Q2 2020 NV5 Global Inc Earnings Call

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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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Good afternoon, everyone and thank you for participating in today's conference call to discuss Nvfives financial results for the second quarter of 2020.

Joining us today, our Dickerson Wright.

Chairman and CEO that'd be fine.

Edward Codispoti CFO of Nvfive.

Alex Hoffman, President and COO of Nvfives.

Mark a bottom president and COO Nvfive Geospatial solutions, and Richard Tong Executive Vice President General Counsel them do you thought Oh now like to turn the call over to Richard <unk>.

Thank you operator, welcome everyone Tenbfive second quarter earnings call consistent with social distancing speakers today are connected from different locations. So thank you for your patience, including any latency is as we answer questions.

A webcast replay of this call and it's a company presentation are also available via the link provided in today's news release and on the investors section of the company's website <unk>.

Before we proceed I would like to remind everyone that today's discussion contain forward looking statements about the company's future business and financial performance.

These are based on management's current expectations and are subject to risks and uncertainties.

But that could cause actual results to differ materially from those statements are included in todays presentation slides in our reports on file with the FCC.

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

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

Please note that unless otherwise stated all references to second quarter 2020 comparisons are being made against the second quarter of 29 being.

In this presentation Nvfive has included certain non-GAAP financial measures.

The fine in regulation G promulgated under the Securities Exchange Act of 1934 as amended.

These non-GAAP financial measures included in this presentation, our net revenues adjusted EBITDA a.

Adjusted EBITDA margin and adjusted earnings per share.

And we bought provide non-GAAP financial measures to supplement GAAP measures they provide additional insight into nvfives financial results.

However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for gap.

In addition, other companies made to find non-GAAP measures differently, which limits the ability of investors to compare our non-GAAP measures of nvfive to those used by peer companies.

We began the call with comments from Dickerson Wright, Chairman and CEO of Nvfive before turning the call over to Edward Codispoti, Chief Financial Officer for review of the second quarter of 2020, Alex Hoffman, President and COO gonna be five and Mark a bottle president.

And be five spatial solutions will then provide some insight into operational opportunities and strategic initiatives before turning the call back to Dickerson Wright for closing comments.

Well then open the call for your questions Dickerson. Please go ahead.

Thank you Richard and thank you to everyone joining us for any <unk> second quarter 2020 conference call.

Let's turn to slide five Oh this visual presentation.

We were pleased our with our second quarter results, which exceeded analysts' consensus for both gross revenue and adjusted Leap yes.

That's the second quarter began in the cobot 19.

Environment, There was a great deal of uncertainty about the impact it would have on our business.

We are somewhat insulated because we are providing a central services.

However, we were proactive in implementing immediate measures to stay ahead of any business interruptions that may not materialize during the cold at night team.

Environment.

Our top priority is protecting the health and safety of our employees.

Which we achieved through putting tools in place to support a remote work environment and providing the appropriate P.P.E. and training for our field personnel.

It was proactive steps allow us to maintain utilization and quality of work.

I'm proud of our employees and management team for adapting to the new work environment and delivering a great quarter.

We also had to manage both fixed and variable cost.

This is it scale with few fixed costs and we will continue to actively managed costs to protect earnings.

Our financial position at the end of the second quarter remained strong we generated strong cash flows in the quarter, resulting in over $65 million in cash on hand at the end of Q2.

In Q2, we acquired Mediatech design group in an all cash transaction.

And in July we made it payment of $17 million to pay down our debt revolver.

The second quarter also delivered some key long term contracts with utilities.

Market that has continued to grow rapidly in the first half of the year as utilities invest in fire mitigation reliability improvements.

And geospatial vegetation and asset management services.

We also security number of transportation contracts with department of transportation and and municipalities in Florida, New York.

California.

To provide program management and engineering design services.

Water monitoring and resource management is another area, where we had significant wins with both federal and state governments.

Our cross selling program continues its rapid growth with 7.7 million and beauty cross selling.

Cross selling is central to keep business in house, which contributes to net revenue growth.

Delivers higher margins and differentiate tenbfive from our competitors.

