Authors: Robert Fellinger, William Laubie, Julia Moshkin, Jason Prince, and Kent Santin

December 17th, 2012

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Recommendation
We think Ameresco (AMRC) presents a strong investment opportunity to participate in the continued upside of the energy efficiency and renewable energy space over the coming presidential term and going forward. With persistently high energy prices and against the backdrop of strapped local and state governments, the opportunity to mitigate these costs through energy efficiency upgrades involving no upfront capital costs will no doubt appeal to industrial, commercial, and residential power customers alike. Furthermore, a strong renewable generation portfolio continues to bolster the bottom line. As a strong growth focused company with a healthy balance sheet, and a virtually recessionproof business model, Ameresco is poised to continue its leadership in its own field and provide attractive returns to investors.

Industry Overview
Energy efficiency companies, also referred to as energy services companies (ESCOs), develop, install and arrange financing for projects developed to improve energy efficiency in buildings and other facilities. These companies usually offer products and services including boiler and chiller replacement, HVAC upgrades, lighting retrofits, equipment installations, on-site cogeneration, renewable energy applications, load management services, rate analysis, risk management and billing administration. 1 ESCOs typically offer their services through energy savings performance contracts (ESPCs). Such contract structures requires ESCOs to assume a degree of responsibility for the performance of the installed measures for a segment of the project lifetime since their payment is tied to the success of their efforts. 2 Typically, ESCOs fall into four major categories by business structure: Independent ESCOs Building equipment manufacturers Utility companies Architectural and engineering companies

The market for energy efficiency services has undergone significant growth Market Revenue 2011 Percentage in the last 20 years, mostly due to the rising energy prices, advances in MUSH $3,805 73% energy efficiency and renewable energy technologies and the Federal $925 18% 3 Public Housing $103 2% governmental support. The recent growth of the industry creates Industrial $205 4% consolidation opportunities as highly competitive players aim to increase Commercial $103 2% market share. In addition, new service offerings such as demand response Residential $51 <1% and energy management software are opening new opportunities for Total $5,141 100% Table 1: ESCO Revenue Segmentation by End Use ESCOs. 4 These trends created an industry landscape that is dominated by a Market, U.S. in $ Millions group of large companies that specialize in the use of Energy Service Source: Pike Research, 2012 Performance Contracts designated by the U.S. government. These companies have passed a prequalification process that allows them to enter into indefinite delivery/indefinite quantity (IDIQ) contract arrangements with federal agencies over the next decade (up to $5 billion each, totaling in $80 billion in potential contracts). 5 1

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Funding opportunities and new policy instruments have made the federal market very attractive. Especially important policy for ESCOs was implemented in 2009, when President Barak Obama signed executive order 13514, mandating all federal agencies to achieve 30% reduction in energy use by 2015. 6 In Washington, energy efficiency has gained significant momentum within both public and private organizations. Another example of federal support for greater efficiency is the American Recovery and Reinvestment Act of 2009 that directs tens of billions of dollars to be invested in energy infrastructure and efficiency. 7 The vast majority of ESCOs revenue is generated from public entities at the state or local level. Municipalities, universities, schools and hospitals (MUSH sector) represent about 73% of all ESCO activities. 8 This is mainly due to fact that certain provisions of ARRA direct substantial investment into MUSH segment through State Energy Programs and Energy Efficiency Block Grants. 9

Company Overview
Ameresco, founded in 2000 and headquartered in Framingham, Massachusetts, is one of the leading providers of energy efficiency solutions for facilities throughout North America. The companys core business models enables its customers to reduce energy consumption, lower their operating and maintenance costs and realize environmental benefits. Amerescos services portfolio includes retrofitting of energy infrastructure and operation of small-scale renewable energy plants. 10 It was established in 2001 with 4 offices in 3 states, and has grown to 62 offices in 34 states and 5 Canadian provinces by the end of 2011. 11 In addition to Amerescos physical growth, acquisitions of complementary businesses and assets have been an important part of its strategic growth and resulted in fifteen acquisitions that broadened its services and expanded the geographical reach. In 2011, one of the more significant acquisitions was of Applied Energy Group Inc., a demand side management and energy efficiency consulting services provider that enabled Ameresco to expand its services offerings to utility customers. Other major acquisitions include ASP Energy Services Company Inc, which was subsequently renamed Ameresco Southwest and xChangePoint that expanded the services offered to private sector commercial and industrial customers. 12
Acquired Citizens Conservation Founded by Sakellaris and management team from Noresco First Federal ESPC contract Duke Solutions Acquisition Acquisiitions: Exelon Solutions, Tele-Gest, Michel Bellerose

