Evaluating Ameresco's Declining ROCE and Capital Allocation Strategy Amid Growth Ambitions

The energy transition has become a fertile ground for capital deployment, but not all companies navigating it are doing so with equal efficiency. Ameresco, Inc. (AMRC), a leader in energy infrastructure and sustainability solutions, has seen its financial metrics diverge in recent years. While the company has posted robust revenue and adjusted EBITDA growth, its Return on Capital Employed (ROCE)-a critical gauge of capital efficiency-has reportedly declined. This raises a pivotal question for investors: Is Ameresco's aggressive reinvestment in growth initiatives justified, or does the declining ROCE signal capital inefficiency?

A Growth-Driven Strategy with Mixed Signals

Ameresco's capital allocation strategy has been heavily tilted toward expansion. By the third quarter of 2025, the company reported a total project backlog of $5.1 billion, with $2.5 billion already contracted, reflecting strong long-term revenue visibility. This growth is underpinned by a diversified portfolio of hydroelectric, hydrogen, energy storage, and renewable natural gas projects. Notably, Ameresco has also pursued inorganic growth, such as the acquisition of ASA Controls in March 2025, to bolster its smart building solutions.

However, such aggressive reinvestment comes at a cost. The company's corporate debt has surged to $300.2 million as of September 30, 2025, up from lower levels in prior years. While this debt is ostensibly used to fund working capital needs and project development, it raises concerns about whether the returns from these investments are sufficient to justify the capital outlay.

The Missing ROCE Puzzle

Direct historical ROCE data for Ameresco remains elusive, as neither its 10-K filings nor press releases explicitly disclose this metric for the 2020–2025 period. Investors are thus left to infer trends from proxy metrics. For instance, Ameresco's adjusted EBITDA for Q3 2025 reached $70.4 million, up 13% year-over-year, while its full-year 2024 adjusted EBITDA was $225.3 million. However, without precise EBIT figures or capital employed data, calculating ROCE manually is challenging.

What is clear is that Ameresco's capital base has expanded significantly. Its Energy Asset Book Value stood at $2,117.5 million as of September 30, 2025, with Energy Asset Debt at $1,551.5 million. This suggests a high leverage ratio, which could amplify returns if asset utilization is efficient but also increase risk if project economics underperform.

Justifying the Reinvestment: A High-Stakes Bet

Ameresco's management argues that its capital allocation is justified by the long-term potential of the energy transition. The company's geographic diversification-particularly its expansion into Europe-has yielded progress in converting backlog into revenue. Additionally, its focus on capital-intensive projects like renewable natural gas facilities and hydrogen infrastructure aligns with global decarbonization trends.

Yet, the absence of ROCE data forces investors to rely on qualitative assessments. Ameresco's 8-quarter rolling average Adjusted Cash from Operations of $51.9 million hints at operational leverage, but this must be weighed against rising debt servicing costs. The company's leverage ratio of 3.2x (corporate debt to adjusted EBITDA) is not alarmingly high, but it leaves little room for margin compression or project delays.

The Capital Efficiency Dilemma

The crux of the issue lies in whether Ameresco's growth initiatives generate returns exceeding its cost of capital. While the company's project backlog and strategic acquisitions suggest a disciplined approach, the lack of transparency around ROCE complicates this assessment. For example, Ameresco's Energy Debt Advance Rate of 73% indicates that it is financing a significant portion of its assets, which could either reflect prudent leverage or overreliance on debt.

Moreover, the energy transition is inherently capital-intensive, and Ameresco's focus on long-lead projects (e.g., hydroelectric and hydrogen) means returns may materialize years after initial outlays. This time lag could mask inefficiencies in the short term, making it harder to assess capital allocation quality.

Conclusion: A Calculated Risk with Ambiguous Rewards

Ameresco's capital allocation strategy is a double-edged sword. On one hand, its aggressive reinvestment in high-growth sectors like renewable energy and smart infrastructure positions it to capitalize on the decarbonization megatrend. On the other, the absence of ROCE data and rising debt levels introduce uncertainty about the efficiency of these investments.

For investors, the key is to monitor two metrics: (1) the pace at which Ameresco converts its $5.1 billion backlog into revenue and (2) its ability to maintain or improve its leverage ratios without sacrificing growth. If the company can demonstrate that its capital-intensive projects yield returns above its cost of capital-despite the current ROCE opacity-its strategy may prove justified. Otherwise, the declining ROCE could signal a misallocation of capital, even in a high-growth sector.

In the energy transition, as in all capital-intensive industries, the line between visionary reinvestment and profligacy is razor-thin. Ameresco's ability to navigate it will define its long-term value.