The first half the year, we have completed 15 million in cross sells so we're on target to exceed our 26 million cross selling total proved to be here.

In Q2, we also acquired Mediatech design group.

Which specializes in technology design services, including security Enterprise I T and other building technology solutions in the Middle East and Asia.

We now have 40 employees and our Dubai office and the addition of Mediatech complements our existing can mechanical electrical plumbing and fire protection design for MVP services in the region.

We took a similar strategic approach to add technology services dry MIPI operating domestically with the addition of sex and.

Group in 2019.

Allowing us to bundle be services and provide a strong competitive advantage.

With a number of large scale projects on the horizon in the Middle East. The addition of Mediatech gives us multi disciplinary engineering capabilities that position us well compete for these jobs.

We also opens up new GR piece in the Middle East and South East Asia for any piece services. So we are now very excited.

About the addition of Mediatech [laughter].

Please turn to slide six to discuss our scalable business and some of the opportunity challenges that lie ahead in the remainder of 2020.

So we all know our private sector clients complied wrap it up swings in revenue.

Unfortunately, the drops in revenue can be justice dramatic.

Nvfive is structured to avoid wild swings in revenue and with a deliberate focus on threed characteristics that would make it less susceptible to economic downturns.

These characterises REIT focused on the public sector.

And the central services.

Well ability and diversification.

The goal is to build a company that would weather the storm.

And come out even stronger when the economy rebounds.

The majority of Nvfive services are considered east central.

And that is a key advantage for us during the Kobin pandemic.

Approximately 70% of our revenues or come from the public sector and we deliberately built the company with a focus on services that are considered the central and which Insulates us from economic downturns like the global economy is facing today.

We're also scalable.

We are a consulting service business.

Our businesses is people.

And we consciously she focus on keeping our fixed cost to a minimum which allows us to not only be nimble in reducing operating costs.

It also to scale up business units that are experiencing rapid growth.

Diversification is also a key attribute of our business. So some of our businesses are facing headwinds our businesses that are performing well make up for the contraction of the downturn business units.

Diversification also drives our successful cross selling initiatives, providing unique opportunities for growth and clients development.

So we are fortunate to be in the position that we were in.

But as it is the result of an intentional strategic approach to building a business that is recently.

As we look to the center column.

The presentation, you will see that we're still seeing a softening and some of the markets that we serve.

Commercial development hospitality continues to be slow and we expected that to continue throughout 2020.

Trend impacts our M P design business, which depends on new construction or renovation of these types of buildings.

In addition, real estate portfolio transactions continue to be down and we expect that trend to continue throughout the year.

We're also a number of growth opportunities that we're currently pursuing water management, along with vegetation asset management for utilities are areas that are rapidly expanding.

Our use of geospatial data.

We've also recently expanded our relationship with Noah, which is utilizing geospatial solutions in the new and innovative approaches to shoreline monitoring navigation safety and C level rise.

The Geospatial solution group is also using nvfives platform as an opportunity to leverage nvfive client relationships.

Fire mitigation efforts upgrades to an aging grid and improvements to reliability and power delivery are driving the investments that utilities are making in engineering and design and survey.

The transportation infrastructure market continues to be strong in California, Florida.

Terrific Northwest, Georgia, and Pennsylvania.

Cash taxes account for a large part of the revenue that funds roads bridges and other transportation improvements.

After historic drop in gasoline consumption and April yes, future usage has rebounded.

As people look for ways to travel safely airborne King air travel and turning to their automobiles.

This increase in gasoline consumption is helping to stabilize cats tax revenue.

Funds the infrastructure projects.

Please turn to slide seven I would like to speak for a moment about diversity and inclusion.

Diversity and inclusion are fundamental to nvfives values, we have focused on expanding our diversity and inclusion efforts through the tangible actions we've taken.

The United States is simply not graduating up engineers and technical professionals.

We also know there are not enough opportunities for people of color to pursue engineering and technical professions.

You wanted to do more did contribute to the solution and pledged 275000 to the National Society of Black Engineers, who provide scholarships and access to educational opportunities for black students pursuing krieger's in engineering and technical fields.