Acquired Southwestern Photovoltaic

Ameresco IPO

First full year of operations

Federal FRR Qualification BMW LFG Facility Acquisitions: LG&E Enertech, E-Three, Planergy Houston Revenue > $100mm

Acquired Select Energy

Began Savannah River Project Acquired Byrne Engineering

Acquisitions: Applied Energy Group, APSES

Figure 1: Ameresco Corporate Timeline

Ameresco customers view energy efficiency measures as a cost effective solution for saving energy, updating the aging facility infrastructure and reducing environmental impact. 13 Amerescos main suite of services includes development, 2

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design, engineering and installation of projects that reduce the energy and O&M costs of the customers facilities. Such projects usually include a variety of measures customized for the facility and designed to improve the efficiency of heating, ventilation, air conditioning and lighting systems. 14 After project completion, Ameresco may operate, maintain and repair the customers energy system under a multi-year O&M contract, which provides additional revenue streams. In addition to energy efficiency, Ameresco develops and builds small-scale renewable energy projects, located on or in close proximity to customers site. Most of the companys small-scale renewable energy projects to date have utilized landfill gas to produce electricity and were constructed close to landfills. 15 In addition, the company distributes PV panels, solar regulators, solar charge controllers, inverters, solar powered lighting systems, solar powered water pumps, solar panel mounting hardware, and other system components. Ameresco, Inc. offers its services primarily to governmental, educational, utility, healthcare and other institutional, commercial, and industrial entities. As of December 31, 2011, it constructed approximately 34 renewable energy projects; and owned and operated 22 small-scale renewable energy plants, including 19 renewable LFG plants, 2 waste water biogas plants, and 1 solar PV installation. To the right is a map showing Amerescos current energy producing assets. All are LFG plants, except for two projects in northern Boston, which are solar PV. This map excludes the additional three plants Ameresco has in the Greater San Francisco area. Management has stated on a number of occasions that it expects renewable energy to contribute more to the top line over time and to improve gross margin as well, as it is a higher margin business than the energy efficiency side of the company. All indications point to most new cash generated by the business indeed being invested in renewable assets.
Figure 2: Map of Amerescos Energy Assets

Ameresco Solutions Portfolio: Deeper Dive

The company reports its performance and generally aligns its operations within four different segments that largely align with its major geographical areas of operations. These include U.S. Federal, central U.S. region, other U.S. regions, and Canada. Within each of these geographical segments, the company provides both energy efficiency and renewable energy services and products. Energy Efficiency Comprising 75% of total company revenues, the energy efficiency unit implements the energy-efficient contracts into which Ameresco enters as its many business, and also provides for the operation and maintenance of previously constructed assets. The core competencies that Ameresco brings to the table include equipment efficiency, load management, operational efficiency, and process productivity. As part of its offerings, Ameresco also works directly with customers to secure rebates or tax credits that incentivize reductions in energy consumption. 3

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The business unit is comprised of the following teams: Energy Supply Management: Assess supply side dynamics with an eye towards the current regulatory scheme, market conditions, and existing pricing and contracts in place. Energy Infrastructure: Offers infrastructure improvements and retrofits designed to reduce cost and increase efficiency; primarily offered to commercial, industrial, institutional, and government customers. Ameresco aims to improve energy, heating, cooling and water consumption and shares in the savings with the customer. Invoice Management: Branded as AXIS Invoice Management, offers consumption data on energy within large organizations and automates the bill management process with a technology that provides faster access to accurate data. This service is designed to reduce human error in the management of utility billing. Renewable Energy The principle businesses of the renewable energy unit are the construction of landfill gas (LFG) plants, solar generation, construction of biomass plants, and the resale of photovoltaic panels and systems. Through its own LFG facilities, it also enters into power purchase agreements (PPAs) with local utilities and third parties. The company is involved in both coordinating the design and construction as well as ongoing maintenance and operation of its assets. The business unit comprises the following teams: Landfill Gas/Biogas: Acts an intermediary between landfills and co-located clients to build gas-to-energy projects that capture waste gas for electricity and heat generation. A similar solution is provided for biogas. As two options, the company either develops and owns the assets, selling the power back to the customer, or develops the asset for customer ownership and maintenance, with which it may assist in the latter. Biomass: Cogeneration and distributed generation facilities that are designed to meet a substantial portion of a facilitys energy needs. These projects are generally financed through PPAs or ESPCs. Wind: Represents customers through the entire process from government approval to implementation and ownership. Photovoltaic Systems: Ameresco aims to finance these projects directly for customers, thereby removing the budget obstacles which would otherwise hinder implementation. Customers thus avoid the incentive instability in solar PV projects as well, as they have little or no up-front payment and share only in the upside of these systems.

