unable to implement this growth strategy if we cannot identify suitable acquisition candidates, reach agreement with acquisition targets on acceptable terms or arrange required financing for acquisitions on acceptable terms. In addition, the time and effort involved in attempting to identify acquisition candidates and consummate acquisitions may divert the attention and efforts of members of our management from the operations of our company.

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Any future acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operating results.
If we are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including:
the purchase price we pay could significantly deplete our cash reserves or result in dilution to our existing stockholders;
we may find that the acquired company or assets do not improve our customer offerings or market position as planned;
we may have difficulty integrating the operations and personnel of the acquired company;
key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;
we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;
we may incur additional costs and expenses related to complying with additional laws, rules or regulations in new jurisdictions;
we may assume or be held liable for risks and liabilities (including for environmental-related costs) as a result of our acquisitions, some of which we may not discover during our due diligence or adequately adjust for in our acquisition arrangements;
our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;
we may incur one-time write-offs or restructuring charges in connection with the acquisition;
we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and
we may not be able to realize the cost savings or other financial benefits we anticipated.
These factors could have a material adverse effect on our business, financial condition and operating results.
We may be required to write-off or impair capitalized costs or intangible assets in the future or we may incur restructuring costs or other charges, each of which could harm our earnings.
In accordance with generally accepted accounting principles in the United States, we capitalize certain expenditures and advances relating to our acquisitions, pending acquisitions, project development costs, interest costs related to project financing and certain energy assets. In addition, we have considerable unamortized assets. From time to time in future periods, we may be required to incur a charge against earnings in an amount equal to any unamortized capitalized expenditures and advances, net of any portion thereof that we estimate will be recoverable, through sale or otherwise, relating to: (i) any operation or other asset that is being sold, permanently shut down, impaired or has not generated or is not expected to generate sufficient cash flow; (ii) any pending acquisition that is not consummated; (iii) any project that is not expected to be successfully completed; and (iv) any goodwill or other intangible assets that are determined to be impaired.
In response to such charges and costs and other market factors, we may be required to implement restructuring plans in an effort to reduce the size and cost of our operations and to better match our resources with our market opportunities. As a result of such actions, we would expect to incur restructuring expenses and accounting charges which may be material. Several factors could cause a restructuring to adversely affect our business, financial condition and results of operations. These include potential disruption of our operations, the development of our small-scale renewable energy projects and other aspects of our business. Employee morale and productivity could also suffer and result in unintended employee attrition. Any restructuring would require substantial management time and attention and may divert management from other important work. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.
See also Note 2, “Summary of Significant Accounting Policies” and Note 5, “Goodwill and Intangible Assets”, to our Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K.

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We need governmental approvals and permits, and we typically must meet specified qualifications, in order to undertake our energy efficiency projects and construct, own and operate our small-scale renewable energy projects, and any failure to do so would harm our business.
The design, construction and operation of our energy efficiency and small-scale renewable energy projects require various governmental approvals and permits, and may be subject to the imposition of related conditions that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal. We cannot predict whether all permits required for a given project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot predict whether the permits will attract significant opposition or whether the permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our ability to develop that project or increase the cost so substantially that the project is no longer attractive to us. We have experienced delays in developing our projects due to delays in obtaining permits and may experience delays in the future. If we were to commence construction in anticipation of obtaining the final, non-appealable permits needed for that project, we would be subject to the risk of being unable to complete the project if all the permits were not obtained. If this were to occur, we would likely lose a significant portion of our investment in the project and could incur a loss as a result. Further, the continued operations of our projects require continuous compliance with permit conditions. This compliance may require capital improvements or result in reduced operations. Any failure to procure, maintain and comply with necessary permits would adversely affect ongoing development, construction and continuing operation of our projects.
In addition, the projects we perform for governmental agencies are governed by particular qualification and contracting regimes. Certain states require qualification with an appropriate state agency as a precondition to performing work or appearing as a qualified energy service provider for state, county and local agencies within the state. For example, the Commonwealth of Massachusetts and the states of Colorado and Washington pre-qualify energy service providers and provide contract documents that serve as the starting point for negotiations with potential governmental clients. Most of the work that we perform for the federal government is performed under IDIQ agreements between a government agency and us or a subsidiary. These IDIQ agreements allow us to contract with the relevant agencies to implement energy projects, but no work may be performed unless we and the agency agree on a task order or delivery order governing the provision of a specific project. The government agencies enter into contracts for specific projects on a competitive basis. We and our subsidiaries and affiliates are currently party to two IDIQ agreements with the U.S. Department of Energy expiring in 2019 and in 2022, respectively. We are also party to similar agreements with other federal agencies, including the U.S. Army Corps of Engineers and the U.S. General Services Administration. If we are unable to maintain or renew our IDIQ qualification under the U.S. Department of Energy program for ESPCs, or similar federal or state qualification regimes, our business could be materially harmed. We are also party to similar agreements with other federal agencies, including the U.S. Army Corps of Engineers and the U.S. General Services Administration.
If we are unable to maintain or renew our IDIQ qualification under the U.S. Department of Energy program for ESPCs, or similar federal or state qualification regimes, our business could be materially harmed.
Many of our small-scale renewable energy projects are, and other future projects may be, subject to or affected by U.S. federal energy regulation or other regulations that govern the operation, ownership and sale of the facility, or the sale of electricity from the facility.
PUHCA and the FPA regulate public utility holding companies and their subsidiaries and place constraints on the conduct of their business. The FPA regulates wholesale sales of electricity and the transmission of electricity in interstate commerce by public utilities. Under PURPA, all of our current small-scale renewable energy projects are small power “qualifying facilities” (facilities meeting statutory size, fuel and filing requirements) that are exempt from regulations under PUHCA, most provisions of the FPA and state rate and financial regulation. None of our renewable energy projects are currently subject to rate regulation for wholesale power sales by the Federal Energy Regulatory Commission (“FERC”) under the FPA, but certain of our projects that are under construction or development could become subject to such regulation in the future. Also, we may acquire interests in or develop generating projects that are not qualifying facilities. Non-qualifying facility projects would be fully subject to FERC corporate and rate regulation, and would be required to obtain FERC acceptance of their rate schedules for wholesale sales of energy, capacity and ancillary services, which requires substantial disclosures to and discretionary approvals from FERC. FERC may revoke or revise an entity’s authorization to make wholesale sales at negotiated, or market-based, rates if FERC determines that we can exercise market power in transmission or generation, create barriers to entry or engage in abusive affiliate transactions or market manipulation. In addition, many public utilities (including any non-qualifying

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facility generator in which we may invest) are subject to FERC reporting requirements that impose administrative burdens and that, if violated, can expose the company to civil penalties or other risks.
All of our wholesale electric power sales are subject to certain market behavior rules. These rules change from time to time, by virtue of FERC rulemaking proceedings and FERC-ordered amendments to utilities’ or power pools’ FERC tariffs. If we are deemed to have violated these rules, we will be subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of our market-based rate authority, as well as potential criminal and civil penalties. If we were to lose market-based rate authority for any non-qualifying facility project we may acquire or develop in the future, we would be required to obtain FERC’s acceptance of a cost-based rate schedule and could become subject to, among other things, the burdensome accounting, record keeping and reporting requirements that are imposed on public utilities with cost-based rate schedules. This could have an adverse effect on the rates we charge for power from our projects and our cost of regulatory compliance.
Wholesale electric power sales are subject to increasing regulation. The terms and conditions for power sales, and the right to enter and remain in the wholesale electric sector, are subject to FERC oversight. Due to major regulatory restructuring initiatives at the federal and state levels, the U.S. electric industry has undergone substantial changes over the past decade. We cannot predict the future design of wholesale power markets or the ultimate effect ongoing regulatory changes will have on our business. Other proposals to further regulate the sector may be made and legislative or other attention to the electric power market restructuring process may delay or reverse the movement towards competitive markets.
If we become subject to additional regulation under PUHCA, FPA or other regulatory frameworks, if existing regulatory requirements become more onerous, or if other material changes to the regulation of the electric power markets take place, our business, financial condition and operating results could be adversely affected.
Compliance with environmental laws could adversely affect our operating results.
Costs of compliance with federal, state, provincial, local and other foreign existing and future environmental regulations could adversely affect our cash flow and profitability. We are required to comply with numerous environmental laws and regulations and to obtain numerous governmental permits in connection with energy efficiency and renewable energy projects, and we may incur significant additional costs to comply with these requirements. If we fail to comply with these requirements, we could be subject to civil or criminal liability, damages and fines. Existing environmental regulations could be revised or reinterpreted and new laws and regulations could be adopted or become applicable to us or our projects, and future changes in environmental laws and regulations could occur. These factors may materially increase the amount we must invest to bring our projects into compliance and impose additional expense on our operations.
In addition, private lawsuits or enforcement actions by federal, state, provincial and/or foreign regulatory agencies may materially increase our costs. Certain environmental laws make us potentially liable on a joint and several basis for the remediation of contamination at or emanating from properties or facilities we currently or formerly owned or operated or properties to which we arranged for the disposal of hazardous substances. Such liability is not limited to the cleanup of contamination we actually caused. Although we seek to obtain indemnities against liabilities relating to historical contamination at the facilities we own or operate, we cannot provide any assurance that we will not incur liability relating to the remediation of contamination, including contamination we did not cause.
We may not be able to obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in obtaining any required environmental regulatory approvals or failure to obtain and comply with them could adversely affect our business and operating results.
International expansion is one of our growth strategies, and international operations will expose us to additional risks that we do not face in the United States, which could have an adverse effect on our operating results.
We generate a portion of our revenues from operations in Canada and the U.K., and although we are engaged in overseas projects for the U.S. Department of Defense, we currently derive a small amount of revenues from outside of North America. However, international expansion is one of our growth strategies, and we expect our revenues and operations outside of North America will expand in the future. These operations will be subject to a variety of risks that we do not face in the United States, and that we may face only to a limited degree in Canada and the United Kingdom, including:
building and managing highly experienced foreign workforces and overseeing and ensuring the performance of foreign subcontractors;

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increased travel, infrastructure and legal and compliance costs associated with multiple international locations;
additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or investment;
imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from those in the United States;
increased exposure to foreign currency exchange rate risk;
longer payment cycles for sales in some foreign countries and potential difficulties in enforcing contracts and collecting accounts receivable;
difficulties in repatriating overseas earnings;
general economic conditions in the countries in which we operate; and
political unrest, war, incidents of terrorism, or responses to such events.
We also continue to evaluate the potential effect of the United Kingdom’s planned departure from the European Union (EU) (commonly referred to as Brexit) on our business operations and financial results, including the impacts if the United Kingdom fails to reach an agreement with the EU on Brexit by the March 29, 2019 deadline. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets.
Our overall success in international markets will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks in each country where we do business. Our failure to manage these risks successfully could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our business, financial condition and operating results.
Changes in utility regulation and tariffs could adversely affect our business.
Our business is affected by regulations and tariffs that govern the activities and rates of utilities. For example, utility companies are commonly allowed by regulatory authorities to charge fees to some business customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase the cost to our customers of taking advantage of our services and make them less desirable, thereby harming our business, financial condition and operating results. Our current generating projects are all operated as qualifying facilities. FERC regulations under the FPA confer upon these facilities key rights to interconnection with local utilities, and can entitle qualifying facilities to enter into power purchase agreements with local utilities, from which the qualifying facilities benefit. Changes to these federal laws and regulations could increase our regulatory burdens and costs, and could reduce our revenues. State regulatory agencies could award renewable energy certificates or credits that our electric generation facilities produce to our power purchasers, thereby reducing the power sales revenues we otherwise would earn. In addition, modifications to the pricing policies of utilities could require renewable energy systems to charge lower prices in order to compete with the price of electricity from the electric grid and may reduce the economic attractiveness of certain energy efficiency measures.
Some of the demand-reduction services we provide for utilities and institutional clients are subject to regulatory tariffs imposed under federal and state utility laws. In addition, the operation of, and electrical interconnection for, our renewable energy projects are subject to federal, state or provincial interconnection and federal reliability standards that are also set forth in utility tariffs. These tariffs specify rules, business practices and economic terms to which we are subject. The tariffs are drafted by the utilities and approved by the utilities’ state and federal regulatory commissions. These tariffs change frequently and it is possible that future changes will increase our administrative burden or adversely affect the terms and conditions under which we render service to our customers.
Our activities and operations are subject to numerous health and safety laws and regulations, and if we violate such regulations, we could face penalties and fines.
We are subject to numerous health and safety laws and regulations in each of the jurisdictions in which we operate. These laws and regulations require us to obtain and maintain permits and approvals and implement health and safety programs and procedures to control risks associated with our projects. Compliance with those laws and regulations can require us to incur substantial costs. Moreover, if our compliance programs are not successful, we could be subject to penalties or to revocation of

