Q4 2019 Earnings Call

Good afternoon, everyone to think you're participating in todays conference call to discuss NP five financial results for the food for the fourth quarter and for your ended December 28 2019.

Turning study or Dickerson Wright, chairman and CEO with Nvfive.

I had recorded 40 CFO of Nvfive, Alex talked in President and COO of NP, five and richer talk executive Vice President and General Counsel and before.

I'd now like turn the call it a richer Tom.

Thank you operator before we proceed I would like to remind everyone that this conference call may contain forward looking statements within the meaning of the safe Harbor provisions of the U.S. private secure.

<unk> Litigation Reform Act of 1995.

Including statements concerning future events and future financial performance.

The company cautions that these statements are qualified by important factors, including those discussed in the risk factor section of Nvfives annual report on form 10-K for the year ended December 28, 2019, which is on file with the Securities Exchange Commission as well as in other documents that the company policy.

With the commission from time to time.

These factors could cause actual results to differ materially from Doe is reflected by the forward looking statements contained herein.

Well the company may elect to update forward looking statements at some point in the future. The company specifically disclaims any obligation to do so even if its image change and therefore, you should not rely on these forward looking statements as representing viewed as the any date subsequent to today.

During this call GAAP and non-GAAP financial measures will be discussed.

A reconciliation between between the two is available in todays earnings release and on the company's website at Www Dot Nvfive Dot com.

Please note that unless otherwise stated all references to fourth quarter 2019 comparisons are be being made against the fourth quarter of 2018, and all full year 2019 comparisons are being made against full year 2018.

I would like to remind everyone that a webcast replay of this call and its accompanying presentation will be available via the link provided in today's news release and the investors section of the company's website.

Any redistribution retransmission or broadcast of this call in any way without the expressed written consent of Nvfive global ink is strictly prohibited.

We will begin the call with comments from Dickerson Wright, Chairman and CEO of Nvfive before turning the call over to Edward Codispoti, Chief Financial Officer for a review of the fourth quarter 2019, and full year 2019 results and outlook for 2020.

Alex Hoffman, President and COO better be five will then provide some insight.

Into nvfive operational achievements for the year and quarter before turning the call back over to Dickerson Wright to provide the outlook for 2020.

Well then open the call for your question.

Dickerson. Please go ahead.

Thank you Richard and good afternoon to everyone for joining our.

Q4, 2019, a conference call along with full year 2019 results.

The year was a year or process improvement and restructuring for our planned growth for 2020.

However, we did have significant accomplishments for 2019 and I'd like to review those with you. So if you would please turn to page four in our presentation slide four it will list. Some of this specific accomplishments that that nvfive had for the year to 19.

First we had 22% total revenue growth over 2018.

We became the leader and Geo spatial solutions through the QSR acquisition, coupled with our existing companies sky seen for geospatial analytics.

We also entered the high growth Pacific Northwest market place.

We saw rapid acceleration toward our goal of 2021 of energy.

Expansion.

We also through acquisitions and process improvements strengthen our verticals in all geographies of the company.

And we capitalize on our platform.

Through cross selling between all of our offices.

I now turn your attention to slide five.

The success of our fourth quarter has provided significant momentum for us to.

Going into <unk> the year Twentytwenty.

I'd like to speak of the five specific areas that we've strengthened and that gives us encouragement for pitcher growth in 2020.

First into port business in our core businesses are five verticals of Nvfive.

And so when I referred to the core business I'm, referring to those five key verticals.

As I said, we had strong performance in Q4 of the court vertical.

That positioned us very solid organic growth in future growth and we will our strategy for growing that core businesses through will be through tuck in acquisitions that support the existing five platforms.

And we're very encouraged about.

The performance of the core business.

We will expand in have expanded actually you see our service platform and that is by adding both the geospatial services through quantum spatial which is added to our core our current business up sky scenes quantum spatial greatly expands that gives us the platform to grow at a high tech.

Allergy area and also the highly profitable forensic construction defect this is that weve.

Certainly strengthened the platform Oh, the seek away and forensics through the acquisition of Ghd. So this is very encouraging to us that we've grown the service platform.

[noise] cross selling.

It's an opportunity that we had been up expanded Don and we get certain met metrics for that growth and that is really keeping as much as the work we can amongst our existing offices and and platform. So we exceeded our goal in 2019 by.

11%.

And we're very encouraged with the performance then.

What will we were looking for in cross selling and that really shows us that are integration is working that we can certainly offer the same services over multiple offices in multiple geographies and Alex Hoffman, our president will speak specifics and more specifics of the cross selling opportunities that we see going forward.

I'm also very encouraged by the backlog.

The overall growth is 46% year over year increase.

And you will see us further explain that and a good.

Following for backlog is in growth is is a good barometer drew to how we are doing and will do and twentytwenty.

Last is the project starts in project delays Ashley men mentioned in the third quarter. We said there was a delay.