Regulatory Context
Numerous federal and state policies affect Amerescos business. These policies enable ESCOs to enter into ESPCs with government agencies. 16 However the specific regulatory requirements vary from state to state and between agencies. Amerescos projects must comply with the corresponding electric reliability, building and safety and environmental regulations and codes. In addition, numerous federal, state and local permits are required to develop an energy efficiency or renewable energy project. 17 Renewable Energy projects are subject to specific safety and economic regulations. As it pertains to Amerescos renewable portfolio, there are several important issues to be addressed regarding landfill gas and solar PV. The former is 4

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usually regulated on the local level, unless LFG is combined and distributed with natural gas. 18 In case of solar PV, the sale and distribution of electricity at the retail level is subject to state regulation, while the sale and transmission of electricity at the wholesale level is under federal jurisdiction. 19 The construction of power generation facilities is usually regulated at the state level, and is subject to state policies. At the federal level, the ownership, operation and sale of power is subject to regulation under Public Utility Holding Company Act of 2005 (PUHCA), the Federal Power Act (FPA), and Public Utility Regulatory Policies Act of 1978 (PURPA). 20 All power generation plants constructed by Ameresco to date are small power qualifying facilities under PURPA, 21 and therefore are subject to less regulation. Regardless of the capacity, LGF projects require emissions permits, requirements and eligibility for which vary between states. 22 On the other hand, renewable energy projects are eligible to certain governmental incentives, such as tax credits, and the ability to sell environmental attributed, including carbon credits. 23 Finally, demand reduction services for utilities and institutional clients are subject to regulatory tariffs established under federal and state utility laws. Such laws also address the operation and interconnection of renewable energy projects, which are subject to federal reliability standards that are set in utility tariffs. Theses tariffs are proposed by the utilities and approved by the state or federal regulatory commissions. 24

Summary of key ESCO related legislation and initiatives

Legislation/Initiative Energy Policy Act of 1992 Executive Order 13123 (1999) Greening the Government through Efficient Energy Management Energy Policy Act of Key Points Original authorization to use of Energy Savings Performance Contracts Mandates that all federal government buildings reduce energy costs by 30% by 2005 35% by 2010 as compared to 1985 base levels Sec 202- through lifecycle cost-effective measures, each agency shall reduce energy consumption per square foot of facilities by 30% by 2005 and 35% by 2010 as compared to 1985 base levels Sec. 203- industrial and lab facilities shall reduce energy consumption per square foot, per unit of production, or per other unit as applicable by 20% by 2005 and 25% by 2010 Reauthorized ESPCs through 2016

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2005 Executive Order 13423 (2007) Strengthening Federal Environmental, Energy and Transportation Management Energy Independence and Security Act of 2007 DOE requires new federal buildings to achieve at least 30% greater energy efficiency over prevailing building codes Reduce energy use by 3% (compared to 2003) from 2007 to 2015 Increase renewable energy share to o Not less than 3% of total demand in 2007-2009 o Not less than 5% in 2010-2012 o Not less than 7.5% in 2013 onwards Reduce water use by 2% per year from 2008-2015 Congress expressed interest in use of ESPCs by federal agencies o Increase ESPC funding flexibility o Permanently authorize ESPCs o Direct the DOD and DOE to study the potential use of ESPC for vehicles and generation equipment Reduce energy intensity across DOE complexes by reducing energy consumption by 30% and water consumption by 16%, saving $90 million in taxpayers money per year Attain a LEED Gold standard for all new buildings, and all buildings that go through major renovation Provides $18 billion in government expenditure, designated to improve energy efficiency infrastructure Funding for improved energy grid, renewable energy technologies, and repairs to building structures Investment of $150 million over the next 10 years, to create 5 million jobs and increase private effort to build clean energy future Ensure 10% of our electricity is generated by renewable energy sources by 2012, and 25% by 2025 Implement an economy-wide cap and trade program to reduce GHG emissions 80% by 2050