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our permits, which may require us to curtail or cease operations of the affected projects. Violations of laws, regulations and permit requirements may also result in criminal sanctions or injunctions.
Health and safety laws, regulations and permit requirements may change or become more stringent. Any such changes could require us to incur materially higher costs than we currently have. Our costs of complying with current and future health and safety laws, regulations and permit requirements, and any liabilities, fines or other sanctions resulting from violations of them, could adversely affect our business, financial condition and operating results.
We are subject to various privacy and consumer protection laws.
Our privacy policy is posted on our website, and any failure by us or our vendor or other business partners to comply with it or with federal, state or international privacy, data protection or security laws or regulations could result in regulatory or litigation-related actions against us, legal liability, fines, damages and other costs. We may also incur substantial expenses and costs in connection with maintaining compliance with such laws. For example, commencing in May 2018, the General Data Protection Regulation (the “GDPR”) became fully effective with respect to the processing of personal information collected from individuals located in the European Union. The GDPR created new compliance obligations and significantly increases fines for noncompliance. Although we take steps to protect the security of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems could have negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles, and harm to our reputation and brand.
If our subsidiaries default on their obligations under their debt instruments, we may need to make payments to lenders to prevent foreclosure on the collateral securing the debt.
We typically set up subsidiaries to own and finance our renewable energy projects. These subsidiaries incur various types of debt which can be used to finance one or more projects. This debt is typically structured as non-recourse debt, which means it is repayable solely from the revenues from the projects financed by the debt and is secured by such projects’ physical assets, major contracts and cash accounts and a pledge of our equity interests in the subsidiaries involved in the projects. Although our subsidiary debt is typically non-recourse to Ameresco, if a subsidiary of ours defaults on such obligations, or if one project out of several financed by a particular subsidiary’s indebtedness encounters difficulties or is terminated, then we may from time to time determine to provide financial support to the subsidiary in order to maintain rights to the project or otherwise avoid the adverse consequences of a default. In the event a subsidiary defaults on its indebtedness, its creditors may foreclose on the collateral securing the indebtedness, which may result in our losing our ownership interest in some or all of the subsidiary’s assets. The loss of our ownership interest in a subsidiary or some or all of a subsidiary’s assets could have a material adverse effect on our business, financial condition and operating results.
We are exposed to the credit risk of some of our customers.
Most of our revenues are derived under multi-year or long-term contracts with our customers, and our revenues are therefore dependent to a large extent on the creditworthiness of our customers. During periods of economic downturn, our exposure to credit risks from our customers increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our credit risks. In the event of non-payment by one or more of our customers, our business, financial condition and operating results could be adversely affected.
Fluctuations in foreign currency exchange rates can impact our results.
A portion of our total revenues are generated by our Canadian and U.K. subsidiaries. Changes in exchange rates between the Canadian dollar and the U.S. dollar, as well as the British pound sterling and the U.S. dollar, may adversely affect our operating results.
A failure of our information technology (“IT”) and data security infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. As we implement new systems, they may not perform as expected. We also face the challenge of supporting our older systems and implementing necessary upgrades. If we experience a problem with the functioning of an important IT system or a security breach of our IT systems,

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including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on our business.
We and certain of our third-party vendors receive and store personal information in connection with our human resources operations and other aspects of our business. Despite our implementation of security measures, our IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber attack and other similar disruptions, and we have experienced such incidents in the past. Any system failure, accident or security breach could result in disruptions to our operations. A material network breach in the security of our IT systems could include the theft of our intellectual property, trade secrets, customer information, human resources information or other confidential matter. Although past incidents have not had a material impact on our business operations or financial performance, to the extent that any disruptions or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. See the discussion of GDPR in the above risk factor “We are subject to various privacy and consumer protection laws” for an example of new regulations impacting IT risk.
Risks Related to Ownership of Our Class A Common Stock
The trading price of our Class A common stock is volatile.
The trading price of our Class A common stock is volatile and could be subject to wide fluctuations. In addition, if the stock market in general experiences a significant decline, the trading price of our Class A common stock could decline for reasons unrelated to our business, financial condition or operating results. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it would likely result in substantial costs and divert management’s attention and resources. This could have a material adverse effect on our business, operating results and financial condition.
Holders of our Class A common stock are entitled to one vote per share, and holders of our Class B common stock are entitled to five votes per share. The lower voting power of our Class A common stock may negatively affect the attractiveness of our Class A common stock to investors and, as a result, its market value.
We have two classes of common stock: Class A common stock, which is listed on the NYSE and which is entitled to one vote per share, and Class B common stock, which is not listed on the any security exchange and is entitled to five votes per share. The difference in the voting power of our Class A and Class B common stock could diminish the market value of our Class A common stock because of the superior voting rights of our Class B common stock and the power those rights confer.
For the foreseeable future, Mr. Sakellaris or his affiliates will be able to control the selection of all members of our board of directors, as well as virtually every other matter that requires stockholder approval, which will severely limit the ability of other stockholders to influence corporate matters.
Except in certain limited circumstances required by applicable law, holders of Class A and Class B common stock vote together as a single class on all matters to be voted on by our stockholders. Mr. Sakellaris, our founder, principal stockholder, president and chief executive officer, owns all of our Class B common stock, which, together with his Class A common stock, represents approximately 80% of the combined voting power of our outstanding Class A and Class B common stock. Under our restated certificate of incorporation, holders of shares of Class B common stock may generally transfer those shares to family members, including spouses and descendants or the spouses of such descendants, as well as to affiliated entities, without having the shares automatically convert into shares of Class A common stock. Therefore, Mr. Sakellaris, his affiliates, and his family members and descendants will, for the foreseeable future, be able to control the outcome of the voting on virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as an acquisition of our company, even if they come to own, in the aggregate, as little as 20% of the economic interest of the outstanding shares of our Class A and Class B common stock. Moreover, these persons may take actions in their own interests that you or our other stockholders do not view as beneficial.
Though we may repurchase shares of our Class A common stock pursuant to our recently announced share repurchase program, we are not obligated to do so and if we do, we may purchase only a limited number of shares of Class A common stock.

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On May 5, 2016, we announced a stock repurchase program under which the Company is currently authorized to repurchase, in the aggregate, up to $15.0 million of our outstanding Class A common stock. However, we are not obligated to acquire any shares of our Class A common stock, and holders of our Class A common stock should not rely on the share repurchase program to increase their liquidity. The amount and timing of any share repurchases will depend upon a variety of factors, including the trading price of our Class A common stock, liquidity, securities laws restrictions, other regulatory restrictions, potential alternative uses of capital, and market and economic conditions. We intend to purchase through open market transactions or in privately negotiated transactions, in accordance with applicable securities laws and regulatory limitations. We may reduce or eliminate our share repurchase program in the future. The reduction or elimination of our share repurchase program, particularly if we do not repurchase the full number of shares authorized under the program, could adversely affect the market price of our common stock.


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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Framingham, Massachusetts, where we occupy approximately 26,000 square feet under a lease expiring on June 30, 2025. We occupy nine regional offices in Phoenix, Arizona; Islandia, New York; Oak Brook, Illinois; Columbia, Maryland; Charlotte, North Carolina; Knoxville, Tennessee; Tomball, Texas; Spokane, Washington and Richmond Hill, Ontario, each less than 25,000 square feet, under lease or sublease agreements. In addition, we lease space, typically less space, for 74 field offices throughout North America and the U.K. We also own 87 small-scale renewable energy plants throughout North America, which are located on leased sites or sites provided by customers. We expect to add new facilities and expand existing facilities as we continue to add employees and expand our business into new geographic areas.
Item 3. Legal Proceedings
In the ordinary conduct of our business we are subject to periodic lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of such lawsuits, investigations and claims against us, we do not believe that any currently pending or threatened legal proceedings to which we are a party will have a material adverse effect on our business, results of operations or financial condition.
For additional information about certain proceedings, please refer to Note 14, “Commitments and Contingencies”, to our Consolidated Financial Statements included in this report, which is incorporated into this item by reference.
Item 4. Mine Safety Disclosures
Not applicable.

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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A common stock trades on the New York Stock Exchange under the symbol “AMRC”.
As of March 7, 2019, and according to the records of our transfer agent, there were 12 shareholders of record of our Class A common stock. A substantially greater number of holders of our Class A common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
Our Class B common stock is not publicly traded and is held of record by George P. Sakellaris, our founder, principal stockholder, president and chief executive officer, as well as the Ameresco 2015 Annuity Trust and the Ameresco 2017 Annuity Trust, each of which Mr. Sakellaris is trustee and the sole beneficiary.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to finance the growth and development of our business and do not expect to pay any cash dividends for the foreseeable future. Our revolving senior secured credit facility contains provisions that limit our ability to declare and pay cash dividends during the term of that agreement. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments, provisions of applicable law and other factors our board of directors deems relevant.
Stock Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total return attained by shareholders on our Class A common stock relative to the cumulative total returns of the Russell 2000 index and the NASDAQ Clean Edge Green Energy index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock on December 31, 2013, and in each of the indexes on December 31, 2013 and its relative performance is tracked through December 31, 2018.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Among Ameresco, Inc., the Russell 2000 Index
and the NASDAQ Clean Edge Green Energy Index
*$100 invested on December 31, 2013 in our Class A common stock or December 31, 2012 in respective index, including reinvestment of dividends. Fiscal year ending December 31, 2018.
i5marketforregistrantscoma02.jpg

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12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
 
12/31/2018
Ameresco, Inc.
$100.00
 
$72.46
 
$64.70
 
$56.94
 
$89.03
 
$145.96
Russell 2000 Index
$100.00
 
$104.89
 
$100.26
 
$121.63
 
$139.44
 
$124.09
NASDAQ Clean Edge Green Energy Index
$100.00
 
$107.02
 
$114.81
 
$113.17
 
$155.32
 
$140.36
Shareholder returns over the indicated period should not be considered indicative of future shareholder returns.

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Issuer Purchases of Equity Securities

The following table provides information as of and for the quarter ended December 31, 2018 regarding shares of our Class A common stock that were repurchased under our stock repurchase program authorized by the Board of Directors on April 27, 2016 (the “Repurchase Program”):
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
October 1, 2018 - October 31, 2018
5,543

 
$
11.97

 
5,543

 
$
3,447,027

November 1, 2018 - November 30, 2018

 

 

 

December 1, 2018 - December 31, 2018

 

 

 

Total
5,543

 
$
11.97

 
5,543

 
$
3,447,027


Under the Repurchase Program, we are authorized to repurchase up to $15.0 million of our Class A common stock, as increased by the Board of Directors in February 2017. Stock repurchases may be made from time to time through the open market and privately negotiated transactions. The amount and timing of any share repurchases will depend upon a variety of factors, including the trading price of our Class A common stock, liquidity, securities laws restrictions, other regulatory restrictions, potential alternative uses of capital, and market and economic conditions.  The Repurchase Program may be suspended or terminated at any time without prior notice, and has no expiration date.
Item 6. Selected Financial Data
You should read the following selected consolidated financial data in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
We derived the consolidated statements of income (loss) data for the years ended December 31, 2018, 2017, and 2016 and the consolidated balance sheet data as of December 31, 2018 and 2017 from our audited consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. We derived the consolidated statements of income (loss) data for the years ended December 31, 2015 and 2014, and the consolidated balance sheet data as of December 31, 2016, 2015, and 2014, from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in any future period.