We also wanted to drive our culture of diversity and inclusion deep into the Nvfive organization.

Dr. Carl Henderson is a Phd professional engineer and a Geo technical engineering class manage our San Diego.

Colony construction quality assurance group for the last two years.

He is an active member of the National Society of Black Engineers, and a member of other mentorship organizations.

And we have asked him to lead our diversity and inclusion group as the Chief diversity Officer FNB thought.

I have known Carl since he joined Nvfive and I know he will be successful when this new role.

Yeah.

Opportunities for growth have also been limited for many women in engineering and technical professions, and we're proud to be an industry leader engender representation with them and leading several key operations and serving on our board of directors.

I'll now hand, the presentation over to our CFO, Ed Codispoti provide an overview of our.

Q2 financial results Ed.

Thank you Dick and good afternoon, everyone.

If you would please turn to slide nine.

I'd like to start off with a review of our email results.

As you can see we had strong second quarter results.

Our gross revenues increased 27% to $162.7 million.

Net revenue increased 29% to $128.5 million.

We're very pleased that our gross revenues for the quarter exceeded analysts' expectations by 8%.

It is a testament to the resiliency of our business despite the impact of a pandemic.

Our adjusted EBITDA also showed substantial growth does it increased 46% from last year $26.9 million.

And our adjusted EBITDA margin continues to show the benefits of our scale as it increased nearly 21% for the quarter, a 13% improvement over the prior year quarter.

Our adjusted EPS was also very strong this quarter and a lot of the pandemic as we came in at 93 cents per share well analysts were expecting 59 cents per share. Therefore, we beat expectations by 58%.

In addition to our robust PML performance, our cash flows and balance sheet also demonstrated the strength of our business.

If you would please turn to slide 10, you'll see that our cash flows from operations for the quarter, we're extremely strong as we generated $37.1 million.

We see this in our cash position at the end of the second quarter as we came in at $65.2 million compared to $31.8 million at year end.

Before we more than doubled our cash position without having to draw any funds from our debt revolver.

I'm also pleased to report and we have not seen degradation in the collection of our accounts receivable. Despite the pandemic and in July we paid down $17 million of our debt revolver.

This demonstrates our focus on maintaining strong cash flows and bringing down our leverage.

As a result of the $17 million Paydown in July we now have $56.6 million of available capacity under our credit revolver.

I hope this overview as given you hear visibility into our financial results for the quarter and the financial strength and stability of our balance sheet.

With that I'll turn it over to Alex Hoffman, our president and COO to discuss our operations in more detail.

Alex.

Thank you Ed and good afternoon, everyone.

Would you please turn to slide 12.

Power and utility sector continues to provide opportunities for growth as utilities invest in fire mitigation efforts and to improve reliability of power delivery.

The electrical grid is outdated and upgrades to safer more efficient equipment, along with the underground inner power lines are large capital investments that require engineering design construction quality assurance survey and program management services.

Transportation infrastructure is another area that we expect to grow.

The nations in investment and safe and efficient infrastructure as falling behind for decades.

Well air travel is down many regions our experience it increased road traffic, which provides necessary funding for infrastructure projects through gasoline taxes.

We see an opportunity with municipal outsourcing as some municipalities have struggled to sector Department store in carpet 19, combined with an uptick in construction permits and housing starts.

We understood properties will be looking for assistance in the plan review and inspection of these housing projects. In addition to the services and be hard parts that are required to approve the adjacent infrastructure.

We're also anticipating a number of opportunities in our international business, particularly in the Middle East where a number of large scale projects are expected in the upcoming months.

The acquisition of media tuck in the second quarter positions us well to compete on these projects for I mean they.

Now, let you design services.

Well, our turn to areas of strategic focus.

Future arbitrage cross selling program and enhanced ITD network.

We were well positioned to move to remote working due to the experience gained through our entire office work share has performed across verticals.

As we move to large scale remote working during covert 19, we have realized that there are operational efficiencies such as reduce office costs that may be sustainable.

While there are benefits to an office environment, including two team building and mentoring young engineers, we are evaluating operational efficiencies that we can get pulled back now and continue into pandemic is over.