DOE Transformational Energy Action Management Initiative (TEAM) American Recovery and Reinvestment Act

Obama-Biden: New Energy for America Plan

Source: Harris Williams & Co (2010)

Financial Overview
Overall Ameresco is a financially healthy company. Their EPS has grown each year since going public, with their first dip being projected for this year-end. AMRC stock entered a highly volatile market, which led to some major price swings. Amerescos IPO was on July 21st 2010, for $10 a share, with a lifetime high of $17.50 and low of $7.50. For the majority of 2012 it hovered within the $11-14 range, but in early November took a drop into the $9s and has remained since. This drop in stock price has impacted the P/E ratio, however it still remains strong around 19.4 while industry average is 16.6, indicating that growth potential is still being priced into the stock. Revenues have increased significant amounts each year, with a strong growth in 2010 and 2011. A majority of revenues are generated from the energy efficiency side of the business, typically between 72-80% with the rest being from renewable energies. Illustrating profitability, EBITDA margin has increased from 2009 levels, proving operating expenses are stable and perhaps even declining. When further diving into Amerescos financial ratios, an increasing quick ratio, as well as declining debt-to-equity ratio underlies their strength. One of the only drawbacks we have seen is the lack of dividend payouts, however with the company still being rather young, and only public for two years this is understandable. We believe Ameresco is in a strong financial position. Current valuations lead us to believe it is a good opportunity for a long-term investment from the financial analysis standpoint. 6

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Figure 3: Ameresco (AMRC) Stock Price Performance Over 2012

Key Financials 12 months Dec-312008A USD 395.9 4.6% 80.8 20.4% 26.1 6.6% 22.3 5.6% 18.3 4.6% 18.3 4.6% 0.54 92.9% 12 months Dec-312009A USD 428.5 8.3% 79.7 18.6% 33.7 7.9% 27.1 6.3% 19.9 4.6% 19.9 4.6% 0.61 13.0% 12 months Dec-312010A USD 618.2 44.3% 110.7 17.9% 57.4 9.3% 46.0 7.4% 28.7 4.6% 28.7 4.6% 0.69 13.1% 12 months Dec-312011A USD 728.2 17.8% 135.0 18.5% 65.7 9.0% 51.7 7.1% 34.7 4.8% 34.7 4.8% 0.78 13.0% LTM 12 months Sep-302012A USD 663.1 (7.8%) 130.2 19.6% 54.9 8.3% 36.0 5.4% 21.7 3.3% 21.7 3.3% 0.48 (34.6%) 12 months Dec-312012E USD 648.9 (10.89%) 56.3 8.7% 0.49 (37.82%) 12 months Dec-312013E USD 707.9 9.10% 64.2 9.1% 0.65 34.02% 12 months Dec-312014E USD 788.7 11.42% 76.0 9.6% 0.75 15.38%

For the Fiscal Period Ending Currency Total Revenue Growth Over Prior Year Gross Profit Margin % EBITDA Margin % EBIT Margin % Earnings from Cont. Ops. Margin % Net Income Margin % Diluted EPS Excl. Extra Items Growth Over Prior Year

Table 2: Key Growth Metrics Since 2008 with Next Two Year Forecast Source: S&P Capital IQ

As can be seen, despite pressures to grow on a top line basis, Ameresco has done relatively well at managing margins and seems to be taking a manageable growth trajectory so far. Particularly as it puts more cash to use in its renewable portfolio, as well as diversifies away from governmental customers more, we will want to watch to see those margins maintained.