The North Platte, IDR T. project, and we're happy to say that that's resuming and and moving ahead and so we're encouraged with there. We also announced a larger award at better LNG project, which is now.

We are recognize the revenue and that was the 34 million dollar award for an expansion.

And our LNG area. So we look forward to all those and that's what leads us for encouragement going into 2020.

On page six you'll see that the Nvfive core business results were very encouraging.

Reaching their revenue guidance with minimal contribution from QSR and I'd like to speak a little bit about that.

Yes, I spent a tremendous company, but the acquisition delays.

Our expected closing was later in 2019, we actually close and began on December 21st We then app our operational results.

What caused this delay was all government regulation and the Hart Scott Rodino filing push backs are closing by several weeks.

So what did we achieve and what do we expect to achieved in the quantum spatial acquisition.

You heard me mentioned earlier that we saw 22% revenue growth over from 2018 to 2019.

We anticipated acquiring 7 million of revenue from palms spatial in actuality because of the late closing we only received 1.4 million so how ever the core business beat guidance. We the core business showed five of Nvfive showed 513 million in revenue.

And so this was very encouraging without the anticipated.

Contribution of QSR.

So.

If we would look at this slide and look closely at the slide if we were to have Panera spatial for the full.

10 days that we were expecting an operations, we whatever you achieved 520 million in revenue for the entire year. So we're very very pleased with the with the guidance and with the strength of the Nvfive core business prior to quantum spatial and very encouraged with our with quantum is.

Facial its contribution actually before turning that slide quanta spatial had a very strong month mark. The just I know the five was not able to capture all of that Qs I had 13 million in revenue for the month, but as I said, we were only able to realize and be by through the acquisition one point.

4 million.

So now if you go to slide seven.

Let's look in specific impact of the.

Consolidation of Nvfive with quantum is spatial so I draw your attention to the left hand column and you'll see our what we called and be five core businesses. All those nvfive platforms that we had prior to the acquisition of pharma spatial and you've heard me say this many times before but those that platform is in.

Restructure environmental Engineering program management, and construction quality assurance.

Those total revenues for the quarter, where 132.4 million.

Net revenues, where I'm 103.5 million.

Adjusted EBITDA was 18.1 million.

And adjusted earnings per share with 72 cents.

When we combined it with quantum spatial.

The total consolidated was 138.8 million.

Net revenues of 104.3 million, but you'll notice some degradation in EBITDA. We went from 18.1 million to 17.9 million. It was purely on the closing timeframe of quanta spatial so the 72 cents per share which is up the linked very closely the guidance a with the quantum.

Facial acquisition, we are reporting 69 cents per share.

If you go to page eight or slide eight.

It's the strategy that we're using.

For acquisitions for to 19 and beyond and going forward. So let's look at what we accomplished in 219.

And remember we want to always increase shareholder value through these acquisitions.

We want to strengthen our vertical we want to enter new markets in high growth expansion and we want to have organic growth. So how did these acquisitions strengthen that platform of nvfive well if you look on the left.

The verticals that we strengthen Celtic energy.

Really helped our energy efficiency services through that acquisition.

JW started paying combined with our Alta surveying and environmental services, we strengthened their areas in Arizona, and California that we were not very visible and that specific area of all to survey.

Not to be dot to confuse you, but we made an acquisition of all 10 fire mental which is a leading in five full service environmental compliance company in California, and that also was strengthened the verticals.

To the right, we acquired Sexton group, which is.

A key technology that technology design firm that really is a differentiator in our mechanical and electrical and plumbing offering because it gets audio visual and high technology very very happy with that acquisition and it's really strengthen our full service offering of MVP to our clients.

In the CQH space, we acquired page page one in Orlando a page one is known very much for public works transportation infrastructure work and that strengthens our central Florida operation.

Lastly in November in the core business, we acquired Ghd Forensics Division.

And that really helps us and expands our highly profitable construction defect and forensic consulting business in the southeast.

Now moving over to the second sector in our strategy is entering of strategic markets.

We.

Moved ended the northwest and as you know the northwest as they high growth area, but not only high growth area. It is also extremely.

Attractive to corporation for tax based structure. So we entered Geo design with operations throughout.

California.

Northern.

The northeast Northwest I should say in Portland and in Washington.

Oh.

With WH Pacific Jude assigned really gave us strength in both southern California, and Geo technical operations that are CQH division as well as existing offices in Portland, So that combination really entered us into strategic markets and we're very pleased with that.

Now does expanding of our platform.

Why don't spatial gives us by far the nations largest geospatial market and platform for the technology vertical it will operate as envy the six vertical but it really differentiates us in analytics, it's a addressing a large market.

And it really gets us entre for consolidation and further growth through acquisition and organic growth and that geospatial market place. It aligns very well with nvfive in our energy space. Because we are very strong in our energy 21 efficiency and we will now introduced quanta spatial too many.

We have our and utility clients with a key service offering of Ah geospatial.

