Opening of Proposals - WWTP Solar Guaranteed Energy Savings Contract Proj. No. 124-015 - Ameresco

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Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill Impairment As described in Notes 2 and 5 to the financial statements, management tests the Company's goodwill, which had a balance of $75.6 million as of December 31, 2023, for impairment, at the reporting unit level, at October 31 of each fiscal year, or more frequently if events or changes in circumstances indicate the asset might be impaired. To test goodwill for impairment, management compares the estimated fair value of each reporting unit with the carrying amount of each reporting unit, including the recorded goodwill In estimating the fair value of each reporting unit, management uses a methodology which combines an income approach, using a discounted cash flows method, with a market approach, using a peer -based guideline company method based on the average of published multiples of earnings of comparable entities with similar operations and economic characteristics. During the year ended December 31, 2023, the Company recorded a goodwill impairment of $2,222 at one reporting unit. We identified the annual goodwill impairment assessment for the Company's reporting unit where impairment was identified as a critical audit matter because of the significant estimates and assumptions used by management when estimating the fair value of the reporting unit, including management's forecasts of revenue and expense growth rates, management's selection of the discount rate for the income approach and management's estimates of the multiples of earnings of comparable entities with similar operations and economic characteristics for the market approach. Auditing management's estimates and assumptions involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialists, due to the impact these assumptions have on the goodwill impairment assessment. Our audit procedures related to the assessment of goodwill impairment included the following, among others: • We obtained an understanding of the relevant controls relating to management's goodwill impairment assessment and tested such controls for design and operating effectiveness, including controls over management's review of the significant assumptions used in the estimate of fair value, including forecasted revenue and expense growth rates, the selected discount rates, and the selected multiples of earnings. • We evaluated the reasonableness of management's forecasts of revenue and expense growth rates by comparing the projections to historical results and testing certain contracts contributing to the revenue forecast. • We tested the underlying data used by management in their development of forecasts of revenue and expense growth rates for accuracy and completeness by agreeing it to source data. • We utilized valuation specialists to assist in the following procedures, among others: Evaluating the reasonableness of the discount rate and multiples of earnings by comparing the underlying source information to publicly available market data and verifying the accuracy of the calculations. Developing a market participant discount rate using publicly available market data and comparing that discount rate to the discount rate selected by management. Evaluating the appropriateness of the valuation methods used by management and testing their mathematical accuracy. Revenue from Contracts with Customers — Project Revenue As described in Notes 2 and 3 to the financial statements, the Company's projects line of business, which relates to the construction of energy efficiency projects, including the design, engineering and installation of technologies and techniques to improve energy efficiency and control the operation of a building's energy -and -water -consuming systems, recognized revenue of $1.37 billion during the year ended December 31, 2023. Typically, the Company provides a service of integrating a complex set of tasks and components such as design, engineering, construction management, and equipment procurement for a project contract. The Company's project revenues are generated from long-term contracts whereby revenue is recognized over time using the cost -based input method. The Company uses total costs incurred on the project relative to the total expected costs to estimate progression towards the satisfaction of the performance obligation. Estimating the amount of project revenue to record from the Company's long-term contracts requires management's judgment in estimating final construction contract profits, which are driven by the total estimated consideration payable by the customer and 44