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Capital Structure
Given the role of Ameresco in arranging the substantial financing required for its energy efficiency solutions, investors need to have a comprehensive understanding of the capital structure before investing.
Current Capitalization (Millions of USD) Currency Share Price as of Dec-14-2012 Shares Out. Market Capitalization** Class A Common Stock Shares Out * Class A Common Stock Share Price = Class A Common Stock Market Capitalization + Class B Common Stock Shares Out * Class B Common Stock Share Price = Class B Common Stock Market Capitalization - Cash & Short Term Investments + Total Debt + Pref. Equity + Total Minority Interest = Total Enterprise Value (TEV) Book Value of Common Equity + Pref. Equity + Total Minority Interest + Total Debt = Total Capital

USD $9.64 45.1 434.6 27.1 9.6 261.1 18.0 9.6 173.5 26.2 242.5 0.1 651.0 259.0 0.1 242.5 501.5

Figure 4: Components of Capital Structure

Table 3: Capital Structure Breakdown

The company currently has $242 million in total debt for a total debt to capital ratio of .48x. A large proportion of this debt (~$198 million) is attributable to the financing for federal ESPC projects; this is notable as Ameresco has limited accountability to actually service this debt: the company does not pay any interest on the ESPC receivables and payments are not settled out of the companys cash flows. When the company implements a federal ESPC contract, it books the receivable as an asset on the balance sheet; once the project it completed the liability charged against the asset, thereby eliminating it from the balance sheet. The repayment is managed by the government to whatever third party is financing the institution. Thus a more proper way to look at Amerescos capital structure might be to eliminate the ESPC obligations entirely; this changes the picture even more so in Amerescos favor.

Competitors
Ameresco has five major competitors, who have very similar business models, each bringing a unique trait to the table. These five competitors are Honeywell Automation and Control Solutions, Johnson Controls, Constellation Exelon, Carrier, and Chevron Energy Services. Chevron, Honeywell, and Carrier are the largest names within this space; primarily due to acquisitions of boutique energy services companies from 1995 onwards. Energy services are not these companies primary means of business, but simply a division. This provides benefits in greater access to capital and other resources, but also postulates drawbacks in regards to expertise and deployment of new innovations.

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Constellation, a recent acquisition of Exelon Corp a significant energy producer in the US, boasts having two-thirds of the Fortune 100 companies selecting them to manage their energy efficiencies. Constellation provides energy solutions in addition to being an energy provider. Johnson Controls is one of the oldest companies within energy systems, starting in 1885 installing and maintaining automatic temperature regulations for buildings. Now Johnston Controls has three primary business areas: Automotive experience, building efficiency, and power solutions. Leveraging this competitor set and a few additional smaller players allows us to explore a comparable-basis valuation for Ameresco.
Company Comp Set Company Name TEV/Total Revenues LTM Latest 2.7x TEV/EBITDA LTM - Latest TEV/EBIT LTM Latest P/Diluted EPS Before Extra LTM Latest 40.7x P/TangBV LTM Latest NTM TEV/Forward Total Revenue (Capital IQ) 2.65x NTM TEV/Forward EBITDA (Capital IQ) 8.6x NTM Forward P/E (Capital IQ) 30.48x

Covanta Holding Corporation (NYSE:CVA) EnerNOC, Inc. (NasdaqGS:ENOC) ESCO Technologies Inc. (NYSE:ESE) Generac Holdings Inc. (NYSE:GNRC) Itron, Inc. (NasdaqGS:ITRI) Johnson Controls Inc. (NYSE:JCI) Polypore International Inc. (NYSE:PPO) Power-One Inc. (NasdaqGS:PWER) Quanta Services, Inc. (NYSE:PWR)