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Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
(in thousands, except per share data)
Consolidated Statements of Income (Loss) Data:
 

 
 

 
 

 
 

 
 

Revenues
$
787,138

 
$
717,152

 
$
651,227

 
$
630,832

 
$
593,241

Cost of revenues
613,526

 
572,994

 
516,883

 
513,768

 
476,309

Gross profit
173,612

 
144,158

 
134,344

 
117,064

 
116,932

Selling, general and administrative expenses
114,513

 
107,570

 
110,568

 
110,007

 
103,781

Operating income
59,099

 
36,588

 
23,776

 
7,057

 
13,151

Other expenses, net
16,709

 
7,871

 
7,409

 
6,765

 
6,859

Income before provision for income taxes
42,390

 
28,717

 
16,367

 
292

 
6,292

Income tax provision (benefit)
4,813

 
(4,791
)
 
4,370

 
4,976

 
(4,091
)
Net income (loss)
37,577

 
33,508

 
11,997

 
(4,684
)
 
10,383

Net loss attributable to redeemable non-controlling interest
407

 
3,983

 
35

 
5,528

 

Net income attributable to common shareholders
$
37,984

 
$
37,491

 
$
12,032

 
$
844

 
$
10,383

Net income per share attributable to common shareholders:
 

 
 

 
 

 
 

 
 

Basic
$
0.83

 
$
0.82

 
$
0.26

 
$
0.02

 
$
0.22

Diluted
$
0.81

 
$
0.82

 
$
0.26

 
$
0.02

 
$
0.22

Weighted average common shares outstanding:
 

 
 

 
 

 
 

 
 

Basic
45,729

 
45,509

 
46,409

 
46,494

 
46,162

Diluted
46,831

 
45,748

 
46,493

 
47,665

 
47,028


 
As of December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
61,397

 
$
24,262

 
$
20,607

 
$
21,645

 
$
23,762

Current assets
310,969

 
287,078

 
226,061

 
263,698

 
215,795

Federal ESPC receivable(1)
293,998

 
248,917

 
158,209

 
125,804

 
79,167

Energy assets, net
459,952

 
356,443

 
319,758

 
244,309

 
217,772

Total assets
1,161,634

 
983,951

 
797,281

 
723,440

 
617,550

Current liabilities
222,630

 
202,142

 
190,602

 
179,723

 
142,934

Long-term debt, less current portion
219,162

 
173,237

 
140,593

 
100,490

 
85,724

Federal ESPC liabilities(1)
288,047

 
235,088

 
133,003

 
122,040

 
70,875

Total stockholders’ equity
$
376,875

 
$
336,620

 
$
294,306

 
$
287,409

 
$
286,306


(1)
Federal ESPC receivable represents the amount to be paid by various federal government agencies for work performed and earned by the Company under specific ESPCs. The Company assigns certain of its rights to receive those payments to third-party investors that provide construction and permanent financing for such contracts. Federal ESPC liabilities represent the advances received from third party investors under agreements to finance certain energy savings performance contract projects with various federal government agencies. Upon completion and acceptance of the project by the government, typically within 24 - 36 months of construction commencement, the ESPC receivable from the Government and corresponding related ESPC liability is eliminated from our consolidated balance sheet. Until recourse to us ceases for the ESPC receivables transferred to the investor, upon final acceptance of the work by the Government customer, we remain the primary obligor for financing received.

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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 Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” included in Item 1A of this Annual Report on Form 10-K 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 provider of energy efficiency solutions for facilities throughout North America and Europe. 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.
Energy Savings Performance and Energy Supply Contracts
For our energy efficiency projects, we typically enter into 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. These performance commitments are typically based on the design, capacity, efficiency or operation of the specific equipment and systems we install. Our commitments generally fall into three categories: pre-agreed, equipment-level and whole building-level. Under a pre-agreed energy reduction commitment, our customer reviews the project design in advance and agrees that, upon or shortly after completion of installation of the specified equipment comprising the project, the commitment will have been met. Under an equipment-level commitment, we commit to a level of energy use reduction based on the difference in use measured first with the existing equipment and then with the replacement equipment. A whole building-level commitment requires demonstration of energy usage reduction for a whole building, often based on readings of the utility meter where usage is measured. Depending on the project, the measurement and demonstration may be required only once, upon installation, based on an analysis of one or more sample installations, or may be required to be repeated at agreed upon intervals generally over up to 23 years.
Under our contracts, we typically do not take responsibility for a wide variety of factors outside of our control and exclude or adjust for such factors in commitment calculations. These factors include variations in energy prices and utility rates, weather, facility occupancy schedules, the amount of energy-using equipment in a facility and the failure of the customer to operate or maintain the project properly. Typically, our performance commitments apply to the aggregate overall performance of a project rather than to individual energy efficiency measures. Therefore, to the extent an individual measure underperforms, it may be offset by other measures that overperform during the same period. In the event that an energy efficiency project does not perform according to the agreed-upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or modifying the installed equipment, installing additional measures to provide substitute energy savings or paying the customer for lost energy savings based on the assumed conditions specified in the agreement. Many of our equipment supply, local design and installation subcontracts contain provisions that enable us to seek recourse against our vendors or subcontractors if there is a deficiency in our energy reduction commitment. See “We may have liability to our customers under our ESPCs if our projects fail to deliver the energy use reductions to which we are committed under the contract” in Item 1A, Risk Factors in this Annual Report on Form 10-K.
Payments by the federal government for energy efficiency measures are based on the services provided and the products installed, but are limited to the savings derived from such measures, calculated in accordance with federal regulatory guidelines and the specific contract’s terms. The savings are typically determined by comparing energy use and other costs before and after the installation of the energy efficiency measures, adjusted for changes that affect energy use and other costs but are not caused by the energy efficiency measures.

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For projects involving the construction of a small-scale renewable energy plant that we own and operate, we generally enter into long-term contracts to supply the electricity, processed LFG, heat or cooling generated by the plant to the customer, which is typically a utility, municipality, industrial facility or other large purchaser of energy. The rights to use the site for the plant and purchase of renewable fuel for the plant are also obtained by us under long-term agreements with terms at least as long as the associated output supply agreement. Our supply agreements typically provide for fixed prices or prices that escalate at a fixed rate or vary based on a market benchmark. See “We may assume responsibility under customer contracts for factors outside our control, including, in connection with some customer projects, the risk that fuel prices will increase” in reference Item 1A, Risk Factors in this Annual Report on Form 10-K.
Project Financing
To finance projects with federal governmental agencies, we typically sell to third-party lenders our right to receive a portion of the long-term payments from the customer arising out of the project for a purchase price reflecting a discount to the aggregate amount due from the customer. The purchase price is generally advanced to us over the implementation period based on completed work or a schedule predetermined to coincide with the construction of the project. 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 sheet until the completed project is accepted by the customer. Once the completed project is accepted by the customer, the financing is treated as a true sale and the related receivable and financing liability are removed from our consolidated balance sheet.
Institutional customers, such as state, provincial and local governments, schools and public housing authorities, typically finance their energy efficiency and renewable energy projects through either tax-exempt leases or issuances of municipal bonds. We assist in the structuring of such third-party financing.
In some instances, customers prefer that we retain ownership of the renewable energy plants and related energy assets that we construct for them. In these projects, we typically enter into a long-term supply agreement to furnish electricity, gas, heat or cooling to the customer’s facility. To finance the significant upfront capital costs required to develop and construct the plant, we rely either on our internal cash flow or, in some cases, third-party debt. For project financing by third-party lenders, we typically establish a separate subsidiary, usually a limited liability company, to own the energy assets and related contracts. The subsidiary contracts with us for construction and operation of the project and enters into a financing agreement directly with the lenders. Additionally, we will provide assurance to the lender that the project will achieve commercial operation. Although the financing is secured by the assets of the subsidiary and a pledge of our equity interests in the subsidiary, and is non-recourse to Ameresco, Inc., we may from time to time determine to provide financial support to the subsidiary in order to maintain rights to the project or otherwise avoid the adverse consequences of a default. The amount of such financing is included on our consolidated balance sheet.
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 northern United States and Canada, 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 in this Annual Report on Form 10-K.
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.

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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 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 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. 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 on Form 10-K.
As of December 31, 2018, we had fully-contracted backlog of approximately $726.6 million in expected future revenues under signed customer contracts for the installation or construction of projects. We also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $1,241.4 million. As of December 31, 2017, we had fully-contracted backlog of approximately $572.5 million in future revenues under signed customer contracts for the installation or construction of projects. We also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $1,199.0 million. As of December 31, 2016, we had backlog of approximately $534.1 million in expected future revenues under signed customer contracts for the installation or construction of projects. We also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $957.6 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 of December 31, 2018 and 2017, our 12-month backlog was $360.5 million and $348.0 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, was approximately $424.7 million and $165.8 million as of December 31, 2018 and 2017, respectively.
Financial Operations Overview
Revenues
We derive revenues principally from energy efficiency projects, which entails 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 for a customer a central plant or cogeneration system 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.
Historically, including for the years ended December 31, 2018, 2017 and 2016, approximately 77% of our revenues have been derived from federal, state, provincial or local government entities, including public housing authorities and public universities.
Cost of Revenues and Gross Margin
Cost of revenues include the cost of labor, materials, equipment, subcontracting and outside engineering that are required for the development and installation of our projects, as well as pre-construction costs, sales incentives, associated travel, inventory obsolescence charges, amortization of intangible assets related to customer contracts, and, if applicable, costs of procuring financing. A majority of our contracts have fixed price terms; however, in some cases we negotiate protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.

