UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019



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)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 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. (Check one):



Large Accelerated Filer o	Accelerated Filer þ	Non-accelerated filer o	Smaller reporting company o
Emerging growth company o		(Do not check if a smaller reporting company)
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~~pursuant 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 Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class	New York Stock Exchange Symbol	Shares outstanding as of ~~October 29, 2018~~November 1, 2019
Class A Common Stock, $0.0001 par value per share	~~27,976,565~~AMRC	29,033,114
Class B Common Stock, $0.0001 par value per share		18,000,000

AMERESCO, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2018~~2019

TABLE OF CONTENTS



		Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at September 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018		1

Condensed Consolidated Statements of Income ~~(Loss)~~ for the three and nine months ended September 30, 2019 and 2018 ~~and 2017~~ (Unaudited)		3

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three and nine months ended September 30, 2019 and 2018 ~~and 2017~~ (Unaudited)		4

Condensed Consolidated ~~Statement~~Statements of Changes in Redeemable Non-Controlling Interests and Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)		5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 ~~and 2017~~ (Unaudited)		67

Notes to Condensed Consolidated Financial Statements (Unaudited)		89

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3834

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4944

Item 4. Controls and Procedures		4944

PART II - OTHER INFORMATION
Item 1. Legal Proceedings		5045

Item 1A. Risk Factors		5045

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5045

Item 5. Other Information		45

Item 6. Exhibits		5045

Signatures		5247

Exhibit Index		5146

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AMERESCO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
	(Unaudited)				(Unaudited)
ASSETS	ASSETS				ASSETS
Current assets:
Cash and cash equivalents(1)	$	64,539	$	24,262	$	34,104	$	61,397
Restricted cash(1)	13,461		15,751		13,498		16,880
Accounts receivable, net	90,378		85,121
Accounts receivable, net of allowance of $2,587 and $2,765, respectively ⁽¹⁾					91,755		85,985
Accounts receivable retainage, net	14,401		17,484		16,652		13,516
Costs and estimated earnings in excess of billings(1)	66,471		104,852		124,652		86,842
Inventory, net	8,128		8,139		9,902		7,765
Prepaid expenses and other current assets(1)	13,123		14,037		22,585		11,571
Income tax receivable	13,684		6,053		1,629		5,296
Project development costs	16,776		11,379		26,305		21,717
Total current assets(1)	300,961		287,078		341,082		310,969
Federal ESPC receivable	272,953		248,917		182,012		293,998
Property and equipment, net(1)	6,649		5,303		10,469		6,985
Energy assets, net(1)	442,018		356,443		507,759		459,952
Goodwill	58,853		56,135		57,899		58,332
Intangible assets, net	2,315		2,440		1,810		2,004
Other assets	30,706		27,635
Total assets	$	1,114,455	$	983,951
Operating lease assets ⁽¹⁾					32,540		—
Other assets ⁽¹⁾					36,786		29,394
Total assets ⁽¹⁾					$	1,170,357	$	1,161,634

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY	LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY				LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portions of long-term debt and capital lease liabilities	$	24,397	$	22,375
Accounts payable	119,969		135,881
Accrued expenses and other current liabilities	28,067		23,260
Current portions of long-term debt and financing lease liabilities ⁽¹⁾					$	54,958	$	26,890
Accounts payable ⁽¹⁾					133,833		134,330
Accrued expenses and other current liabilities ⁽¹⁾					28,700		35,947
Current portions of operating lease liabilities ⁽¹⁾					5,935		—
Billings in excess of cost and estimated earnings	32,516		19,871		23,234		24,363
Income taxes payable	6,348		755		—		1,100
Total current liabilities	211,297		202,142
Long-term debt and capital lease liabilities, less current portions and net of deferred financing fees	226,252		173,237
Total current liabilities ⁽¹⁾					246,660		222,630
Long-term debt and financing lease liabilities, less current portions and net of deferred financing fees ⁽¹⁾					223,766		219,162
Federal ESPC liabilities	262,484		235,088		196,584		288,047
Deferred income taxes, net	3,453		584
Deferred income taxes, net ⁽¹⁾					3,242		4,352
Deferred grant income	6,774		7,188		6,223		6,637
Other liabilities	25,404		18,754
Commitments and contingencies (Note 7)
Long-term portions of operating lease liabilities, net of current ⁽¹⁾					28,799		—
Other liabilities ⁽¹⁾					30,989		29,212
Commitments and contingencies (Note 9)

Redeemable non-controlling interests	14,585		10,338		32,108		14,719

~~Table~~⁽¹⁾ Includes restricted assets of ~~Contents~~

consolidated variable interest entities (“VIEs”) at September 30, 2019 and December 31, 2018 of $136,213 and $126,727, respectively. Includes non-recourse liabilities of consolidated VIEs at September 30, 2019 and December 31, 2018 of $39,548 and $34,684, respectively. See Note 12.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS — (Continued)
(in thousands, except share amounts)
September 30, December 31,
2018 2017
(Unaudited)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2018 and December 31, 2017 $ —
$ —
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 30,057,605 shares issued and 27,972,108 shares outstanding at September 30, 2018, 29,406,315 shares issued and 27,533,049 shares outstanding at December 31, 2017 3
3
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000 shares issued and outstanding at September 30, 2018 and December 31, 2017 2
2
Additional paid-in capital 121,660
116,196
Retained earnings 258,213
235,844
Accumulated other comprehensive loss, net (4,101 ) (5,626 )
Less - treasury stock, at cost, 2,085,497 shares at September 30, 2018 and 1,873,266 shares at December 31, 2017 (11,571 ) (9,799 )
Total stockholders’ equity 364,206
336,620
Total liabilities, redeemable non-controlling interests and stockholders’ equity $ 1,114,455
$ 983,951



AMERESCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(in thousands, except share amounts)
	September 30,			December 31,
	2019			2018
	(Unaudited)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018	$	—		$	—
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 31,134,154 shares issued and 29,033,114 shares outstanding at September 30, 2019, 30,366,546 shares issued and 28,275,506 shares outstanding at December 31, 2018	3			3
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000 shares issued and outstanding at September 30, 2019 and December 31, 2018	2			2
Additional paid-in capital	131,111			124,651
Retained earnings	292,256			269,806
Accumulated other comprehensive loss, net	(9,609		)	(5,949		)
Treasury stock, at cost, 2,101,040 shares at September 30, 2019 and 2,091,040 shares at December 31, 2018	(11,777		)	(11,638		)
Total stockholders’ equity	401,986			376,875
Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	1,170,357		$	1,161,634

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME ~~(LOSS)~~

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017			2018			2017		2019		2018		2019		2018
Revenues	$	205,375	$	204,744		$	569,767		$	506,019	$	212,026	$	205,375	$	560,321	$	569,767
Cost of revenues	159,213		163,377			445,356			403,320		167,333		159,213		439,857		445,356
Gross profit	46,162		41,367			124,411			102,699		44,693		46,162		120,464		124,411
Selling, general and administrative expenses	28,866		27,027			84,871			80,164		31,231		28,866		87,396		84,871
Operating income	17,296		14,340			39,540			22,535		13,462		17,296		33,068		39,540
Other expenses, net	3,244		1,668			10,754			5,232		4,192		3,244		11,359		10,754
Income before provision for income taxes	14,052		12,672			28,786			17,303		9,270		14,052		21,709		28,786
Income tax provision	3,351		3,881			1,879			4,296		939		3,351		2,000		1,879
Net income	10,701		8,791			26,907			13,007		8,331		10,701		19,709		26,907
Net (income) loss attributable to redeemable non-controlling interests	—		(298		)	(516		)	673
Net loss (income) attributable to redeemable non-controlling interests											539		—		2,524		(516		)
Net income attributable to common shareholders	$	10,701	$	8,493		$	26,391		$	13,680	$	8,870	$	10,701	$	22,233	$	26,391
Net income per share attributable to common shareholders:
Basic	$	0.23	$	0.19		$	0.58		$	0.30	$	0.19	$	0.23	$	0.48	$	0.58
Diluted	$	0.23	$	0.19		$	0.57		$	0.30	$	0.19	$	0.23	$	0.47	$	0.57
Weighted average common shares outstanding:
Basic	45,854		45,524			45,599			45,500		46,555		45,854		46,413		45,599
Diluted	46,944		45,771			46,509			45,664		47,693		46,944		47,675		46,509

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)



	Three Months Ended September 30,
	2019			2018
Net income	$	8,331		$	10,701
Other comprehensive (loss) income:
Unrealized (loss) gain from interest rate hedges, net of tax (provision) benefit of $(410) and $181, respectively	(1,135		)	125
Foreign currency translation adjustments	(356		)	(163		)
Total other comprehensive loss	(1,491		)	(38		)
Comprehensive income	6,840			10,663
Comprehensive loss attributable to redeemable non-controlling interests	539			—
Comprehensive income attributable to common shareholders	$	7,379		$	10,663

	Nine Months Ended September 30,
	2019			2018
Net income	$	19,709		$	26,907
Other comprehensive (loss) income:
Unrealized (loss) gain from interest rate hedges, net of tax (provision) benefit of $(1,308) and $590, respectively	(3,949		)	1,686
Foreign currency translation adjustments	289			(161		)
Total other comprehensive (loss) income	(3,660		)	1,525
Comprehensive income	16,049			28,432
Comprehensive loss (income) attributable to redeemable non-controlling interests	2,524			(516		)
Comprehensive income attributable to common shareholders	$	18,573		$	27,916

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~CHANGES IN REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(in ~~thousands)~~thousands except share amounts)

(Unaudited)

Three Months Ended September 30,
2018 2017
Net income $ 10,701
$ 8,791
Other comprehensive income (loss):
Unrealized gain from interest rate hedges, net of tax benefit of $181 and $3, respectively 125
62
Foreign currency translation adjustments (163 ) 185
Total other comprehensive income (loss) (38 ) 247
Comprehensive income 10,663
9,038
Comprehensive (income) attributable to redeemable non-controlling interests —
(298 )
Comprehensive income attributable to common shareholders $ 10,663
$ 8,740

Nine Months Ended September 30,
2018 2017
Net income $ 26,907
$ 13,007
Other comprehensive income (loss):
Unrealized gain (loss) from interest rate hedges, net of tax benefit of $590 and $150, respectively 1,686
(67 )
Foreign currency translation adjustments (161 ) 567
Total other comprehensive income 1,525
500
Comprehensive income 28,432
13,507
Comprehensive (income) loss attributable to redeemable non-controlling interests (516 ) 673
Comprehensive income attributable to common shareholders $ 27,916
$ 14,180



															Accumulated
	Redeemable										Additional				Other							Total
	Non-Controlling			Class A Common Stock				Class B Common Stock			Paid-in		Retained		Comprehensive			Treasury Stock				Stockholders’
	Interests			Shares		Amount		Shares	Amount		Capital		Earnings		Loss			Shares	Amount			Equity
Balance, June 30, 2018	$	12,322		27,732,511		$	3	18,000,000	$	2	$	119,257	$	247,512	$	(4,495	)	2,085,497	$	(11,571	)	$	350,708
Cumulative impact from the adoption of ASU No. 2017-12	—			—		—		—	—		—		—		(54		)	—	—			(54		)
Exercise of stock options	—			239,597		—		—	—		2,012		—		—			—	—			2,012
Stock-based compensation expense	—			—		—		—	—		391		—		—			—	—			391
Unrealized gain from interest rate hedge, net	—			—		—		—	—		—		—		611			—	—			611
Foreign currency translation adjustment	—			—		—		—	—		—		—		(163		)	—	—			(163		)
Contributions from redeemable non-controlling interests	2,365			—		—		—	—		—		—		—			—	—			—
Distributions to redeemable non-controlling interests	(102		)	—		—		—	—		—		—		—			—	—			—
Net income	—			—		—		—	—		—		10,701		—			—	—			10,701
Balance, September 30, 2018	$	14,585		27,972,108		$	3	18,000,000	$	2	$	121,660	$	258,213	$	(4,101	)	2,085,497	$	(11,571	)	$	364,206

Balance, June 30, 2019	$	32,037		28,412,894		$	3	18,000,000	$	2	$	126,693	$	283,386	$	(8,118	)	2,091,040	$	(11,638	)	$	390,328
Exercise of stock options	—			630,220							4,005											4,005
Stock-based compensation expense	—			—		—		—	—		413		—		—			—	—			413
Open market purchase of common shares	—			(10,000	)	—		—	—		—		—		—			10,000	(139		)	(139		)
Unrealized loss from interest rate hedge, net	—			—		—		—	—		—		—		(1,135		)	—	—			(1,135		)
Foreign currency translation adjustment	—			—		—		—	—		—		—		(356		)	—	—			(356		)
Contributions from redeemable non-controlling interests	974			—		—		—	—		—		—		—			—	—			—
Distributions to redeemable non-controlling interests	(364		)	—		—		—	—		—		—		—			—	—			—
Net (loss) income	(539		)	—		—		—	—		—		8,870		—			—	—			8,870
Balance, September 30, 2019	$	32,108		29,033,114		$	3	18,000,000	$	2	$	131,111	$	292,256	$	(9,609	)	2,101,040	$	(11,777	)	$	401,986

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

~~AMERESCO, INC.~~

~~CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018~~

~~(in thousands)~~

~~(Unaudited)~~


																Accumulated																									Accumulated
	Redeemable										Additional					Other							Total			Redeemable										Additional					Other							Total
	Non-Controlling			Class A Common Stock				Class B Common Stock			Paid-in		Retained			Comprehensive			Treasury Stock				Stockholders’			Non-Controlling			Class A Common Stock				Class B Common Stock			Paid-in		Retained			Comprehensive			Treasury Stock				Stockholders’
	Interests			Shares		Amount		Shares	Amount		Capital		Earnings			Loss			Shares	Amount			Equity			Interests			Shares		Amount		Shares	Amount		Capital		Earnings			Loss			Shares	Amount			Equity
Balance, December 31, 2017	$	10,338		27,533,049		$	3	18,000,000	$	2	$	116,196	$	235,844		$	(5,626	)	1,873,266	$	(9,799	)	$	336,620		$	10,338		27,533,049		$	3	18,000,000	$	2	$	116,196	$	235,844		$	(5,626	)	1,873,266	$	(9,799	)	$	336,620
Cumulative impact from the adoption of ASU No. 2014-09 (Note 2)	—			—		—		—	—		—		(4,454		)	—			—	—			(4,454		)
Cumulative impact from the adoption of ASU No. 2017-12 (Note 2)	—			—		—		—	—		—		432			(486		)	—	—			(54		)
Cumulative impact from the adoption of ASU No. 2014-09																										—			—		—		—	—		—		(4,454		)	—			—	—			(4,454		)
Cumulative impact from the adoption of ASU No. 2017-12																										—			—		—		—	—		—		432			(486		)	—	—			(54		)
Exercise of stock options	—			625,215		—		—	—		4,114		—			—			—	—			4,114			—			625,215		—		—	—		4,114		—			—			—	—			4,114
Stock-based compensation expense	—			—		—		—	—		1,137		—			—			—	—			1,137			—			—		—		—	—		1,137		—			—			—	—			1,137
Employee Stock Purchase Plan	—			26,075		—		—	—		213		—			—			—	—			213
Employee stock purchase plan																										—			26,075		—		—	—		213		—			—			—	—			213
Open market purchase of common shares	—			(212,231	)	—		—	—		—		—			—			212,231	(1,772		)	(1,772		)	—			(212,231	)	—		—	—		—		—			—			212,231	(1,772		)	(1,772		)
Unrealized gain from interest rate hedge, net	—			—		—		—	—		—		—			2,172			—	—			2,172			—			—		—		—	—		—		—			2,172			—	—			2,172
Foreign currency translation adjustment	—			—		—		—	—		—		—			(161		)	—	—			(161		)	—			—		—		—	—		—		—			(161		)	—	—			(161		)
Contributions from redeemable non-controlling interests	4,038			—		—		—	—		—		—			—			—	—			—			4,038			—		—		—	—		—		—			—			—	—			—
Distributions to redeemable non-controlling interests	(307		)	—		—		—	—		—		—			—			—	—			—			(307		)	—		—		—	—		—		—			—			—	—			—
Net income	516			—		—		—	—		—		26,391			—			—	—			26,391			516			—		—		—	—		—		26,391			—			—	—			26,391
Balance, September 30, 2018	$	14,585		27,972,108		$	3	18,000,000	$	2	$	121,660	$	258,213		$	(4,101	)	2,085,497	$	(11,571	)	$	364,206		$	14,585		27,972,108		$	3	18,000,000	$	2	$	121,660	$	258,213		$	(4,101	)	2,085,497	$	(11,571	)	$	364,206

Balance, December 31, 2018																										$	14,719		28,275,506		$	3	18,000,000	$	2	$	124,651	$	269,806		$	(5,949	)	2,091,040	$	(11,638	)	$	376,875
Cumulative impact from the adoptions of ASU -No. 2018-02 (Note 2)																										—			—		—		—	—		—		217			(217		)	—	—			—
Exercise of stock options																										—			745,484		—		—	—		4,960		—			—			—	—			4,960
Stock-based compensation expense																										—			—		—		—	—		1,195		—			—			—	—			1,195
Employee stock purchase plan																										—			22,124		—		—	—		305		—			—			—	—			305
Open market purchase of common shares																										—			(10,000	)	—		—	—		—		—			—			10,000	(139		)	(139		)
Unrealized loss from interest rate hedge, net																										—			—		—		—	—		—		—			(3,732		)	—	—			(3,732		)
Foreign currency translation adjustment																										—			—		—		—	—		—		—			289			—	—			289
Contributions from redeemable non-controlling interests																										20,482			—		—		—	—		—		—			—			—	—			—
Distributions to redeemable non-controlling interests																										(569		)	—		—		—	—		—		—			—			—	—			—
Net (loss) income																										(2,524		)	—		—		—	—		—		22,233			—			—	—			22,233
Balance, September 30, 2019																										$	32,108		29,033,114		$	3	18,000,000	$	2	$	131,111	$	292,256		$	(9,609	)	2,101,040	$	(11,777	)	$	401,986

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERESCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	26,907		$	13,007		$	19,709		$	26,907
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation of energy assets	19,699			15,822			26,338			19,699
Depreciation of property and equipment	1,573			1,931			2,115			1,573
Amortization of deferred financing fees	1,587			1,194
Amortization of debt issuance costs							1,734			1,587
Amortization of intangible assets	771			1,082			681			771
Accretion of ARO and contingent consideration							98			—
Provision for bad debts	483			68			(134		)	483
Loss (gain) on disposal / sale of assets	300			(104		)
Loss on disposal / sale of assets							—			300
Gain on deconsolidation of VIE							(2,160		)	—
Net gain from derivatives	(367		)	(206		)	(1,072		)	(420		)
Stock-based compensation expense	1,137			976			1,195			1,137
Deferred income taxes	3,914			(2,139		)	152			3,914
Unrealized foreign exchange (gain) loss	486			(1,494		)
Unrealized foreign exchange loss							149			486
Changes in operating assets and liabilities:
Accounts receivable	2,073			22,599			(4,468		)	2,073
Accounts receivable retainage	3,008			308			(3,079		)	3,008
Federal ESPC receivable	(111,982		)	(119,093		)	(110,374		)	(111,982		)
Inventory, net	10			3,503			(2,137		)	10
Costs and estimated earnings in excess of billings	28,704			(24,403		)	(23,130		)	28,704
Prepaid expenses and other current assets	5,241			(2,271		)	(11,084		)	5,241
Project development costs	(6,984		)	(4,028		)	(5,641		)	(6,984		)
Other assets	(1,371		)	225			(698		)	(1,371		)
Accounts payable, accrued expenses and other current liabilities	(16,552		)	4,772			(8,931		)	(16,532		)
Billings in excess of cost and estimated earnings	11,166			(4,283		)	(952		)	11,166
Other liabilities	194			(255		)	(1,602		)	227
Income taxes payable	(2,038		)	2,357			2,566			(2,038		)
Cash flows from operating activities	(32,041		)	(90,432		)	(120,725		)	(32,041		)
Cash flows from investing activities:
Purchases of property and equipment	(2,961		)	(1,922		)	(6,188		)	(2,961		)
Purchases of energy assets	(44,059		)	(68,736		)	(72,140		)	(103,154		)
Proceeds from sale of assets of a business	—			2,777
Acquisitions, net of cash received	(62,687		)	(2,409		)	(1,279		)	(3,592		)
Contributions to equity investment							(323		)	—
Cash flows from investing activities	(109,707		)	(70,290		)	(79,930		)	(109,707		)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERESCO, INC.													CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)	(in thousands)	(Unaudited)
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash flows from financing activities:
Payments of financing fees	(3,667		)	(2,024		)	$	(541	)	$	(3,667	)
Proceeds from exercises of options and ESPP	4,327			1,559			5,265			4,327
Repurchase of common stock	(1,772		)	(3,029		)	(139		)	(1,772		)
Proceeds (payments) from senior secured credit facility, net	(900		)	12,847			41,343			(900		)
Proceeds from long-term debt financings	78,914			48,885			7,614			78,914
Proceeds from Federal ESPC projects	113,570			122,340			115,556			113,570
Proceeds for energy assets from Federal ESPC	2,269			—			1,639			2,269
Proceeds from sale-leaseback financings	5,145			30,611			—			5,145
Contributions from redeemable non-controlling interests, net	3,731			1,358
Contributions from redeemable non-controlling interests, net of distributions							20,173			3,731
Payments on long-term debt	(22,825		)	(40,228		)	(18,033		)	(22,825		)
Cash flows from financing activities	178,792			172,319			172,877			178,792
Effect of exchange rate changes on cash	(124		)	322			249			(124		)
Net increase in cash, cash equivalents, and restricted cash	36,920			11,919
Net (decrease) increase in cash, cash equivalents, and restricted cash							(27,529		)	36,920
Cash, cash equivalents, and restricted cash, beginning of period	60,105			52,826			97,913			60,105
Cash, cash equivalents, and restricted cash, end of period	$	97,025		$	64,745		$	70,384		$	97,025

Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,618		$	8,152		$	12,410		$	9,618
Cash paid for income taxes	$	2,018		$	4,432		$	2,983		$	2,018
Non-cash Federal ESPC settlement	$	82,536		$	66,830		$	214,444		$	82,536
Accrued purchases of energy assets	$	7,698		$	9,414		$	17,224		$	7,698
Conversion of revolver to term loan	$	25,000		$	—		$	25,000		$	25,000

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown above:


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2019		2018
Cash and cash equivalents	$	64,539	$	29,559	$	34,104	$	64,539
Short-term restricted cash	13,461		15,789		13,498		13,461
Long-term restricted cash included in other assets	19,025		19,397		22,782		19,025
Total cash and cash equivalents, and restricted cash	$	97,025	$	64,745	$	70,384	$	97,025

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

1. ~~DESCRIPTION~~BASIS OF ~~BUSINESS~~PRESENTATION

The accompanying condensed consolidated financial statements of Ameresco, Inc. (including its subsidiaries, the “Company”) was organized as a Delaware corporation on April 25, 2000. The Company is a provider of energy efficiency solutions for facilities throughout North America and Europe. The Company provides solutions, both services and products, that enable customers to reduce their energy consumption, lower their operating and maintenance costs and realize environmental benefits. The Company’s comprehensive set of solutions includes upgrades to a facility’s energy infrastructure and the construction and operation of small-scale renewable energy plants. It also sells certain photovoltaic (“PV”) equipment worldwide. The Company operates in the United States, Canada and Europe.