And mapping so were very pleased that is the strategy going forward, we will still be acquisitive, but we will only look for acquisitions that strength in our markets and many of these key areas as evidenced in into slide so now going to slide nine a little bit more.

On quantum spatial.

It's by far the largest acquisition Nvfive, it's done today.

And it really.

Capture three key areas one than that data collection, we work through our sky seen doing lie Darren imagery, and some multi spectral imagery, but nothing to the extent in data collection that we now get with quantum of spatial on a much larger platform.

They also had fully scalable or type Jerry software and analytical solutions that really gives them a cutting edge and a great barrier to competition.

I think that the geospatial market can become commoditized, but if you have the analytics and you have the way of delivering this information to the client. It really sets you. Apart. So we're very excited about what has been going on with the technical delivery of problems spatial.

But also in the actual if you look at the lower bottom and numbers of Qs side.

They are available and to provide services in all 50 states and and Canada up EBITDA growth has been 46% compound CAGR over the years and.

Very high 96% recurring revenue with clients and a very long runway up relationships with clients. All those are all things that will enhance what we're doing we're delivering through nvfive. So we're very pleased with that acquisition of quantum spatial.

I'd like you now to go to page or slide 10.

And look at our organic growth.

It grew 46% and many times you've heard me say that.

It's key to budgeting and to give you.

And opportunity to see how that budget project that is going to work for the following year backlog is so important so the growth of our backlog by 46% is very encouraging and that includes our guidance and if you look at the Q4 19, we're entering 2020.

With a backlog of 567.4 million, which is roughly 80% or so 81% of the guidance that we're giving a good backlog in the service business is usually 65% or above so we're very very encouraged so that is our report I will speak to you a little bit later on but that's our.

The overview of what we've accomplished in 2019 and I I like to turn the call over to our Chief Financial Officer, Ed Codispoti for further detail on the financial results.

Thank you dig and good afternoon, everyone.

I'll be providing a review of the company's results for the fourth quarter and the full year ended December 28 2019.

So if he would have please turn to slide 12, I'll review, our overall financial accomplishments.

Total revenues were $133.8 million into fourth quarter of 2019.

Compared to $116.1 million in the fourth quarter of 2018.

That revenues in the fourth quarter of 2019 increased to $104.3 million from $88.5 million in the fourth quarter of 2018.

Adjusted EBITDA for the fourth quarter 2019.

Excluding stock compensation and acquisition related costs was $17.9 million.

An increase from $16.4 million into fourth quarter of 2018 after excluding a 1.5 million dollar reversal of four one k. accruals in the fourth quarter of 2018.

Adjusted EPS in the fourth quarter of 2019.

After excluding nonrecurring income tax adjustments was 69 cents per share compared to 91 cents per share in the fourth quarter of 2018.

Finally cash flows from operating activities increased to $18.3 million for 2019 compared to $17.4 million in 2018.

Now for the full year 2019 results.

Total revenues in 2019 were $512.9 million compared to $422.1 million in 2018.

Net revenues in 2019 were $398.4 million compared to $334.3 million in 2018.

Adjusted EBITDA in 2019 was $68.6 million compared to $59.8 million in 2018.

Adjusted EPS for 2019 was $3, a 19 cents per share, which was based on 12.5 million diluted shares outstanding compared to $3.24 per share in 2018, which at the time was based on 11.5 million diluted shares outstanding.

The increase in weighted average shares outstanding reflects the issuance of shares of common stock from our secondary offering in 2018 as well as restricted stock grants to employees.

Cash flows from operating activities increased to $39.9 million for 2019 compared to $35 million in 2018.

Finally, I am pleased to report that the financial issues identified as of December 29, 2018 related to project contracts and analysis of certain percentage of completion projects have been resolved.

At this point I would like to turn the call over to Alex Hoffman and be five president and Chief operating officer to discuss opportunities for our core business.

Q4 key wins and an update on our cross selling program.

Alex.

Thank you wear and good afternoon, everyone.

As I think if arc has grown in recent years. We've continued continue to build capabilities across all five of our verticals, providing a unique blend of services and technical expertise that differentiates our company.

Our expansion has also provided an opportunity to take advantage of synergies across the organization, allowing us to approve the effectiveness and profitability of our operations.

Our core business continues to strengthen sure increased capabilities and improved efficiency as we identify opportunities to merge offices increased cross selling and build a unified Nvfive organization.

If you turn to slide 14, you'll see some of the key wins that are the result of our dynamic organization that we have built and nvfive and if contributor to the record backlog that Dick referenced earlier in the presentation.

Our infrastructure business secured some significant wins in the fourth quarter, including a 20 million dollar owners representation designed oversight plan review and field inspection contract by a San Francisco Bay area municipality on a 240 acre mixed use redevelopment project.

8 billion dollar project includes over 9 million square feet of office retail dining and entertainment space hotels, and more than 1600 residential units and apartments.