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Cost of revenues also include costs for the small-scale renewable energy plants that we own, including the cost of fuel (if any) and depreciation charges.
As a result of certain acquisitions, we have intangible assets related to customer contracts; these are amortized over a period of approximately one to eight years from the respective date of acquisition. This amortization is recorded as a cost of revenues in the consolidated statements of income (loss). Amortization expense for the year ended December 31, 2018 related to customer contracts was not significant.
Gross margin, which is gross profit as a percent of revenues, is affected by a number of factors, including the type of services performed. Renewable energy projects that we own and operate typically have higher margins than energy efficiency projects, and sales in the United States typically have higher margins than in Canada due to the typical mix of products and services that we sell there. In addition, gross margin frequently varies across the construction period of a project. Our expected gross margin on, and expected revenues for, a project are based on budgeted costs. In some cases, actual costs incurred, or expected to be incurred, exceed the budgeted costs. In this case, we will adjust the revenue accordingly as a result of a slower progress-towards-completion estimate on a lower project gross margin estimate. From time to time, a portion of the contingencies reflected in budgeted costs are not incurred due to strong execution performance. In that case, and generally at project completion, we recognize revenues for which there is no further corresponding cost of revenues. As a result, gross margin tends to be backloaded for projects with strong execution performance; this explains the gross margin improvement that occurs from time to time at project closeout.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and benefits, project development costs, and general and administrative expenses not directly related to the development or installation of projects.
Salaries and benefits. Salaries and benefits consist primarily of expenses for personnel not directly engaged in specific project or revenue generating activity. These expenses include the time of executive management, legal, finance, accounting, human resources, information technology and other staff not utilized in a particular project. We employ a comprehensive time card system which creates a contemporaneous record of the actual time by employees on project activity.
Project development costs. Project development costs consist primarily of sales, engineering, legal, finance and third-party expenses directly related to the development of a specific customer opportunity. This also includes associated travel and marketing expenses.
General and administrative expenses. These expenses consist primarily of rents and occupancy, professional services, insurance, unallocated travel expenses, telecommunications, office expenses and amortization of intangible assets not related to customer contracts. Professional services consist principally of recruiting costs, external legal, audit, tax and other consulting services. For the years ended December 31, 2018 and 2017, we recorded amortization expense of $1.0 million and $1.4 million, respectively, related to customer relationships, non-compete agreements, technology and trade names. Amortization expense related to these intangible assets is included in selling, general and administrative expenses in the consolidated statements of income (loss).
Other Expenses, Net
Other expenses, net, includes gains and losses from derivatives, interest income and expenses, amortization of deferred financing costs, net, and foreign currency transaction gains and losses. Interest expense will vary periodically depending on the amounts drawn on our revolving senior secured credit facility and the prevailing short-term interest rates.
Provision or Benefit for Income Taxes
The provision or benefit for income taxes is based on various rates set by federal and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 consolidated financial statements relate to our estimates of uninstalled materials under the revenue recognition

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requirements of contracts with our customers, allowance for doubtful accounts, inventory reserves, realization of project development costs, fair value of derivative financial instruments, accounting for business acquisitions, stock-based awards, impairment of long-lived assets, 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 critical accounting policies that, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
On January 1, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606) using the modified retrospective method applied to those contracts which were not completed as of December 31, 2017. Results for reporting periods beginning January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior periods. We recorded an adjustment to retained earnings on January 1, 2018 due to the cumulative impact of adopting Topic 606. See Note 3 "Revenue from Contracts with Customers" for the required disclosures related to the impact of adopting this standard and a discussion of updated policies related to revenue recognition discussed below.
We derive revenues from energy efficiency and renewable energy products and services. Energy efficiency products and services 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 products and services include the construction of small-scale plants that produce electricity, gas, heat or cooling from renewable sources of energy, the sale of such electricity, gas, heat or cooling from plants that we own, and the sale and installation of solar energy products and systems. Below is a description of our primary lines of business.
Projects - Our principal service relates to energy efficiency projects, which entails the design, engineering and installation of, and assisting with the arranging of financing for an ever-increasing array of innovative technologies and techniques to improve the energy efficiency, and control the operation, of a building’s energy- and water- consuming systems. In certain projects, we also designed and constructed for a customer a central plant or cogeneration system providing power, heat and/or cooling to a building, or a small-scale plant that produces electricity, gas, heat or cooling from renewable sources of energy.
Under Topic 606 requirements, 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 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.
Operations & Maintenance (“O&M”) - After an energy efficiency or renewable energy project is completed, we often provide ongoing O&M services under a multi-year contract. These services include operating, maintaining and repairing facility energy systems such as boilers, chillers and building controls, as well as central power and other small-scale plants. For larger projects, we frequently maintain staff on-site to perform these services.
Maintenance revenue uses the input method to recognize revenue. In most cases, O&M fees are fixed annual fees. Because we are on-site to perform O&M services, the services are typically a distinct series of promises, and those services have the same pattern of transfer to the customer (i.e., evenly over time), we record the revenue on a straight-line basis. Some O&M service contract fees are billed on time expended. In those cases, revenue is recorded based on the time expended in that month.
Energy Assets - Our service offerings also include the sale of electricity, processed renewable gas fuel, heat or cooling from the portfolio of assets that we own and operate. We have constructed and are currently designing and constructing a wide range of renewable energy plants using landfill gas (“LFG”), wastewater treatment biogas, solar, biomass, other bio-derived fuels, wind and hydro sources of energy. Most of our renewable energy projects to date have involved the generation of electricity from solar PV and LFG or the sale of processed LFG. We purchase the LFG that otherwise would be combusted or flared, processes it, and either sell it or use it in our energy plants. We also design and build, as well as own, operate and maintain, plants that take biogas generated in the anaerobic digesters of wastewater treatment plants and turn it into renewable natural gas

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that is either used to generate energy on-site or that can be sold through the nation’s natural gas pipeline grid. Where we own and operate energy producing assets, we typically enter into a long-term power purchase agreement (“PPA”) for the sale of the energy. Many of our energy assets also produce environmental attributes, including renewable energy credits (“RECs”) and Renewable Identification Numbers (“RINs”). In most cases, we sell these attributes under separate agreements with third parties other than the PPA customer.
We recognize revenues from the sale and delivery of the energy output from renewable energy plants, over time as produced and delivered to the customer, in accordance with specific PPA contract terms. Environmental attributes revenue is recognized at a point in time, when the environmental attributes are transferred to the customer in accordance with the transfer protocols of the attribute market that we operate in. In those cases where environmental attributes are sold to the same customer as the energy output, we record revenue monthly for both the energy output and the environmental attributes output, as generated and delivered to the customer.
Other - Our service and product offerings also include integrated-PV and consulting and enterprise energy management services.
We recognize revenues from delivery of engineering, consulting services and enterprise energy management services over time. For the sale of solar materials, revenue is recognized at a point in time when we have transferred physical control of the asset to the customer upon shipment.
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 its best estimate of the standalone selling price of each distinct good or service in the contract.
Billings in excess of cost and estimated earnings represents advanced billings on certain construction contracts. Costs and estimated earnings in excess of billings represent certain amounts under customer contracts that were earned and billable but not invoiced.
Results for reporting periods beginning January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under ASC 605, Revenue Recognition.  
Project Development Costs
We capitalize as project development costs only those costs incurred in connection with the development of energy efficiency and renewable energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and associated travel, if incurred after a point in time when the realization of related revenue becomes probable. Project development costs incurred prior to the probable realization of revenues are expensed as incurred.
Energy Assets
Energy assets consist of costs of materials, direct labor, interest costs, outside contract services, deposits and project development costs incurred in connection with the construction of small-scale renewable energy plants that we own. These amounts are capitalized and amortized to cost of revenues in our consolidated statements of income (loss) on a straight line basis over the lives of the related assets or the terms of the related contracts.
We capitalize interest costs relating to construction financing during the period of construction. Capitalized interest is included in energy assets, net, in our consolidated balance sheets. Capitalized interest is amortized to cost of revenues in our consolidated statements of income (loss) on a straight line basis over the useful life of the associated energy asset. The amount of interest capitalized for the years ended December 31, 2018, 2017 and 2016 was $3.8 million, $4.3 million and $1.3 million, respectively.
Routine maintenance costs are expensed in the current year’s consolidated statements of income (loss) to the extent that they do not extend the life of the asset. Major maintenance, upgrades and overhauls are required for certain components of our assets. In these instances, the costs associated with these upgrades are capitalized and are depreciated over the shorter of the remaining life of the asset or the period until the next required major maintenance or overhaul.
We evaluate our long-lived assets for impairment as events or changes in circumstances indicate the carrying value of these assets may not be fully recoverable. 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 or a current-period operating or cash flow loss combined with a history

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of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.
We evaluate recoverability of long-lived assets to be held and used 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.
From time to time, we have applied for and received cash grant awards from the U.S. Treasury Department (the “Treasury”) under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the “Act”). The Act authorized the Treasury to make payments to eligible persons who place in service qualifying renewable energy projects. The grants are paid in lieu of investment tax credits. All of the cash proceeds from the grants were used and recorded as a reduction in the cost basis of the applicable energy assets. If we dispose of the property, or the property ceases to qualify as specified energy property, within five years from the date the property is placed in service, then a prorated portion of the Section 1603 payment must be repaid.
We last received a Section 1603 grant during the year ended December 31, 2014. No further Section 1603 grant payments are expected to be received as the program has expired.
For tax purposes, the Section 1603 payments are not included in federal and certain state taxable income and the basis of the property is reduced by 50% of the payment received. Deferred grant income of $6.6 million and $7.2 million in the accompanying consolidated balance sheets at December 31, 2018 and 2017, respectively, represents the benefit of the basis difference to be amortized to income tax expense over the life of the related property.
Impairment of Goodwill and Intangible Assets

We have classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions. We have recorded intangible assets related to customer contracts, customer relationships, non-compete agreements, trade names and technology, each with defined useful lives. We assess the impairment of goodwill and intangible assets that have indefinite lives on an annual basis (December 31st) and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Goodwill is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill requires significant judgment. We regularly monitor current business conditions and other factors including, but not limited to, adverse industry or economic trends, restructuring actions and projections of future results. 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.
 
Acquired intangible assets other than goodwill that are subject to amortization include customer contracts and customer relationships, as well as software/technology, trade names and non-compete agreements. The intangible assets are amortized over periods ranging from one to fifteen years from their respective acquisition dates. We evaluate the intangible assets for impairment consistent with, and part of, their long-lived assets evaluation, as discussed in Energy Assets above.

Impairment of Long-Lived Assets

We use the guidance prescribed in ASC 360, Property, Plant and Equipment, for the proper testing and valuation methodology to ensure we record any impairment when the carrying amount of a long-lived asset is not recoverable equivalent to an amount equal to its fair market value.

We review long-lived asset groups for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Examples

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of such triggering events applicable to our asset groups include a significant decrease in the market price of a long-lived asset group or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group, among others.

Should an asset group be identified as potentially impaired based on the defined criteria, an impairment test is performed that includes a comparison of the estimated undiscounted cash flows of the asset as compared to the recorded value of the asset. If these estimates or their related assumptions change in the future, an impairment charge may be required against these assets in the reporting period in which the impairment is determined.

Derivative Financial Instruments

We account for our interest rate swaps and commodity swaps as derivative financial instruments. As required under GAAP, derivatives are carried on our consolidated balance sheets at fair value. The fair value of our interest rate and commodity swaps are determined based on observable market data in combination with expected cash flows for each instrument.
We follow the guidance which expands the disclosure requirements for derivative instruments and hedging activities.
In the normal course of business, we utilize derivative contracts as part of our risk management strategy to manage exposure to market fluctuations in interest rates and natural gas prices. These instruments are subject to various credit and market risks. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. We seek to manage credit risk by entering into financial instrument transactions only through counterparties that we believe to be creditworthy. Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates and natural gas prices. We seek to manage market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. As a matter of policy, we do not use derivatives for speculative purposes.
We are exposed to interest rate risk through our borrowing activities. A portion of our project financing includes thirteen credit facilities that utilize a variable rate swap instrument. We are also exposed to commodity price risk through our variable rate commodity swap instruments. We have three commodity swaps as of December 31, 2018.
In June 2018, the Company entered into a term loan agreement, discussed in Note 8, that contained an interest make-whole provision. In August 2018, the Company signed a joinder to the above agreement, which added another series of notes to the term loan that also contained an interest make-whole provision. The Company determined that these provisions fulfill the requirements of embedded derivative instruments that were required to be bifurcated from the host agreement. The fair value of these make-whole provisions was determined based on available market data and a with and without model.
The following tables present a listing of all our active derivative instruments as of December 31, 2018 ($ in thousands):

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Active Interest Rate Swap
Effective Date
Expiration Date
Initial Notional Amount ($)
Status
11-Year, 5.77% Fixed
October 2018
October 2029
$
9,200