The Company is compensated through a variety of methods, including: 1) direct payments based on fee-for-services contracts (utilizing lump-sum or cost-plus pricing methodologies); 2) the sale of energy from the Company’s energy assets and the sale of energy assets; and 3) direct payment for PV equipment and systems.

~~The condensed consolidated financial statements as of~~ ~~September 30, 2018, and for the three and~~ ~~nine months ended September 30, 2018~~ ~~and 2017,~~ are unaudited, pursuant to certain rules and regulations of the Securities and Exchange Commission, and include, in the opinion of the Company, normal recurring adjustments necessary for a fair presentation in conformity with accounting principles generally accepted in the United States (“GAAP”) of the results for the periods ~~indicated, which, however,~~indicated.

The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of results which may be expected for the full year. The December 31, ~~2017~~2018 consolidated balance sheet data was derived from audited financial statements, but certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The interim condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2017,~~2018, and notes thereto, included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the Securities and Exchange Commission on March ~~7, 2018.~~8, 2019.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Principles~~The accounting policies of ~~Consolidation~~

~~The accompanying condensed~~the Company are set forth in Note 2 to the consolidated financial statements ~~include~~contained in the accounts of the Company, its subsidiaries in which the Company has a controlling financial interest and three investment funds formed to fund the purchase and operation of solar energy systems, which are consolidated with the Company as variable interest entities (“VIE”)Company’s 2018 annual report on Form 10-K. The Company ~~uses a qualitative approach in assessing the consolidation requirement for VIEs. This approach focuses on determining whether the Company has the power~~includes herein certain updates to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. For all periods presented, the Company has determined that it is the primary beneficiary in all of its operational VIEs. The Company evaluates its relationships with the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Gains and losses from the translation of all foreign currency financial statements are recorded in accumulated other comprehensive loss, net, within stockholders’ equity. The Company prepares its financial statements in conformity with GAAP.

~~Use of Estimates~~

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions used in these condensed consolidated financial statements relate to management’s estimates of final construction contract profit in accordance with accounting for long-term contracts, 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.~~

The Company is self-insured for employee health insurance. The maximum exposure in fiscal year 2018 under the plan is $100 per covered participant, after which reinsurance takes effect. The liability for unpaid claims and associated expenses, including incurred but not reported claims, is determined by management and reflected in the Company’s consolidated balance sheets in accrued expenses and other current liabilities. The liability is calculated based on historical data, which considers both

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

the frequency and settlement amount of claims. The Company’s estimated accrual for this liability could be different than its ultimate obligation if variables such as the frequency or amount of future claims differ significantly from management’s assumptions.

~~Cash and Cash Equivalents~~

Cash and cash equivalents includes cash on deposit, overnight repurchase agreements and amounts invested in highly liquid money market funds. Cash equivalents consist of short term investments with original maturities of three months or less. The Company maintains accounts with financial institutions and the balances in such accounts, at times, exceed federally insured limits. This credit risk is divided among a number of financial institutions that management believes to be of high quality. The carrying amount of cash and cash equivalents approximates its fair value measured using level 1 inputs per the fair value hierarchy as defined in Note 8.policies.

Restricted Cash

Restricted cash consists of cash and cash equivalents held in an escrow account in association with construction draws for energy savings performance contracts (“ESPC”), construction of energy assets, operations and maintenance (“O&M”) reserve accounts and cash collateralized letters of credit as well as cash required under term loans to be maintained in debt service reserve accounts until all obligations have been indefeasibly paid in full. These accounts are primarily invested in highly liquid money market funds. The carrying amount of the cash and cash equivalents in these accounts approximates its fair value measured using level 1 inputs per the fair value hierarchy as defined in Note 8.10. Restricted cash also includes funds held for clients, which represent assets that, based upon the Company’s intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds to third parties, primarily utility service providers, relating to the Company’s enterprise energy management services. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company classified the non-current portion of restricted cash of ~~$19,025~~$22,782 and ~~$20,092,~~$19,637, respectively, in other assets on ~~its~~the accompanying condensed consolidated balance sheets.

~~Accounts Receivable~~Leases

~~Accounts receivable are stated~~As of January 1, 2019, the Company adopted Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842) and, along with the standard, elected to take the practical expedient that the Company will not reassess lease classifications at adoption. Accordingly, the amount management expects to collect from outstanding balances. An allowance for doubtful accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and management’s evaluationCompany’s sales-leaseback arrangements entered into as of ~~outstanding accounts receivable. Bad debts are written off against the allowance when identified.~~

~~Changes in the allowance for doubtful accounts are as follows:~~

Nine Months Ended September 30,
2018
2017
Allowance for doubtful accounts, beginning of period $ 3,315
$ 7,836
Charges to costs and expenses 483
68
Account write-offs and other (361 ) (4,088 )
Allowance for doubtful accounts, end of period $ 3,437
$ 3,816

~~During the year ended ended~~ December 31, ~~2016,~~2018 will remain under the previous guidance. See Note 8 for additional information on these sale-leasebacks.

All significant lease arrangements are recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement. An ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) as the Company ~~reserved~~recognizes lease expense for these leases as incurred over the lease term.

ROU assets represent the Company’s right to use an underlying asset during the reasonably certain lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate, which is updated annually or when a significant event occurs that would indicate a significant change in rates, based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a ~~customer who declared bankruptcy. Of this amount, $2,394 was recorded as an allowance for doubtful accounts in accounts receivable, net. During 2017 a settlement was reached with this customer and~~straight-line basis over the lease term. The Company has ~~no additional exposure~~lease agreements with lease and non-lease components, which are accounted for ~~the remaining receivables.~~

~~Accounts Receivable Retainage~~

Accounts receivable retainage represents amounts due from customers, but where payments are withheld contractually until certain construction milestones are met. Amounts retained typically range from 5% to 10% of the total invoice. The Company classifies as a ~~current asset those retainages that are expected to be billed in~~single component. See Note 8 for additional discussion on the ~~next twelve months. No amounts were determined to be uncollectible as of September 30, 2018 and December 31, 2017.~~

~~Inventory~~

Inventories, which consist primarily of PV solar panels, batteries and related accessories, are stated at the lower of cost (“first-in, first-out” method) or net realizable value (determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation). Provisions have been made to reduce the carrying value of inventory to the net realizable value.Company’s leases.

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~Prepaid Expenses~~Variable Interest Entities

~~Prepaid expenses consist primarily~~The Company generally aggregates the disclosures of ~~short-term prepaid expenditures that will amortize within one year.~~

~~Federal ESPC Receivable~~

~~Federal ESPC receivable represents~~its variable interest entities (“VIEs”) based on certain qualitative and quantitative factors including the ~~amount to be paid by various federal government agencies for work performed~~purpose and ~~earned by~~design of the underlying VIEs, the nature of the assets in the VIE, and the type of involvement the Company ~~under specific ESPCs.~~ has with the VIE including its role and type of interest held in the VIE. As of September 30, 2019, all of the fully consolidated VIEs that make up the Company’s investment funds are similar in purpose, design, and the Company’s involvement and, as such, are aggregated in one disclosure. See Note 12 for additional disclosures.

Equity Method Investment

The Company ~~assigns certain~~has entered into a joint venture and has determined it is not the primary beneficiary using the methodology previously described for variable interest entities. The Company does not consolidate the operations of ~~its rights~~this joint venture and treats the joint venture as an equity method investment. See Note 12 for additional information on the Company’s equity method investment.

Recent Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, the Company is electing to ~~receive~~only recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the condensed consolidated statements of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those ~~payments to third-party investors that provide construction and permanent financing~~fiscal years.

On January 1, 2019, the Company adopted ASU No. 2016-02 using the modified retrospective approach of applying the new standard at the adoption date. See Note 8 for ~~such contracts. Upon completion and acceptance~~the impact of the ~~project~~adoption and the new disclosures required by this standard.

In March 2019, the ~~government, typically~~FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements, which provides clarification and improvements to the previous issued guidance. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within 24those fiscal years. The Company is currently evaluating the impact of ASU 2019-01 on its condensed consolidated financial statements, but does not expect that the adoption of this guidance will have a significant impact on its condensed consolidated financial statements.

Intangibles-Goodwill and Other

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use-Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation, setup, and upfront costs and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to ~~36 months~~develop or obtain internal-use software. The new standard is effective interim and annual periods beginning after December 15, 2019, with early adoption permitted, and can be applied either retrospectively or prospectively. The Company adopted this guidance as of ~~construction commencement,~~January 1, 2019 and the ~~assigned ESPC receivable from the government and corresponding ESPC liability are eliminated from~~adoption did not have an impact on the Company’s condensed consolidated financial statements.

~~Project Development Costs~~Derivatives and Hedging

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which, among other things, clarifies some areas around partial-term fair value hedges interest rate risk, the amortization of fair value hedge basis adjustments and their disclosure, and some clarification of some matters related to transitioning to ASU No. 2017-12, which was adopted by the Company during the year ended December 31, 2018. For those that have already adopted ASU No. 2017-12, the new standard is effective the first annual period beginning after the issuance date of ASU No. 2019-04, or as of January 1, 2020 for the Company, with early adoption permitted. The Company ~~capitalizes as project development costs only those costs incurred in connection with~~is currently evaluating the ~~development~~impact of energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and travel, if incurred after a point in time where the realization of related revenue becomes probable. Project development costs incurred prior to the probable realization of revenue are expensed as incurred. The Company classifies as a current asset those project development efforts that are expected to proceed to construction activity in the twelve months that follow. The Company periodically reviews these balances and writes off any amounts where the realization of the related revenue is no longer probable. Project development costs of $3,921 and $1,524 were included in other long-term assets as at September 30, 2018 and December 31, 2017, respectively.

~~Property and Equipment~~

Property and equipment consists primarily of office and computer equipment, and is recorded at cost. Major additions and improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that doASU No. 2019-04 on its condensed consolidated financial statements, but does not improve or extend the life of the respective assets are expensed as incurred. Depreciation and amortization of property and equipment are computed on a straight-line basis over the following estimated useful lives:



~~Asset Classification~~		~~Estimated Useful Life~~
~~Furniture and office equipment~~		~~Five years~~
~~Computer equipment and software costs~~		~~Three to five years~~
~~Leasehold improvements~~		~~Lesser of term of lease or five years~~
~~Automobiles~~		~~Five years~~
~~Land~~		~~Unlimited~~

~~Gains or losses on disposal of property and equipment are reflected in selling, general and administrative expenses in the consolidated statements of income (loss).~~

~~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 plantsexpect that the ~~Company owns. These amounts are capitalized and amortized to cost~~adoption of ~~revenues in the Company’s~~this guidance will have a significant impact on its condensed consolidated ~~statements of income (loss) on a straight line basis over the lives of the related assets or the terms of the related contracts.~~

The Company capitalizes interest costs relating to construction financing during the period of construction. Capitalized interest is included in energy assets, net in the Company’s consolidated balance sheets. Capitalized interest is amortized to cost of revenues in the Company’s consolidated statements of income (loss) on a straight line basis over the useful life of the associated energy asset. There was $638 and $925 of interest capitalized for the three months ended September 30, 2018 and 2017, respectively. There was $2,376 and $3,452 of interest capitalized for the nine months ended September 30, 2018 and 2017, 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 the Company’s 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.financial statements.

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~Included in energy assets are capital lease assets and accumulated depreciation of capital lease assets.~~

The Company evaluates its 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 the Company’s 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 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.

The Company evaluates recoverability of long-lived assets to be held and used by estimating the undiscounted future cash flows before interest 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, the Company recognizes an impairment loss for the amount that the carrying value exceeds the fair value.

From time to time, the Company has 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 the Company disposes 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.~~

The Company did not receive any Section 1603 grants during the nine months ended September 30, 2018 or September 30, 2017. 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 $6,774 and $7,188 recorded in the accompanying consolidated balance sheets as of September 30, 2018 and December 31, 2017, respectively, represents the benefit of the basis difference to be amortized to income tax expense over the life of the related property.

~~Deferred Financing Fees~~

Deferred financing fees relate to the external costs incurred to obtain financing for the Company. Deferred financing fees are amortized over the respective term of the financing using the effective interest method, with the exception of the Company’s revolving credit facility and construction loans, as discussed in Note 13, for which deferred financing fees are amortized on a straight-line basis over the term of the agreement. Deferred financing fees are presented on the consolidated balance sheets as a reduction to long-term debt and capital lease liabilities.

~~Goodwill and Intangible Assets~~

The Company has classified as goodwill the amounts paid in excess of fair value of the net assets (including tax attributes) of companies acquired in purchase transactions. The Company has recorded intangible assets related to customer contracts, customer relationships, non-compete agreements, trade names and technology, each with defined useful lives. The Company assesses the impairment of goodwill and intangible assets that have indefinite lives on an annual basis (December 31^st~~) 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. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends, restructuring actions and projections of future results. The Company estimates the reporting units fair value and compares 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 the Company’s 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, the Company’s projections of future operating activity and its weighted-average cost of capital. If the fair value is less than the carrying value, an impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The impairment charge would be recorded to earnings in the consolidated statements of income (loss). ~~Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets.~~

~~Table of Contents~~

~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

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. The Company evaluates its intangible assets for impairment consistent with, and part of, their long-lived assets evaluation, as discussed in Energy Assets above.

~~See Note 5 for additional disclosures.~~

~~Other Assets~~

Other assets consist primarily of notes and contracts receivable due to the Company from various customers and non-current restricted cash. Other assets also include, the fair value of derivatives determined to be assets, the non-current portion of project development costs, accounts receivable retainages, sale-leaseback deferred loss and deferred contract costs.

~~Asset Retirement Obligations~~

The Company recognizes a liability for the fair value of required asset retirement obligations (“AROs”) when such obligations are incurred. The liability is estimated on a number of assumptions requiring management’s judgment, including equipment removal costs, site restoration costs, salvage costs, cost inflation rates and discount rates and is credited to its projected future value over time. The capitalized asset is depreciated using the convention of depreciation of plant assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement cost incurred is recognized as an operating gain or loss in the consolidated statements of income (loss). As of September 30, 2018 and December 31, 2017, the Company had no ARO liabilities recorded.

~~Federal ESPC Liabilities~~

Federal ESPC liabilities, for both projects and energy assets, represent the advances received from third-party investors under agreements to finance certain ESPC projects with various federal government agencies.

For projects related to the construction or installation of certain energy savings equipment or facilities developed for the government customer, upon completion and acceptance of the project by the government, typically within 24 to 36 months of construction commencement, the ESPC receivable from the government and corresponding ESPC liability is eliminated from the Company’s consolidated balance sheet. Until recourse to the Company ceases for the ESPC receivables transferred to the investor, upon final acceptance of the work by the government customer, the Company remains the primary obligor for financing received.

For small-scale energy assets developed for the government customer that the Company owns and operates, upon final acceptance of the work by the government customer, the Company remains the primary obligor for financing received and the liability is eliminated from the Company’s consolidated balance sheet as contract payments assigned by the customer are transferred to the investor.

~~Sale-Leaseback~~

During the first quarter of 2015, the Company entered into an agreement with an investor which gives the Company the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects. In September 2016, the Company amended this agreement to increase the investor’s commitment up to a maximum combined funding amount of $100,000 through June 30, 2017 on certain projects. In May 2017, the Company amended this agreement to extend the end date of the agreement to June 30, 2018. Additionally, the Company sold and contemporaneously leased back one solar PV project to another investor, not a party to the master lease agreement, under a new agreement during the nine months ended September 30, 2017. During the third quarter of 2018, the Company entered into an agreement with an investor which gives the Company the option to sell and contemporaneously lease back solar photovoltaic (“solar PV”) projects through August 2019up to a maximum funding amount of $100,000. During the three and nine months ended September 30, 2018 the Company entered into two sale-leaseback agreements. See below for a summary of solar PV project sales in prior year under our sale-leaseback agreements under this facility:

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

Quarter Ended # Solar PV Projects Sold (actual #’s)_ Sale Price Deferred Gain Recorded Deferred Loss Recorded Capital Lease Asset/Liability Recorded Initial Lease Term (years) Minimum Lease Payment Maximum Lease Payment
September 30, 2018 2 $ 5,145
$ 611
$ —
$ 2,591
20 $ 1
$ 738
September 30, 2017 3 $ 9,157
$ 642
$ —
$ 4,114
20 $ 13
$ 231

As part of these agreements, the Company was a party to master lease agreements that provides for the sale of solar PV projects to a third-party investor and the simultaneous leaseback of the projects, which the Company then operates and maintains, recognizing revenue through the sale of the electricity and solar renewable energy credits generated by these projects. In sale-leaseback arrangements, the Company first determines whether the solar PV project under the sale-leaseback arrangement is “integral equipment.” A solar PV project is determined to be integral equipment when the cost to remove the project from its existing location, including the shipping and reinstallation costs of the solar PV project at the new site, including any diminution in fair value, exceeds 10% of the fair value of the solar PV project at the time of its original installation. When the leaseback arrangement expires, the Company has the option to purchase the solar PV project for the then fair market value or, in certain circumstances, renew the lease for an extended term. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company not to be integral equipment as the cost to remove the project from its existing location would not exceed 10% of its original fair value.

For solar PV projects that the Company has determined not to be integral equipment, the Company then determines if the leaseback should be classified as a capital lease or an operating lease. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company to be capital leases. For leasebacks classified as capital leases, the Company initially records a capital lease asset and capital lease obligation in its consolidated balance sheet equal to the lower of the present value of the Company’s future minimum leaseback payments or the fair value of the solar PV project. For capital leasebacks, the Company defers any gain or loss, representing the excess or shortfall of cash received from the investor compared to the net book value of the asset in the Company’s consolidated balance sheet at the time of the sale. The Company records the long term portion of any deferred gain or loss in other liabilities and other assets, respectively, and the current portion of any deferred gain and loss in accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, in its consolidated balance sheet and amortizes the deferred amounts over the lease term in cost of revenues in its consolidated statements of income (loss). Net amortization expense in cost of revenues related to deferred gains and losses was $(48) and $(25) of net gains for the three months ended September 30, 2018 and 2017, respectively. Net amortization expense in cost of revenues related to deferred gains and losses was $(153) and $(49) of net gains for the nine months ended September 30, 2018 ~~and2017, respectively.~~

~~A summary of amounts related to sale leasebacks in the Company’s consolidated balance sheets is as follows:~~

September 30, December 31,
2018 2017
Capital lease assets, net $ 38,782
$ 36,676
Deferred loss, short-term, net 115
118
Deferred loss, long-term, net 1,946
2,054
Total deferred loss $ 2,061
$ 2,172
Capital lease liabilities, short-term 4,838
4,157
Capital lease liabilities, long-term 31,897
30,712
Total capital lease liabilities $ 36,735
$ 34,869
Deferred gain, short-term, net 344
338
Deferred gain, long-term, net 5,935
5,835
Total deferred gain $ 6,279
$ 6,173

~~Other Liabilities~~

Other liabilities consist primarily of deferred revenue related to multi-year operation and maintenance contracts which expire at various dates through 2033. Other liabilities also include the fair value of derivatives and the long term portion of sale-leaseback deferred gains.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

S~~ee Note 9 for additional disclosures.~~

~~Revenue Recognition~~

On January 1, 2018, the Company 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 period. The Company 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 the Company's updated policies related to revenue recognition discussed below.

The Company derives 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 the Company owns, and the sale and installation of solar energy products and systems. Below is a description of the Company’s primary lines of business.

~~Projects~~ - The Company’s 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, the Company also designs and constructs 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, the Company recognizes revenue from the installation or construction of projects over time using the cost-based input method. The Company uses 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, the Company records 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, the Company often provides 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, the Company frequently maintains staff on-site to perform these services.

Maintenance revenue is recognized using the input method to recognize revenue. In most cases, O&M fees are fixed annual fees. Because the Company is 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), the Company records 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~~ - The Company’s service offerings also includes the sale of electricity, processed renewable gas fuel, heat or cooling from the portfolio of assets that the Company owns and operates. The Company has constructed and is 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 the Company’s renewable energy projects to date have involved the generation of electricity from solar PV and LFG or the sale of processed LFG. The Company purchases the LFG that otherwise would be combusted or vented, processes it, and either sells it or uses it in its energy plants. The Company has also designed and built, as well as owns, operates and maintains, plants that take biogas generated in the anaerobic digesters of wastewater treatment plants and turns 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 the Company owns and operates energy producing assets, the Company typically enters into a long-term power purchase agreement (“PPA”) for the sale of the energy. Many of the Company’s energy assets also produce environmental attributes, commonly referred to as renewable energy credits (“RECs”). In most cases, the Company sells RECs under separate agreements with third parties other than the PPA customer.

The Company recognizes 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. REC revenue is recognized at a

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

point in time, when the RECs are transferred to the customer in accordance with the transfer protocols of the REC market that the Company operates in. In those cases where RECs are sold to the same customer as the energy output, the Company records revenue monthly for both the energy output and the REC output, as generated and delivered to the customer. =

~~Other~~ ~~- The Company’s service and product offerings also include integrated-PV and consulting and enterprise energy management services.~~

The Company recognizes 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 the Company has transferred physical control of the asset to the customer upon shipment.

To the extent a contract is deemed to have multiple performance obligations, the Company allocates 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.

~~Cost of Revenues~~

Cost of revenues include the cost of labor, materials, equipment, subcontracting and outside engineering that are required for the development and installation of projects, as well as preconstruction 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 the Company’s contracts have fixed price terms; however, in some cases the Company negotiates protections, such as a cost-plus structure, to mitigate the risk of rising prices for materials, services and equipment.

~~Cost of revenues also include the costs of maintaining and operating the small-scale renewable energy plants that the Company owns, including the cost of fuel (if any) and depreciation charges.~~

~~Income Taxes~~

The Company provides for income taxes based on the liability method. The Company provides 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.

The Company accounts 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. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

The Company’s liabilities for uncertain tax positions 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.

The Company considers matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews; the Company has no plans to appeal or litigate any aspect of the tax position; and the Company believes that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

~~The Company has presented all deferred tax assets and liabilities as net and noncurrent on its consolidated balance sheet as of September 30, 2018 and December 31, 2017, respectively.~~

~~See Note 6 for additional information on the Company’s income taxes.~~

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~~(in thousands, except per share amounts)~~

~~Foreign Currency~~

The local currency of the Company’s foreign operations is considered the functional currency of such operations. All assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the period. Translation adjustments are accumulated as a separate component of stockholders’ equity. Foreign currency translation gains and losses are reported in the consolidated statements of comprehensive income (loss). Foreign currency transaction gains and losses are reported in the consolidated statements of income (loss).

~~Financial Instruments~~

Financial instruments consist of cash and cash equivalents, restricted cash, accounts and notes receivable, long-term contract receivables, accounts payable, accrued expenses, capital lease assets and liabilities, contingent considerations, short- and long-term, borrowings interest rate swaps, and commodity swaps. Because of their short maturity, the carrying amounts of cash and cash equivalents, restricted cash, accounts and notes receivable, accounts payable, accrued expenses, contingent considerations, and short-term borrowings approximate fair value.

Fair Value ~~Measurements~~

The Company follows the guidance related to fair value measurements for all of its non-financial assets and non-financial liabilities, except for those recognized at fair value in the financial statements at least annually. These assets include goodwill and long-lived assets measured at fair value for impairment assessments, and non-financial assets and liabilities initially measured at fair value in a business combination.