In New York City, NP five expanded two contracts with an MSR County Department of public works for an additional $5.5 million of funding.

These two contracts provide engineering design and construction inspection services for a variety of capital projects for Nassau County, and as far as funny and levels increase due to our excellent performance and drive to bring the greatest value to one of our most important clients in the northeast.

Our building technologies group secured a $3.6 million contract with a mid west electric transmission company for the development of a substation and high voltage standards.

Much of our MLP services are dedicated to vertical construction, we do provide commissioning services for utilities generation transmission and distribution age and this contract is an example, the reputation we have developed which utilities is experts in this specialized field.

Higher education is another key market for our building technologies group and our technology design group was awarded over $2 million and new contracts with colleges and universities in the fourth quarter to deliver design of audio visual and security systems.

In addition, we were also awarded a 2 million dollar contract for mechanical electrical plumbing and audio visual design for residential housing complex at an Ivy League School in Cambridge mass.

Our energy vertical continues to be one of the fastest growing groups within nvfive in foreign mitigation aging assets in service reliability continue to be the driving factors in energy capital investment investments.

We secured a $20 million contracting to forward to design underground power lines and in California community that has experienced fire damage in recent years.

The project will not only helped to mitigate fire rescue for will also minimize the need to shutdown power to residents as a precaution and high when situations oppose the virus.

And Pennsylvania utility retained nvfive to design and build a 6.2 million boil off gas compressor replacement for an LNG facility.

The new compressor relook improve the efficiency of the LNG equipment, which is used to compressed natural gas for storage minimizing the risk service interruptions during peak periods of demand.

Hey, utility in Ohio in West, Virginia awarded Nvfive, a 6 million dollar environmental inspection consulting project for the replacement of underground cash buyers.

The existing price replace knowledge replaced the agent assets, but also with large diameter pipes to once again limited service interruptions.

At Hong Kong, Macau, we secured some significant contracts and kind of energy efficiency and MVP design.

As we mentioned in the third quarter of 2019, we did see some service interruptions in Hong Kong.

Due to the civil unrest issue, we are facing out in the region is obviously, the Corona virus and we continue to monitor the situation closely.

Our business and Hong Kong is relatively small piece of our business accounting for approximately $9 million or we have several employees there and their safety as our utmost concern.

And then middle East in Southeast Asia, we've seen rapid growth in the fourth quarter and continued to identify opportunities to build upon their rapid expansion.

If you'll please turn to slide 15, we will review the cross selling success of 2019 and looked at our goals for 2000 Corning.

Cross selling is an important part of our strategy for growth and profitability and we have invested interest and continuing to success of this program.

Cross selling allows us to insource much of the work that would typically be for foreign buyer subcontractor and we can generate higher margins with work performed within Nvfive.

Additionally, our cross selling efforts provide us with a competitive advantage because we can bundle services into solutions that cannot be provided by many of our competitors, providing us with unique growth opportunities that wouldn't exist without our cross selling program.

In 2019, our cross selling goal was $400000 per week for $20.8 million.

We exceeded our cross selling target by 10% delivering 23.2 billion, which is close to 6% of Nvfives net revenue achievement for 2019.

In 2020, we increased our cross selling target to $500000 per week or $26 million for the year.

With the addition of quantum spatial another 2019 acquisitions, we seek new opportunities for cross selling that will make this new larger target obtainable.

At this point I would like to turn the call back to Dickerson Wright to provide a look at our 2020 projections.

Thank you Alex.

If you go to page 17 or slide 17.

It gets the macroeconomic factors that drive our sustainable growth and make us feel comfortable that we are in the right spot.

We're providing our services so macro one the population growth.

Tremendous population growth throughout all of our areas Oh, all with infrastructure chasing a finite resources. So we think sat the population growth will be continued to be a driver of our business, our business growth and particularly true delivering of infrastructure solutions.

We also are looking for energy safety in real life reliability to continue to grow in.

In 2020.

Some of that contribution will be in the energy efficient efficiency and particularly in the west the mitigation of fire risk in service interruption, and then major capital expenditures for delivering energy and delivering electricity underground and having that service changed from over over.

I had utilities.

The overall piece of this driver is the aging infrastructure. So what is running into each other is the growth of the population the tremendous demand for more energy and safety and reliability, coupled with an aging infrastructure I think the a and you'll see it.

The other publications, but the.

North America infrastructure is has a de rating from the from it a being the best to have being failing so there's a tremendous amount of improvement and this gets AIE and operate great opportunity for nvfive to work with clients to increase the.

They transportation water infrastructure.

That is being delivered.

[noise] energy efficiency, we still continue to want to grow that market space, there's been a tremendous push to green energy and conversion of private sector to energy efficient efficiency, and we think that through our energen cell platform. We are at the leading edge on providing those service.

Yes.

We will concentrate also on technological innovations and that really deliberate speaks to our service delivery, how we management managed data and through quantum spatial and the actual analytics and management of data is extremely important as well as the designing commissioning of.