Designated
15-Year, 3.19% Fixed
June 2018
June 2033
10,000

Designated
3-Year, 2.46% Fixed
March 2018
December 2020
17,100

Not Designated
10-Year, 4.74% Fixed
June 2017
December 2027
14,100

Designated
15-Year, 3.26% Fixed
February 2023
December 2038
14,084

Designated
7-Year, 2.19% Fixed
February 2016
February 2023
20,746

Designated
8-Year, 3.70% Fixed
March 2020
June 2028
14,643

Designated
8-Year, 3.70% Fixed
March 2020
June 2028
10,734

Designated
8-Year, 1.71% Fixed
October 2012
March 2020
9,665

Designated
8-Year, 1.71% Fixed
October 2012
March 2020
7,085

Designated
15-Year, 5.30% Fixed
February 2006
February 2021
3,256

Designated
15.5-Year, 5.40% Fixed
September 2008
March 2024
13,081

Designated
Active Commodity Swap
Effective Date
Expiration Date
Initial Notional Amount (Volume)
Commodity Measurement
Status
1-Year, $2.84 MMBtu Fixed
May 2018
April 2019
323,390

MMBtus
Not Designated
1-Year, $2.68 MMBtu Fixed
May 2019
April 2020
437,004

MMBtus
Not Designated
1-Year, $2.70 MMBtu Fixed
May 2020
April 2021
435,810

MMBtus
Not Designated
Other Derivatives
Classification
Effective Date
Expiration Date
Fair Value ($)
Interest make-whole provisions
Liability
June/August 2018
December 2038
$
1,808

We entered into each of the interest rate and commodity swap contracts as an economic hedge.
We recognize all derivatives in our consolidated financial statements at fair value.
We recognize the fair value of derivative instruments designated as hedges in our consolidated balance sheets and any changes in the fair value are recorded as adjustments to other comprehensive income (loss) if the hedges operate effectively.
Income Taxes
We provide for income taxes based on the liability method. We provide for deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using the enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate uncertain tax positions on a quarterly basis and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for an uncertain tax position can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once: the taxing authority has completed all of its

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required or expected examination procedures, including all appeals and administrative reviews; we have no plans to appeal or litigate any aspect of the tax position and we believe that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. We also accrue for potential interest and penalties, related to unrecognized tax benefits in income tax expense.
We have presented all deferred tax assets and liabilities as noncurrent on our consolidated balance sheet as of December 31, 2018, 2017 and 2016, respectively.
The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax for years after 2017. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property and created limitations on the deductibility and timing of interest deductions.
We recorded a tax benefit for the impact of the 2017 Tax Act of approximately $13.9 million in our consolidated financial statements during the year ended December 31, 2017. This amount was primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate from 35% to 21%.
The Tax Legislation provided for a one-time deemed mandatory repatriation for post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017.  Our initial estimate showed a deficit in foreign E&P and significant foreign taxes paid, which could be creditable against any tax resulting from the deemed mandatory repatriation. During 2018 we finalized the calculations of our post-1986 E&P and determined that it resulted in a deficit and no deemed mandatory repatriation tax being due.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Legislation. We recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017. During 2018 we finalized all of our tax accounting associated with the 2017 Tax Act without material adjustments and they are reflected in the financial statements as of December 31, 2018.
In February 2018 the Code Section 179D Commercial Buildings Energy Efficiency Tax Deduction for 2017 was retroactively extended through December 31, 2017. Because of the timing of the extension the impact of the Section 179D deduction was not reflected in the 2017 tax provision but was instead reflected in 2018.
Stock-Based Compensation Expense
Our stock-based compensation expense results from the issuances of shares of restricted common stock and grants of stock options to employees, directors, outside consultants and others. We recognize the costs associated with option grants using the fair value recognition provisions of ASC 718, Compensation — Stock Compensation. Generally, ASC 718 requires the value of all stock-based payments to be recognized in the statement of income (loss) based on their estimated fair value at date of grant amortized over the grants’ respective vesting periods. For the years ended December 31, 2018, 2017 and 2016, we recorded stock-based compensation expense of approximately $1.3 million, $1.3 million, and $1.5 million, respectively, in connection with stock-based payment awards. The compensation expense is allocated between cost of revenues and selling, general and administrative expenses in the accompanying consolidated statements of income (loss) based on the salaries and work assignments of the employees holding the options.
Stock Option Grants
We have granted stock options to certain employees and directors under our 2010 stock incentive plan and at December 31, 2018, 6,833 shares were available for grant under that plan. We have also granted stock options to certain employees and directors under our 2000 stock incentive plan; however, we will grant no further stock options or restricted stock awards under that plan.
Stock options issued under our 2000 stock incentive plan generally expire if not exercised within ten years after the grant date. Under the terms of our 2010 stock incentive plan, all options expire if not exercised within ten years after the grant date. During 2011, we began awarding options which typically vest over a five year period on an annual ratable basis. If the

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employee ceases to be employed for any reason before vested options have been exercised, the employee generally has three months to exercise vested options or they are forfeited. Certain option grants have performance conditions that must be achieved prior to vesting and are expensed based on the expected achievement at each reporting period.
We follow the fair value recognition provisions of ASC 718 requiring that all stock-based payments to employees, including grants of employee stock options and modifications to existing stock options, be recognized in the consolidated statements of income (loss) based on their fair values, using the prospective-transition method.
We use the Black-Scholes option pricing model to determine the weighted-average fair value of options granted and record stock-based compensation expense utilizing the straight-line method.
The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The following table sets forth the significant assumptions used in the model during 2018, 2017 and 2016:
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Expected dividend yield
 
—%
 
—%
 
—%
Risk-free interest rate
 
2.71%-3.00%
 
1.96%-2.36%
 
1.16%-1.77%
Expected volatility
 
43%-45%
 
46%
 
46%-49%
Expected life
 
6.5 years
 
6.5 years
 
6.5-10 years
We will continue to use our judgment in evaluating the expected term, volatility and forfeiture rate related to our own stock-based compensation on a prospective basis, and incorporating these factors into the Black-Scholes pricing model. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant. These expenses will affect our cost of revenues as well as our selling, general and administrative expenses.
As of December 31, 2018, we had $3.1 million of total unrecognized stock-based compensation expense related to employee and director stock options. We expect to recognize this cost over a weighted-average period of 2.1 years after December 31, 2018. The allocation of this expense between cost of revenues and selling, general and administrative expenses will depend on the salaries and work assignments of the personnel holding these options.
Recent Accounting Pronouncements
See Note 2 of the “Notes to Consolidated Financial Statements” for a discussion of recent accounting standards.
Results of Operations

On January 1, 2018, the Company adopted new accounting guidance on revenue from contracts with customers, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under that guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the previous guidance. See Note 3, Revenue From Contracts with Customers, of Notes to Consolidated Financial Statements for further details.


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The following table sets forth certain financial data from the consolidated statements of income (loss) expressed as a percentage of revenues for the periods indicated (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
Dollar
 
% of
 
Dollar
 
% of
 
Dollar
 
% of
 
Amount
 
Revenues
 
Amount
 
Revenues
 
Amount
 
Revenues
Revenues
$
787,138

 
100.0
%
 
$
717,152

 
100.0
 %
 
$
651,227

 
100.0
%
Cost of revenues
613,526

 
77.9
%
 
572,994

 
79.9
 %
 
516,883

 
79.4
%
Gross profit
173,612

 
22.1
%
 
144,158

 
20.1
 %
 
134,344

 
20.6
%
Selling, general and administrative expenses
114,513

 
14.5
%
 
107,570

 
15.0
 %
 
110,568

 
17.0
%
Operating income
59,099

 
7.5
%
 
36,588

 
5.1
 %
 
23,776

 
3.7
%
Other expenses, net
16,709

 
2.1
%
 
7,871

 
1.1
 %
 
7,409

 
1.1
%
Income before provision (benefit) for income taxes
42,390

 
5.4
%
 
28,717

 
4.0
 %
 
16,367

 
2.5
%
Income tax (benefit) provision
4,813

 
0.6
%
 
(4,791
)
 
(0.7
)%
 
4,370

 
0.7
%
Net income
$
37,577

 
4.8
%
 
$
33,508

 
4.7
 %
 
$
11,997

 
1.8
%
Net loss attributable to redeemable non-controlling interest
$
407

 
0.1
%
 
$
3,983

 
0.6
 %
 
$
35

 
%
Net income attributable to common shareholders
$
37,984

 
4.8
%
 
$
37,491

 
5.2
 %
 
$
12,032

 
1.8
%
Revenues
The following table sets forth a comparison of our revenues for the periods indicated (in thousands):
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
787,138

 
$
717,152

 
$
69,986

 
9.8
%
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
717,152

 
$
651,227

 
$
65,925

 
10.1
%
Total revenues increased by $70.0 million, or 9.8%, from 2017 to 2018 primarily due to a $17.2 million increase in revenues from our U.S. Federal segment, a $3.4 million increase in revenues from our Non-solar Distributed Generation (“DG”) segment, a $44.1 million increase in revenues from our U.S. Regions segment and a $10.1 million increase from All Other. These increases were partially offset by a $4.8 million decrease in revenues from our Canada segment.
Total revenues increased by $65.9 million, or 10.1%, from 2016 to 2017 primarily due to a $51.1 million increase in revenues from our U.S. Federal segment, a $4.8 million increase in revenues from our Non-solar DG segment, a $13.4 million increase in revenues from our U.S. Regions segment and a $3.2 million increase from All Other. These increases were partially offset by a $6.6 million decrease in revenues from our Canada segment.

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Cost of Revenues and Gross Margin
The following table sets forth a comparison of our cost of revenues and gross profit for the periods indicated (in thousands):
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Cost of revenues
$
613,526

 
$
572,994

 
$
40,532

 
7.1
%
Gross margin %
22.1
%
 
20.1
%
 

 


 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Cost of revenues
$
572,994

 
$
516,883

 
$
56,111

 
10.9
%
Gross margin %
20.1
%
 
20.6
%
 
 
 
 
Cost of revenues. Total cost of revenues increased $40.5 million, or 7.1%, from 2017 to 2018 due primarily to an increase in project revenues from our U.S. Regions segment. Total cost of revenues increased by $56.1 million, or 10.9%, from 2016 to 2017 due primarily to an increase in revenues from our U.S. Federal segment.
Gross margin. Gross margin increased from 20.1% in 2017 to 22.1% in 2018. The increase in gross margin is primarily due to an increase in higher margin energy and incentive revenue from renewable gas assets the Company owns in our Non-Solar DG segment. Gross margin decreased from 20.6% in 2016 to 20.1% in 2017. The decrease was due primarily to a mix of lower margin projects in our U.S. Regions segment.
Selling, General and Administrative Expenses
The following table sets forth a comparison of our selling, general and administrative expenses for the periods indicated (in thousands):
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Selling, general and administrative expenses
$
114,513

 
$
107,570

 
$
6,943

 
6.5
 %
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Selling, general and administrative expenses
$
107,570

 
$
110,568

 
$
(2,998
)
 
(2.7
)%
Selling, general and administrative expenses increased $6.9 million or 6.5% to $114.5 million from $107.6 million from 2017 to 2018 primarily due to an increase in salaries and benefits of $4.6 million resulting from increased headcount.
Selling, general and administrative expenses decreased $3.0 million or 2.7% to $107.6 million from $110.6 million from 2016 to 2017, respectively, primarily due to $2.1 million in restructuring charges incurred during 2016, which included $1.9 million in bad debt expense in our Canada segment related to our restructuring efforts, and $2.9 million in write-downs, primarily in accounts receivable related to a customer that declared bankruptcy during 2016, offset by higher project development costs incurred during 2017.
Other Expenses, Net
Other expenses, net, includes gains and losses from derivatives transactions, foreign currency transactions, interest expense, interest income and amortization of deferred financing costs, net. Other expenses, net, increased from 2017 to 2018 by $8.8 million primarily due to an increase in interest expense and unfavorable foreign exchange rate fluctuations realized. Other expenses, net, increased from 2016 to 2017 by $0.5 million primarily due to an increase in interest expense offset by favorable foreign exchange rate fluctuations realized in 2017.
Income Before Taxes
Income before taxes increased from 2017 to 2018 by $13.7 million, or 47.6% and increased from 2016 to 2017 by $12.4 million, or 75.5%, primarily due to the reasons described above.