10.0x

17.9x

9.2x

0.9x 1.5x 2.8x 0.9x 0.6x 3.7x 0.2x 0.9x

NM 11.5x 11.8x 6.8x 8.8x 13.3x 1.4x 9.8x

NM 14.8x 15.1x 10.7x 12.2x 18.3x 1.6x 13.5x

NM 20.7x 6.8x 47.3x 16.1x 26.2x 6.2x 21.1x

2.1x 24.7x NM 44.9x 5.4x NM 1.1x 3.2x

0.63x 1.36x 2.47x 1.05x 0.61x 3.46x 0.27x 0.89x

3.8x 7.7x 11.9x 8.4x 7.7x 11.0x 2.2x 8.4x

10.45x 14.95x 11.78x 13.41x 10.99x 19.86x 10.91x 17.49x

Ameresco, Inc. (NYSE:AMRC) Summary Statistics

1.0x

11.9x

18.2x

20.1x

2.2x

0.99x

10.5x

16.76x

TEV/Total Revenues LTM Latest 3.7x 0.2x 1.6x 0.9x

TEV/EBITDA LTM - Latest

TEV/EBIT LTM Latest

P/Diluted EPS Before Extra LTM Latest 47.3x 6.2x 23.1x 20.9x

P/TangBV LTM Latest

High Low Mean Median

13.3x 1.4x 9.2x 9.9x

18.3x 1.6x 13.0x 14.2x

44.9x 1.1x 12.9x 5.4x

NTM TEV/Forward Total Revenue (Capital IQ) 3.46x 0.27x 1.49x 1.05x

NTM TEV/Forward EBITDA (Capital IQ) 11.9x 2.2x 7.7x 8.4x

NTM Forward P/E (Capital IQ) 30.48x 10.45x 15.59x 13.41x

Table 4: Ameresco Comparables Comp Set Trading Multiples Source: S&P Capital IQ

These numbers have to be taken with a grain of salt. All of the aforementioned competitors have far more diversified businesses and a rather different product mix overall than Ameresco. This makes relative comparable analysis difficult but it is still informing nonetheless. As can be seen, Ameresco multiples are clearly pricing in better growth potential overall versus its competitors on average, with Covanta interestingly, probably the most comparable in the set providing the best competition in terms of multiples. 9

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Growth / Prospects
With the industry having grown rapidly in previous years, it is forecasted to continue on this trend due to government regulations, consumer demand for greater energy savings, and tightening financial constraints on energy producers. Thus, it is believed Ameresco will continue to grow, with the possibility of gathering larger market share. Growth will be seen on the financial side due to increased demand, and in regards to diversity of clients and solutions provided. Major technological growth within building technologies will occur over the next fifteen years. Items such as improved refrigeration, new thermal insulation and building materials, higher efficiency HVAC units, new working fluids to heat/cool equipment, enhanced lighting, etc. will come online. 25 Due to Amerescos accelerated deployment of innovative technologies this will work in their favor, providing yet another competitive advantage. Looking at the development of renewable energies over the next fifteen years, the US will see a reduction in the cost of renewables, particularly solar. Regarding Ameresco current involvement in energy production from methane gas generated by waste, we believe greater technological advancements helping to improve efficiency and costs will be seen here as well.

Figure 5: Overall ESCO Industry Growth 1990-2008

Ameresco has clearly relied on growth through acquisition in the past and continues to utilize acquisitions as means to expand its footprint. As the market leader in the space, Ameresco is uniquely position to capitalize on the further efficiencies which come with scale and with leveraging large-scale partners to carry out longer term contracts. As long as the cash currently being generated by contracts continues to be put to good use, we see no reason why Ameresco should not be able to participate in the continued upside of this market and even add overall market share versus the competition. Regulatory support seems to also be fully behind the ESCO market. There are a number of mandates across all tiers of government requiring material reductions in energy use over the next 10-20 years. This, taken together with the need to update aging infrastructure and expectations of rising energy costs, points to a conducive environment for continued growth in energy efficiency solutions for the foreseeable future.

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Catalysts
Even in light of an industry expecting robust growth over the coming decade, we see special potential with Ameresco to uniquely capitalize on these opportunities in the short- to medium-term as well: Challenging Economic Climate Heightens Value Proposition Because of the budget-neutral nature of the ESCO business model, industrial, commercial, and especially governmental agencies are offered a unique win-win contract with Ameresco wherein it can provide all of the third party financing and assume all the risks so that no upfront capital or performance guarantee is necessary on the part of the customer. For cash-strapped entities, this free money will no doubt help to facilitate the conversations about energy savings and smooth the path to widespread adoption. Accelerating Pipeline Growth There was much concern when 1Q12 results were announced that pipeline growth had stalled, seemingly supported by a below-consensus revenue figure. However, as the last two quarters have demonstrated, not only has Ameresco maintained a healthy backlog of awarded projects, but it has actually managed to accelerate growth in the pipeline. This pipeline also provides a unique level of visibility into Amerescos revenue stream over 80% of its revenues arise from this pipeline, which at the end of 3Q211 stood at over $1.2 billion. Management believes that the addressable ESCO market is currently worth $5 billion with an expected CAGR of 12-14% through 2020. This is assuming that the commercial and industrial market remain largely impenetrable through that time; an opening of those markets could double that value. We think that this overall market growth coupled with increasing market share lend material support to management claims of 12-15% top line growth over the next 5 years. Changing Business Mix Supports Margin Expansion Ameresco has done an admirable job shifting its projects towards higher-margin (and longer term, for that matter) contracts across a number of U.S. regions. In particular, the Savannah River site project alone improves these metrics substantially due to the Operation and Maintenance contracts that were put in place. The overall shift towards O&M is a positive one that we hope to see continue. Of special note is how Ameresco has been able to improve margins despite a year-over-year drop in revenues. As can be seen in their financial reports, cost management also played an important role in their margin improvements. Moreover, small-scale infrastructure revenue is expected to increase by more than 10% in 2012. As many of these businesses have gross margins in the 20%+ range, their respective growth profiles should help drive improvement in the company's margin mix.