Tremendous amount of expansion in government projects. So we look for these five things to be the major economic drivers for our sustainable growth and in 2020, and Nvfive is well positioned in any of those five.

Five drivers to provide service.

If you now go to slide 18.

It speaks of and this is up for me, what's a compelling slide because it really shows the financial growth of our company from measurable period of time and just over a three year period of time in 2017.

We went from an EBITDA of 40.32 now projecting in 2020, an EBITDA of over 103 million.

How does how is the company values in growth growth grew over that period of time. If you look look at 2017, where we had a enterprise value.

Out of 578 million, two now and enterprise value of 877 million and we're projecting that value to be at least or close to 900 million EUR $1 billion by 2020. So this gives a very very good.

A very very good glimpse of the financial accomplishments in the growth of Nvfive and work and it without the support if everyone. Our employees in our clients. This would not be the case. So we're pleased to report that and.

If you now turn to page or slide 19.

What we want to focus on in 2020 is we're going to accelerate our organic growth.

We think that we're going to give guidance between the mid to high single digits in 2020.

And where will that come from execution of course will build on our.

Let them that we've generated in Q4, where we had a very strong quarter, we'll focus on a strengthening our internal project management. So that we can make sure that we are capturing everything efficiently and of course recruiting and retention in our business is something that we need to focus on and we won.

To have people stay with us and they are being set abides by share ownership and opportunities to grow within nvfive.

The integration you've heard me say many times if you go to your right.

We must integrate the companies that are joining us we have a very proven track record at a process for integration just does not come anecdotally. So we were able to and in the process of integrating all of the acquisitions in 2019 and always always with.

Our focus on.

Keeping the best people, making the integration scalable and adding value in organic growth and profitability of the acquisitions and that's the main focus on integration.

Cross selling if you look at synergy cross selling can bridges, the synergy and the integration process because cross selling really.

Shows that we are inclusive to all of our organizations all of the opportunities that we can add between offices and so I was very pleased to see the report on cross selling and how we are growing and that really does two things. It shows that we can expand the the market through our multiple office space.

And it also shows that we're integrating those companies through cross selling that join us.

Synergy implementation synergy simply says that we can scale. It we can do it better.

As a group than we could do with isolated.

Offices, so we're always looking for opportunities to scale, our support areas and support services.

So the investment we're making an acquisition we are looking for high growth high barrier.

Entree.

Acquisition opportunities and our investment will still be there.

Of course, we're really focusing on 2020 of execution and growing and strengthening our protocols. So what does the guidance. If you look in the right hand corner, we still maintain that guidance of 700 million to 730 that we gave.

A month ago.

And we feel comfortable with the adjusted earnings per share guides, the $4.38 to $404. A 90 cents. So that those are those are the completion of all up our plant remarks today for the time and now we'd like to turn that over to the operator.

Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your touched on telephone. If your question has been asked where there were some move yourself from the Q. Please press the pound <unk>.

Our first question comes from Jeff Martin with Roth Capital Partners.

Thanks, Good afternoon, everyone.

Hi, Jeff.

Hi, Dick.

I was wondering if you could give us a.

30000 foot view of where the largest opportunities in the business today.

Appear for 2020, and then also yes or any headwinds that you see out there.

Kind of help frame that for us. So we kind of know what to expect as we get into yeah. Further ended the year.

Thanks, Jeff I see the biggest opportunity for us as the space that we're in and it's the.

Our ability to work approve the aging infrastructure up our country. There has not been any funding really in a large scale to infrastructure improvement and so we think we are really in a very good spot to do something that is needed and its demanded and it's.

Not something that is a selective.

Drinking clean water going overstate bridge is going down roads or something that's expected and we are in that spot that we're not having to educate the markets. So I really look for the opportunity in our positioning as engineers and the infrastructure space, So that I see as the macro opportunity.

Oh the headwinds.

Obviously, there's going to be various I don't foresee any or see any immediate headwinds right now, but there's things that happen beyond our control I mean, we had no way of predicting what would it would be happening with the.

With the virus, the Corona virus, and how that would impact some of our employees and we still don't know what that's going to do for the overall transportation and.

And mobility of our employees the fortunate thing for US Jeff is that of the 100 or so offices that we have in the state they surface a client in a 30 to 50 mile radius about office. So they are not subject to terminal and airfare and large.

Large.

Alright distance.

Transportation to service clients, it's in that local area and so that is may be one thing that we think can mitigate yep concern of the grown a virus but.

Anything can happen and.

Some things that are just happened that are not foreseeable so I don't see anything in the market itself that is would cause headwinds, but certain things could happen matter beyond our control.

Right Okay.

And then with respect to the backlog are you able to break down how much of that as an increase from core verticals and how much of the increase in backlog came from.

The nine acquisitions that happened throughout the course at the year.