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts and notes receivable, long-term contract receivables, interest rate swaps, commodity swaps, hybrid instruments, accounts payable, accrued expenses, capital lease assets and liabilities, contingent considerations, and short-term and long-term borrowings. Because of their short maturity, the carrying amounts of cash and cash equivalents, restricted cash, accounts and notes receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value. The carrying value of long-term variable-rate debt approximates fair value. Fair value of the Company’s debt is based on quoted market prices or on rates available to the Company for debt with similar terms and maturities, which are level two inputs of the fair value hierarchy, as defined in Note 8.

The Company accounts for its interest rate and commodity swaps as derivative financial instruments in accordance with the related guidance. Under this guidance, derivatives are carried on the Company’s consolidated balance sheets at fair value. The fair value of the Company’s interest rate swaps are determined based on observable market data in combination with expected cash flows for each instrument.

The consideration for the Company’s acquisitions often includes future payments that are contingent upon the occurrence of a particular event. The Company records a contingent consideration obligation for such contingent consideration payments at fair value on the acquisition date. The Company estimates the acquisition date fair value of contingent consideration obligations through valuation models that incorporate probability adjusted assumptions related to the achievement of the milestones and the likelihood of making related payments. Each period the Company revalues the contingent consideration obligations associated with the acquisition to fair value and records changes in the fair value as contingent consideration expense. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in assumed discount periods and rates, changes in the assumed timing and amount of revenue and expense estimates and changes in assumed probability with respect to the attainment of certain financial and operational metrics, among others. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense recorded in any given period. However, contingent considerations related to certain holdbacks and completion payments are considered short-term in nature. These amounts are recorded at full value and are only revalued if one of those underlying assumptions changes.

The Company accounts for its hybrid instruments as embedded derivatives in accordance with related guidance. Under this guidance, the embedded derivative is bifurcated from its host contract and recorded on the Company’s consolidated balance sheets at fair value. The fair value of the Company’s embedded derivatives are determined based on observable market data.

~~See Note 8 for additional information related to fair value measurements.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~Stock-Based Compensation Expense~~

Stock-based compensation expense results from the issuance of shares of restricted common stock and grants of stock options to employees, directors, outside consultants and others. The Company recognizes the costs associated with restricted stock option grants, and employee stock purchases made via the Company’s Employee Stock Purchase Plan (the “ESPP”) using the fair value recognition provisions of accounting standards codification (“ASC”) 718, ~~Compensation - Stock Compensation~~ (“ASC 718”) on a straight-line basis over the vesting period of the awards. 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. Stock-based compensation expense is also recognized in association with employee stock purchases related to the Company’s employee stock purchase plan.

Stock-based compensation expense is recognized based on the grant-date fair value. The Company estimates the fair value of the stock-based awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value of stock-based awards requires the use of highly subjective assumptions, including the fair value of the common stock underlying the award, the expected term of the award and expected stock price volatility.

The assumptions used in determining the fair value of stock-based awards represent management’s estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors change, and different assumptions are employed, the stock-based compensation could be materially different in the future. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected life of the stock options.

The Company has no history of paying dividends. Additionally, as of each of the grant dates, there was no expectation that the Company would pay dividends over the expected life of the options. The expected life of the awards is estimated using historical data and management’s expectations. The Company uses historical volatility as the expected volatility assumption required in the Black-Scholes model.

The Company is required to recognize compensation expense for only the portion of options that are expected to vest. If there are any modifications or cancellations of the underlying invested securities or the terms of the stock option, it may be necessary to accelerate, increase or cancel any remaining unamortized stock-based compensation expense. As a result of the adoption of ASU 2016-09 during fiscal 2017, no significant changes were made to the Company’s accounting for forfeitures. Upon adoption the Company recorded a $4,000 deferred tax asset and corresponding credit to retained earnings for excess tax benefits that had not previously been recognized because the related tax deductions had not reduced taxes payable.

For the three months ended September 30, 2018 and 2017, the Company recorded stock-based compensation expense, including expense related to the ESPP, of $390 and $326, respectively, in connection with the stock-based payment awards. For the nine months ended September 30, 2018 and 2017, the stock-based compensation expense was $1,137 and $976, respectively. 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. As of September 30, 2018, there was $3,119 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.2 years.

~~No awards to individuals who were not either an employee or director of the Company occurred during the~~ ~~nine months ended September 30, 2018~~ ~~or during the year ended~~ ~~December 31,2017~~.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~Share Repurchase Program~~

In April 2016, the Company’s Board of Directors authorized the repurchase of up to $10,000 of the Company’s Class A common stock from time to time on the open market in privately negotiated transactions. In February 2017, the Company’s Board of Directors authorized an increase in the Company’s share repurchase authorization to $15,000 of the Company's Class A common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes. The repurchase program has and will be funded using the Company's working capital and borrowings under its revolving line of credit. The Company accounts for share repurchases using the cost method. Under this method, the cost of the share repurchase is recorded entirely in treasury stock, a contra equity account. During the three months ended September 30, 2018, the Company did not repurchase any shares of common stock. During the nine months ended September 30, 2018, the Company repurchased 212 shares of common stock in the amount of $1,772, net of fees of $9. During the year ended December 31, 2017, the Company repurchased 575 shares of common stock in the amount of $3,412, net of fees of $23.

~~Derivative Financial Instruments~~

In the normal course of business, the Company utilizes derivatives contracts as part of its risk management strategy to manage exposure to market fluctuations in interest and commodity rates. 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. The Company seeks to manage credit risk by entering into financial instrument transactions only through counterparties that the Company believes 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 commodity prices and rates. The Company seeks 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, the Company does not use derivatives for speculative purposes. The Company considers the use of derivatives with all financing transactions to mitigate risk.

The Company recognizes cash flows from derivative instruments as operating activities in the consolidated statements of cash flows. The effective portion of changes in fair value on interest rate swaps designated as cash flow hedges are recognized in the Company’s consolidated statements of comprehensive income (loss). Changes in fair value on derivatives not designated as hedges are recognized in the Company’s consolidated statements of income (loss).

In June 2018, the Company entered into a term loan agreement, discussed in Note 13, 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 an embedded derivative instrument that must be bifurcated from its host agreement. The fair value of this hybrid instrument was determined based on available market data using appropriate valuation models, considering all of the rights and obligations of the instrument, and recorded as a liability on the Company’s balance sheet in connection with the derivative liability and a corresponding debt discount. The instrument is revalued periodically and the changes in fair value are recognized as either gains or losses in earnings in the Company’s consolidated statements of income (loss).

In the third quarter of 2018, the Company adopted Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2018. This standard eliminates the requirement to measure and report a hedge’s ineffectiveness separately in earnings going forward and requires a cumulative-effect adjustment to eliminate the separate measure of ineffectiveness to accumulated other comprehensive income for all designated hedges at the time of adoption. As such, the Company recognized an increase to retained earnings and accumulated other comprehensive loss of $432 to remove the cumulative effect of hedging ineffectiveness previously recognized in earnings through 2017. The Company also recognized a decrease in other expenses, net and an increase in accumulated other comprehensive loss of $54 to remove the cumulative effect of hedging ineffectiveness previously recognized in earnings through 2018.

~~See Notes 8 and 9 for additional information on the Company’s derivative instruments.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~Earnings Per Share~~

Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares, including vested restricted shares. When the effects are not anti-dilutive, diluted earnings per share is calculated using the weighted-average outstanding common shares; the dilutive effect of convertible preferred stock, under the “if converted” method; and the treasury stock method with regard to warrants and stock options; all as determined under the treasury stock method.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net income attributable to common shareholders $ 10,701
$ 8,493
$ 26,391
$ 13,680
Basic weighted-average shares outstanding 45,854
45,524
45,599
45,500
Effect of dilutive securities:
Stock options 1,090
247
910
164
Diluted weighted-average shares outstanding 46,944
45,771
46,509
45,664

For the three months ended September 30, 2018 and 2017, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares, as the effect would be anti-dilutive, were 758 and 2,627, respectively. For the nine months ended September 30, 2018 and 2017, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares, as the effect would be anti-dilutive, were 1,273 and 2,605, respectively.

~~Variable Interest Entities~~

Certain contracts are executed jointly through partnership and joint venture arrangements with unrelated third parties. The arrangements are often formed for the single business purpose of executing a specific project and allow the Company to share risks and/or secure specialty skills required for project execution.

~~The Company evaluates each partnership and joint venture at inception to determine if it qualifies as a VIE under ASC 810,~~ ~~Consolidation~~. A variable interest entity is an entity used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors who are not required to provide sufficient financial resources for the entity to support its activities without additional subordinated financial support. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the partnership or joint venture is a VIE.

The Company also evaluates whether it is the primary beneficiary of each VIE and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining whether it qualifies as the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. When the Company is determined to be the primary beneficiary, the VIE is consolidated. As required by ASC 810, management's assessment of whether the Company is the primary beneficiary of a VIE is continuously performed. See Note 10 for additional disclosures.

~~Redeemable Non-Controlling Interests~~

In September 2015, the Company formed an investment fund with a third party investor which granted the investor ownership interests in the net assets of certain of the Company’s renewable energy project subsidiaries. In June 2017, the Company formed a second investment fund with a third party investor which granted the investor ownership interests in the net assets of certain of the Company’s renewable energy project subsidiaries. In June 2018, the Company formed a third investment fund with a third party investor which granted the investor ownership interests in the net assets of certain of the Company’s renewable energy project subsidiaries. The Company entered into these agreements in order to finance the costs of constructing energy assets which are under long-term customer contracts. The Company has determined that these entities qualify as VIEs and that it is the primary beneficiary in the operational partnerships for accounting purposes. Accordingly, the Company will

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

consolidate the assets and liabilities and operating results of the entities in its consolidated financial statements. The Company will recognize the investors’ share of the net assets of the subsidiaries as redeemable non-controlling interests in its consolidated balance sheet.

The Company has determined that the provisions in the contractual arrangements represent substantive profit-sharing arrangements. The Company has further determined that the appropriate methodology for attributing income and loss to the redeemable non-controlling interests each period is a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method. Under the HLBV method, the amounts of income and loss attributed to the redeemable non-controlling interests in the consolidated statements of income (loss) reflect changes in the amounts the investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements, assuming the net assets of this funding structure were liquidated at recorded amounts. The investors’ non-controlling interest in the results of operations of this funding structure is determined as the difference in the non-controlling interest’s claim under the HLBV method at the start and end of each reporting period, after taking into account any capital transactions, such as contributions or distributions, between the Company’s subsidiaries and the investors. The use of the HLBV methodology to allocate income to the redeemable non-controlling interest holders may create volatility in the Company’s consolidated statements of income (loss) as the application of HLBV can drive changes in net income available and loss attributable to the redeemable non-controlling interests from quarter to quarter.

The Company classified the non-controlling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets. The redeemable non-controlling interests will be reported using the greater of their carrying value at each reporting date as determined by the HLBV method or the estimated redemption values in each reporting period.

~~See Note 10 for additional disclosures.~~

~~Recent Accounting Pronouncements~~

~~Derivatives and Hedging~~

In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods. Early adoption is permitted. The Company adopted ASU 2017-12 during the third quarter of 2018. Upon adoption, the Company recognized an increase to retained earnings and an accumulated other comprehensive loss of $432 to remove the cumulative effect of hedging ineffectiveness previously recognized in earnings, as of January 1, 2018, for contracts designated as hedging instruments that were outstanding at the beginning of the third quarter 2018. The Company also recognized a decrease in other expenses, net and an increase in accumulated other comprehensive loss of $54 to remove the cumulative effect of hedging ineffectiveness previously recognized in earnings through 2018.Measurement

In August 2018, the FASB ~~issues~~issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2018-13 on its ~~consolidated financial statements.~~

~~Leases~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. The Company will adopt the guidance in the first quarter of 2019, electing to adopt the guidance using the modified retrospective approach. The Company is in the process of its preliminary evaluation, and assessing the impact on thecondensed consolidated financial statements, with an anticipated completion date of December 31, 2018. As of September 30, 2018, the Company has made significant progress in assessing the impact of the ASU on the Company’s financial statements and ensuringbut does not expect that ~~all leases are being identified and considered under the new standard. As part of this assessment, the Company is~~

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~also evaluating the impact~~ the adoption of this ~~ASU~~guidance will have a significant impact on its systems and its controls and procedures. The Company will implement targeted changes to its internal reporting process to facilitate the gathering the data needed for the new disclosure requirement. The Company will also implement updates to its control processes and procedures, as necessary, based on changes resulting from the new standard.condensed consolidated financial statements.

Accumulated Other Comprehensive Income

In ~~January~~February 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 840. ASU 2018-01 is effective in the same period 2016-02 is adopted. The Company is currently evaluating and assessing the the impact on the consolidated financial statements of the adoption of ASU 2016-02, which is expected to be completed as of December 31, 2018.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which narrowly amends and clarifies aspects of 2016-02. ASU 2018-10 is effective in the same period 2016-06 is adopted. The Company is currently evaluating and assessing the the impact on the consolidated financial statements of the adoption of ASU 2016-02, which is expected to be completed as of December 31, 2018.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional transition option when adopting 2016-02 and a practical expedient concerning the separation of components of a contract. The additional transition option allows the Company to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. Prior periods will still be required to include all existing disclosure requirements in accordance with ASC Topic 840. ASU 2018-11 is effective in the same period 2016-10 is adopted. The Company is currently evaluating and assessing the the impact on the consolidated financial statements of the adoption of ASU 2016-02, which is expected to be completed as of December 31, 2018.

~~Stock Based Compensation Expense~~

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This new guidance amends the scope of modification accounting for share-based payment awards. ASU 2017-09 provide guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted these requirements on January 1, 2018. The adoption had no impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of current stock compensation recognition standards to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 will become effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity's adoption date of ASU 2014-09 (Topic 606), which the Company adopted on January 1, 2018. The Company adopted ASU 2018-07 during the second quarter of 2018. The adoption had no impact on the Company’s consolidated financial statements, as the Company currently has not issued share-payments to non-employees.

~~Consolidated Statements of Cash Flow~~

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates diversity in practice in how certain cash receipts and cash payments are presented and classified in the consolidated statements of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company adopted these requirements on January 1, 2018. The adoption had no impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 23), Restricted Cash. ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied using a retrospective transition method for each period presented. The Company has adopted this guidance as of January 1, 2018 and the consolidated statement of cash flow has been prepared to conform with ASU 2016-18 for all periods presented.

~~Accumulated Other Comprehensive Income~~

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~In February 2018, the Financial Accounting Standard Board (“FASB”) issued ASU~~ 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) –: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow entities to reclassify the income tax effects of tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Company adopted the guidance as of January 1, 2019. Upon adoption, the Company recognized an increase to retained earnings and a corresponding increase to accumulated other comprehensive loss of $217.

Consolidations

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities, which aligns the evaluation of whether a decision maker's fee is a variable interest with the guidance in the primary beneficiary test by requiring the decision maker to consider an indirect interest in a VIE held by related party under common control on a proportionate basis. The new standard is effective interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of ASU ~~2018-02~~2018-17 on its condensed consolidated financial ~~statements.~~

~~Business Combinations~~

~~In January 2017,~~statements, but does not expect that the ~~FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition~~adoption of ~~a Business, which provides~~this guidance to entities to assist with evaluating when a set of transferred assets and activities (collectively, the “set”) is a business and provides a screen to determine when a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the financial statements have not been issued. The Company adopted the guidance effective January 1, 2018, and its adoption did notwill have a significant impact on ~~the Company’s~~its condensed consolidated financial ~~position or financial statement disclosures.~~statements.

~~3. REVENUE FROM CONTRACTS WITH CUSTOMERS~~

~~Adoption~~

On January 1, 2018, the Company 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 period. The Company recorded a net decrease to beginning retained earnings of $4,454 on January 1, 2018 due to the cumulative impact of adopting Topic 606, as detailed below.

January 1, 2018
As Reported 606 Adjustments Adjusted Balances
Assets:
Costs and estimated earnings in excess of billings $ 104,852
$ (9,194 ) $ 95,658

Prepaid expenses and other current assets 14,037
4,343
18,380

Deferred income taxes, net —
1,003
1,003

Liabilities:
Accrued expenses and other current liabilities

23,260
1,190
24,450

Deferred income taxes, net 584
(584 ) —

Shareholders' Equity:
Retained earnings 235,844
(4,454 ) 231,390

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~In accordance with Topic 606, the disclosure of the impact of adoption to the Company’s condensed consolidated statements of income (loss) and balance sheets was as follows:~~

Impact of changes in accounting policies
Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
As Reported Balances without adoption of Topic 606 Effect of Change Higher/(Lower) As Reported Balances without adoption of Topic 606 Effect of Change Higher/(Lower)
Revenues $ 205,375
$ 206,048
$ (673 ) $ 569,767
$ 568,985
$ 782
Cost of revenues 159,213
157,476
1,737
445,356
441,973
3,383
Gross profit 46,162
48,572
(2,410 ) 124,411
127,012
(2,601 )
Operating expenses:

Selling, general and administrative expenses 28,866
28,866
—
84,871
84,871
—
Operating income 17,296
19,706
(2,410 ) 39,540
42,141
(2,601 )
Other expenses, net 3,244
3,244
—
10,754
10,754
—
Income before provision for income taxes 14,052
16,462
(2,410 ) 28,786
31,387
(2,601 )
Income tax provision 3,351
3,493
(142 ) 1,879
2,040
(161 )
Net income 10,701
12,969
(2,268 ) 26,907
29,347
(2,440 )
Net income attributable to redeemable non-controlling interests —
—
—
(516 ) (516 ) —
Net income attributable to common shareholders $ 10,701
$ 12,969
$ (2,268 ) $ 26,391
$ 28,831
$ (2,440 )
Basic income per share $ 0.23
$ 0.28
$ (0.05 ) $ 0.58
$ 0.63
$ (0.05 )
Diluted income per share $ 0.23
$ 0.28
$ (0.05 ) $ 0.57
$ 0.62
$ (0.05 )

September 30, 2018
As Reported Balances without adoption of Topic 606 Effect of Change Higher/(Lower)
Assets:
Costs and estimated earnings in excess of billings $ 66,471
$ 74,886
$ (8,415 )
Prepaid expenses and other current assets 13,123
12,196
927
Liabilities:
Accrued expenses and other current liabilities

28,067
26,910
1,157
Deferred income taxes, net 3,453
5,202
(1,749 )
Shareholders' Equity:
Retained earnings 258,213
265,110
(6,897 )

The impact in revenue recognition due to the adoption of Topic 606 is primarily from the timing of revenue recognition for uninstalled materials, amortization of contract acquisition costs over the contract term, and timing of revenue recognition from renewable energy credits. See Note 2 for a summary of the Company’s significant policies for revenue recognition.

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table provides information about disaggregated revenue by line of business, reportable segments, and geographical region for the three and nine months ended September 30, 2019 and 2018.


	US Regions		U.S. Federal		Canada		Non-Solar DG		All Other		Total		US Regions		U.S. Federal		Canada		Non-Solar DG		All Other		Total
Line of Business
Three Months Ended September 30, 2018
Three Months Ended September 30, 2019													Three Months Ended September 30, 2019
Project revenue	$	77,345	$	49,762	$	9,206	$	1,268	$	4,074	$	141,655	$	72,667	$	58,199	$	9,380	$	3,059	$	2,592	$	145,897
O&M revenue	4,432		10,733		15		2,006		—		17,186		4,280		11,123		—		2,330		88		17,821
Energy assets	4,064		1,507		921		18,790		222		25,504		6,699		1,339		1,327		16,421		—		25,786
Other	561		376		1,462		74		18,557		21,030		433		597		1,958		65		19,469		22,522
Total revenues	$	86,402	$	62,378	$	11,604	$	22,138	$	22,853	$	205,375	$	84,079	$	71,258	$	12,665	$	21,875	$	22,149	$	212,026
Nine months ended September 30, 2018
Three months ended September 30, 2018													Three months ended September 30, 2018
Project revenue	$	223,662	$	135,037	$	21,459	$	3,368	$	8,844	$	392,370	$	77,345	$	49,762	$	9,206	$	1,268	$	4,074	$	141,655
O&M revenue	12,396		29,477		34		6,260		—		48,167		4,432		10,733		15		2,006		—		17,186
Energy assets	12,844		3,416		2,304		50,405		821		69,790		4,064		1,507		921		18,790		222		25,504
Other	969		447		4,669		143		53,212		59,440		561		376		1,462		74		18,557		21,030
Total revenues	$	249,871	$	168,377	$	28,466	$	60,176	$	62,877	$	569,767	$	86,402	$	62,378	$	11,604	$	22,138	$	22,853	$	205,375

Geographical Regions
Three Months Ended September 30, 2018
United States	$	86,402	$	62,378	$	419	$	22,138	$	17,445	$	188,782
Canada	—		—		11,185		—		33		11,218
Nine Months Ended September 30, 2019													Nine Months Ended September 30, 2019
Project revenue													$	196,284	$	134,954	$	20,112	$	6,318	$	8,818	$	366,486
O&M revenue													11,580		30,370		5		6,771		109		48,835
Energy assets													18,063		2,958		2,585		52,612		582		76,800
Other	—		—		—		—		5,375		5,375		1,969		1,055		4,994		669		59,513		68,200
Total revenues	$	86,402	$	62,378	$	11,604	$	22,138	$	22,853	$	205,375	$	227,896	$	169,337	$	27,696	$	66,370	$	69,022	$	560,321
Nine months ended September 30, 2018
United States	$	249,871	$	168,377	$	1,587	$	60,176	$	51,336	$	531,347
Canada	—		—		26,879		—		261		27,140
Nine Months Ended September 30, 2018													Nine Months Ended September 30, 2018
Project revenue													$	223,662	$	135,037	$	21,459	$	3,368	$	8,844	$	392,370
O&M revenue													12,396		29,477		34		6,260		—		48,167
Energy assets													12,844		3,416		2,304		50,405		821		69,790
Other	—		—		—		—		11,280		11,280		969		447		4,669		143		53,212		59,440
Total revenues	$	249,871	$	168,377	$	28,466	$	60,176	$	62,877	$	569,767	$	249,871	$	168,377	$	28,466	$	60,176	$	62,877	$	569,767

AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)



	US Regions		U.S. Federal		Canada		Non-Solar DG		All Other		Total
Geographical Regions
Three Months Ended September 30, 2019
United States	$	84,079	$	71,258	$	1,023	$	21,875	$	17,936	$	196,171
Canada	—		—		11,642		—		50		11,692
Other	—		—		—		—		4,163		4,163
Total revenues	$	84,079	$	71,258	$	12,665	$	21,875	$	22,149	$	212,026
Three Months Ended September 30, 2018
United States	$	86,402	$	62,378	$	419	$	22,138	$	17,445	$	188,782
Canada	—		—		11,185		—		33		11,218
Other	—		—		—		—		5,375		5,375
Total revenues	$	86,402	$	62,378	$	11,604	$	22,138	$	22,853	$	205,375
Nine Months Ended September 30, 2019
United States	$	227,896	$	169,337	$	2,281	$	66,370	$	56,052	$	521,936
Canada	—		—		25,415		—		157		25,572
Other	—		—		—		—		12,813		12,813
Total revenues	$	227,896	$	169,337	$	27,696	$	66,370	$	69,022	$	560,321
Nine Months Ended September 30, 2018
United States	$	249,871	$	168,377	$	1,587	$	60,176	$	51,336	$	531,347
Canada	—		—		26,879		—		261		27,140
Other	—		—		—		—		11,280		11,280
Total revenues	$	249,871	$	168,377	$	28,466	$	60,176	$	62,877	$	569,767

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:



	September 30, 2019		December 31, 2018
Accounts receivable, net	$	91,755	$	85,985
Accounts receivable retainage, net	16,652		13,516
Contract Assets:
Costs and estimated earnings in excess of billings	124,652		86,842
Contract Liabilities:
Billings in excess of cost and estimated earnings	28,768		30,706



	September 30, 2018		January 1, 2018
Accounts receivable, net	$	90,378	$	85,121
Accounts receivable retainage, net	14,401		17,484
Contract Assets:
Costs and estimated earnings in excess of billings	66,471		95,658
Contract Liabilities:
Billings in excess of cost and estimated earnings	39,533		27,248

January 1, 2018 September 30, 2018
Accounts receivable, net $ 85,121
$ 90,378

Accounts receivable retainage, net 17,484
14,401

Contract Assets:
Costs and estimated earnings in excess of billings 95,658
66,471

Contract Liabilities:
Billings in excess of cost and estimated earnings 27,248
39,533

AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

Company classifies as a current asset those retainages that are expected to be billed in the next twelve months. Unbilled revenue, presented as costs and estimated earnings in excess of billings, represent amounts earned and billable that were not invoiced at the end of the fiscal period.

Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. The Company’s rights to consideration are generally unconditional at the time its performance obligations are satisfied.

At the inception of a contract, the Company expects the period between when it satisfies its performance obligations, and when the customer pays for the services, will be one year or less. As such, the Company has elected to apply the practical expedient which allows the Company to not adjust the promised amount of consideration for the effects of a significant financing component, when a financing component is present.

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from billings in excess of costs incurred and ~~advance~~advanced payments received on project contracts. As of September 30, 2019 and December 31, 2018, the Company classified ~~$7,017~~$5,534 and $6,343, respectively, as a non-current liability, included in other liabilities on the condensed consolidated balance sheets, for those performance obligations expected to be completed beyond the next twelve months.

The increase in contract assets for the nine months ended September 30, 2019 was primarily due to revenue recognized of approximately $351,180, offset in part by billings of approximately $321,344. The increase in contract liabilities was primarily driven by recognition of revenue as performance obligations were satisfied exceeding increases from the receipt of advance payments from customers, and related billings. For the nine months ended September 30, 2019, the Company recognized revenue of $58,594 that was previously included in the beginning balance of contract liabilities, and billed customers $53,652. Changes in contract liabilities are also driven by reclassifications to or from contract assets as a result of timing of customer payments.

The decrease in contract assets for the nine months ended September 30, 2018 was primarily due to billings of approximately $398,917, offset in part by revenue recognized of $344,768. The ~~change~~decrease in contract liabilities was primarily driven by reductions from recognition of revenue as performance obligations were satisfied exceeding the receipt of advance payments from customers, and related ~~billings, exceeding reductions from recognition of revenue as performance obligations were satisfied.~~billings. For the nine months ended September 30, 2018, the Company recognized revenue of $116,892 ~~and billed customers $119,961,~~ that was previously included in the beginning balance of contract ~~liabilities.~~liabilities, and billed customers $119,961. Changes in contract liabilities are also driven by reclassifications to or from contract assets as a result of timing of customer payments.

Contracts are often modified for a change in scope or other requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from the existing performance obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase or decrease) on a cumulative catchup basis.

The Company elected to utilize the modified retrospective transition practical expedient which allows the Company to evaluate the impact of contract modifications as of the adoption date rather than evaluating the impact of the modifications at the time they occurred prior to the adoption date.

Performance ~~obligations~~Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the ~~customer, and is the unit of account in ASC Topic 606.~~customer. Performance obligations are satisfied as of a point in time or over time and are supported by contracts with customers. For most of the Company’s contracts, there are multiple promises of goods or services. Typically, the Company provides a significant service of integrating a complex set of tasks and components such as design, engineering, construction management, and equipment procurement for a project contract. The bundle of goods and services are provided to deliver one output for which the customer has contracted. In these cases, the Company considers the bundle of goods and services to be a single performance obligation. The Company may also promise to provide distinct goods or services within a contract, such as a project contract for installation of energy conservation measures and post-installation O&M services. In these cases the Company separates the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation.

AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

Backlog - The Company’s remaining performance obligations (hereafter referred to as “backlog”) represent the unrecognized revenue value of the Company’s contract commitments. The Company’s backlog may vary significantly each reporting period based on the timing of major new contract commitments and the backlog may fluctuate with currency movements. In addition, our customers have the right, under some circumstances, to terminate contracts or defer the timing of the Company’s services and their payments to us. At September 30, ~~2018,~~2019, the Company had backlog of

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

approximately ~~$1,757,000.~~$1,696,200. Approximately ~~26%,~~29% of our September 30, ~~2018~~2019 backlog is anticipated to be recognized as revenue in the next twelve months and the remaining, thereafter.

The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed.

Contract ~~acquisition costs:~~Acquisition Costs

~~In connection with the adoption of Topic 606, the~~The Company ~~is required to account~~accounts for certain acquisition ~~cost~~costs over the life of the contract, consisting primarily of commissions when paid. Commission costs are incurred commencing at contract signing. Commission costs are allocated across all performance obligations and deferred and amortized over the contract term ~~on a progress towards~~of each performance obligations’ completion ~~basis.~~period.

~~As of January 1, 2018, the Company capitalized $927 in commission costs related to contracts that were not completed.~~ For contracts that have a duration of less than one year, the Company follows a practical expedient and expenses these costs when incurred. During the three and nine months ended September 30, 2019 and 2018, the amortization of commission costs related to contracts ~~were~~was not material and ~~have~~has been included in the accompanying condensed consolidated statements of income.

The Company capitalizes costs incurred related to the development of projects prior to contract signing as it is partial fulfillment of its performance obligations. Capitalized project development costs include only those costs incurred in connection with the development of energy projects, primarily direct labor, interest costs, outside contractor services, consulting fees, legal fees and travel, if incurred after a point in time where the realization of related revenue becomes probable. Project development costs incurred prior to the probable realization of revenue are expensed as incurred. The Company classifies as a current asset those project development efforts that are expected to proceed to construction activity in the twelve months that follow. The Company periodically reviews these balances and writes off any amounts where the realization of the related revenue is no longer probable. Project development costs of $1,673 and $639 were included in other long-term assets as of September 30, 2019 and December 31, 2018, respectively.

During the three months ended September 30, 2019 and 2018, $2,048 and $7,561, respectively, of project development costs were recognized in the condensed consolidated statements of income ~~(loss). Additionally, no~~on projects that converted to customer contracts. During the nine months ended September 30, 2019 and 2018, $13,081 and $13,571, respectively, of project development costs were recognized in the condensed consolidated statements of income on projects that converted to customer contracts.

No impairment charges in connection with the Company’s commission costs or project development costs were recorded during the ~~period~~periods ended September 30, ~~2018.~~

~~The Company analyzed the impact of adoption of Topic 606 on the Company’s project development costs~~2019 and ~~determined no change in the Company’s accounting policy was required~~. In the three and nine months ended September 30, 2018, $7,561 and $13,571, respectively, of project development costs were recognized in the consolidated statement of income (loss) on projects that converted to customer contracts.

2018.

4. BUSINESS ACQUISITIONS AND RELATED TRANSACTIONS

The Company accounts for acquisitions using the acquisition method in accordance with ASC 805, Business Combinations. The purchase price for each has been allocated to the net assets based on their estimated fair values at the date of each acquisition as set forth in the table below. The excess purchase price over the estimated fair value of the net assets, which are calculated using level 3 inputs per the fair value hierarchy as defined in Note 8,10, acquired has been recorded as goodwill. Intangible assets, if identified, have been recorded and are being amortized over periods ranging from one to fifteen years. See Note 5 for additional information.

Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. Certain amounts below are provisional based on our best estimates using information available as of the reporting date. The Company is waiting for information to become available to finalize its valuation of certain elements of ~~this transaction.~~these transactions. Specifically, the assigned values for energy assets, intangibles, and goodwill are provisional in nature and subject to change upon the completion of the final valuation of such elements.

In January 2017, the Company acquired two solar PV projects currently under construction as well as associated construction loan agreements with a bank for use in providing non-recourse financing for these acquired solar PV projects currently under construction. The Company paid $2,409 to acquire the assets under construction, and assumed $5,635 of associated non-recourse financing. The pro-forma effects of this acquisition on our operations are not material.

During the nine months ended September 30, 2018, in order to expand its portfolio of energy assets, the Company acquired five solar projects from two developers for total consideration of $63,119, which included contingent consideration of $4,022 that will be paid upon final completion of the respective projects between the end of 2018 and throughout 2019. None of the contingent consideration has been paid to date. For all these projects, as of September 30, 2018, the Company has paid $59,097 to the developers of the projects. The Company also entered into a definitive agreement to acquire another solar project from one of the same developers. The total consideration for this solar project is $3,019. As of September 30, 2018, the Company has paid $916 to the developer of this project.

~~During the nine months ended September 30, 2018,~~2019, the Company completed an acquisition of ~~certain assets of Washington, DC~~a Massachusetts based ~~mechanical, electrical, plumbing,~~solar operations and fire protection design company, JVP Engineers, P.C. The consideration consisted of $2,326, of which, $1,901 has been paid to date. The remaining balance is attributed to a contingent consideration holdback contingent on the collection of certain receivables and will be be paid fifteen months from the completion of the

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

~~acquisition. No debt was assumed or cash acquired in the transaction. The pro-forma effects of this acquisition on our operations are not material.~~

~~During the nine months ended September 30, 2018, the Company completed an acquisition of certain assets of the Hawaii-based building science and design engineering consulting~~maintenance firm ~~Chelsea Group Limited. The consideration consisted of $1,691 of cash and potential contingent~~for consideration of ~~up to $2,000 based upon meeting certain future revenue targets over the next five years.~~$1,279. The final purchase price is subject to a net working capital adjustment, dependent on the level of working capital at the acquisition date, that has not yet been finalized ~~yet. The fair value of the contingent consideration was $555 as of the date of acquisition. No debt was assumed or cash acquired in the transaction.~~at September 30, 2019. The pro-forma effects of this acquisition on

AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

our operations are not material. During the nine months ended September 30, 2019, the Company had a measurement period adjustment of $91, which was recorded as a reduction to goodwill in connection with this acquisition.

A summary of the cumulative consideration paid and the allocation of the purchase price of all of the acquisitions in each respective ~~year~~period is as follows:


	2018			2017		September 30, 2019			December 31, 2018
Accounts receivable	$	793		$	—	$	150		$	1,015
Prepaid expenses and other current assets	11			256		2			12
Property and equipment and energy assets	63,119			7,788		315			—
Intangibles	680			—		500			680
Goodwill	3,042			—		315			2,845
Accounts payable	(42		)	—		(32		)	(67		)
Billings in excess of cost and estimated earnings						(62		)	—
Purchase price	$	67,687		$	8,044	$	1,188		$	4,485
Total, net of cash received	$	67,687		$	8,044	$	1,188		$	4,485
Debt assumed	$	—		$	5,635	$	—		$	—
Total fair value of consideration	$	67,687		$	2,409	$	1,188		$	4,485

The results of the acquired assets since the dates of the acquisitions have been included in the Company’s operations as presented in the accompanying condensed consolidated statements of income, ~~(loss),~~condensed consolidated statements of comprehensive income ~~(loss)~~ and condensed consolidated statements of cash flows.

During the nine months ended September 30, 2019, the Company had an additional measurement period adjustment of $628 related to a 2018 acquisition which was recorded as a reduction to goodwill and included a $398 reduction in the hold back contingency discussed further in Notes 5 and 9.

During the nine months ended September 30, 2019, in order to expand its portfolio of energy assets, the Company acquired 4 solar projects from a developer. The Company has concluded that in accordance with ASC 805, Business Combinations, these acquisitions did not constitute a business as the assets acquired in each case are considered a single asset or group of similar assets that made up substantially all of the fair market value of the acquisitions. See Note 6 for additional disclosures on these asset acquisitions.

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill attributable to each reportable segment are as follows:

U.S. Regions U.S. Federal Canada Non-solar DG Other Total
Balance, December 31, 2017 $ 24,759
$ 3,375
$ 3,494
$ —
$ 24,507
$ 56,135
Goodwill acquired during the year 1,611
1,431
—
—
—
3,042
Currency effects —
—
(96 ) —
(228 ) (324 )
Balance, September 30, 2018 $ 26,370
$ 4,806
$ 3,398
$ —
$ 24,279
$ 58,853
Accumulated Goodwill Impairment Balance, December 31, 2017 $ —
$ —
$ (1,016 ) $ —
$ —
$ (1,016 )
Accumulated Goodwill Impairment Balance, September 30, 2018 $ —
$ —
$ (1,016 ) $ —
$ —
$ (1,016 )



	U.S. Regions			U.S. Federal			Canada			Non-solar DG		Other			Total
Balance, December 31, 2018	$	26,370		$	4,609		$	3,217		$	—	$	24,136		$	58,332
Goodwill acquired during the year	406			—			—			—		—			406
Re-measurement adjustment	(91		)	(628		)	—			—		—			(719		)
Currency effects	—			—			95			—		(215		)	(120		)
Balance, September 30, 2019	$	26,685		$	3,981		$	3,312		$	—	$	23,921		$	57,899
Accumulated Goodwill Impairment
Balance, December 31, 2018	$	—		$	—		$	(1,016	)	$	—	$	—		$	(1,016	)
Balance, September 30, 2019	$	—		$	—		$	(1,016	)	$	—	$	—		$	(1,016	)

The Company completed ~~two acquisitions~~one acquisition during the nine months ended September 30, ~~2018,~~2019, which resulted in a ~~$3,042~~$315 net increase in ~~goodwill.~~goodwill as disclosed in Note 4. During the nine months ended September 30, 2019, the Company recorded measurement period adjustments which resulted in a reduction of goodwill of $719. See Note 4 for further discussion surrounding the measurement period adjustments.

Since the Company’s annual goodwill impairment test there have been no events that would have triggered a need for an interim impairment test.

Separable intangible assets that are not deemed to have indefinite lives are amortized over their useful lives. The Company annually assesses whether a change in the life over which the Company’s assets are amortized is necessary, or more frequently if events or circumstances warrant.

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

Acquired intangible assets other than goodwill that are subject to amortization include customer contracts, customer relationships, non-compete agreements, technology and trade names. Customer contracts are amortized ratably over the period of the acquired customer contracts ranging in periods from approximately one to five years. All other acquired intangible assets are amortized over periods ranging from approximately four to fifteen years, as ~~defined~~determined by the nature of the respective intangible asset. ~~The~~As discussed in Note 4, the Company completed an acquisition ~~during the nine months ended September 30, 2018~~in January 2019 which resulted in a $500 increase in customer relationships, which will be amortized over an ~~eight year period. The Company completed another acquisition during the nine months ended September 30, 2018 which resulted in a $180 increase in customer contracts, which will be amortized over a two~~8 year period.

The gross carrying amount and accumulated amortization of intangible assets are as follows:


	As of September 30,		As of December 31,		As of September 30,		As of December 31,
	2018		2017		2019		2018
Gross Carrying Amount
Customer contracts	$	7,888	$	7,786	$	7,778	$	7,818
Customer relationships	12,195		11,863		12,438		12,082
Non-compete agreements	3,029		3,052		2,991		3,013
Technology	2,737		2,751		2,722		2,710
Trade names	544		546		543		541
	26,393		25,998		26,472		26,164
Accumulated Amortization
Customer contracts	7,708		7,786		7,695		7,668
Customer relationships	10,151		9,557		10,740		10,302
Non-compete agreements	3,028		3,048		2,991		3,013
Technology	2,665		2,642		2,707		2,651
Trade names	526		525		529		526
	24,078		23,558		24,662		24,160
Intangible assets, net	$	2,315	$	2,440	$	1,810	$	2,004

Amortization expense related to customer contracts is included in cost of revenues in the condensed consolidated statements of ~~income (loss).~~income. Amortization expense related to all other acquired intangible assets is included in selling, general and administrative expenses in the condensed consolidated statements of ~~income (loss).~~income. Amortization expense for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 related to customer contracts was $22 and $0, respectively. Amortization expense for the three months ended September 30, 2019 and ~~$8,~~2018 related to all other acquired intangible assets and was $202 and $269, respectively. Amortization expense for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 related to customer contracts was $0$67 and ~~$23, respectively. Amortization expense for the three months ended September 30, 2018 and 2017 related to all other acquired intangible assets was $269 and $358,~~$0, respectively. Amortization expense for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 related to all other acquired intangible assets and was ~~$771~~$614 and ~~$1,059,~~$771, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

6. ~~INCOME TAXES~~ENERGY ASSETS

~~The provision for income taxes was $3,351~~Energy assets consist of the following:



	September 30,			December 31,
	2019			2018
Energy assets	$	693,916		$	619,708
Less - accumulated depreciation and amortization	(186,157		)	(159,756		)
Energy assets, net	$	507,759		$	459,952

Included in energy assets are financing lease assets and ~~$3,881~~accumulated depreciation of financing lease assets. Financing lease assets consist of the following:



	September 30,			December 31,
	2019			2018
Financing lease assets	$	42,402		$	42,402
Less - accumulated depreciation and amortization	(5,736		)	(4,139		)
Financing lease assets, net	$	36,666		$	38,263

Depreciation and amortization expense on the above energy assets, net of deferred grant amortization, for the three months ended September 30, 2019 and 2018 was $8,843 and ~~2017,~~$6,753, respectively, and is included in cost of revenues in the accompanying condensed consolidated statements of income. Included in these depreciation and amortization expense totals are depreciation and amortization expense on financing lease assets of $533 and $499 for the three months ended September 30, 2019 and 2018, respectively. ~~The provision for income taxes was $1,879~~Depreciation and ~~$4,296~~amortization expense on the above energy assets, net of deferred grant amortization, for the nine months ended September 30, 2019 and 2018 was $26,338 and ~~2017,~~$19,699, respectively, and is included in cost of revenues in the accompanying condensed consolidated statements of income. Included in these depreciation and amortization expense totals are depreciation and amortization expense on financing lease assets of $1,597 and $1,538 for the nine months ended September 30, 2019 and 2018, respectively.

The ~~estimated 2018 effective tax rate~~Company capitalizes interest costs relating to construction financing during the period of construction. Capitalized interest is ~~23.8%~~included in energy assets, net in the Company’s condensed consolidated balance sheets. Capitalized interest is amortized to cost of revenues in the Company’s condensed consolidated statements of income on a straight line basis over the useful life of the associated energy asset. There was $632 and $638 of interest capitalized for the three months ended September 30, 2019 and 2018, ~~compared~~respectively. There was $2,210 and $2,376 of interest capitalized for the nine months ended September 30, 2019 and 2018, respectively.

As of September 30, 2019 and December 31, 2018, there are 3 ESPC asset projects which are included within energy assets, net on the Company’s condensed consolidated balance sheets. The Company controls and operates the assets as well as obtains financing during the construction period of the assets. As the Company has an obligation to the customer for performance of the asset, the Company records a ~~30.6% estimated annual effective tax rate~~liability associated with these energy assets, although, the customer is responsible for payments to the lender based on the energy asset’s production. As of September 30, 2019 and December 31, 2018, the liabilities recognized in association with these assets were $10,233 and $8,224, respectively, of which $724 and $354, respectively, has been classified as the current portion and is included in accrued expenses and other current liabilities and the remainder is included in other liabilities in the accompanying condensed consolidated balance sheets.

During the nine months ended September 30, 2019, in order to expand its portfolio of energy assets, the Company acquired several energy projects, which did not constitute businesses under ASU 2017-01, Business Combinations. The Company acquired and closed on 4 solar projects from a developer for a total purchase price of $2,529. The purchase price included deferred consideration of $668 that will be paid upon final completion of the respective projects throughout 2019. As of September 30, 2019, the Company has paid $1,861 to the developers of the projects. The Company also has a definitive agreement to purchase an additional 3 solar projects from a developer for a total purchase price of $4,556, of which, the Company has paid $456 to the developers of the projects. As of September 30, 2019, the Company has remaining deferred purchase price consideration on previously closed projects of $4,122.

AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

As of September 30, 2019, the Company had $863 in ARO assets recorded in project assets, net of accumulated depreciation, and $930 in ARO liabilities recorded in accrued expenses and other current liabilities and other liabilities. During the three and nine months ended September 30, 2019, the Company recorded $12 and $34, respectively, of depreciation expense related to the ARO asset. During the three and nine months ended September 30, 2019, the Company recorded $10 and $32, respectively, in accretion expense to the ARO liability, which is reflected in the accretion of ARO and contingent consideration on the condensed consolidated statements of cash flows. The Company’s current ARO liabilities relate to the removal of equipment and pipelines at certain renewable gas projects and obligations related to the decommissioning of certain solar facilities.

7. INCOME TAXES

The Company recorded a provision for income taxes of $939 and $3,351, respectively, for the three months ended September 30, ~~2017.~~2019 and 2018. The Company recorded a provision for income taxes of $2,000 for the nine months ended September 30, 2019 and a provision for income taxes of $1,879 for the nine months ended September 30, 2018. The estimated ~~2018~~ effective annualized tax rate ~~was~~impacted by discrete items is 10.1% for the three months ended September 30, 2019 compared to a 23.8% estimated effective annualized tax rate impacted by the period discrete items for the three months ended September 30, 2018. The estimated effective annualized tax rate impacted by period discrete items is 9.2% for the nine months ended September 30, 2019 compared to 6.5% for the nine months ended September 30, ~~2018 compared to a 24.8% estimated annual effective tax rate for the nine months ended September 30, 2017.~~2018.

The principal reason for the difference between the statutory rate and the estimated annual effective rate for 2019 were the effects of investment tax credits to which the Company is entitled from solar plants which have been placed into service or are forecasted to be placed into service during 2019. The principle reasons for the difference between the statutory rate and the estimated annual effective tax rate for 2018 were the effects of a $5,900 benefit of the 2017 Section 179D deduction, which was extended in February 2018 and ~~treated~~was included as a ~~discrete event~~tax deduction in ~~the year to date period,~~2018, and the use of investment tax credits to which the Company is entitled from owned plants. The principal reason for the difference between the statutory rate and the estimated annual effective rate for 2017 were the effects of investment tax credits to which the Company is entitled from owned plants.

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

The investment tax credits and production tax credits to which the Company may be entitled fluctuate from year to year based on the cost of the renewable energy plants the Company places or expects to place in service and production levels at company owned facilities in that year. As part of the Bipartisan Budget Act signed into law on February 9, 2018 the Section 179D deduction for 2017 was retroactively extended. The Section 179D deduction ~~expired on December 31,~~has not been re-approved for tax years beginning after 2017.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:


	Gross Unrecognized Tax Benefits		Gross Unrecognized Tax Benefits
Balance, December 31, 2017	$	600
Balance, December 31, 2018			$	1,600
Additions for prior year tax positions	—		—
Settlements with tax authorities	—		—
Reductions of prior year tax positions	—		—
Balance, September 30, 2018	$	600
Balance, September 30, 2019			$	1,600

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had approximately ~~$600~~$1,600 of total gross unrecognized tax benefits. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had approximately ~~$80~~$705 of total gross unrecognized tax benefits ~~(net~~(both net of the federal benefit on state amounts) representing the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%. The 2017 Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property.