Risks
Ameresco is not a business model without its share of risks. Although CEO Sakellaris has extensive experience operating within the ESCO market, there are externalities to the business that are beyond any one mans ability to predict or manage around. The company itself seems to acknowledge this of the 11 pages which comprise a recently filed 10-K report, 9 pages relate to the risks of the business. A few of these risks will be explored in more detail.

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Non-Realization of Contracts Already Awarded The backlog of projects that Ameresco has already booked revenue for include those for which the company has not actually signed any customer contract for this awarded portion of the backlog amounted to some $483 million at the end of 2010. Customers do typically have provisions in these awards and/or existing contracts to terminate the contracts or delay payments to Ameresco for products and services. Governmental customers, which form the bulk of the customer base, in particular have special provisions that limit the responsibilities they have in signing an award; the end result is that Ameresco may not actually realize these revenues as booked, and would correspondingly take an economic hit in their financial results. Availability of Financing The projects that Ameresco undertakes for its clients generally require significant capital, which the company typically arranges for with third-party financing. The recent credit crisis has made it increasingly difficult to finance the largerscale projects for which Ameresco has already booked revenues; if acceptable terms are not available, Ameresco may be unable to secure customer contracts in the first place, the size of the projects may be smaller than otherwise would be undertaken, or existing contracts may have to be delayed or even cancelled. A 2011 amendment to the credit facilities provided for a $60 million revolved and a $40 million term loan. This is sufficient to provide financing for smaller renewable energy projects but provides no material support to the financing needed on the high-margin megadeals which have bolstered the overall portfolio as of late, i.e. the Savannah River Site development. Any inability to find appropriate external financing and/or amend the credit facilities going forward could have material impact on financial results. Government Support Critical to Business; Potentially in Trouble Government facilities form the largest part of the revenue base for Ameresco. The U.S. and Canadian federal governments and several of the states and provinces support existing and potential customers investments in energy efficiency and renewable energy through legislation and regulations that authorize and regulate the manner in which certain governmental entities do business with Ameresco, encourage or subsidize governmental procurement of their services, provide regulatory, tax and other incentives to others to procure their services and provide them with tax and other incentives that reduce costs or increase revenue. These programs are frequently used to justify the costs associated with energy efficiency and renewable energy projects. If these programs were amended, expired, or eliminated, there is real potential to impact financial results. In addition, some customers purchase electricity, thermal energy or processed LFG from renewable energy plants, or purchase other energy services from Ameresco, because tax, energy and environmental laws encourage or in some cases require these customers to procure power from renewable or low-emission sources, or to reduce their electricity use. Changes to these tax, energy and environmental laws could reduce those customers incentives and mandates to purchase the kinds of services that Ameresco supplies.
Liability for Unrealized Reductions in Power Usage

Ameresco typically enters into contracts wherein they commit to projects that will satisfy agreed-upon performance standards appropriate to the project. These contracts often amount to guarantees on increased energy efficiency; these contracts typically do not (but sometimes do) take into account factors beyond the control of Ameresco, thereby creating liabilities for Ameresco if these promises are not met. Performance commitments usually apply to the aggregate overall performance of a project rather than to individual energy efficiency measures. Therefore, to the 12