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Provision for Income Taxes
The provision (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. During 2018, we recognized an income tax provision of $4.8 million, equivalent to an effective tax rate of 11.4%. The effective tax rate increased for 2018 vs. 2017 primarily due to our recording a deferred U.S. tax benefit in 2017 of approximately $13.9 million, related to the revaluation of deferred tax assets and liabilities resulting from the reduced federal tax rate enacted in the 2017 Tax Act. During 2017, we recognized an income tax benefit of $4.8 million, equivalent to an effective tax rate of (16.7)%. The effective tax rate decreased significantly primarily due to the change in the U.S. tax law.
On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation which significantly revised the U.S. corporate income tax law by, among other things, lowering the U.S. federal corporate income tax rate for the years after 2017 from 35% to 21%. In 2018 we benefited from the reduced federal tax rate and we also recognized a tax benefit of approximately $8.6 million associated with energy related credits and deductions available under the U.S. Tax Code. In February 2018 the Code Section 179D Commercial Buildings Energy Efficiency Tax Deduction for 2017 was retroactively extended through December 31, 2017. Because of the timing of the extension the impact of the Section 179D deduction was not reflected in the 2017 tax provision but was instead reflected in 2018. In addition, we also are entitled to Investment Tax Credits available under the Tax Code for renewable energy plants we develop and retain. The investment tax credits to which we are entitled fluctuate from year to year based on the cost of the renewable energy plants that we place or expect to place in service in that year.
During 2018, we recognized an income tax provision of $4.8 million, or 11.4% of pretax income. The principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2018 related to our recognizing a tax benefit of approximately $8.6 million associated with energy related credits and deductions available under the U.S. Tax Code as well as a deduction available under Section 179D of the Tax Code. In February 2018 the Code Section 179D Commercial Buildings Energy Efficiency Tax Deduction for 2017 was retroactively extended through December 31, 2017. Because of the timing of the extension the impact of the Section 179D deduction was not reflected in the 2017 tax provision but was instead reflected in 2018 .
The investment tax credits to which we are entitled fluctuate from year to year based on the cost of the renewable energy plants that we place or expect to place in service in that year. In February 2018 the Code Section 179D Commercial Buildings Energy Efficiency Tax Deduction for 2017 was retroactively extended through December 31, 2017. There is no guarantee it will be extended to December 31, 2018 or be available in future years.
Net Income
Net income increased $4.1 million to a net income of $37.6 million for the twelve months ended December 31, 2018 compared to a net income of $33.5 million for the same period of 2017 for the reasons discussed above. Basic income per share for the twelve months ended December 31, 2018 was $0.83 per share, an increase of $0.01 per share, compared to the same period of 2017. Diluted income per share for the twelve months ended December 31, 2018 was $0.81 per share, a decrease of $0.01 per share, compared to the same period of 2017.
Net income increased $21.5 million to a net income of $33.5 million for the twelve months ended December 31, 2017 compared to a net income of $12.0 million for the same period of 2016 for the reasons discussed above. Basic and diluted income per share for the twelve months ended December 31, 2017 were $0.82 per share, an increase of $0.56 per share, compared to the same period of 2016.
Business Segment Analysis (in thousands)
We report results under ASC 280, Segment Reporting. Our reportable segments for the year ended December 31, 2018 are U.S. Regions, U.S. Federal, Canada and Non-Solar Distributed Generation “DG”. Our U.S. Regions, U.S. Federal and Canada 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. 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. This segment also performs O&M services for customer-owned small-scale plants. As of December 31, 2017, the Company’s U.S. Regions segment now included certain small-scale solar grid-tie plants

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developed for customers previously included in our Non-Solar DG segment. Previously reported amounts have been restated for comparative purposes. 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
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
334,344

 
$
290,196

 
$
44,148

 
15.2
 %
Income before taxes
$
20,543

 
$
13,865

 
$
6,678

 
48.2
 %
 
 
 
 
 

 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
290,196

 
$
276,766

 
$
13,430

 
4.9
 %
Income before taxes
$
13,865

 
$
19,802

 
$
(5,937
)
 
(30.0
)%
Revenues for the U.S. Regions segment increased by $44.1 million, or 15.2%, to $334.3 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to an increase in project revenues attributable to an increase in the average project size versus the prior year.
Revenues for the U.S. Regions segment increased by $13.4 million, or 4.9%, to $290.2 million for the twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to an increase in project revenues attributed to an increase in the average project size of projects versus the prior year. Project revenues for the year ending December 31, 2017 were negatively impacted by unanticipated delays caused by Hurricane Harvey. These delays resulted in a shortfall in expected revenue of $12.5 million.
Income before taxes for the U.S. Regions segment increased by $6.7 million, or 48.2%, for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to the increase in revenues described above.
Income before taxes for the U.S. Regions segment decreased by $5.9 million, or 30.0%, for the twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to a decrease in gross profit attributed to the mix of lower margin projects. Results for the year ending December 31, 2017 were negatively impacted by unanticipated delays caused by Hurricane Harvey. These delays resulted in a shortfall in expected earnings of $5.5 million.
U.S. Federal
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
246,309

 
$
229,146

 
$
17,163

 
7.5
%
Income before taxes
$
36,332

 
$
29,261

 
$
7,071

 
24.2
%
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
229,146

 
$
178,005

 
$
51,141

 
28.7
%
Income before taxes
$
29,261

 
$
22,246

 
$
7,015

 
31.5
%
Revenues for the U.S. Federal segment increased by $17.2 million, or 7.5%, to $246.3 million for the twelve months ended December 31, 2018 compared to the same period of 2017, primarily due to timing of revenue recognized as a result of the phase of active projects.
Revenues for the U.S. Federal segment increased by by $51.1 million, or 28.7%, to $229.1 million for the twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to an increase in project revenues related to the increase in average project size of projects versus the prior year. This increase is primarily attributed to larger comprehensive projects which integrate multiple technologies.

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Income before taxes for the U.S. Federal segment increased by $7.1 million, or 24.2%, to $36.3 million for the twelve months ended December 31, 2018 compared to the same period of 2017 , primarily due to gross profit attributed to a favorable mix of higher margin projects.
Income before taxes for the U.S. Federal segment increased by $7.0 million, or 31.5%, to $29.3 million for the twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to the increase in revenues described above partially offset by a budget revision on a large project in the second quarter of 2016.
Canada
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
38,982

 
$
43,803

 
$
(4,821
)
 
(11.0
)%
Income (loss) before taxes
$
(2,746
)
 
$
1,751

 
$
(4,497
)
 
(256.8
)%
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
43,803

 
$
50,448

 
$
(6,645
)
 
(13.2
)%
Income (loss) before taxes
$
1,751

 
$
(2,330
)
 
$
4,081

 
175.2
 %
Revenues for the Canada segment decreased $4.8 million, or 11.0%, to $39.0 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to a decrease in project revenues related to slower progression of certain active projects.
Revenues for the Canada segment decreased $6.6 million, or 13.2%, to $43.8 million for twelve months ended December 31, 2017 compared to the same period in of 2016 primarily due to a decrease in project revenues related to a significant low margin project which was completed during the third quarter of 2017.
Income (loss) before taxes for the Canada segment decreased $4.5 million, or 256.8%, to a loss of $2.7 million for the twelve months ended December 31, 2018 compared to income of $1.8 million for the same period of 2017 primarily due to the decrease in revenues described above, higher project development costs and unfavorable foreign currency exchange rate fluctuations.
Income (loss) before taxes for the Canada segment increased $4.1 million, or 175.2%, to income of $1.8 million for twelve months ended December 31, 2017 compared to a loss of $2.3 million for the same period of 2016 primarily due to the decrease in project revenues related to the significant low margin project described above, $1.9 million of bad debt expense related to our previously disclosed restructuring efforts in Canada recorded during 2016, and favorable foreign currency exchange rate fluctuations realized during 2017.
Non-Solar DG
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
82,655

 
$
79,220

 
$
3,435

 
4.3
 %
Income before taxes
$
13,412

 
$
8,115

 
$
5,297

 
65.3
 %
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
79,220

 
$
74,395

 
$
4,825

 
6.5
 %
Income before taxes
$
8,115

 
$
9,301

 
$
(1,186
)
 
(12.8
)%
Revenues for the Non-solar DG segment increased $3.4 million, or 4.3%, to $82.7 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to an increase in energy and incentive revenue which was partially offset by a decrease in project revenue.
Revenues for the Non-solar DG segment increased $4.8 million, or 6.5%, to $79.2 million for twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to an increase in project revenues from the

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development of small-scale plants we are constructing for customers and energy and incentive revenue from renewable gas assets the Company owns.
Income before taxes for the Non-solar DG segment increased by $5.3 million, or 65.3%, to $13.4 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to the increase in higher margin energy and incentive revenues described above.
Income before taxes for the Non-solar DG segment decreased $1.2 million, or 12.8%, to $8.1 million for the twelve months ended December 31, 2017 compared to the same period of 2016 primarily due to the increase in revenues described above offset by increased interest expense attributed to an increase in project financing activity in 2017 for assets placed in service.
All Other
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2018
 
2017
 
Change
 
Change
Revenues
$
84,848

 
$
74,787

 
$
10,061

 
13.5
 %
Income before taxes
$
5,264

 
$
2,920

 
$
2,344

 
80.3
 %
Unallocated corporate activity
$
(30,415
)
 
$
(27,195
)
 
$
(3,220
)
 
(11.8
)%
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
Dollar
 
Percentage
 
2017
 
2016
 
Change
 
Change
Revenues
$
74,787

 
$
71,613

 
$
3,174

 
4.4
 %
Income (loss) before taxes
$
2,920

 
$
(427
)
 
$
3,347

 
783.8
 %
Unallocated corporate activity
$
(27,195
)
 
$
(32,225
)
 
$
5,030

 
15.6
 %
Revenues from all other segments increased $10.1 million, or 13.5%, to $84.8 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to an increase in project revenues related to the size of active projects and integrated-PV revenues attributed to sales to customers for oilfield microgrid applications.
Revenues from all other segments increased $3.2 million, or 4.4%, to $74.8 million for the twelve months ended December 31, 2017 primarily due to an increase in integrated-PV revenues attributed to sales to customers for oilfield microgrid applications, which rebounded in 2017, partially offset by a decrease in revenues from business assets sold during the first quarter of 2017.
Income before taxes from all other segments increased $2.3 million to income of $5.3 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to the increase in revenues described above.
Income (loss) before taxes from all other segments increased $3.3 million to income of $2.9 million for the twelve months ended December 31, 2017 compared to a loss of $0.4 million for the same period of 2016 primarily due to to increased integrated-PV revenues as described above as well as improved profitability following the sale of business assets described above.
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.
Corporate activity increased by $3.2 million, or 11.8%, to $30.4 million for the twelve months ended December 31, 2018 compared to the same period of 2017 primarily due to an increase in salary and benefit costs, professional fees and unallocated expenses.
Corporate activity decreased from by $5.0 million, or 15.6%, to $27.2 million primarily due to $3.2 million in reserves for certain amounts receivable from a customer who declared bankruptcy during 2016.