Well I can I can give it to you and in total amount the the backlog for the core business itself. It was running over 70% 70, 374% and the backlog of the geospatial business is slightly less than that so in in budgeted.

Terms about 569 million I believe in backlog.

The vast majority or 70% to 80% over 70 75 to 10 is coming from the core business and the remainder is coming from problems spatial the organic growth in backlog and support we do a cumulative of all of the offices. So.

It's hard for us to say, what the backlog for each individual offices, although it will be tied to their individual budget.

Okay, Great and then do you have an organic gross number for Q4 in the full year.

Yes.

Maybe Ed you can.

Sure.

So if you look at our 10-K disclosure, which will be filed a this evening footnote six refers to our annual organic growth and it was actually just slightly under.

2% negative for the full year.

But we picked up momentum in the fourth quarter and the organic growth was positive by by about 2% in the fourth quarter.

Okay, great. Thanks, guys.

Thanks, Jeff.

Our next question comes from Chris Moore with CJS Securities.

Hey, good afternoon guys.

Just kind of probably dovetails into the cross selling conversation, but I'm just looking at net revenue as a percentage of gross margins. Its decrease the bits and 16 I think it was 81% than it was closer to 70% now I know some of that is you know acquisition related to change in hearing for example, more subcontract work, but can you.

Talk a little bit about the trend that you expect in 20 and 21.

You know with with respect to net revenue versus gross revenue and.

End of how QSR impacts that.

Yeah, the and certainly a balanced can also comment on this.

The quantum spatial.

Happy higher percentage of sub consultants on the core business.

And some within our core business, we they have a higher percentage of a tough consultants because they they experienced the higher markup and that is on our our Bakken Qoq and our alter survey business and some of our our LNG business, where we where we are not so much.

Government related and we can have a higher markup on those subs, but.

Generally speaking, we're not going to drop too much on the overall, we're not going to drop too much below 18% because most public projects require 70%, 70% leased minority participation.

So I think that if you see some trends going up or down and it if you see some indication of the.

Of this up in thought was going up or down as a percentage, it's not a trend it's just really.

The picture the projects that were doing so I think at a good number for you to look at Fritz is.

Pretty much where we are around.

15% to 18%.

Got it thank you.

The the LNG project in the North Carolina deal T. project at her back on line when did they.

When did they get back on line.

The LNG project was awarded and handle or licensing contracts signed in February or is it actually this month.

And North Carolina has been ramping up its started at the latter part of Q4, and we're continuing to see those projects ramp up it's not as single project. It was the North Carolina adhere to that stopped funding the projects and now they have resumed that funding process.

Got it thank you.

And last one just I think the QSR revenue that you said, obviously didn't recognize most of it but it was 13 million and in December it any any sense, what kind of gross that represented for QSR year over year.

Well it was significant we think that we could rely somewhere between 11 and 13 million in revenue for quantum spatial. So if you multiply that number by 12, it's a significantly higher than me.

The budget number so I think you'd see double digit organic growth.

No that that was it.

Interesting number to see I appreciate all right I'll jump back in line. Thank you yes.

Our next question comes from Rob Brown with Lake Street capital.

Hi, good afternoon.

Hi, Rob.

Hi, just to clarify the North Carolina project when do you expect that to be around projects. When do you expect those to be sort of ramp to full the full normal run rate is that can take a little longer or is that is a fully done.

It is not fully done it will continue to ramp up.

The the funding sources have been released now, but we're still it takes a walford to ramp up so we're still not at all the 100% or the capacity and the volume of projects that we had in 2019, but we are continuing.

Just a new projects come online and we expected to ramp up through 2020.

Okay. That's good color.

I live in terms of utility in energy markets.

You talked a lot about utility work in fire related work, but could you just characterize maybe the pipeline there and I would imagine there's a lot of stuff. That's that's being thought about that you haven't haven't gotten yet but is that an area that you see a growing significantly from where you're at and what's the timeline on that takes.

I think it's an interesting question because it really shows the synergy between QSR and according business QSR <unk> has several thousand miles that they are able to.

Fly in order to determine which areas need to be hardened and one of the services that we provided the engineering to determine how to harden those particular areas.

Those are coming onboard they are there any assays that they have that QSR has as well as nvfive, providing those services to power utility companies. So it is it's an ongoing effort and were seeing new and assays that are being advertised and we see tremendous opportunity for that can generate a 2020.

<unk>.

Okay. Good then just a little more color on the QSR cross selling I know, you're only a few months into it but if you have you seen additional cross selling opportunities or maybe just characterize the cross selling opportunities you're seeing a QSR and other developing at this point.

Yeah I think.

I think we may have us and back a little bit on the 500 million.

500000 for weekend, the cost selling because that did not contemplate anything from QSR. So it will be would be higher than that where I see and Alex can certainly comment on that but where we really see that's energy is.

Nvfive, it's been very strong and utility business.