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extent an individual measure underperforms, it may be offset by other measures that overperform. In the event that an energy efficiency project does not perform according to the agreed-upon specifications, agreements typically allow Ameresco to satisfy their obligation by adjusting or modifying the installed equipment, installing additional measures to provide substitute energy savings, or paying the customer for lost energy savings based on the assumed conditions specified in the agreement. Depending on the extent to which the guarantee was not met, this can amount to substantial costs and a direct hit to the bottom line.
Inability to Manage Growth Effectively

After experiencing rapid growth in the past several years, Ameresco will need to continue to focus on the management, operational, and financial controls necessary for their reporting systems and procedures. A recent 10-K report highlighted shortcomings of the financial accounting systems that had a material adverse impact on the business. As the company continues to throw cash towards expansion efforts, it will need to keep in mind that these kinds of expenses will naturally have to increase as well; in particular, opening new offices will require training and other overhead costs that will likely take some time to recoup. Management will need to be thoughtful of the impact of these expenses on the bottom line and how best to trade-off expansion versus liquidity concerns in the shorter term.
Increased Energy Prices Not Realized

If the cost of energy generated by traditional sources does not increase, or if it decreases, demand for Ameresco services may decline. This gets at the heart of the business model. If traditional sources of energy regain price stability or commodity prices even decrease due to a large new deposit discovery or similar, the impetus for energy efficiency projects may give way to other concerns.

Conclusions
Overall, we believe an investment in Ameresco provides an attractive risk-reward proposition for investors currently. We consider the ESCO model highly attractive given the industry trends, tailwinds from macro and regulatory climates, and increasing adoption from a wide range of potential customers. We also see no reason for this trend to stop moving in the right direction for Ameresco. As a market leader, it should be able to leverage its own scale and relationships as the industry moves further and further across the value chain. We summarize our investment thesis as follows.

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ESCO market to grow 15-20% YoY through 2020 Project-based financing a compelling value proposition

Growth Opportunity Market Share Gain Opporunity Barriers to Entry Risk Profile Valuation Capitalization
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As leading provider, Ameresco can further capitalize on its own scale As demand improves, can leverage existing customers

Competitors likely to find access hard witout existing relationships Providers need to have scale; Ameresco has already shut them out from some markets no doubt Demand is uncertain and lumpy due to awards process Overall risk profile is medium, reflecting potential strong downside cases but in light of steady past performance and ability to manage through cycles At current levels, AMRC trades below competitors on a number of multiples As pipeline visibility improves, should see convergence towards and likely above peers Very little debt on balance sheet Healthy cash generation which is leveraged for strong growth area investments

Pike Research: ESCO Report (2012). EPA (2012) http://www.epa.gov/oaintrnt/energy/espc.htm 3 Pike Research: ESCO Report (2012). 4 Pike Research: ESCO Report (2012). 5 U.S. General Services Administration (2012) http://www.gsa.gov/portal/content/103926 6 Executive Order 13514 (2009) http://www.whitehouse.gov/the_press_office/President-Obama-signs-an-Executive-Order-Focused-on-FederalLeadership-in-Environmental-Energy-and-Economic-Performance 7 American Recovery and Reinvestment Act (2009). http://www.recovery.gov/About/Pages/The_Act.aspx 8 Pike Research: ESCO Report (2012). 9 U.S. Department of Energy (2012) http://www1.eere.energy.gov/femp/financing/espcs.html 10 http://www.ameresco.com/company/about-us 11 Ameresco Annual Report (2011). 12 Ibid. 13 http://www.ameresco.com/company/about-us 14 Ibid. 15 Ameresco Annual Report (2011). 16 EPA (2012) http://www.epa.gov/oaintrnt/energy/espc.htm 17 Ameresco Annual Report (2011). 18 Ibid. 19 ibid 20 Federal Energy Regulatory Commision (2012). http://www.ferc.gov/industries/electric.asp 21 FERC (2012). http://www.ferc.gov/industries/electric/gen-info/qual-fac/what-is.asp 22 EPA (2012). http://www.epa.gov/osw/nonhaz/municipal/landfill.htm 23 U.S. Department of Energy http://www.dsireusa.org/ 24 Federal Energy Regulatory Commision (2012). http://www.ferc.gov/industries/electric.asp
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U.S. Department of Energy (2012) http://www1.eere.energy.gov/buildings/technologies.html

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