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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.
The changes in cash and cash equivalents for the years ended December 31, 2018, 2017 and 2016 were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Cash flows used in operating activities
$
(53,201
)
 
$
(135,570
)
 
$
(52,634
)
Cash flows used in investing activities
(133,206
)
 
(88,042
)
 
(79,616
)
Cash flows provided by financing activities
224,511

 
230,237

 
134,146

Effect of exchange rate changes on cash
(295
)
 
654

 
(422
)
Net increase (decrease) in cash and cash equivalents
$
37,809

 
$
7,279

 
$
1,474

We believe that 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 at least March 2020 and thereafter.
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. 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 receive under these ESPC agreements, $158.2 million, as of year ended December 31, 2018, 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 $(155.5) million as of the year ending December 31, 2018. 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 sheet as a non-cash settlement. See Note 2, “Summary of Significant Accounting Policies”, to our Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K.
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.
Capital expenditures. Our total capital expenditures were $129.6 million, $88.4 million, and $76.0 million for the twelve months ended December 31, 2018, 2017 and 2016, respectively. Additionally, we invested $3.6 million in acquisitions for the twelve months ended December 31, 2018, we invested $2.4 million in acquisitions of renewable energy plants, net of debt assumed, for the twelve months ended December 31, 2017 and $3.6 million in acquisitions for the twelve months ended December 31, 2016. Included in our capital expenditures is the purchase of solar PV projects in development for $72.9 million for the twelve months ended December 31, 2018. We currently plan to invest approximately $150.0 million to $200.0 million in capital expenditures in 2019, principally for the construction or acquisition of new renewable energy plants.
Cash flows from operating activities. Operating activities used $53.2 million of net cash during 2018. In 2018, we had net income of $37.6 million, which is net of non-cash compensation, depreciation, amortization, deferred income taxes and other non-cash items totaling $42.1 million. Net increases in project development costs and other assets and net decreases in other liabilities used $12.9 million. These uses of cash were offset by net decreases in accounts receivable including retainage, inventory, costs and estimated earnings in excess of billings and prepaid expenses and other current assets and an increase in accounts payable and accrued expenses, billings in excess of cost and estimated earnings and income taxes payable which provided $35.6 million. Federal ESPC receivables used $155.5 million. As described above, Federal ESPC operating cash flows only reflect the ESPC expenditure outflows and do not reflect any inflows from the corresponding contract revenues, which are

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recorded as cash inflows from financing activities due to the timing of the receipt of cash related to the assignment of the ESPC receivables to the third-party investors.
Operating activities used $135.6 million of net cash during 2017. In 2017, we had a net income of $33.5 million, which is net of non-cash compensation, depreciation, amortization, deferred income taxes and other non-cash items totaling $22.2 million. Net increases in costs and estimated earnings in excess of billings, prepaid expenses and other current assets and project development costs and decreases in billings in excess of cost and estimated earnings, other liabilities and income taxes payable used $60.6 million. These uses of cash were partially offset by a decrease in accounts receivable including retainage, inventory and other assets and increase in accounts payable and accrued expenses which provided $26.9 million. Federal ESPC receivables used $157.5 million.
Operating activities used $52.6 million of net cash during 2016. In 2016, we had a net income of $12.0 million, which is net of non-cash compensation, depreciation, amortization, deferred income taxes and other non-cash items totaling $35.8 million. Net increases prepaid expenses and other current assets, accounts receivable including retainage and other assets and decreases in accounts payable and accrued expenses and other current liabilities, billings in excess of cost and estimated earnings and other liabilities used $22.1 million. These uses of cash were partially offset by a decrease in inventory, costs and estimated earnings in excess of billings and project development costs and increases in income taxes payable which provided $38.4 million. Federal ESPC receivables used $116.8 million.
Cash flows from investing activities. Cash used for investing activities totaled $133.2 million during 2018 and consisted of capital investments of $125.7 million related to the development and acquisition of renewable energy plants, $3.9 million related to purchases of other property and equipment and acquisitions of businesses of $3.6 million.
Cash used for investing activities totaled $88.0 million during 2017 and consisted of capital investments of $85.6 million related to the development of renewable energy plants, $2.9 million related to purchases of other property and equipment and $2.4 million related to acquisitions of renewable energy plants. Offsetting these amounts was $2.8 million in proceeds from the sale of assets from a business.
Cash used for investing activities totaled $79.6 million during 2016 and consisted of capital investments of $73.2 million related to the development of renewable energy plants, $2.8 million related to purchases of other property and equipment and $3.6 million related to acquisitions of renewable energy plants.
Cash flows from financing activities. Net cash provided by financing activities totaled $224.5 million during 2018 and included repayments of $36.4 million on long-term debt, payments of $4.1 million relating to financing fees, $1.8 million for the repurchase of stock and payments on our senior secured credit facility of $0.9 million. These uses of financing cash were offset by proceeds from long-term debt financing of $88.1 million, proceeds from sale-leaseback financings of $5.1 million, proceeds from redeemable non-controlling interest of $4.8 million and proceeds from exercises of options which provided $7.2 million. Proceeds from Federal ESPC projects and energy assets provided $162.5 million in cash.
Net cash provided by financing activities totaled $230.2 million during 2017 and included repayments of $54.2 million on long-term debt, payments of $2.9 million relating to financing fees and $3.4 million for the repurchase of stock. These uses of financing cash were offset by proceeds from long-term debt financing of $48.5 million, proceeds from sale-leaseback financings of $51.2 million, proceeds from redeemable non-controlling interest of $7.5 million, proceeds from our senior secured credit facility of $12.5 million and exercises of options, which provided $2.0 million. Proceeds from Federal ESPC projects and energy assets provided $169.0 million in cash.
Net cash provided by financing activities totaled $134.1 million during 2016 and included repayments of $14.0 million on long-term debt, payments of $1.9 million relating to financing fees and $6.4 million for the repurchase of stock. These uses of financing cash were offset by proceeds from our senior secured credit facility of $3.8 million, exercises of options, which provided $1.1 million, proceeds from sale-leaseback financings of $17.0 million, proceeds from long-term debt financing of $38.0 million and proceeds from redeemable non-controlling interest of $6.4 million. Proceeds from Federal ESPC projects provided $90.0 million in cash.
We currently plan additional financings of $100.0 million to $110.0 million in 2019 to fund the construction or acquisition of new renewable energy plants as discussed above.
Senior Secured Credit Facility — Revolver and Term Loan
On June 30, 2015, we entered into a third amended and restated bank credit facility with two banks. The new credit facility replaces and extends our existing credit facility, which was scheduled to expire in accordance with its terms on June 30, 2016.

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The revolving credit and term loan facility mature on June 30, 2020, when all amounts will be due and payable in full. We expect to use the new credit facility for our general corporate purposes, including permitted acquisitions, refinancing of existing indebtedness and working capital. In July 2016, we entered into an amendment to the third amended and restated bank credit facility that amended the requirement of the total funded debt to EBITDA ratio. In November 2016, we entered into an additional amendment to the third amended and restated bank credit facility that increased the amount of the term loan under the credit facility by approximately $20.0 million to an aggregate of $30.0 million and extended the maturity date of the term loan from June 30, 2018 to June 30, 2020. In June 2017, we entered into an additional amendment to the third amended and restated bank credit facility that increased the amount available to be drawn on the revolving credit facility from $60.0 million to $75.0 million. This amendment also amended the requirement of the total funded debt to EBITDA ratio as described below. In June 2018, we entered into an additional amendment to the Third Amended and Restated bank credit facility. The amendment added SunTrust Robinson Humphrey, Inc as an additional lender, increased the aggregate amount of the revolving commitments from $75,000 to $85,000 through the existing June 30, 2020 end date, increased the term loan from $25,000 to $46,000 to reduce the outstanding revolving loan balances by the same amount and, for the period of June 30, 2018 through June 30, 2020, increased the Total Funded Debt to EBITDA covenant ratio from a maximum of 2.75 to 3.00. The total commitment under the amended credit facility (revolving credit, term loan and swing line) is $136,000.
The credit facility consists of a $85.0 million revolving credit facility and a $46.0 million term loan. The revolving credit facility may be increased by up to an additional $25.0 million at our option if lenders are willing to provide such increased commitments, subject to certain conditions. Up to $20.0 million of the revolving credit facility may be borrowed in Canadian dollars, Euros and Pounds Sterling. We are the sole borrower under the credit facility. The obligations under the credit facility are guaranteed by certain of our direct and indirect wholly owned domestic subsidiaries and are secured by a pledge of all of our and such of our subsidiary guarantors’ assets, other than the equity interests of certain subsidiaries and assets held in non-core subsidiaries (as defined in the agreement). At December 31, 2018 and 2017, $41.5 million and $22.5 million, was outstanding under the term loan, respectively. At December 31, 2018 and 2017, $1.7 million and $27.6 million was outstanding under the revolving credit facility, respectively. At December 31, 2018 funds of $72.2 million was available for the revolving credit facility.
The interest rate for borrowings under the credit facility is based on, at our option, either (1) a base rate equal to a margin of 0.5% or 0.25%, depending on our ratio of Total Funded Debt to EBITDA (each as defined in the agreement), over the highest of (a) the federal funds effective rate, plus 0.50% , (b) Bank of America’s prime rate and (c) a rate based on the London interbank deposit rate (“LIBOR”) plus 1.50%, or (2) the one-, two- three- or six-month LIBOR plus a margin of 2.00% or 1.75%, depending on our ratio of Total Funded Debt to EBITDA. A commitment fee of 0.375% is payable quarterly on the undrawn portion of the revolving credit facility. At December 31, 2018, the interest rate for borrowings under the revolving credit facility was 4.52% and the weighted average interest rate for borrowings under the term loan was 4.72%.
The revolving credit facility does not require amortization of principal. The term loan requires quarterly principal payments of $1.5 million, with the balance due at maturity. All borrowings may be paid before maturity in whole or in part at our option without penalty or premium, other than reimbursement of any breakage and deployment costs in the case of LIBOR borrowings.
The credit facility limits our ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; merge, liquidate or dispose of assets; make acquisitions or other investments; enter into hedging agreements; pay dividends and make other distributions and engage in transactions with affiliates, except in the ordinary course of business on an arms’ length basis.
Under the credit facility, we may not invest cash or property in, or loan to, our non-core subsidiaries in aggregate amounts exceeding 49% of our consolidated stockholders’ equity. In addition, under the credit facility, we and our core subsidiaries must maintain the following financial covenants:
 
 
a ratio of total funded debt to EBITDA of less than 3.00 to 1.0 as of the end of each fiscal quarter ending June 30, 2018 and thereafter; and
 
 
a debt service coverage ratio (as defined in the agreement) of at least 1.5 to 1.0.
Any failure to comply with the financial or other covenants of the credit facility would not only prevent us from being able to borrow additional funds, but would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility, to terminate the credit facility, and enforce liens against the collateral.

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The credit facility also includes several other customary events of default, including a change in control, permitting the lenders to accelerate the indebtedness, terminate the credit facility, and enforce liens against the collateral.
As of December 31, 2018, we were in compliance with all of the financial and operational covenants in the senior credit facility. In addition, we do not consider it likely that we will fail to comply with these covenants for the next twelve months.
As of December 31, 2018, the Company was not in compliance with certain financial covenant requirements on two of the Company’s project financing debt facilities. The Company has received a waiver from one of the financial institutions to waive the failure as of December 31, 2018. The Company has not received a waiver from one financial institution in relation to the covenant failure on a project financing facility for which $3,978 was outstanding as of December 31, 2018.
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 the Company. These construction and term loans are structured as project financings made directly to a subsidiary, and upon commercial operations and achieving certain milestones in the credit agreement, the related construction loan converts into a term loan. While we are required under GAAP to reflect these loans as liabilities on our consolidated balance sheet, they are generally non-recourse and not direct obligations of Ameresco, Inc. As of December 31, 2018, we had outstanding $179.9 million in aggregate principal amount under these loans with maturities at various dates from 2020 to 2038. Effective interest rates, after consideration for our interest rate swap contracts, ranged from 4.38% to 9.89%. As of December 31, 2017, we had outstanding $117.8 million in aggregate principal amount under these loans with maturities at various dates from 2017 to 2034. Effective interest rates, after consideration for our interest rate swap contracts, ranged from 3.4% to 7.3% as of December 31, 2017.
The Company’s 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 the Company’s projects financings would result in inability to distribute funds to from the wholly-owned subsidiary to the Company 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.