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. The Company has ~~recognized the provisional tax impacts related to the revaluation of~~presented all deferred tax assets and liabilities as net liabilities and ~~included these amounts~~noncurrent on its condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

8. LEASES

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective approach. The Company elected the package of practical expedients available in ~~its consolidated financial statements~~the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has also elected the practical expedient to not separate lease components and non-lease components and will account for the ~~year~~leases as a single lease component for all classes of leases.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

As a result of the adoption of ASC 842, the Company recognized an increase in lease ROU assets of $31,639, current portions of operating lease ROU liabilities of $5,084 and an increase to long-term portions of operating lease liabilities of $28,480. There was no net impact to the condensed consolidated statements of income or retained earnings for the adoption of ASC 842. No impairment was recognized on the ROU asset upon adoption. These adjustments are detailed as follows:



	As of January 1, 2019
	As Reported		842 Adjustment		Adjusted Balances
Operating Leases:
Operating lease assets	$	—	$	31,639	$	31,639
Current portions of operating lease liabilities	—		5,084		5,084
Long-term portions of operating lease liabilities	—		28,480		28,480
Total operating lease liabilities	$	—	$	33,564	$	33,564
Weighted-average remaining lease term					10 years
Weighted-average discount rate					6.0		%

Financing Leases:
Energy assets, net	$	38,263	$	—	$	38,263
Current portions of financing lease liabilities	4,956		—		4,956
Long-term financing lease liabilities, less current portions and net of deferred financing fees	28,407		—		28,407
Total financing lease liabilities	$	33,363	$	—	$	33,363
Weighted-average remaining lease term					18 years
Weighted-average discount rate					11.7		%

The Company enters into a variety of operating lease agreements through the normal course of its business including certain administrative offices. The leases are long-term, non-concealable real estate lease agreements, expiring at various dates through fiscal 2025. The agreements generally provide for fixed minimum rental payments and the payment of utilities, real estate taxes, insurance and repairs. The Company also leases certain land parcels related to our energy projects, expiring at various dates through fiscal 2044. The office and land leases make up a significant portion of the Company’s operating lease activity. Many of these leases have one or more renewal options that allow the Company, at it’s discretion, to renew the lease for six months to seven years. Only renewal options that the Company believed were likely to be exercised were included in our lease calculations. Many land leases include minimum lease payments that increase when the related project becomes operational. In these cases, the commercial operation date was estimated by the Company and used to calculate the estimated minimum lease payments.

The Company also enters into leases for IT equipment and service agreements, automobiles, and other leases related to our construction projects such as equipment, mobile trailers and other temporary structures. The Company utilizes the portfolio approach for this class of lease. These leases are either short-term in nature or immaterial.

A portion of the Company’s real estate leases are generally subject to annual changes in the Consumer Price Index (“CPI”). The Company utilized each lease’s minimum lease payments to calculate the lease balances upon transition. The subsequent increases in rent based on changes in CPI were excluded and will be excluded for future leases from the calculation of the lease balances, but will be recorded to the condensed consolidated statement of income as part of our operating lease costs.

The Company has elected the practical expedient to not separate lease and non-lease components for existing leases for real estate and land leases. Going forward if a lease has non-lease components the Company will allocate consideration based on price information in the agreement or, if this information is not available, the Company will make a good faith estimate based on available pricing information at the time.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

The discount rate was calculated using an incremental borrowing rate based on financing rates on secured comparable notes with comparable terms and a synthetic credit rating calculated by a third party. The Company elected to apply the discount rate using the remaining lease term at the date of adoption.

The Company has a number of leases that are classified as financing leases, which relate to transactions that are considered sale-leasebacks under ASC 840. See the sale-leaseback section below for additional information on the Company’s financing leases.

Supplemental balance sheet information related to leases at September 30, 2019 is as follows:



	September 30, 2019
Operating Leases:
Operating lease assets	$	32,540
Current operating lease liabilities	5,935
Long-term portions of operating lease liabilities	28,799
Total operating lease liabilities	$	34,734
Weighted-average remaining lease term	10 years
Weighted-average discount rate	6.3		%

Financing Leases:
Energy assets, net	$	36,666
Current portions of financing lease liabilities	5,008
Long-term financing lease liabilities, less current portions and net of deferred financing fees	26,098
Total financing lease liability	$	31,106
Weighted-average remaining lease term	17 years
Weighted-average discount rate	11.8		%

The costs related to our leases are as follows:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating Lease:
Operating lease costs	$	1,913	$	5,660

Financing Lease:
Amortization expense	533		1,597
Interest on lease liabilities	854		2,750

Total lease costs	$	3,300	$	10,007

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

The Company’s estimated minimum future lease obligations under our leases are as follows:



	Operating Leases		Financing Leases
Year ended December 31,
2019	$	1,851	$	4,302
2020	7,523		7,881
2021	6,156		6,775
2022	5,600		5,173
2023	4,348		3,686
Thereafter	22,977		26,799
Total minimum lease payments	$	48,455	$	54,616
Less: interest	13,721		23,510
Present value of lease liabilities	$	34,734	$	31,106

The Company has determined that certain power purchase agreements (“PPAs”) contain a lease component in accordance with ASC 840, Leases. The Company recognized $2,243 and $6,737 of operating lease revenue under these agreements during the three and nine months ended ~~December 31, 2017. As~~September 30, 2019, respectively, which was reflected in revenues on the condensed consolidated statements of ~~December 31, 2017,~~income. PPAs signed after January 1, 2019 no longer meet the definition of a lease upon the adoption of ASC 842, Leases, and are instead accounted for in accordance with ASC 606, Revenues From Contracts With Customers.

Sale-Leaseback

For solar PV projects that the Company has ~~substantially completed~~determined not to be integral equipment, the Company then determines if the leaseback should be classified as a financing lease or an operating lease. All solar PV projects sold to date under the sale-leaseback program have been determined by the Company to be financing leases. For leasebacks classified as financing leases, the Company initially records a financing lease asset and financing lease obligation in its ~~accounting for~~condensed consolidated balance sheets equal to the ~~tax effects~~lower of the ~~2017 Tax Act. If revisions are needed as new information becomes available, the final determination of the deemed re-measurement~~present value of the Company’s ~~deferred assets and liabilities,~~future minimum leaseback payments or the ~~deemed mandatory repatriation or other applicable provisions~~fair value of the ~~Tax Legislation will be completed as additional information becomes available, but no later than one year~~solar PV project. For financing leasebacks, the Company defers any gain or loss, representing the excess or shortfall of cash received from the ~~enactment~~investor compared to the net book value of the ~~2017 Tax Act.~~asset in the Company’s condensed consolidated balance sheets at the time of the sale. The Company records the long term portion of any deferred gain or loss in other liabilities and other assets, respectively, and the current portion of any deferred gain and loss in accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, in its condensed consolidated balance sheets and amortizes the deferred amounts over the lease term in cost of revenues in its condensed consolidated statements of income. Net amortization expense in cost of revenues related to deferred gains and losses was $57 and $48 of net gains for the three months ended September 30, 2019 and 2018, respectively. Net amortization expense in cost of revenues related to deferred gains and losses was $172 and $153 for the nine months ended September 30, 2019 and2018, respectively.

During the third quarter of 2018, the Company 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 2019up to a maximum funding amount of $100.0 million. The Company amended this agreement to extend the term through November 2019. As of September 30, 2019, $90.2 million remained available under the lending commitment.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

A summary of amounts related to sale leasebacks in the Company’s condensed consolidated balance sheets is as follows:



	September 30,		December 31,
	2019		2018
Financing lease assets, net	$	36,666	$	38,263
Deferred loss, short-term, net	115		115
Deferred loss, long-term, net	1,830		1,917
Total deferred loss	$	1,945	$	2,032
Financing lease liabilities, short-term	5,008		4,956
Financing lease liabilities, long-term	26,098		28,407
Total financing lease liabilities	$	31,106	$	33,363
Deferred gain, short-term, net	345		345
Deferred gain, long-term, net	5,549		5,808
Total deferred gain	$	5,894	$	6,153

7.9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company ~~also~~ is involved in a variety of claims and other legal proceedings generally incidental to its normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any of these existing matters would have a material adverse effect on its financial condition or results of operations.

Commitments as a Result of Acquisitions

Related to the Company's acquisition of Energy Excel LLP (“EEX”)in the second quarter of 2014, the former owners of EEX, who are now employees of the Company, may be entitled to receive up to 4,500 GBP ($5,861 converted as of September 30, 2018) in additional consideration, accounted for as compensation for post-combination services, if the acquired business meets certain financial performance milestones through December 31, 2018. No amounts were accrued as of September 30, 2018 and December 31, 2017, respectively, as milestones are not considered likely to be achieved.

~~During the nine months ended September 30,~~In May 2018, the Company completed an acquisition which provided for a $425 cash consideration ~~holdback contingent~~hold back upon the Company collecting certain acquired ~~receivables. The contingent~~

~~Table~~receivables, which was subsequently reduced to $27. As of ~~Contents~~

~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

September 30, 2019. the consideration ~~will be paid fifteen months from the completion of the acquisition~~is currently due and is recorded in the accrued expenses and other current liabilities line on the condensed consolidated balance sheets.

~~During the nine months ended September 30,~~In August 2018, the Company completed an acquisition which provided for a revenue earn-out contingent upon the acquired business meeting certain cumulative revenue targets over five years from the ~~next five years.~~acquisition date. The Company evaluated financial forecasts of the acquired business and concluded that the fair value of this earn-out iswas approximately $555, which was subsequently increased to $650 as of September 30, 2019 and is recorded in the other liabilities on the condensed consolidated balance sheets. The contingent consideration will be paid yearly, commencing in 2020, if any of the cumulative revenue targets are ~~achieved and the~~achieved. The fair value of the earn-out will be periodically re-evaluated and adjustments will be recorded as needed. See Note 10 for additional information.

~~During the nine months ended September 30,~~In November 2018, the Company completed ~~the~~an acquisition of ~~five solar projects~~certain lease options, which provided for an earn-out if the lease option is exercised and if certain financial metrics are achieved. The Company evaluated the acquired lease options and concluded that ~~included~~the fair-value of this contingent ~~consideration of $4,022 that~~liability was approximately $363, which was subsequently increased to $378 at September 30, 2019 and is recorded in accrued expenses and other current liabilities and other liabilities on the condensed consolidated balance sheets. Payments will be ~~paid upon final completion of the respective projects between the end of 2018~~made when milestones are achieved. The contingent liability will be periodically re-evaluated and ~~throughout 2019.~~

adjustments will be recorded as needed. See Note 10 for additional information.

8.10. FAIR VALUE MEASUREMENT

The Company recognizes its financial assets and liabilities at fair value on a recurring basis (at least annually). Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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(in thousands, except per share amounts)

Three levels of inputs that may be used to measure fair value are as follows:

Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following table presents the input level used to determine the fair values of the Company’s financial instruments measured at fair value on a recurring basis:


		Fair Value as of					Fair Value as of
		September 30,		December 31,			September 30,		December 31,
	Level	2018		2017		Level	2019		2018
Assets:
Interest rate swap instruments	2	$	1,494	$	233	2	$	41	$	733
Commodity swap instruments	2	34		—		2	167		33
Total assets		$	1,528	$	233		$	208	$	766
Liabilities:
Interest rate swap instruments	2	$	1,548	$	3,529	2	$	7,600	$	3,187
Commodity swap instruments	2	46		—		2	—		70
Interest make-whole provisions	2	1,488		—		2	873		1,808
Contingent revenue earn-out	3	555		—		3	1,028		962
Total liabilities		$	3,637	$	3,529		$	9,501	$	6,027

The fair value of the Company’s interest rate swaps was determined using a cash flow analysis on the expected cash flow of the contract in combination with observable market-based inputs, including interest rate curves and implied volatilities. As part of this valuation, the Company considered the credit ratings of the counterparties to the interest rate swaps to determine if a credit risk adjustment was required.

The fair value of the Company’s commodity swaps was determined using a cash flow analysis on the expected cash flow of the contract in combination with observable forward price inputs obtained from a third-party pricing source. As part of this

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

valuation, the Company considered the credit ratings of the counterparties to the commodity swaps to determine if a credit risk adjustment was required.

The fair value of the Company’s make-whole provisions were determined by comparing them against the rates of similar debt instruments under similar terms without a make-whole provision obtained from various highly rated third-party pricing sources.

The fair value of the Company’s contingent ~~revenue earn-out was~~consideration liabilities were determined by evaluating the acquired ~~company’s~~asset’s future financial forecasts and evaluating which, if any, of the cumulative revenue targets, financial metrics and/or milestones are likely to be met. The Company has classified contingent consideration related to certain acquisitions within ~~Level~~level 3 of the fair value hierarchy because the fair value is derived using significant unobservable inputs, which include discount rates and probability-weighted cash flows. The Company determined the fair value of its contingent consideration obligations based on a probability-weighted income approach derived from financial performance estimates and probability assessments of the attainment of certain targets. The Company establishes discount rates to be utilized in its valuation models based on the cost to borrow that would be required by a market participant for similar instruments. In determining the probability of attaining certain technical, financial and operation targets, the Company utilizes data regarding similar milestone events from ~~our own~~the Company’s experience, while considering the inherent difficulties and uncertainties in developing a product. On a quarterly basis, the Company reassesses the probability factors associated with the financial, operational and technical targets for its contingent consideration obligations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

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(in thousands, except per share amounts)

The key assumptions as of September 30, ~~2018~~2019, related to the contingent consideration from the August 2018 acquisition of certain assets, used in the model ~~include:~~include a discount rate of 18% for purposes of discounting the low and base case scenarios associated with achievement of the financial based earn-out. The probabilities assigned to these scenarios were 50% for both the low and base case scenarios. An increase or decrease in the probability of achievement of any scenario could result in a significant increase or decrease to the estimated fair value of the contingent consideration liability.

The key assumptions as of September 30, 2019, related to the contingent consideration from the November 2018 acquisition of certain lease options, used in the model include a discount rate of 18% for purposes of discounting the low, base and high case scenarios associated with achievement of the financial based earn-out. The probabilities assigned to these scenarios were 20% for the low case, 75% for the base case and 5% for the high case. An increase or decrease in the probability of achievement of any scenario could result in a significant increase or decrease to the estimated fair value of the contingent consideration liability.

The following table sets forth a summary of changes in fair value of contingent liabilities classified as Level 3 for the nine months ended September 30, 2019:



	Nine Months Ended
	September 30, 2019
Contingent consideration liabilities balance at December 31, 2018	$	962
Changes in the fair value of contingent consideration obligation	$	66
Contingent consideration liabilities balance at September 30, 2019	$	1,028

The fair value of financial instruments is determined by reference to observable market data and other valuation techniques, as appropriate. The only category of financial instruments where the difference between fair value and recorded book value is notable is long-term debt. At September 30, ~~2018~~2019 and December 31, ~~2017~~2018 the fair value of the Company’s long-term debt was estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two or level three financial instruments for the nine months ended September 30, ~~2018~~2019 and the year ended December 31, ~~2017.~~ 2018.

Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt, excluding ~~capital~~financing leases, are as follows:

As of September 30, 2018 As of December 31, 2017
Fair Value Carrying Value Fair Value Carrying Value
Long-term debt value (Level 2) $ 213,632
$ 213,877
$ 160,108
$ 160,598



	As of September 30, 2019				As of December 31, 2018
	Fair Value		Carrying Value		Fair Value		Carrying Value
Long-term debt (Level 2)	$	249,404	$	247,618	$	211,823	$	212,687

The Company is also required periodically to measure certain other assets at fair value on a nonrecurring basis, including long-lived assets, goodwill and other intangible ~~assets, among other items.~~assets. There were no assets recorded at fair value on a non-recurring basis at September 30, ~~2018~~2019 or December 31, ~~2017.~~2018.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

9.11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the following table presents information about the fair value amounts of the Company’s derivative instruments isare as follows:



	Derivatives as of
	September 30, 2019			December 31, 2018
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts	Other assets	$	41	Other assets	$	703
Interest rate swap contracts	Other liabilities	7,565		Other liabilities	3,187
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts	Other assets	$	—	Other assets	$	30
Interest rate swap contracts	Other liabilities	35		Other liabilities	—
Commodity swap contracts	Other assets	167		Other assets	33
Commodity swap contracts	Other liabilities	—		Other liabilities	70
Interest make-whole provisions	Other liabilities	873		Other liabilities	1,808

As of September 30, 2019 and December 31, 2018 all but three and four, respectively, of the Company’s freestanding derivatives were designated as hedging instruments.

The following tables present information about the effects of the Company’s derivative instruments on the condensed consolidated statements of income and condensed consolidated statements of comprehensive income:



	Location of (Gain) Loss Recognized in Net Income	Amount of (Gain) Loss Recognized in Net Income
		Three Months Ended September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts	Other expenses, net	$	44		$	(41	)	$	(6	)	$	(166	)
Derivatives not Designated as Hedging Instruments:
Interest rate swap contracts	Other expenses, net	$	(3	)	$	(271	)	$	66		$	(344	)
Commodity swap contracts	Other expenses, net	$	(31	)	$	(33	)	$	(203	)	$	12
Interest make-whole provision	Other expenses, net	$	(150	)	$	16		$	(935	)	$	16



	Nine Months Ended
	September 30, 2019
Derivatives Designated as Hedging Instruments:
Accumulated loss in AOCI at the beginning of the period	$	(1,824	)
Cumulative impact from the adoption of ASU No. 2018-02	(217		)
Unrealized loss recognized in AOCI	(3,714		)
Gain reclassified from AOCI to other expenses, net	7
Accumulated loss in AOCI at the end of the period	$	(5,748	)

3125

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(in thousands, except per share amounts)

Derivatives as of
September 30, 2018 December 31, 2017
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts Other assets $ 1,428
Other assets $ 233
Interest rate swap contracts Other liabilities $ 1,548
Other liabilities $ 3,529
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts Other assets $ 66
Other assets $ —
Interest rate swap contracts Other liabilities $ —
Other liabilities $ —
Commodity swap contracts Other assets $ 34
Other assets $ —
Commodity swap contracts Other liabilities $ 46
Other liabilities $ —
Interest make-whole provisions Other liabilities $ 1,488
Other liabilities $ —

~~All but four~~In the third quarter of 2018, the ~~Company’s freestanding derivatives were~~Company adopted ASU 2017-12, which resulted in an increase to retained earnings of $432 and accumulated other comprehensive loss of $486 to remove the cumulative effect of hedging ineffectiveness previously recognized in earnings, as of July 1, 2018, for contracts designated as hedging instruments asthat were outstanding at the beginning of the third quarter 2018. Upon adoption of the ASU, the impact to reclassify the ineffectiveness of the Company’s hedge instruments in connection with prior periods was recorded. Accordingly, the Company’s condensed consolidated statement of changes in redeemable non-controlling interests and stockholders’ equity for the nine months ended September 30, 2018 ~~and all but one~~reflect the adoption of ~~the Company’s derivatives were designated as hedging instruments as of December 31, 2017.~~ASU 2017-12.

The following ~~tables present information about the effects of the Company’s derivative instruments on the consolidated statements of income (loss) and consolidated statements of comprehensive income (loss):~~

Location of (Gain) Loss Recognized in Net Income (Loss) Amount of (Gain) Loss Recognized in Net Income (Loss)
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts Other expenses, net $ (41 ) $ (28 ) $ (166 ) $ (206 )
Derivatives not Designated as Hedging Instruments:
Interest rate swap contracts Other expenses, net $ (271 ) $ —
$ (344 ) $ —
Commodity swap contracts Other expenses, net $ (33 ) $ —
$ 12
$ —
Interest make-whole provision Other expenses, net $ 16
$ —
$ 16
$ —

Nine Months Ended
September 30, 2018
Derivatives Designated as Hedging Instruments:
     Accumulated loss in AOCI at the beginning of the period $ (2,197 )
            Unrealized gain recognized in AOCI 2,300
            Gain reclassified from AOCI to other expenses, net (166 )
     Accumulated loss in AOCI at the end of the period $ (63 )

~~The followings~~ tables present a listing of all the Company’s active derivative instruments as of September 30, ~~2018:~~

2019:

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~



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 Interest Rate Swap Effective Date Expiration Date Initial Notional Amount ($) Status
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

Active Hybrid Instrument

Effective Date

Expiration Date

Fair Value ($)

Other Derivatives

Classification

Effective Date

Expiration Date

Fair Value ($)

Interest make-whole provisions

June/August 2018

December 2038

1,488

Liability

June/August 2018

December 2038

873

~~10.~~12. INVESTMENT FUNDS AND OTHER VARIABLE INTEREST ENTITIES

Investment Funds

In each of September 2015, June 2017, June 2018 and ~~June~~October 2018, the Company formed an investment fund with a different ~~third party~~third-party investor which granted the applicable investor ownership interests in the net assets of certain of the Company’s renewable energy project subsidiaries. The Company currently has ~~three~~four such investment funds each with a different ~~third party~~third-party investor.

During the third quarter of 2015, the Company formed an investment fund for the purpose of funding the purchase and operation of a solar energy system. During the second quarter of 2017, the Company formed an additional investment fund for the purpose of funding the purchase and operation of a solar energy system. During the second quarter of 2018, the Company formed an additional investment fund for the purpose of funding the purchase and operation of a solar energy systems. The Company consolidates the investment funds, and all inter-company balances and transactions between the Company and the investment funds are eliminated in its condensed consolidated financial statements. The Company determined that the investment funds meet the definition of a VIE.

The Company uses a qualitative approach in assessing the consolidation requirement for VIEs that focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance

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(in thousands, except per share amounts)

and whether the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The Company has considered the provisions within the contractual arrangements that grant it power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems and associated long term customer contracts to be sold or contributed to the VIEs, and installation, operation and maintenance of the solar energy systems. The Company considers that the rights granted to the other investors under the contractual arrangements are more protective in nature rather than participating rights. As such, the Company has determined it is the primary beneficiary of the

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

VIEs for all periods presented. The Company evaluates its relationships with VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.

Under the related agreements, cash distributions of income and other receipts by the funds, net of agreed-upon expenses and estimated expenses, tax benefits and detriments of income and loss, and tax benefits of tax credits, are assigned to the funds’ ~~investors~~investor and Company’s subsidiaries as specified in contractual arrangements. Certain of these arrangements have call and put options to acquire the ~~investors’~~investor’s equity interest as specified in the contractual agreements. See Note 13 for additional information on the call and put options.

A summary of amounts related to the investment funds in the Company’s condensed consolidated balance sheets is as follows:


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019⁽¹⁾		2018⁽¹⁾
Cash	$	3,515	$	444
Cash and cash equivalents					$	2,777	$	1,255
Restricted cash	1,690		1,553		156		156
Accounts receivable	554		328
Accounts receivable, net					695		374
Costs and estimated earnings in excess of billings	278		360		2,531		498
Prepaid expenses and other current assets	25		8		134		190
Total VIE current assets					6,293		2,473
Property and equipment, net					285		—
Energy assets, net	106,818		55,712		121,918		122,641
Operating lease assets					6,048		—
Other assets					1,669		1,613
Total VIE assets					$	136,213	$	126,727
Current portions of long-term debt and financing lease liabilities					$	2,270	$	1,712
Accounts payable	3,891		764		149		234
Accrued liabilities	29		74
Accrued expenses and other current liabilities					3,948		4,146
Current portions of operating lease liabilities					91		—
Total VIE current liabilities					6,458		6,092
Long-term debt and financing lease liabilities, less current portions and net of deferred financing fees					25,493		26,461
Deferred income taxes, net					460		—
Long-term portions of operating lease liabilities					6,264		—
Other liabilities	1,543		75		873		2,131
Long term debt, net deferred financing fees	28,055		—
Total VIE liabilities					$	39,548	$	34,684

⁽¹⁾The amounts in the above table are reflected in footnote 1 on the Company’s condensed consolidated balance sheets. See the Company’s condensed consolidated balance sheets for additional information.