And we think the our entre at the level of what what Q. If I can do imagery and data analytics will be a phenomenal. This is what the utilities have been asking for and so we think put that introduction, we can we see a real opportunity a for cross selling so we really.

Look for that and the other opportunities are the things that that kinda spatial is doing that we're not doing whatsoever, they're doing a tremendous.

Amount of work with with shoreline erosion, they're doing a lot of work with vegetation, they're doing a lot of work with far Street work and these are things that may get some opportunities brand be five but they have not been explored at all.

Great. Thank you very much.

Our next question comes from Tate Sullivan with Maxim Group.

Hi, Thank you good evening <unk>.

You mean like you kept 2020 guidance unchanged, but does that just more digging into previous comments does that include an unchanged number for your free cash flow expectations are 20, and then can you just put.

Put that in context, what you will use the majority of that free cash flow to pay down debt versus the bolt on acquisitions you mentioned before.

Well, we certainly are focused on paying down debt I mean that is a very significant thing that we don't believe and leverage at the company. However acquisitions are opportunistic so we can't say and it's off the linear that we can say this is an acquisition and this this amount will.

Dedicated acquisitions. This amount is going to be to pay down debt, we will continually focused on paying down debt, but if there's a really good opportunity that's going to expand our company expand our platform and we can do it prudently we will will focus on that but there is not a set amount that thought I can tell you debt.

We're focused on smaller acquisitions right now.

For the year, but we have not allocated what portion of cash flow is going to go to to up to the acquisitions can be will be focused on paying down debt and there's certain covenants at the bank and we can certainly efficiently pay down debt and have free cash flow afterwards.

Okay. Thank you off a follow up I were question, Alex you mentioned, the North Carolina Deo T ramping up at the end of for Q 19.

Was there any either if I understand how the timing of the quantum close can the change sort of the revenue in the quarter versus the previous guidance was Deo t. part of that as well, where you were you expecting earlier start to de previous slightly delayed North Carolina Deo T. projects.

No.

Okay, and then be they did you get in the near key ramp up is it started in Q4, but it was relatively slow and now we're starting to see it ramping up.

And was that a situation unique to north Carolina or is there I mean, there could that theoretically happened to other duties or was that just an extraneous circumstance.

It was somewhat of a black Swan event I mean, the legislature had just stop funding that yoki projects I do not calling in and it certainly happen once in awhile before where we have something that you may recall in New Jersey had bridge gate.

It is very rare that the legislature does not on the Directv and municipal infrastructure projects.

Okay. Thank you.

Our next question comes from leased the strings with singular research.

Thank you.

The question about cross selling as well and specifically about Qs I. So Qs I takes you into some new areas for the company and I'm wondering if there was a learning curve as other parts of the organization become familiar with its capabilities and how you go about hitting the group about capability.

Well as any acquisition and more so with that Q. Aside the very first thing is we introduce them to all of our offices. So we had eight a. webinars broadcast of all of our offices 120 offices and QSR presented their services and what they can do now so.

Some of that they had some familiarity because we were in the Geo spatial serving business on a much smaller scale with sky seen so some of our offices were aware of that but you know leads a very good question that has to be organized it has to be profile of intentional and it has to be Frank.

Matt I can so it's just something that we channel everything on cross selling through our cheap synergy officer, it's very organized and we just have not yet a lot a lot. It in our budgeting process for the quantum spatial opportunities that we have and work.

We're learning as we go but we first start by educating all of our offices at least at the services that quantum special offers and then it's managed by the actual management up that work is done through our chief synergy officer, Scott to bundle.

Okay. Thank you.

Again, ladies and gentlemen, if you have a question or comment at this time. Please press the star than the ones <unk> on your touched on telephone.

Our next question comes from Scott Blumenthal with Emerald advisors.

Good morning jet good evening, gentlemen, sorry about that.

Yeah.

Alex I was wondering if you might.

Make a comment or too about what's going on.

With your projects in China, obviously, that's been in the forefront of the news you mentioned a couple of wins Hong Kong Macau.

Can you give us an idea as to what the level of activity is there and you guys are operating relatively normal still or.

There's been any.

Headwinds that point.

It's an interesting question because while Macau is essentially shut down revenue wise relative cubic machine or is there taking advantage of that.

This time to go ahead, and basically do similar improvements and retrofits that are necessary.

While we don't have our employees going into the office, we have set up where they can work from home. So we do expect to see some continuation of services, but it's not going to be nearly as robust.

We're not actually in mainland China, our work is primarily and Hong Kong.

In a cow.

Our Asia operations.

I've got I'm glad you left me off the hook because international reports directly to me, but obviously, that's a good test for Alec fund.

Operationally [laughter], but let me let me speak to a couple of thing.

Overall, Hong Kong itself, when Alex's mentioned, the H. operations that 9 million really a lot of that it's coming up that work of that 9 million, it's coming from Dubai and from Qualcomm poor and Hong Kong, it's becoming a smaller piece of our operations now but.