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As of December 31, 2018 and 2017, the Company’s debt consisted of the following:

Commencement Date
Maturity Date
Balance as of December 31,
 
2018
 
2017
Senior secured credit facility, interest at varying rates monthly in arrears
June 2015
June 2020
$
43,074

 
$
49,986

Variable rate term loan payable in semi-annual installments
January 2006
February 2021
936

 
1,220

Variable rate term loan payable in semi-annual installments
January 2006
June 2024
7,426

 
8,295

Variable rate term loan payable in quarterly installments
February 2009
December 2024

 
8,757

Term loan payable in quarterly installments
March 2011
March 2021
1,464

 
2,218

Term loan payable in monthly installments
October 2011
June 2028
3,843

 
4,551

Variable rate term loan payable in quarterly installments
October 2012
June 2020
30,674

 
32,711

Variable rate term loan payable in quarterly installments
September 2015
March 2023
17,208

 
18,346

Term loan payable in quarterly installments
August 2016
July 2031
3,925

 
4,605

Term loan payable in quarterly installments
March 2017
March 2028
3,945

 
4,258

Term loan payable in monthly installments(3)
April 2017
April 2027
22,081

 
13,325

Term loan payable in quarterly installments
April 2017
February 2034
2,735

 
3,128

Variable rate term loan payable in quarterly installments
June 2017
December 2027
12,915

 
14,034

Variable rate term loan payable in quarterly installments
February 2018
August 2022
21,475

 

Term loan payable in quarterly installments
June 2018
December 2038
30,069

 

Variable rate term loan payable in semi-annual installments
June 2018
June 2033
9,668

 

Variable rate construction loan payable
November 2016
June 2018

 
1,721

Variable rate term loan payable in monthly/quarterly installments
October 2018
October 2029
9,072

 

Total construction and term loans
 
 
$
220,510

 
$
167,155

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 $288.0 million and $235.1 million in principal amounts at December 31, 2018 and 2017, respectively. 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 sheet until the completed project is accepted by the customer.
Sale-Leaseback. During the first quarter of 2015, we entered into an agreement with an investor which gives us the option to sell and contemporaneously lease back solar PV projects. In September 2016, we amended our agreement with the investor whereas the investor had committed up to a maximum combined funding amount of $100.0 million through June 30, 2017 on certain projects. In May 2017, we amended our agreement with the investor to extend the end date of the agreement to June 30, 2018. This agreement was not extended further and expired on June 30, 2018. During the year ended December 31, 2017, we sold twelve solar PV projects and in return received $47.2 million as part of this arrangement. Additionally, we sold and contemporaneously leased back one solar PV project to a separate investor, not a party to the master lease agreement, under a new agreement during the year ended December 31, 2017, and in return received $2.0 million. During the third quarter of 2018, we entered into an agreement with an investor which gives us the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects through August 2019 up to a maximum funding amount of 100.0 million. As of December

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31, 2018, $95.1 million remained available under the lending commitment although this amount is not expected to be used. During the year ended December 31, 2018, we sold two solar PV projects and in return received $4.9 million as part of this arrangement. While we are required under GAAP to reflect these lease payments as liabilities on our consolidated balance sheet, they are generally non-recourse and not direct obligations of Ameresco, Inc., except that Ameresco, Inc. has guaranteed certain obligations relating to taxes and project warranties, operation and maintenance.
Contractual Obligations
The following table summarizes our significant contractual obligations and commitments as of December 31, 2018 (in thousands):
 
 
Payments due by Period
 
 
 
 
Less than
 
One to
 
Three to
 
More than
 
 
Total
 
One Year
 
Three Years
 
Five Years
 
Five Years
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
Revolver
 
$
1,696

 
$

 
$
1,696

 
$

 
$

Term Loan
 
41,500

 
6,000

 
35,500

 

 

Project Financing:
 
 
 
 
 
 
 
 
 
 
Construction and term loans
 
179,872

 
15,932

 
82,568

 
36,754

 
44,618

Federal ESPC liabilities(1)
 
288,047

 

 
288,047

 

 

Interest obligations(2)
 
71,750

 
14,349

 
20,339

 
12,389

 
24,673

Capital lease liabilities
 
33,364

 
4,959

 
12,304

 
3,045

 
13,056

Operating leases
 
47,593

 
7,917

 
13,097

 
9,230

 
17,349

Total
 
$
663,822

 
$
49,157

 
$
453,551

 
$
61,418

 
$
99,696

(1
)
 
Federal ESPC arrangements relate to the installation and construction of projects for certain customers, typically federal governmental entities, where we assign to third-parties our right to customer receivables. We are relieved of the liability, without making a payment, when the project is completed and accepted by the customer. We typically expect to be relieved of the liability between one and three years from the date of project construction commencement. The table does not include, for our Federal ESPC liability arrangements, the difference between the aggregate amount of the long-term customer receivables sold by us to the third-party and the amount received by us from the third party for such sale.
 
 
 
(2
)
 
For both the revolving and term loan portions of our senior secured credit facility, the table above assumes that the variable interest rate in effect at December 31, 2018 remains constant for the term of the facility.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheet. The Company from time to time issues letters of credit and performance bonds, with their third-party lenders, to provide collateral.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through fixed and variable rate debt instruments and denominate our transactions in U.S. and Canadian dollars and British pounds sterling (“GBP”). Changes in these rates may have an impact on future cash flows and earnings. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.
Interest Rate Risk
We had cash and cash equivalents totaling $61.4 million as of December 31, 2018 and $24.3 million as of December 31, 2017. Our exposure to interest rate risk primarily relates to the interest expense paid on our senior secured credit facility.

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Derivative Instruments
We do not enter into financial instruments for trading or speculative purposes. However, through our subsidiaries we do enter into derivative instruments for purposes other than trading purposes. Certain of the term loans that we use to finance our renewable energy projects bear variable interest rates that are indexed to short-term market rates. We have entered into interest rate swaps in connection with these term loans in order to seek to hedge our exposure to adverse changes in the applicable short-term market rate. In some instances, the conditions of our renewable energy project term loans require us to enter into interest rate swap agreements in order to mitigate our exposure to adverse movements in market interest rates. All but one of the interest rate swaps that we have entered into qualify and have been designated as fair value hedges. We have also entered into three commodity swap contracts in order to hedge our exposure to adverse changes in the short-term market rates of natural gas, which have not been designated for hedge accounting. See Notes 2, 17 and 18 of “Notes to Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
We have also entered into term loan agreements that contain interest make-whole provisions that qualify as embedded derivatives that are required to be bifurcated from their host term loan agreement and valued separately. These derivatives cannot be hedged. See Notes 2, 8, 17 and 18 of “Notes to Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
By using derivative instruments, we are subject to credit and market risk. The fair market value of the interest rate and commodity swaps are determined by using valuation models whose inputs are derived using market observable inputs, including interest rate yield curves, and reflects the asset or liability position as of the end of each reporting period. When the fair value of a derivative contract is positive, the counterparty owes us, thus creating a receivable risk for us. We are exposed to counterparty credit risk in the event of non-performance by counterparties to our derivative agreements. We minimize counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit rating. The fair value of these make-whole provisions was determined based on available market data and a with and without model.
Our exposure to market interest rate risk is not hedged in a manner that completely eliminates the effects of changing market conditions on earnings or cash flow.
Foreign Currency Risk
We have revenues, expenses, assets and liabilities that are denominated in foreign currencies, principally the Canadian dollar and British pound sterling. Also, a significant number of employees are located in Canada and the U.K., and our subsidiaries in those countries transact business in those respective currencies. As a result, we have designated the Canadian dollar as the functional currency for Canadian operations. Similarly, the GBP has been designated as the functional currency for our operations in the U.K. When we consolidate the operations of these foreign subsidiaries into our financial results, because we report our results in U.S. dollars, we are required to translate the financial results and position of our foreign subsidiaries from their respective functional currencies into U.S. dollars. We translate the revenues, expenses, gains, and losses from our Canadian and U.K. subsidiaries into U.S. dollars using a weighted average exchange rate for the applicable fiscal period. We translate the assets and liabilities of our Canadian and U.K. subsidiaries into U.S. dollars at the exchange rate in effect at the applicable balance sheet date. Translation adjustments are not included in determining net income for the period but are disclosed and accumulated in a separate component of consolidated equity until sale or until a complete or substantially complete liquidation of the net investment in our foreign subsidiary takes place. Changes in the values of these items from one period to the next which result from exchange rate fluctuations are recorded in our consolidated statements of changes in stockholders’ equity as accumulated other comprehensive loss. For the year ended December 31, 2018, due to the weakening of the GBP versus the U.S. dollar, our foreign currency translation resulted in a loss of $0.3 million which we recorded as a increase in accumulated other comprehensive income. For the year ended December 31, 2017, due to the strengthening of the Canadian dollar versus the U.S. dollar, our foreign currency translation resulted in a gain of $0.7 million, which we recorded as a decrease in accumulated other comprehensive loss. As a consequence, gross profit, operating results, profitability and cash flows are impacted by relative changes in the value of the Canadian dollar and GBP. We have not repatriated earnings from our foreign subsidiaries, but have elected to invest in new business opportunities there. See Note 9, “Income Taxes” to our consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. We do not hedge our exposure to foreign currency exchange risk.

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Item 8. Financial Statements and Supplementary Data
AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
December 31,
 
2018
 
2017
ASSETS
Current assets:
 
 
 
Cash and cash equivalents (including amounts in VIEs of $1,255 and $444, respectively)
$
61,397


$
24,262

Restricted cash (including amounts in VIEs of $156 and $155, respectively)
16,880


15,751

Accounts receivable, net (including amounts in VIEs of $374 and $328, respectively)
85,985

 
85,121

Accounts receivable retainage, net
13,516

 
17,484

Costs and estimated earnings in excess of billings (including amounts in VIEs of $498 and $360, respectively)
86,842

 
104,852

Inventory, net
7,765

 
8,139

Prepaid expenses and other current assets (including amounts in VIEs of $190 and $8, respectively)
11,571

 
14,037

Income tax receivable
5,296

 
6,053

Project development costs
21,717

 
11,379

Total current assets
310,969

 
287,078

Federal ESPC receivable
293,998

 
248,917

Property and equipment, net
6,985

 
5,303

Energy assets, net (including amounts in VIEs of $122,641 and $55,712, respectively)
459,952

 
356,443

Goodwill
58,332

 
56,135

Intangible assets, net
2,004

 
2,440

Other assets (including amounts in VIEs of $1,613 and $1,398, respectively)
29,394

 
27,635

Total assets
$
1,161,634

 
$
983,951

 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Current portions of long-term debt and capital lease liabilities (including amounts in VIEs of $1,712 and $0, respectively)
$
26,890

 
$
22,375

Accounts payable (including amounts in VIEs of $234 and $764, respectively)
134,330

 
135,881

Accrued expenses and other current liabilities (including amounts in VIEs of $4,233 and $149, respectively)
35,947

 
23,260

Billings in excess of cost and estimated earnings
24,363

 
19,871

Income taxes payable
1,100

 
755

Total current liabilities
222,630

 
202,142

Long-term debt and capital lease liabilities, less current portions and net of deferred financing fees (including amounts in VIEs of $26,461 and $0, respectively)
219,162

 
173,237

Federal ESPC liabilities
288,047

 
235,088

Deferred income taxes, net
4,352

 
584

Deferred grant income
6,637

 
7,188

Other liabilities (including amounts in VIEs of $2,131 and $0, respectively)
29,212
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