Other Variable Interest Entities

The Company follows guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct the activities that most significantly impact the joint ventures

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(in thousands, except per share amounts)

economic performance, including powers granted to the joint ventures program manager, powers contained in the joint venture governing board and, to a certain extent, a company's economic interest in the joint venture. The Company analyzes its joint ventures and classifies them as either:

a VIE that must be consolidated because the Company is the primary beneficiary or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or

a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest.

The Company executes certain contracts jointly with third parties through various forms of joint ventures. Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by the Company and the Company’s joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures. Many of these joint ventures are formed for a specific project. The assets of the Company’s joint ventures generally consist almost entirely of cash and land, and the liabilities of our joint ventures generally consist almost entirely of amounts due to the joint venture partners. Many of the joint ventures are deemed to be VIEs because they lack sufficient equity to finance the activities of the joint venture.

In January 2019, the Company entered into a joint venture with one other party to co-own an entity whose purpose is owning and leasing a parcel of land and attached structures to third-party entities. The joint venture has no employees and is controlled by the board of directors made up of representatives from both companies. Prior to January 2019, the Company had determined it was the primary beneficiary of the VIE and fully consolidated the entity. Upon the formation of the joint venture, the Company determined it was no longer the primary beneficiary, based on the assessment of considerations referenced above, and deconsolidated the VIE and recorded the Company’s investment in the joint venture as an equity method investment. With the deconsolidation of the VIE and the recognition of the equity method investment the Company recognized a gain of $2,160 in operating income and recorded an equity method investment of $1,361 in other assets. In addition, the Company has loaned the joint venture $1,506 and made an initial contribution at its formation in exchange for 50% of the shares in the joint venture.

Unconsolidated joint ventures are accounted for under the equity method. For those joint ventures, the Company's investment balances for the joint venture are included in other assets on the condensed consolidated balance sheets and the Company’s pro rata share of net income or loss is included in operating income. The Company’s investments in equity method joint ventures on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 was a net asset of $1,290 and $0, respectively. During the three and nine months ended September 30, 2019, the Company recognized expense of $73 and $147, respectively, from equity method joint ventures.

~~11.~~13. NON-CONTROLLING INTERESTS AND EQUITY

Redeemable Non-controlling Interests

The Company’s wholly owned subsidiary with a membership interest in the investment fund formed in the third quarter of 2015 has the right, beginning on the fifth anniversary of the final funding of the variable rate construction and term loans due 2023 and extending for six months, to elect to require the non-controlling interest holder to sell all of its membership units to the Company’s wholly owned subsidiary, ~~a call option.~~(the “Call Option”). The Company’s investment fund, which was formed in the third quarter of 2015, also includes a right, beginning on the sixth anniversary of the final funding and extending for one year, for the non-controlling interest holder to elect to require the Company’s wholly owned subsidiary to purchase all of its membership interests in the fund, ~~a put option.~~(the “Put Option”).

The Company’s wholly owned subsidiary with a membership interest in the investment fund formed in the second quarter of 2017 has the right, beginning on the fifth anniversary of the final funding of the non-controlling interest holder and extending for six months, to elect to require the non-controlling interest holder to sell all of its membership units to the Company’s wholly owned subsidiary, a call option. The Company’s investment fund formed in the second quarter of 2017 also includes a right, beginning on the sixth anniversary of the final funding and extending for one year, for the non-controlling interest holder to elect to require the Company’s wholly owned subsidiary to purchase all of its membership interests in the fund, a put option.

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

The Company’s wholly owned subsidiary with a membership interest in the investment fund formed in the second quarter of 2018 has the right, beginning on the fifth anniversary of the investment fund’s final ~~funding of the non-controlling interest holder~~project being placed into service and extending for six months, to elect to require the non-controlling interest holder to sell all of its membership units to the Company’s wholly owned subsidiary, a call option. The Company’s investment fund formed in the second quarter of 2018 also includes a right, ~~beginning~~upon on the ~~sixth anniversary~~expiration of the ~~final funding~~call option and extending for ~~one year,~~six months, for the non-controlling interest holder to elect to require the Company’s wholly owned subsidiary to purchase all of its membership interests in the fund, a put option.

The Company’s wholly owned subsidiary with a membership interest in the investment fund formed in the fourth quarter of 2018 has the right, beginning on the fifth anniversary on the last projects placed in-service date and extending for six months, to elect to require the non-controlling interest holder to sell all of its membership units to the Company’s wholly owned subsidiary, a call option. The Company’s investment fund formed in the fourth quarter of 2018 also includes a right, upon the expiration of the call option and extending for six months, for the non-controlling interest partner to elect to require the Company’s wholly owned subsidiary to purchase all of its membership interests in the fund, a put option.

The purchase price for two of the investment funds investors’ interests under the call options is equal to the fair market value of such interest at the time the option is exercised. The purchase price for the other two investment funds investor’s interests under the call options is equal to the greater of (i) the fair market value of such interests at the time the option is exercised or (ii) 7% of the investors’ contributed capital balance at the time the option is exercisable. The call options are exercisable beginning on the date that specified conditions are met for each respective fund. None of the call options are expected to become exercisable prior to 2021.

The purchase price for two of the funds investors’ interests in the investment funds under the put options is the lessor of fair market value at the time the option is exercised and a specified amount, ranging from ~~$544~~$659 - $917. The purchase price for the other two of the fund investors’ interest in the investment funds under the put options is the sum of (i) the fair market value at the time the option is exercised, and (ii) the closing costs incurred by the investor in connection with the exercise of the put option. The put options for ~~these~~

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~~AMERESCO, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~(in thousands, except per share amounts)~~

the investment funds are exercisable beginning on the date that specified conditions are met for each respective fund. The put options are not expected to become exercisable prior to 2022.

Because the put options represents redemption features that are not solely within the control of the Company, the non-controlling interests in these funds are presented outside of permanent equity. Redeemable non-controlling interests are reported using the greater of their carrying value at each reporting date (which is impacted by attribution under the ~~HLBV~~hypothetical liquidation at book value method) or their estimated redemption value in each reporting period. At both September 30, ~~2018~~2019 and December 31, ~~2017~~2018 redeemable non-controlling interests were reported at their carrying value totaling ~~$14,585~~$32,108 and ~~$10,338,~~$14,719, respectively, as the carrying value at each reporting period was greater than the estimated redemption value.

14. EARNINGS PER SHARE AND OTHER EQUITY RELATED INFORMATION

Earnings Per Share



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income attributable to common shareholders	$	8,870	$	10,701	$	22,233	$	26,391
Basic weighted-average shares outstanding	46,555		45,854		46,413		45,599
Effect of dilutive securities:
Stock options	1,138		1,090		1,262		910
Diluted weighted-average shares outstanding	47,693		46,944		47,675		46,509

For the three months ended September 30, 2019 and 2018, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares, as the effect would be anti-dilutive, were 1,152 and 758, respectively. For the nine months ended September 30, 2019 and 2018, the total number of shares of common stock related to stock options excluded from the calculation of dilutive shares, as the effect would be anti-dilutive, were 642 and 1,273, respectively.

~~12.~~

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

Stock-Based Compensation Expense

For the three months ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense, including expense related to the Employee Stock Purchase Plan (“ESPP”), of $413 and $390, respectively, in connection with the stock-based payment awards. For the nine months ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense, including expense related to the ESPP, of $1,195 and $1,137, respectively, in connection with the stock-based payment awards. The compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. As of September 30, 2019, there was $4,641 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 3.0 years.

No awards to individuals who were not either an employee or director of the Company occurred during the nine months ended September 30, 2019 or during the year ended December 31, 2018.

Stock Option Grants

During the three months ended September 30, 2019, the Company granted 1,000 common stock options to certain employees and directors under its 2010 Stock Incentive Plan, which have a contractual life of ten years and vest based upon the achievement of specific performance goals over a three years period.

Share Repurchase Program

In April 2016, the Company’s Board of Directors authorized the repurchase of up to $10,000 of the Company’s Class A common stock from time to time on the open market in privately negotiated transactions. The Company’s Board of Directors authorized an increase in the Company’s share repurchase authorization to $15,000 of the Company's Class A common stock in February 2017 and to $17,553 of the Company's Class A common stock in August 2019, in each case, from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes. The repurchase program has and will be funded using the Company's working capital and borrowings under its revolving line of credit. The Company accounts for share repurchases using the cost method. Under this method, the cost of the share repurchase is recorded entirely in treasury stock, a contra equity account. During the three and nine months ended September 30, 2019, the Company repurchased 10 shares of common stock in the amount of $139, net of immaterial fees. During the three months ended September 30, 2018, the Company did not repurchase any shares of common stock. During the nine months ended September 30, 2018, the Company purchased 212 shares of common stock in the amount of $1,772, net of fees of $9.

15. BUSINESS SEGMENT INFORMATION

The Company reports results under ASC 280, Segment Reporting. The Company’s reportable segments are U.S. Regions, U.S. Federal, Canada and Non-Solar Distributed Generation (“DG”). The Company’s 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 the company owns or develops for customers that produce electricity, gas, heat or cooling from renewable sources of energy and O&M services. The Company’s 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 the Company owns and O&M services for customer owned small-scale plants. As of the fourth quarter of 2017, the Company’s U.S. Regions segment now includes certain small-scale solar grid-tie plants 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 the sale of solar-PV energy products and systems which we refer to as integrated-PV.

These segments do not include results of other activities, such as corporate operating expenses not specifically allocated to the segments. Certain reportable segments are an aggregation of operating segments. The reports of the Company’s chief operating decision maker do not include assets at the operating segment level. The accounting policies are the same as those described in the summary of significant accounting policies in Note ~~2. During 2017, the Company~~2 included in ~~unallocated corporate activity $1,001 as a reserve~~ the Company’s annual report on Form 10-K for ~~a customer who declared bankruptcy. For~~ the ~~three~~year ended December 31, 2018 filed with the Securities and ~~nine months ended September 30, 2018, the Company has not recorded any additional reserve.~~Exchange Commission on March 8, 2019.

~~The reports~~An analysis of the Company’s ~~chief operating decision maker do not include assets at~~business segment information and reconciliation to the ~~operating segment level.~~condensed consolidated financial statements is as follows:

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~An analysis of the Company’s business segment information and reconciliation to the condensed consolidated financial statements is as follows:~~


	U.S. Regions		U.S. Federal		Canada			Non-Solar DG		All Other			Total Consolidated			U.S. Regions		U.S. Federal		Canada			Non-Solar DG		All Other			Total Consolidated
Three Months Ended September 30, 2019
Revenues																$	84,079	$	71,258	$	12,665		$	21,875	$	22,149		$	212,026
Interest income																69		92		—			21		—			182
Interest expense																1,548		209		179			1,213		—			3,149
Depreciation and amortization of intangible assets																2,538		901		396			5,149		429			9,413
Unallocated corporate activity																—		—		—			—		—			(8,482		)
Income before taxes, excluding unallocated corporate activity																3,350		10,967		1,577			977		881			17,752
Three Months Ended September 30, 2018
Revenues	$	86,402	$	62,378	$	11,604		$	22,138	$	22,853		$	205,375		$	86,402	$	62,378	$	11,604		$	22,138	$	22,853		$	205,375
Interest income	2		36		—			38		—			76			2		36		—			38		—			76
Interest expense	1,403		225		480			1,681		(13		)	3,776			1,403		225		480			1,681		(13		)	3,776
Depreciation and amortization of intangible assets	1,341		671		294			4,530		378			7,214			1,341		671		294			4,530		378			7,214
Unallocated corporate activity	—		—		—			—		—			(8,648		)	—		—		—			—		—			(8,648		)
Income before taxes, excluding unallocated corporate activity	5,256		10,969		664			3,851		1,959			22,699			5,256		10,969		664			3,851		1,959			22,699
Three Months Ended September 30, 2017
Nine Months Ended September 30, 2019
Revenues	$	82,633	$	63,873	$	14,719		$	22,847	$	20,672		$	204,744		$	227,896	$	169,337	$	27,696		$	66,370	$	69,022		$	560,321
Interest income	1		14		—			26		—			41			132		160		—			65		39			396
Interest expense	856		292		512			1,118		13			2,791			4,118		627		517			4,075		—			9,337
Depreciation and amortization of intangible assets	867		644		303			3,875		497			6,186			7,184		2,524		986			16,051		1,153			27,898
Unallocated corporate activity	—		—		—			—		—			(6,839		)	—		—		—			—		—			(25,331		)
Income before taxes, excluding unallocated corporate activity	6,432		8,753		1,537			1,798		991			19,511			5,530		26,631		1,529			5,758		7,592			47,040
Nine Months Ended September 30, 2018
Revenues	$	249,871	$	168,377	$	28,466		$	60,176	$	62,877		$	569,767		$	249,871	$	168,377	$	28,466		$	60,176	$	62,877		$	569,767
Interest income	5		84		—			120		—			209			5		84		—			120		—			209
Interest expense	3,911		771		1,464			4,575		—			10,721			3,911		771		1,464			4,575		—			10,721
Depreciation and amortization of intangible assets	4,048		2,004		873			12,942		1,134			21,001			4,048		2,004		873			12,942		1,134			21,001
Unallocated corporate activity	—		—		—			—		—			(23,268		)	—		—		—			—		—			(23,269		)
Income (loss) before taxes, excluding unallocated corporate activity	14,606		26,864		(1,983		)	8,796		3,771			52,054			14,606		26,864		(1,983		)	8,796		3,771			52,054
Nine Months Ended September 30, 2017
Revenues	$	191,956	$	170,903	$	33,211		$	53,703	$	56,246		$	506,019
Interest income	2		29		1			55		—			87
Interest expense	1,950		888		1,465			3,214		38			7,555
Depreciation and amortization of intangible assets	1,940		1,951		878			11,416		1,407			17,592
Unallocated corporate activity	—		—		—			—		—			(20,931		)
Income before taxes, excluding unallocated corporate activity	7,388		23,079		1,638			3,825		2,304			38,234

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~13. LONG-TERM~~16. DEBT

~~Long-term~~As of September 30, 2019, the Company’s debt comprised the following:

Rate as of September 30, 2018 September 30, 2018 December 31, 2017
Senior secured credit facility, due June 2020, interest at varying rates monthly in arrears 4.40 % $ 44,552
$ 49,986
Variable rate term loan payable in semi-annual installments through February 2021 4.59 % 1,071
1,220
Variable rate term loan payable in semi-annual installments through June 2024 4.09 % 7,781
8,295
Variable rate term loan payable in quarterly installments through December 2024 — % —
8,757
Term loan payable in quarterly installments through March 2021 7.25 % 1,769
2,218
Term loan payable in monthly installments through June 2028 6.11 % 4,076
4,551
Variable rate term loan payable in quarterly installments through June 2020 5.59 % 31,308
32,711
Variable rate term loan payable in quarterly installments through October 2023 4.84 % 17,966
18,346
Term loan payable in quarterly installments through June 2031 4.95 % 4,191
4,605
Term loan payable in quarterly installments through February 2034 5.61 % 2,888
3,128
Variable rate construction loan payable, due June 2018 7.00 % —
1,721
Term loan payable in quarterly installments through April 2027 4.50 % 22,081
13,325
Term loan payable in quarterly installments through March 2028 5.00 % 4,050
4,258
Variable rate term loan payable in quarterly installments through December 2027 4.79 % 13,477
14,034
Variable rate term loan payable in quarterly installments through August 2022 9.84 % 26,842
—
Term loan payable in quarterly installments through December 2038 5.15 % 30,029
—
Variable rate term loan payable in semi-annual installments through June 2033 4.39 % 9,971
—
Capital leases 36,772
35,013
$ 258,824
$ 202,168
Less - current maturities 24,397
22,375
Less - deferred financing fees 8,175
6,556
Long-term debt $ 226,252
$ 173,237



	Commencement Date	Maturity Date	Acceleration Clause⁽²⁾	Rate as of
	Commencement Date	Maturity Date	Acceleration Clause⁽²⁾	September 30, 2019		September 30, 2019		December 31, 2018
Senior secured credit facility, interest at varying rates monthly in arrears	June 2015	June 2024	NA	3.84	%	$	81,410	$	43,074
Variable rate term loan payable in semi-annual installments	January 2006	February 2021	Yes	4.34	%	774		936
Variable rate term loan payable in semi-annual installments	January 2006	June 2024	Yes	4.09	%	6,953		7,426
Term loan payable in quarterly installments	March 2011	March 2021	Yes	7.25	%	993		1,464
Term loan payable in monthly installments	October 2011	June 2028	NA	6.11	%	3,606		3,843
Variable rate term loan payable in quarterly installments	October 2012	June 2020	NA	5.59	%	28,844		30,674
Variable rate term loan payable in quarterly installments	September 2015	March 2023	NA	4.59	%	16,782		17,208
Term loan payable in quarterly installments	August 2016	July 2031	NA	4.95	%	3,753		3,925
Term loan payable in quarterly installments	March 2017	March 2028	NA	5.00	%	3,627		3,945
Term loan payable in monthly installments	April 2017	April 2027	NA	4.50	%	23,211		22,081
Term loan payable in quarterly installments	April 2017	February 2034	NA	5.61	%	2,661		2,735
Variable rate term loan payable in quarterly installments	June 2017	December 2027	NA	4.54	%	12,330		12,915
Variable rate term loan payable in quarterly installments	February 2018	August 2022	Yes	9.59	%	16,366		21,475
Term loan payable in quarterly installments	June 2018	December 2038	Yes	5.15	%	29,463		30,069
Variable rate term loan payable in semi-annual installments	June 2018	June 2033	Yes	4.14	%	9,337		9,668
Variable rate term loan payable in monthly/quarterly installments	October 2018	October 2029	Yes	4.60	%	9,086		9,072
Long term finance liability in semi-annual installments	July 2019	July 2039	NA	0.28	%	4,872		—
Financing leases⁽¹⁾						31,106		33,363
						$	285,174	$	253,873
Less - current maturities						54,958		26,890
Less - deferred financing fees						6,450		7,821
Long term debt and financing lease liabilities						$	223,766	$	219,162

⁽¹⁾Financing leases do not include approximately $23,510 in future interest payments

~~February 2018 Term Loan~~

~~In February 2018,~~⁽²⁾These agreements have acceleration causes that, in the ~~Company entered into a credit agreement for gross proceeds~~event of ~~$28,500, with a bank for use in providing non-recourse financing for a new renewable natural gas energy asset at a rate of 7.5% above LIBOR. Principal~~default, as defined, the payee has the option to accelerate payment terms and make due the remaining principal and the required interest ~~amounts are due in quarterly installments. The note matures on August 31, 2022 with all remaining unpaid amounts outstanding under~~balance according to the agreement ~~due at that time. At September 30, 2018, $26,842 was outstanding under the term loan. The interest rate at September 30, 2018 was 9.8410%.~~

Senior Secured Credit Facility - Revolver and Term Loan

In June ~~2018,~~2019, the Company ~~entered into an additional amendment to~~amended and restated the ~~Third Amended and Restated bank~~Company’s senior secured credit facility. The amendment ~~added SunTrust Robinson Humphrey, Inc as an additional lender,~~ increased the aggregate amount of the revolving commitments from ~~$75,000~~$85,000 to ~~$85,000~~$115,000 through ~~the existing~~an extended June ~~30, 2020 end~~28, 2024 maturity date, increased the term loan from $40,000 to $65,000 to reduce the outstanding revolving loan balance by the same amount and extend

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AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

(in thousands, except per share amounts)

~~$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~~maturity date from June 30, 2020 to June 28, 2024, and increased the ~~Total Funded Debt~~total funded debt to EBITDA covenant ratio from a maximum of ~~2.75~~3.00 to ~~3.00.~~3.25. The total commitment under the amended credit facility (revolving credit, term loan and swing line) ~~was $136,000.~~is $185,000.

At September 30, ~~2018 $72,334 was~~2019 funds of $46,480 are available for borrowing under the revolving credit facility.

July 2019 Long Term Finance Liability

~~June 2018 Term Loan~~

~~In June 2018,~~During the third quarter ended September 30, 2019, the Company ~~entered into a non-recourse term loan~~closed on one solar PV project under the Company’s master lease agreement, as discussed in Note 8, with a ~~bank,~~twenty-year term. In accordance with ASC 842, Leases, this transaction was accounted for as a failed sale as the Company retains control of the underlying assets. The proceeds received from the transaction were recorded by the Company as a long term financing facility with an original principal amount of $12,407. In August 2018, the Company entered into a joinder agreement which increased the principal amount with an additional note of $19,252, for a total principal amount of $31,659. The loan bears interest ~~at a fixed~~ rate of ~~5.15%.~~0.28%, as a result of tax credits which were transferred to the counterparty. The principal and interest payments are due in ~~quarterly~~semi annual installments and the ~~loan~~long term finance facility matures on ~~December 31, 2038,~~July 16, 2039, with all remaining unpaid amounts outstanding under the agreement due at that time. These agreements contain interest make-whole provisions that the Company determined qualified as hybrid instruments that are required to be bifurcated and valued separately from the host contract. See Notes 8 and 9 for additional discussions on the interest make-whole provisions and how the Company determined their value. At September 30, ~~2018, $30,029~~2019, $4,872 was outstanding under the long term ~~loan, including debt discounts and the embedded derivatives.~~

~~June 2018 Variable Note~~

In June 2018, the Company entered into a loan agreement for use in providing non-recourse financing for a solar PV project in operation. The loan agreement provides for a $10,000 term loan credit facility and bears interest at a variable rate, with interest payments due in semi-annual installments. The term loan matures on June 15, 2033, with all remaining unpaid amounts outstanding under the facility due at that time. At September 30, 2018, $9,971, net of debt discounts, was outstanding under the term loan. The variable interest rate for this loan at September 30, 2018 was 4.39%.

~~The Company was in compliance with all financial and operational covenants as of September 30, 2018.~~

~~14. SUBSEQUENT EVENTS~~

During October 2018, the Company closed the acquisition of one solar project for total consideration of $3,019. The Company financed this project along with three previously acquired solar projects from the same developer through a tax equity partnership and a term loan for aggregate gross proceeds of $10,400.

During October 2018, the Company entered into a definitive agreement to acquire seven early-stage solar projects which the Company will construct from the same developer. The total consideration for these projects is $10,800.finance liability.

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Item 2. 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 unaudited condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, ~~2017~~2018 included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed on March ~~3, 2018~~8, 2019 with the U.S. Securities and Exchange Commission (“SEC”). This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward looking statements include statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management, expected market growth and other characterizations of future events or circumstances. All statements, other than statements of historical fact, including statements that refer to our expectations as to the future growth of our business and associated expenses; our expectations as to revenue generation; the future availability of borrowings under our revolving credit facility; the expected future growth of the market for energy efficiency and renewable energy solutions; our backlog, awarded projects and recurring revenue and the timing of such matters; our expectations as to acquisition activity; the impact of any restructuring; the uses of future earnings; our intention to repurchase shares of our Class A common stock; the expected energy and cost savings of our projects; and the expected energy production capacity of

~~Table of Contents~~

our renewable energy plants; 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 are based on current expectations and assumptions that are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Risks, uncertainties and factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so and undertake no obligation to do so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

Ameresco is a leading provider of energy efficiency solutions for facilities 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 each of September 2015, June 2017 and June 2018, the Company formed an investment fund with a different third party investor which granted the applicable investor ownership interests in the net assets of certain of the Company’s renewable energy project subsidiaries. The Company currently has three such investment funds each with a different third party investor. We entered into these agreements in order to finance the costs of constructing certain energy assets which are under long-term customer contracts. We have determined that we are the primary beneficiary in the operational partnerships for accounting purposes. Accordingly, we consolidate the assets and liabilities and operating results of the entities in our consolidated financial statements. We recognize the investors’ share of the net assets of the investors’ funds as redeemable non-controlling interests in our consolidated balance sheets. These income or loss allocations, which are reflected on our consolidated statements of income (loss), may create significant volatility in our reported results of operations, including potentially changing net income available to common stockholders from income to loss, or vice versa, from quarter to quarter.