The Hong Kong offices shutdown, it's a beautiful offices vacant right now.

And those employees are working to their home, it's Alex said in Macau the.

The Macau ferry from Hong Kong Macau has been shut down so it's Alex rightly said, we are doing a lot of work for those offices.

From from their house the work that they can do and the second thing is that we really expanded and working on what we're calling offshoring worthwhile lump war and Dubai and to some extent Hong Kong. That's a lot of work for our NDP offices in in the states and so there's some very specific client that I.

Mentioned, but so we're trying to mitigate this as best as we possibly can but the overall revenue, it's probably less than from Hong Kong Macau is certainly less than 1% of our overall revenue. So we are very concerned with our employees and believe me up I have another calling with them tomorrow, but you know it.

Not as far as sure.

[music].

Financial it's not it's not the impact that we would normally habit.

If it was affecting us in our core business in the states.

Okay. Thank you and.

With regard to once again, the QSR cross sell I think you know the the obvious is the you know the applying the data let it analytics portion or piece or that you acquire from them to what's going on over at Sky seen but what would you.

Oh, you know what would you feel would be the the most obvious first a a kind of low hanging fruit cross sell opportunity that you might have with them.

What we're seeing some of that right now great question, Scott I mean client base, it's our strength with utilities and the wonderful thing the wonderful thing that quanta spatial offered is a tremendous amount of oh opportunities, but really.

Their strength, what's not with the utility business that is our strengths of the first low hanging fruit is.

With utility business. The second thing for US is their ability to now say, albeit with a combination of any five California, it's such a tremendous opportunity with utilities and that's really where were strong and now quanta spatial is looking at a one very large opportunity that required.

A certain number of employees in the state now we can say there's 600 in California. So those are the two immediate opportunities that that I see but mostly it's focused right now in a in California. The lesser opportunities I think is what's going on with arc, our federal government, where we can.

To help them, but they they a week as we I keep saying, we it's quantum spatial nvfive, we're all watching but where we can all help each other is.

We have a lot of work that we're doing directly with the state department and be five is doing but our ended see work in our commissioning work we have a very nice office in Arlington, Virginia.

Uh huh.

Quanta spatial has a very good operation with the military department of defense.

In Saint Petersburg, but they both in Richard Thompson working on this very closely Theres security clearances that are required.

And we have them both in Kwan spatial and would then be five and so we think the federal government is also going to be a great opportunity for cross selling but you know first have to me that utilities, California that it's going to be the state department into <unk> Department of defense opportunities that that we have outside of California.

Okay Super Thank you.

Okay. Thank you Scott.

And I'm not showing any further questions at this time whats during the cold box addiction right.

Well, thank you everybody for listening in.

2019 was a year of positioning nvfive for further expansion in growth and you can see that by the guidance that we're getting for 2020. So what does that mean actually grow we'd strength in all of our internal infrastructure, our support services, our financial reporting and men.

He is the things that we've had for for future growth I think one thing I'd like to point out before speaking into some of the comments is.

There was some look if you'll look at that it looked like there was a creep or growth in our SGN anyway, and that really and the opportunity. When you inquiring companies is the beat scalable and constantly try to have those indirect or support services that GE and aim worth more than the ads.

We really want to lower that so you will see and annualize you'll see an increase of about 7.9% to 8.3, but it was really impacted by that she wants I acquisition in 2019, where we had a tremendous amount of of acquisition related expense.

This is one time expenses. So if you see a blip in that it really wasn't from the erosion of our support services are the fattening. If you will but it was basically more a one time occurrence with what happened with.

With that QSR. So I wanted to comment on that because I thought that was something that was meaningful if it's if someone was to what to look at that I think.

I also wanted to 0.1 more thing I think.

What was really refreshing to me and I encourage you to me with the the strength of Nvfive in the core business that we were able to meet or beat revenue guidance without the.

Without.

The anticipated.

Closing of of QSR, We gave guidance about <unk> of 511 million and that it was the assumption of the 7 million from QSR high, but but as you see we reporting 513 million with only a little over 1 million of contribution. So core business is strong, but it's really important that we are.

So encouraged with Q aside because now we can offer technology for our growth and if you will envision the.

The strategy of acquiring companies of course growing organically, but acquiring companies, but but both our existing core business of Nvfive and also the a chance to roll up or acquire companies through its very solid platform. A few aside so we are really encouraged about 2020, we.

Looking for the opportunity I can tell you I've been very very involved with the integration of QSR and I can tell you that it's been it's been a great experience they have great leadership and management and so.

I want to thank all of you who are listening all of you that our investors all of you employees. The employees that everyday represented 85 and a manner that it's positive for our growth. So.

Thank you for listening to this call. We're really excited about 2020 and we appreciate your continued.

Supportive nvfive and thank you for listening in today.

Ladies and gentlemen, just conclude todays presentation you may now disconnect number wonderful day.

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