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.

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 ~~revenue~~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 of our control. See “Our business is affected by seasonal trends and construction cycles, and these trends and cycles could

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have an adverse effect on our operating results.” in Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (“Annual Report”).

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.

As of September 30, 2019, we had fully-contracted backlog of approximately $787.2 million in expected future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $1,434.9 million. As of September 30, 2018, we had fully-contracted backlog of approximately $819.4 million in expected future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional $1,215.4 million. As of September 30, 2017, we had fully-contracted backlog of approximately $627.5 million in expected future revenues under signed customer contracts for the installation or construction of projects; and we also had been awarded projects for which we had not yet signed customer contracts with estimated total future revenues of an additional ~~$1,097.0 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 September 30, ~~2018~~2019 and ~~2017,~~2018, our 12-month backlog was ~~$395.9~~$437.7 million and ~~$411.9~~$395.9 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 $319.8~~were $572.0 million and ~~$177.7~~$319.8 million as of September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. The most significant estimates with regard to these condensed consolidated financial statements relate to our estimates of total expected costs under the cost-based input method, as well as the estimated impact of uninstalled materials, under the revenue recognition requirements of contracts with our customers, allowance for doubtful accounts, inventory reserves, realization of project development costs, fair value of derivative financial instruments, leases, accounting for business acquisitions, stock-based awards, impairment of long-lived assets, goodwill, income taxes, self insurance reserves and potential liability in conjunction with certain commitments and contingencies. Actual results could differ from those estimates.

Such estimates and assumptions are based on historical experience and on various other factors that management believes to be reasonable under the circumstances. Estimates and assumptions are made on an ongoing basis, and accordingly, the actual results may differ from these estimates under different assumptions or conditions.

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The following are certain critical accounting policies that, among others, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

Revenue Recognition;

Energy ~~Assets (formerly referred to as Project Assets);~~Assets;

Leases;

Goodwill and Intangible Assets;

Derivative Financial Instruments; and

Variable Interest Entities.

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Further details regarding our critical accounting policies and estimates can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. In addition, please refer to Note 2, “Summary of Significant Accounting Policies,” of our Notes to ~~Condensed Consolidated Financial Statements~~the audited consolidated financial statements for the year ended December 31, 2018, and notes thereto, included ~~under Part I, Item 1 of this Quarterly Report on Form 10-Q.~~in the Company’s Annual Report. Except for accounting policies related to our adoption of ~~ASC 606, Management~~ASU No. 2016-02, Leases (Topic 842), and accounting policies related to our equity method investments, the Company has determined that no additional material changes concerning our critical accounting policies have occurred since December 31, ~~2017~~.2018.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, of Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, as amended (Topic 606) (commonly referred to as ASC 606). The Company adopted the requirements of the new standard, including additional accounting standard updates issued during 2016 which provide clarification and expanded guidance on ASU 2014-09 topics, on January 1, 2018 using the modified retrospective method. Refer to Note 3, ~~Revenue from Contracts with Customers,~~ ~~of Notes to the Condensed Consolidated Financial Statements for further discussion of the adoption of the standard and the impact on the Company’s consolidated financial statements.~~

~~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 Condensed Consolidated Financial Statements for further details.~~

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Results of Operations

The following tables set forth certain financial data from the condensed consolidated statements of income ~~(loss)~~ expressed as a percentage of revenues for the periods presented (in thousands):


	Three Months Ended September 30,										Three Months Ended September 30,
	2018					2017					2019				2018
	Dollar			% of		Dollar			% of		Dollar		% of		Dollar			% of
	Amount			Revenues		Amount			Revenues		Amount		Revenues		Amount			Revenues
Revenues	$	205,375		100.0	%	$	204,744		100.0	%	$	212,026	100.0	%	$	205,375		100.0	%
Cost of revenues	159,213			77.5	%	163,377			79.8	%	167,333		78.9	%	159,213			77.5	%
Gross profit	46,162			22.5	%	41,367			20.2	%	44,693		21.1	%	46,162			22.5	%
Selling, general and administrative expenses	28,866			14.1	%	27,027			13.2	%	31,231		14.7	%	28,866			14.1	%
Operating income	17,296			8.4	%	14,340			7.0	%	13,462		6.3	%	17,296			8.4	%
Other expenses, net	3,244			1.6	%	1,668			0.8	%	4,192		2.0	%	3,244			1.6	%
Income before provision from income taxes	14,052			6.8	%	12,672			6.2	%	9,270		4.4	%	14,052			6.8	%
Income tax provision	3,351			1.6	%	3,881			1.9	%	939		0.4	%	3,351			1.6	%
Net income	10,701			5.2	%	8,791			4.3	%	8,331		3.9	%	10,701			5.2	%
Net income attributable to redeemable non-controlling interest	—			—	%	(298		)	(0.1	)%
Net loss attributable to redeemable non-controlling interest											539		0.3	%	—			—	%
Net income attributable to common shareholders	$	10,701		5.2	%	$	8,493		4.1	%	$	8,870	4.2	%	$	10,701		5.2	%

	Nine Months Ended September 30,										Nine Months Ended September 30,
	2018					2017					2019				2018
	Dollar			% of		Dollar			% of		Dollar		% of		Dollar			% of
	Amount			Revenues		Amount			Revenues		Amount		Revenues		Amount			Revenues
Revenues	$	569,767		100.0	%	$	506,019		100.0	%	$	560,321	100.0	%	$	569,767		100.0	%
Cost of revenues	445,356			78.2	%	403,320			79.7	%	439,857		78.5	%	445,356			78.2	%
Gross profit	124,411			21.8	%	102,699			20.3	%	120,464		21.5	%	124,411			21.8	%
Selling, general and administrative expenses	84,871			14.9	%	80,164			15.8	%	87,396		15.6	%	84,871			14.9	%
Operating income	39,540			6.9	%	22,535			4.5	%	33,068		5.9	%	39,540			6.9	%
Other expenses, net	10,754			1.9	%	5,232			1.0	%	11,359		2.0	%	10,754			1.9	%
Income before provision from income taxes	28,786			5.1	%	17,303			3.4	%	21,709		3.9	%	28,786			5.1	%
Income tax provision	1,879			0.3	%	4,296			0.8	%	2,000		0.4	%	1,879			0.3	%
Net income	26,907			4.7	%	13,007			2.6	%	19,709		3.5	%	26,907			4.7	%
Net (income) loss attributable to redeemable non-controlling interest	(516		)	(0.1	)%	673			0.1	%
Net loss (income) attributable to redeemable non-controlling interest											2,524		0.5	%	(516		)	(0.1	)%
Net income attributable to common shareholders	$	26,391		4.6	%	$	13,680		2.7	%	$	22,233	4.0	%	$	26,391		4.6	%

Revenues

The following tables set forth a comparison of our revenues for the periods presented (in thousands):


	Three Months Ended September 30,				Dollar		Percentage		Three Months Ended September 30,				Dollar			Percentage
	2018		2017		Change		Change		2019		2018		Change			Change
Revenues	$	205,375	$	204,744	$	631	0.3	%	$	212,026	$	205,375	$	6,651		3.2	%

	Nine Months Ended September 30,				Dollar		Percentage		Nine Months Ended September 30,				Dollar			Percentage
	2018		2017		Change		Change		2019		2018		Change			Change
Revenues	$	569,767	$	506,019	$	63,748	12.6	%	$	560,321	$	569,767	$	(9,446	)	(1.7	)%

~~Revenues remained consistent, increasing $0.6 million, or 0.3%, for the three months ended September 30, 2018 compared to the same period of 2017.~~

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Revenues increased ~~$63.7~~$6.7 million, or ~~12.6%~~3.2%, to $212.0 million for the three months ended September 30, 2019 compared to the same period of 2018 primarily due to a $8.9 million increase in our U.S. Federal segment and a $1.1 million increase in our Canada segment, partially offset by a $2.3 million decrease in our U.S. Regions segment, a $0.7 million decrease in our All Other segment and a $0.3 million decrease in revenues from our Non-Solar DG segment.

Revenues decreased $9.4 million, or 1.7%, to $560.3 million for the nine months ended September 30, ~~2018~~2019 compared to the same period of ~~2017~~2018 primarily due to a ~~$57.9~~$22.0 million ~~increase~~decrease in revenues from our U.S. Regions segment and a ~~$6.5~~$0.8 million decrease in our Canada segment, partially offset by a $6.2 million increase in our Non-Solar DG segment, a ~~$6.6~~$1.0 million increase in our U.S. Federal segment and a $6.1 million increase in our All Other ~~segment, offset by $4.7 million decrease in our Canada segment, and a decrease of $2.5 million in our U.S. Federal~~ segment.

Cost of Revenues and Gross Profit

The following tables set forth a comparison of our cost of revenues and gross profit for the periods presented (in thousands):


	Three Months Ended September 30,						Dollar			Percentage		Three Months Ended September 30,						Dollar			Percentage
	2018			2017			Change			Change		2019			2018			Change			Change
Cost of revenues	$	159,213		$	163,377		$	(4,164	)	(2.5	)%	$	167,333		$	159,213		$	8,120		5.1	%
Gross margin	22.5		%	20.2		%						21.1		%	22.5		%

	Nine Months Ended September 30,						Dollar			Percentage		Nine Months Ended September 30,						Dollar			Percentage
	2018			2017			Change			Change		2019			2018			Change			Change
Cost of revenues	$	445,356		$	403,320		$	42,036		10.4	%	$	439,857		$	445,356		$	(5,499	)	(1.2	)%
Gross margin	21.8		%	20.3		%						21.5		%	21.8		%

Cost of revenues ~~decreased $4.2~~increased $8.1 million, or ~~2.5%~~5.1%, to $167.3 million and gross margin ~~increased~~percentage decreased to ~~22.5%~~21.1%, from ~~20.2%~~22.5%, for the three months ended September 30, ~~2018~~2019 compared to the same period of 2017, respectively. The decrease in cost of revenues and 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.

Cost of revenues increased $42.0 million, or 10.4%, and gross margin percentage increased to 21.8%, from 20.3%, for the nine months ended September 30, 2018 compared to the same period of 2017, respectively.2018. The increase in cost of revenues is primarily due to anthe increase in project revenues from our U.S. Federal segment. The decrease in gross margin is primarily due to a mix of lower margin projects in our U.S. Federal segment as well as higher depreciation expenses attributed to the growth of our energy assets in operation in our U.S. Regions and Non-Solar DG segments.

Cost of revenues decreased $5.5 million, or 1.2%, to $439.9 million and gross margin percentage decreased to 21.5%, from 21.8%, for the nine months ended September 30, 2019 compared to the same period of 2018, respectively. The decrease in cost of revenues is primarily due to a decrease in project revenues from our U.S. Regions segment. The ~~increase~~decrease in gross margin is primarily due to ~~an increase~~higher depreciation expenses attributed to the growth of our energy assets in ~~higher margin energy~~operation in our U.S. Regions and ~~incentive revenue from renewable gas assets as described above.~~

Non-Solar DG segments.

Selling, General and Administrative Expenses

The following tables set forth a comparison of our selling, general and administrative expenses for the periods presented (in thousands):


	Three Months Ended September 30,				Dollar		Percentage		Three Months Ended September 30,				Dollar		Percentage
	2018		2017		Change		Change		2019		2018		Change		Change
Selling, general and administrative expenses	$	28,866	$	27,027	$	1,839	6.8	%	$	31,231	$	28,866	$	2,365	8.2	%

	Nine Months Ended September 30,				Dollar		Percentage		Nine Months Ended September 30,				Dollar		Percentage
	2018		2017		Change		Change		2019		2018		Change		Change
Selling, general and administrative expenses	$	84,871	$	80,164	$	4,707	5.9	%	$	87,396	$	84,871	$	2,525	3.0	%

Selling, general and administrative expenses increased ~~$1.8~~$2.4 million, or ~~6.8%~~8.2%, to $31.2 million for the three months ended September 30, ~~2018,~~2019, compared to the same period of ~~2017,~~2018, primarily due to an increase in salaries and benefits of ~~$1.7~~$0.9 million resulting from increased ~~headcount.~~headcount, higher project development costs of $0.6 million and increased other charges of $0.9 million. For the nine months ended September 30, ~~2018,~~2019, selling, general and administrative expenses increased ~~$4.7~~$2.5 million, or ~~5.9%~~3.0%, to $87.4 million compared to the same period of 2018, primarily due to an increase in salaries and benefits of ~~$3.7~~$2.8 million resulting

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from increased ~~headcount.~~headcount, and increased other charges of $1.9 million partially offset by a gain of $2.2 million recognized on the deconsolidation of a variable interest entity.

Amortization expense of intangible assets related to customer relationships, non-compete agreements, technology and trade names is included in selling, general and administrative expenses in the condensed consolidated statements of ~~income (loss).~~income. For the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recorded amortization expense related to these intangible assets of ~~$0.3~~$0.2 million and ~~$0.4~~$0.3 million, respectively. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recorded amortization expense related to these intangible assets of $0.6 million and $0.8 million, ~~and $1.1 million,~~ respectively.

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Other Expenses, Net

Other expenses, net, includes gains and losses from derivatives and foreign currency transactions, interest income and expenses and amortization of deferred financing costs. Other expenses, net increased ~~$1.6~~$0.9 million ~~and $5.5 million for the three and nine months ended September 30, 2018, respectively, compared~~ to ~~the same periods of 2017, primarily due to increases in interest expense and unfavorable foreign exchange rate fluctuations realized.~~

~~Income Before Taxes~~

~~Income before taxes increased $1.4 million, or 10.9%, from $12.7~~$4.2 million for the three months ended September 30, ~~2017~~2019 compared to ~~$14.1~~the same period of 2018, primarily due to higher interest expenses and unfavorable foreign exchange rate fluctuations realized. Other expenses, net increased $0.6 million to $11.4 million for the nine months ended September 30, 2019 compared to the same period of 2018, primarily due to higher interest expenses and increased amortization of deferred financing costs partially offset by increased interest income.

Income Before Taxes

Income before taxes decreased $4.8 million, or 34.0%, to $9.3 million for the three months ended September 30, 2019 compared to the same period of 2018, due to the reasons described above. Income before taxes ~~increased $11.5~~decreased $7.1 million, or ~~66.4%~~24.6%, ~~from $17.3~~to $21.7 million for the nine months ended September 30, ~~2017~~2019 compared to ~~$28.8 million for~~ the ~~nine months ended September 30,~~same period of 2018, due to the reasons described above.

Provision from Income Taxes

The provision for income taxes was $0.9 million for the three months ended September 30, 2019, compared to a provision of $3.4 million for the three months ended September 30, ~~2018, compared to $3.9 million for the three months ended September 30, 2017.~~2018. The estimated ~~annual~~ effective annualized tax rate impacted by period discrete items applied for the three months ended September 30, ~~2018~~2019 was ~~23.8%~~10.1% compared to ~~30.6%~~23.8% for the three months ended September 30, ~~2017.~~2018. The decrease in the rate compared to the same period in the prior year was due primarily to the ~~effects of the reduction in the U.S. federal statutory tax rate, 21% for 2018 compared to 35% for 2017 and the~~ inclusion of ~~a $5.9 million discrete tax benefit related to the 2017 Section 179D deduction which was extended in February 2018. The effects of the higher U.S. federal statutory tax rate~~additional Investment Tax Credits for ~~2017 was partially offset by the use of investment tax credits, to which~~2019 on solar projects the Company ~~was entitled from plants it placed~~plans to retain and place in service in ~~2017.~~2019.

The provision for income taxes was $2.0 million for the nine months ended September 30, 2019, compared to a provision of $1.9 million for the nine months ended September 30, ~~2018, compared to a provision of $4.3 million for the nine months ended September 30, 2017.~~2018. The estimated ~~annual~~ effective annualized tax rate impacted by period discrete items applied for the nine months ended September 30, ~~2018~~2019 was ~~6.5%~~9.2% compared to ~~24.8%~~6.5% for the nine months ended September 30, ~~2017.~~2018. The ~~decrease~~increase in the rate compared to the same period in the prior year was due primarily to the ~~effects of the reduction~~inclusion in the ~~U.S. federal statutory tax rate, 21% for 2018 compared to 35% in 2017, and the effects~~prior year of a $5.9 million discrete tax ~~deduction under Internal Revenue Code~~benefit for the 2017 Section ~~179D.~~179D deductions.

The principal reason for the difference between the statutory rate and the estimated annual effective rate for 2019 was the effects of investment tax credits to which the Company is entitled from solar plants which have been or will be placed in service in 2019. The principle reasons for the difference between the statutory rate and the estimated annual effective tax rate for 2018 were the effects of a $5.9 million benefit of the 2017 Section 179D deduction, which was extended in February 2018 and ~~treated~~was included as a ~~discrete event~~tax deduction in ~~the year to date period,~~2018, and the use of investment tax credits to which the Company is entitled from owned plants. The principal reason for the difference between the statutory rate and the estimated annual effective rate for 2017 were the effects of investment tax credits to which the Company is entitled from owned plants.

The investment tax credits and ~~other energy related~~production tax ~~incentives~~credits to which ~~we are~~the Company may be entitled fluctuate from year to year based on ~~our investment~~the cost of the renewable energy plants ~~we place~~the Company places or ~~expect~~expects to place in service and production levels at company owned facilities in that year.

Net Income and Earnings Per Share

Net income ~~increased $1.9~~decreased $2.4 million, or ~~21.7%~~22.1%, to ~~$10.7~~$8.3 million for the three months ended September 30, ~~2018~~2019 compared to ~~$8.8~~$10.7 million for the same period of ~~2017.~~2018. Net income ~~increased $13.9~~decreased $7.2 million, or ~~106.9%~~26.8%, to ~~$26.9~~$19.7 million for the nine months ended September 30, ~~2018~~2019 compared to ~~$13.0~~$26.9 million for the same period of ~~2017.~~2018.

Basic ~~and diluted~~ earnings per share for the three months ended September 30, ~~2018 were $0.23, an increase~~2019 was $0.19, a decrease of $0.04 per share compared to the same period of ~~2017.~~2018. Diluted earnings per share for the three months ended September 30, 2019 and 2018 was $0.23 per share. Basic earnings per share for the nine months ended September 30, ~~2018~~2019 was ~~$0.58, an increase~~$0.48, a decrease of ~~$0.28~~$0.10 per share compared to the same period of ~~2017.~~2018. Diluted earnings per share for the nine months ended September 30, ~~2018~~2019 was ~~$0.57, an increase~~$0.47, a decrease of ~~$0.27~~$0.10 per share, compared to the same period of ~~2017.~~2018.

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Business Segment Analysis

We report results under ASC 280, Segment Reporting. Our reportable segments for the three and ~~six~~nine months ended ~~June~~September 30, ~~2018~~2019 are U.S. Regions, U.S. Federal, Canada and Non-Solar ~~Distribution~~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

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DG segment sells electricity, processed renewable gas fuel, heat or cooling, produced from renewable sources of energy, other than solar, and generated by small-scale plants that we own; and O&M services for customer-owned small-scale plants. As of December 31, 2017, the Company’s U.S. Regions segment now includes certain small-scale solar grid-tie plants 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


	Three Months Ended September 30,				Dollar			Percentage		Three Months Ended September 30,				Dollar			Percentage
	2018		2017		Change			Change		2019		2018		Change			Change
Revenues	$	86,402	$	82,633	$	3,769		4.6	%	$	84,079	$	86,402	$	(2,323	)	(2.7	)%
Income before taxes	$	5,256	$	6,432	$	(1,176	)	(18.3	)%	$	3,350	$	5,256	$	(1,906	)	(36.3	)%

	Nine Months Ended September 30,				Dollar			Percentage		Nine Months Ended September 30,				Dollar			Percentage
	2018		2017		Change			Change		2019		2018		Change			Change
Revenues	$	249,871	$	191,956	$	57,915		30.2	%	$	227,896	$	249,871	$	(21,975	)	(8.8	)%
Income before taxes	$	14,606	$	7,388	$	7,218		97.7	%	$	5,530	$	14,606	$	(9,076	)	(62.1	)%

Revenues for our U.S. Regions segment ~~increased $3.8~~decreased $2.3 million, or ~~4.6%~~2.7%, to ~~$86.4~~$84.1 million for the three months ended September 30, ~~2018 and increased $57.9~~2019 compared to the same period of 2018. Revenues for our U.S. Regions segment decreased $22.0 million, or ~~30.2%~~8.8%, to ~~$249.9~~$227.9 million for the nine months ended September 30, ~~2018~~2019 compared to the same period of ~~2017, primarily due to an increase~~2018. The decrease in ~~project~~ revenues ~~attributable to an increase in the average project size versus the prior year.~~

~~Income before taxes for our U.S. Regions segment decreased $1.2 million, or 18.3%, to $5.3 million~~ for the three months ended September 30, 2018 primarily due to primarily due to an increase in interest expense related to a larger portfolio of energy assets that are financed, as well as the timing of revenues from the sale of renewable energy credits. For theand nine months ended September 30, ~~2018, income before taxes increased $7.2 million, or 97.7%, to $14.6 million compared to the same periods of 2017~~2019 were primarily due to ~~the increase~~a decrease in project revenues ~~described above.~~

~~U.S. Federal~~

Three Months Ended September 30, Dollar Percentage
2018 2017 Change Change
Revenues $ 62,378
$ 63,873
$ (1,495 ) (2.3 )%
Income before taxes $ 10,969
$ 8,753
$ 2,216
25.3 %

Nine Months Ended September 30, Dollar Percentage
2018 2017 Change Change
Revenues $ 168,377
$ 170,903
$ (2,526 ) (1.5 )%
Income before taxes $ 26,864
$ 23,079
$ 3,785
16.4 %

Revenues for our U.S. Federal segment decreased $1.5 million, or 2.3%, to $62.4 million for the three months ended September 30, 2018, and $2.5 million, or 1.5%, to $168.4 million for the nine months ended September 30, 2018 compared to the same period of 2017, primarily dueattributable to timing of revenue recognized as a result of the phase of active ~~projects.~~projects versus the prior year partially offset by an increase in energy and incentive revenue from small-scale solar grid tie plants that the Company owns.

Income before taxes for our U.S. ~~Federal~~Regions segment ~~increased $2.2~~decreased $1.9 million, or ~~25.3%~~36.3%, from $5.3 million to ~~$11.0~~$3.4 million for the three months ended September 30, 2019 and 2018, respectively, primarily due to an increase in salaries and ~~$3.8~~benefits and project development costs. Income before taxes for our U.S. Regions segment decreased $9.1 million, or ~~16.4%~~62.1%, from $14.6 million to ~~$26.9~~$5.5 million for the nine months ended September 30, 2019 and 2018, respectively, primarily due to the decrease in revenues described above, higher depreciation expenses, and increased salaries and benefits expenses.

U.S. Federal



	Three Months Ended September 30,				Dollar			Percentage
	2019		2018		Change			Change
Revenues	$	71,258	$	62,378	$	8,880		14.2	%
Income before taxes	$	10,967	$	10,969	$	(2	)	—	%

	Nine Months Ended September 30,				Dollar			Percentage
	2019		2018		Change			Change
Revenues	$	169,337	$	168,377	$	960		0.6	%
Income before taxes	$	26,631	$	26,864	$	(233	)	(0.9	)%

Revenues for our U.S. Federal segment increased $8.9 million, or 14.2%, to $71.3 million for the three months ended September 30, 2019 compared to the same ~~periods~~period of ~~2017,~~2018. Revenues for our U.S. Federal segment increased $1.0 million, or 0.6%, to $169.3 million for the nine months ended September 30, 2019 compared to the same period of 2018. The increase in revenues for the three months ended September 30, 2019 was due primarily ~~due~~ to ~~gross profit attributed~~an increase in project revenue attributable to timing of revenue recognized as a ~~favorable mix~~result of ~~higher margin projects.~~the phase of active projects versus the prior year.

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Income before taxes for our U.S. Federal segment remained consistent at $11.0 million for three months ended September 30, 2019 compared to $11.0 million for the same period of 2018, even with the increase in revenues described above primarily due to higher direct costs resulting in lower gross margins. Income before taxes for our U.S. Federal segment decreased $0.2 million, or 0.9%, to $26.6 million for the nine months ended September 30, 2019 compared to the same periods of 2018, even with the increase in revenues described above primarily due to higher direct costs resulting in lower gross margins.

Canada


	Three Months Ended September 30,					Dollar			Percentage		Three Months Ended September 30,					Dollar			Percentage
	2018			2017		Change			Change		2019		2018			Change			Change
Revenues	$	11,604		$	14,719	$	(3,115	)	(21.2	)%	$	12,665	$	11,604		$	1,061		9.1	%
Income before taxes	$	664		$	1,537	$	(873	)	(56.8	)%	$	1,577	$	664		$	913		137.5	%

	Nine Months Ended September 30,					Dollar			Percentage		Nine Months Ended September 30,					Dollar			Percentage
	2018			2017		Change			Change		2019		2018			Change			Change
Revenues	$	28,466		$	33,211	$	(4,745	)	(14.3	)%	$	27,696	$	28,466		$	(770	)	(2.7	)%
Income (loss) before taxes	$	(1,983	)	$	1,638	$	(3,621	)	(221.1	)%	$	1,529	$	(1,983	)	$	3,512		177.1	%

Revenues for our Canada segment ~~decreased $3.1 million, or 21.2%,~~increased to ~~$11.6~~$12.7 million for the three months ended September 30, 2019 compared to $11.6 million the same period of 2018, primarily due to an increase in energy assets and ~~$4.7~~other revenues. Revenues for our Canada segment decreased $0.8 million, or ~~14.3%~~2.7%, to ~~$28.5~~$27.7 million for the nine months ended September 30, ~~2018~~2019 compared to the same ~~periods~~period of ~~2017,~~2018, primarily due to a decrease in project revenues related to ~~slower~~the progression of certain active projects.

Income before taxes for our Canada segment ~~decreased~~increased $0.9 ~~million to $0.7~~ million for the three months ended September 30, ~~2018~~2019 to $1.6 million of income compared to a $0.7 million for the same period of ~~2017~~2018. The increase is due primarily ~~due~~ to the ~~decrease~~increase in revenues described ~~above. For~~above and a decrease in salaries and benefits. Income before taxes for our Canada segment increased $3.5 million for the nine months ended September 30, ~~2018, income (loss) before taxes decreased $3.6 million~~2019 to ~~a loss of $2.0~~$1.5 million compared to ~~income of $1.6~~a $2.0 million loss before taxes for the same period of ~~2017.~~2018. The ~~decrease for the nine-month period~~increase is primarily due to ~~the~~a decrease in ~~revenues described above, higher~~salaries and benefits, project development costs, interest expense and ~~unfavorable~~favorable foreign currency exchange rate ~~fluctuations.~~fluctuations versus the prior year.

Non-Solar DG


	Three Months Ended September 30,				Dollar			Percentage		Three Months Ended September 30,				Dollar			Percentage
	2018		2017		Change			Change		2019		2018		Change			Change
Revenues	$	22,138	$	22,847	$	(709	)	(3.1	)%	$	21,875	$	22,138	$	(263	)	(1.2	)%
Income before taxes	$	3,851	$	1,798	$	2,053		114.2	%	$	977	$	3,851	$	(2,874	)	(74.6	)%

	Nine Months Ended September 30,				Dollar			Percentage		Nine Months Ended September 30,				Dollar			Percentage
	2018		2017		Change			Change		2019		2018		Change			Change
Revenues	$	60,176	$	53,703	$	6,473		12.1	%	$	66,370	$	60,176	$	6,194		10.3	%
Income before taxes	$	8,796	$	3,825	$	4,971		130.0	%	$	5,758	$	8,796	$	(3,038	)	(34.5	)%

Revenues for our Non-Solar DG segment decreased ~~$0.7~~$0.3 million, or ~~3.1%~~1.2%, to ~~$22.1~~$21.9 million for the three months ended September 30, ~~2018,~~2019 compared to the same period of 2018. The decrease in revenues for the three months ended September 30, 2019 was primarily due to a decrease in ~~project revenues which was~~energy and incentive revenue partially offset by an increase in ~~energy and incentive revenue. For~~project revenues. Revenues for our Non-Solar DG segment increased $6.2 million, or 10.3%, to $66.4 million for the nine months ended September 30, ~~2018, revenues increased $6.5 million, or 12.1%, to $60.2 million~~2019 compared to the same period of ~~2017,~~2018. The increase in revenues for the nine months ended September 30, 2019 was primarily due to an increase in energy and incentive ~~revenue which was partially offset by a decrease in project~~ revenue.

Income before taxes for our Non-Solar DG segment ~~increased $2.1~~decreased $2.9 million, or ~~114.2%~~74.6%, to ~~$3.9~~$1.0 million for the three months ended September 30, 2019 compared to the same period of 2018 ~~and $5.0~~primarily due to higher direct costs resulting in lower gross margins. Income before taxes for our Non-Solar DG segment decreased $3.0 million, or ~~130.0%~~34.5%, to ~~$8.8~~$5.8 million for the nine months ended September 30, ~~2018~~2019 compared to the same ~~periods~~period of ~~2017,~~2018 primarily due to higher depreciation expenses compared to the ~~increase~~prior year attributed to the growth of our assets in ~~higher margin energy and incentive revenues described above.~~operations.

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All Other & Unallocated Corporate Activity


	Three Months Ended September 30,						Dollar			Percentage		Three Months Ended September 30,						Dollar			Percentage
	2018			2017			Change			Change		2019			2018			Change			Change
Revenues	$	22,853		$	20,672		$	2,181		10.6	%	$	22,149		$	22,853		$	(704	)	(3.1	)%
Income before taxes	$	1,959		$	991		$	968		97.7	%	$	881		$	1,959		$	(1,078	)	(55.0	)%
Unallocated corporate activity	$	(8,648	)	$	(6,839	)	$	(1,809	)	(26.5	)%	$	(8,482	)	$	(8,648	)	$	166		1.9	%

	Nine Months Ended September 30,						Dollar			Percentage		Nine Months Ended September 30,						Dollar			Percentage
	2018			2017			Change			Change		2019			2018			Change			Change
Revenues	$	62,877		$	56,246		$	6,631		11.8	%	$	69,022		$	62,877		$	6,145		9.8	%
Income before taxes	$	3,771		$	2,304		$	1,467		63.7	%	$	7,592		$	3,771		$	3,821		101.3	%
Unallocated corporate activity	$	(23,268	)	$	(20,931	)	$	(2,337	)	(11.2	)%	$	(25,331	)	$	(23,269	)	$	(2,062	)	(8.9	)%

Revenues for our All Other segment ~~increased $2.2~~decreased $0.7 million, or ~~10.6%~~3.1%, to ~~$22.9~~$22.1 million for the three months ended September 30, ~~2018,~~2019 compared to the same period of ~~2017~~2018 primarily due to a decrease in project revenues attributable to timing of revenue recognized as a result of the phase of active projects versus the prior year. Revenues for our All Other segment increased $6.1 million, or 9.8%, to $69.0 million for the nine months ended September 30, 2019 compared to the same period of 2018 primarily due to an increase in project revenues and consulting services revenue. Revenues increased $6.6 million, or 11.8%, to $62.9 million for the nine months ended September 30, 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.

Income before taxes for our All Other segment ~~increased $1.0~~decreased $1.1 million, or ~~97.7%~~55.0%, to ~~$2.0~~$0.9 million for the three months ended September 30, 2019 compared to the same period of 2018 due to an increase in salaries and ~~$1.5~~benefits and project development costs. Income before taxes for our All Other segment increased $3.8 million, or ~~63.7%~~101.3%, to ~~$3.8~~$7.6 million for the nine months ended September 30, ~~2018~~2019 compared to the same ~~periods~~period of ~~2017 primarily~~2018 due to the increase in revenues described ~~above.~~above, and a gain of $2.2 million recognized on the deconsolidation of a variable interest entity.

Unallocated corporate activity includes all corporate level selling, general and administrative expenses and other expenses not allocated to the segments. We do not allocate any indirect expenses to the segments.

Liquidity and Capital Resources

Sources of liquidity. Since inception, we have funded operations primarily through cash flow from operations, advances from Federal ESPC projects and various forms of debt. We believe that the cash and cash equivalents and availability under our revolving senior secured credit facility, combined with our access to credit markets, will be sufficient to fund our operations through the next twelve months and thereafter. See Note 2 of the audited consolidated financial statements for the year ended December 31, 2018, and notes thereto, included in the Company’s Annual Report.

Proceeds from our Federal ESPC projects are generally received through agreements to sell the ESPC receivables related to certain ESPC contracts to third-party investors. We use the advances from the investors under these agreements to finance the projects. Until recourse to us ceases for the ESPC receivables transferred to the investor, upon final acceptance of the work by the government customer, we are the primary obligor for financing received. The transfers of receivables under these agreements do not qualify for sales accounting until final customer acceptance of the work, so the advances from the investors are not classified as operating cash flows. Cash draws that we receive under these ESPC agreements are recorded as financing cash inflows. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows. Due to the manner in which the ESPC contracts with the third-party investors are structured, our reported operating cash flows are materially impacted by the fact that operating cash flows only reflect the ESPC contract expenditure outflows and do not reflect any inflows from the corresponding contract revenues. Upon acceptance of the project by the federal customer the ESPC receivable and corresponding ESPC liability are removed from our condensed consolidated balance sheet as a non-cash settlement. ~~See Note 2,~~ ~~Summary of Significant Accounting Policies, to our Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.~~

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.

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The amount of interest capitalized relating to construction financing during the period of construction for the ~~three months ended September 30, 2018 and 2017 was $0.6 million and $0.9 million, respectively. The amount of interest capitalized~~

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~~relating to construction financing during the period of construction for the~~ nine months ended September 30, 2019 and 2018 ~~and 2017~~ was ~~$2.4~~$2.2 million and ~~$3.5~~$2.4 million, respectively.

Cash flows from operating activities. Operating activities used ~~$32.0~~$120.7 million of net cash during the nine months ended September 30, ~~2018.~~2019. During that period, we had net income of ~~$26.9~~$19.7 million, which is net of non-cash compensation, depreciation, amortization, accretion, contingent consideration, deferred income taxes, ~~loss~~gain on ~~sale~~deconsolidation of ~~assets,~~a VIE, net gain on derivatives, unrealized foreign exchange loss and other non-cash items totaling ~~$29.6~~$29.1 million. Increase in other assets, project development cost, and decrease in accounts payable and accrued expenses, other liabilities and income tax payable used $26.9 million in cash. These were offset by decreasesIncreases in accounts receivable including retainage, inventory, costs and estimated earnings in excess of billings, ~~prepaids,~~prepaid expenses and ~~increases~~other current assets, project development costs, other assets, and decreases in accounts payable, accrued expenses and other current liabilities, billings in excess of ~~costs~~cost and estimated earnings, and other liabilities used $61.7 million in cash. These were offset by an increase in income taxes payable which provided for ~~$50.4~~$2.6 million in cash. Increases in Federal ESPC receivables used an additional ~~$112.0~~$110.4 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 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 ~~$90.4~~$32.0 million of net cash during the nine months ended September 30, ~~2017.~~2018. During that period, we had net income of ~~$13.0~~$26.9 million, which is net of non-cash compensation, depreciation, amortization, deferred income taxes, unrealized foreign exchange loss, net gain on derivatives and other non-cash items totaling ~~$17.1~~$29.5 million. ~~Decreases accounts receivable, including retainage, inventory, and~~Increases in project development costs, other assets, and ~~increases~~decreases in accounts payable, ~~and~~ accrued expenses and other current liabilities, and income ~~tax~~taxes payable ~~provided $33.8~~used $26.9 million in cash. These were offset by ~~increases~~decreases in accounts receivable including retainage, inventory, costs and estimated earnings in excess of billings, prepaid expenses and other current assets, and ~~project development costs and decreases~~increases in billings in excess of cost and estimated earnings, and other liabilities, which ~~used $35.2~~provided for $50.4 million. ~~An increase~~Increases in Federal ESPC receivables used an additional ~~$119.1~~$112.0 million.

Cash flows from investing activities. Cash flows from investing activities during the nine months ended September 30, 2019 used $79.9 million. We invested $72.1 million on purchases of energy assets during the nine months ended September 30, 2019. In addition, we invested $6.2 million in purchases of other property and equipment, $1.3 million related to acquisition of a business and made contributions of $0.3 million in an equity investment. We currently plan to invest approximately $40.0 million to $50.0 million in additional capital expenditures in 2019, principally for the construction or acquisition of new renewable energy plants.

Cash flows from investing activities during the nine months ended September 30, 2018 used $109.7 million. We invested ~~$44.1~~$103.2 million on purchases of energy assets during the nine months ended September 30, 2018. In addition, we invested $3.0 million in purchases of other property and equipment and ~~$62.7~~invested $3.6 million ~~related to acquisitions~~in the acquisition of ~~businesses and renewable energy plants. We plan to invest an additional $30.0 million on capital expenditures, principally for energy asset acquisitions and construction, for the remainder of 2018.~~a business.

Cash flows from ~~investing~~financing activities. Cash flows from financing activities during the nine months ended September 30, ~~2017 used $70.3~~2019 provided $172.9 million. Development of our renewable energy plants used $68.7 million. In addition, we invested $1.9 million in purchases of other property and equipment and $2.4 million related to the acquisitions of renewable energy assets. This was primarily due to proceeds received from Federal ESPC projects and energy assets of $117.2 million, proceeds from exercises of stock options and ESPP of $5.3 million, net proceeds from our senior secured credit facility of $41.3 million, proceeds from project financings of $7.6 million and net contributions from redeemable non-controlling interests of $20.2 million. This was partially offset by ~~proceeds from the sales~~payments on long-term debt of ~~assets~~$18.0 million, payments of ~~$2.8 million.~~financing fees of $0.5 million and repurchase of common stock of $0.1 million, including fees.

~~Cash flows from financing activities.~~ Cash flows from financing activities during the nine months ended September 30, 2018 provided $178.8 million. This was primarily due to proceeds received from Federal ESPC projects and energy assets of $115.8 million, proceeds from project financings of $78.9 million, proceeds from sales leaseback financing of $5.1 million, net proceeds from redeemable non-controlling interests of $3.7 million, and proceeds from exercises of stock options and ESPP of $4.3 million. This was partially offset by payments on long-term debt of $22.8 million, repurchase of common stock of $1.8 million, including fees, net draws on our ~~revolving~~senior credit facility of $0.9 million, and payments of financing fees of $3.7 million.

Cash flows from financing activities during the nine months ended September 30, 2017 provided $172.3 million. This was primarily due to proceeds received from Federal ESPC projects of $122.3 million, $30.6 million received under sale-leaseback financings, proceeds from project financings of $48.9 million, proceeds from exercises of options of $1.6 million, net draws on our revolving credit facility of $12.8 million and net proceeds from redeemable non-controlling interests of $1.4 million. These was partially offset by payments on long-term debt of $40.2 million, payments of financing fees of $2.0 million, and repurchase of stock of $3.0 million, including fees.

We currently plan additional project financings of approximately $20.0 million to $30.0 million for the remainder of ~~2018.~~2019 to fund the construction or acquisition of new renewable energy plants discussed above.

See Note ~~13,~~ 16,~~Long-term~~ Debt, of Notes to Condensed Consolidated Financial Statements for additional discussion of items impacting the Company’s liquidity.

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

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~~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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 30, ~~2018,~~2019, there have been no significant changes in market risk exposures that materially affected the quantitative and qualitative disclosures as described in Item 7A to our Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report, or the evaluation date. Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, after evaluating the effectiveness of our disclosure controls and procedures as of the evaluation date, concluded that as of the evaluation date, our disclosure controls and procedures were effective at a reasonable level of assurance.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and account for revenue recognition under the new accounting standard. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

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PART II - OTHER INFORMATION

Item 1. 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 7, 9, Commitments and Contingencies,, to our Condensed Consolidated Financial Statements included included under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

Item 1A. Risk Factors

As of September 30, ~~2018,~~2019, there have been no material changes to the risk factors described in Item 1A to our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 2. Unregistered Sales of Equity and Use of Proceeds

Stock Repurchase Program

The following table provides information as of and for the quarter ended September 30, ~~2018~~2019 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
July 1, 2018 - July 31, 2018 —
—
—
$ 3,513,372
August 1, 2018 - August 31, 2018 —
—
—
$ 3,513,372
September 1, 2018 - September 30, 2018 —
—
—
$ 3,513,372
Total —
$ —
—
$ 3,513,372



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
July 1, 2019 - July 31, 2019	—	—		—	$	6,047,027
August 1, 2019 - August 31, 2019	—	—		—	$	6,047,027
September 1, 2019 - September 30, 2019	10,000	13.93		10,000	$	5,907,722
Total	10,000	$	13.93	10,000	$	5,907,722

Under the Repurchase Program, we are authorized to repurchase up to ~~$15.0~~$17.6 million of our Class A common ~~stock, as increased by the Board of Directors in February 2017.~~stock. 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. Exhibits

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed (other than exhibit 32.1) as part of this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by reference.

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Exhibit Index



Exhibit Number	Description
31.1*	Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Principal Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following condensed consolidated financial statements from Ameresco, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018,~~2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income, ~~(Loss),~~ (iii) Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iv) Consolidated Statement of Changes in Redeemable Non-Controlling Interests and Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
	*Filed herewith.
	+ Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of Ameresco participates.
	**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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AMERESCO, INC.
CONSOLIDATED BALANCE SHEETS — (Continued)
(in thousands, except share amounts)
	September 30,			December 31,
	2018			2017
	(Unaudited)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2018 and December 31, 2017	$	—		$	—
Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 30,057,605 shares issued and 27,972,108 shares outstanding at September 30, 2018, 29,406,315 shares issued and 27,533,049 shares outstanding at December 31, 2017	3			3
Class B common stock, $0.0001 par value, 144,000,000 shares authorized, 18,000,000 shares issued and outstanding at September 30, 2018 and December 31, 2017	2			2
Additional paid-in capital	121,660			116,196
Retained earnings	258,213			235,844
Accumulated other comprehensive loss, net	(4,101		)	(5,626		)
Less - treasury stock, at cost, 2,085,497 shares at September 30, 2018 and 1,873,266 shares at December 31, 2017	(11,571		)	(9,799		)
Total stockholders’ equity	364,206			336,620
Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	1,114,455		$	983,951



Quarter Ended	# Solar PV Projects Sold (actual #’s)_	Sale Price		Deferred Gain Recorded		Deferred Loss Recorded		Capital Lease Asset/Liability Recorded		Initial Lease Term (years)	Minimum Lease Payment		Maximum Lease Payment
September 30, 2018	2	$	5,145	$	611	$	—	$	2,591	20	$	1	$	738
September 30, 2017	3	$	9,157	$	642	$	—	$	4,114	20	$	13	$	231



	January 1, 2018
	As Reported			606 Adjustments				Adjusted Balances
Assets:
Costs and estimated earnings in excess of billings		$	104,852		$	(9,194	)		$	95,658
Prepaid expenses and other current assets		14,037			4,343				18,380
Deferred income taxes, net		—			1,003				1,003
Liabilities:
Accrued expenses and other current liabilities		23,260			1,190				24,450
Deferred income taxes, net		584			(584		)		—
Shareholders' Equity:
Retained earnings		235,844			(4,454		)		231,390



	September 30, 2018
		As Reported		Balances without adoption of Topic 606		Effect of Change Higher/(Lower)
Assets:
Costs and estimated earnings in excess of billings		$	66,471	$	74,886	$	(8,415	)
Prepaid expenses and other current assets		13,123		12,196		927
Liabilities:
Accrued expenses and other current liabilities		28,067		26,910		1,157
Deferred income taxes, net		3,453		5,202		(1,749		)
Shareholders' Equity:
Retained earnings		258,213		265,110		(6,897		)



	As of September 30, 2018				As of December 31, 2017
	Fair Value		Carrying Value		Fair Value		Carrying Value
Long-term debt value (Level 2)	$	213,632	$	213,877	$	160,108	$	160,598



	Derivatives as of
	September 30, 2018			December 31, 2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts	Other assets	$	1,428	Other assets	$	233
Interest rate swap contracts	Other liabilities	$	1,548	Other liabilities	$	3,529
Derivatives Not Designated as Hedging Instruments:
Interest rate swap contracts	Other assets	$	66	Other assets	$	—
Interest rate swap contracts	Other liabilities	$	—	Other liabilities	$	—
Commodity swap contracts	Other assets	$	34	Other assets	$	—
Commodity swap contracts	Other liabilities	$	46	Other liabilities	$	—
Interest make-whole provisions	Other liabilities	$	1,488	Other liabilities	$	—




	Rate as of September 30, 2018		September 30, 2018		December 31, 2017
Senior secured credit facility, due June 2020, interest at varying rates monthly in arrears	4.40	%	$	44,552	$	49,986
Variable rate term loan payable in semi-annual installments through February 2021	4.59	%	1,071		1,220
Variable rate term loan payable in semi-annual installments through June 2024	4.09	%	7,781		8,295
Variable rate term loan payable in quarterly installments through December 2024	—	%	—		8,757
Term loan payable in quarterly installments through March 2021	7.25	%	1,769		2,218
Term loan payable in monthly installments through June 2028	6.11	%	4,076		4,551
Variable rate term loan payable in quarterly installments through June 2020	5.59	%	31,308		32,711
Variable rate term loan payable in quarterly installments through October 2023	4.84	%	17,966		18,346
Term loan payable in quarterly installments through June 2031	4.95	%	4,191		4,605
Term loan payable in quarterly installments through February 2034	5.61	%	2,888		3,128
Variable rate construction loan payable, due June 2018	7.00	%	—		1,721
Term loan payable in quarterly installments through April 2027	4.50	%	22,081		13,325
Term loan payable in quarterly installments through March 2028	5.00	%	4,050		4,258
Variable rate term loan payable in quarterly installments through December 2027	4.79	%	13,477		14,034
Variable rate term loan payable in quarterly installments through August 2022	9.84	%	26,842		—
Term loan payable in quarterly installments through December 2038	5.15	%	30,029		—
Variable rate term loan payable in semi-annual installments through June 2033	4.39	%	9,971		—
Capital leases			36,772		35,013
			$	258,824	$	202,168
Less - current maturities			24,397		22,375
Less - deferred financing fees			8,175		6,556
Long-term debt			$	226,252	$	173,237

AMERESCO, INC.

Date: November ~~2, 2018~~5, 2019

/s/ ~~Mark Chiplock~~

Spencer Doran Hole

~~Mark Chiplock~~

Spencer Doran Hole

Senior Vice President and ~~Interim~~ Chief Financial Officer
(duly authorized and principal financial officer)