Cross training is another area, we are focusing on to provide us with opportunities to increase utilization and expand the strengths and specializations of our team.

Broadening their capability also allows us to have a larger bench to fulfill client commitments.

While cross training will strengthen our succession planning as well.

We're also looking for opportunities to expand our work with the federal government.

Our geospatial business works, a great deal with the federal government, while our core business as largely working with state and local governments.

So we see an opportunity to expand our federal offering.

Finally, we are expanding our disaster response services disasters, such as hurricanes or floods caused damage to buildings and infrastructure that require environmental compliance and indoor air quality consulting as well as insurance and litigation support services, we can mobilize Paula and event.

If you had please turn to slide 13.

Ill provide an update on our cross selling program in some key wins in Q2.

Our cross selling program continues to be ahead of its 2024 year goal of $26 million and cross sells.

We completed 7.7 million if sales across verticals in tier two bringing our year to date total at the end of Q2 to almost $15 million.

This program has contributed 6% of our net revenues in the first half of the here, which is work there would have been outsourced to subcontractors.

We also had some significant wins in Q2, including Silver program management contracts for Caltrans district, six to nine totaling $17 million.

We have a longstanding relationship with Caltrans and provided engineering and support services and 10, a caltrans troll districts.

Our geospatial business secured a 4.6 million dollar contract with the prominent utility in the eastern States provide lottery surveys and hyperspectral imagery to support vegetation and asset management of transmission lines.

The New York State DRG awarded Nvfive to 3.5 million dollar contract for construction inspection services to support drainage and paving temporary wrench bridge rehabilitation.

And roadway Im just reemphasize facility improvements.

Finally, our building program management office in Colorado was awarded a program management Atlanta relevant for the lighting Rich REO tribes Windsor residential project.

Could you please turn to page 14 for backlog update.

We finished Q2 with $525 million in backlog, our Q2 backlog is 60% higher than Q2 of 2019, and we secured a number of key wins in Q2 that contributed to that backlog number.

We've seen a timeline from submitting to proposal to receiving an executed contract it's taking longer in some cases, particularly with some municipalities and utilities the pipeline and volume of opportunities remain strong.

At this point I'd like to turn the call over to market bought our president of every five years spatial solutions.

Right some detail on the seasonality of deer, geospatial backlog areas of growth and strategic initiatives are.

Thank you Alex before I move onto the next slide I would just like note that the Geo spatial solutions group is entering a key part of the year, our largest sectors the federal government and with its fiscal year ending in September we typically see a seasonal increase in sales activity during Q3.

In addition, one of our largest annual and utility contracts is renewed in Q3 each year. So we anticipate some sizable contributions to backlog in the coming months.

Would you. Please turn now to slide 15 flooring operational overview of jewel spatial solutions.

Starting on the left hand side of the chart, we continue to be bullish on the macros that are driving long term growth in four areas.

The first being infrastructure.

Regulatory compliance and risk management concerns coupled with aging infrastructure in the United States will continue to drive demand for survey that is used in the planning design and construction phases of major infrastructure projects as well as acid inspection, both of which rely on the quality and efficiency of remote sense.

Like Geo spatial solutions.

Likewise, we see strong demand for infrastructure related services that facilitate the nationwide Fiveg rollouts.

In the environmental space climate change adaptation, including coastal resilience flood analysis, environmental habitat and wildfire mitigation to name a few rely heavily on spatial and condition based risk analysis made possible by geospatial analytics.

Further demand continues to grow across government agencies scientific organizations and private industry for predictive analytics in monitoring of precious natural resources like water and forestry.

[noise] National Defense solutions represent a growth opportunity as we build upon our existing physician supporting military facilities and certain classified geospatial programs.

Qualifications position us well to continue growing share of wallet with these capabilities and expand the value proposition to create G. Yes integration and application development.

Finally on the growth side.

As a largely U.S. based solutions provider, we see international markets as a tremendous growth opportunity.

Close to home, we have gained traction recently in the Canadian market, which boasts the second highest forecast growth rate for light our base Geo spatial solutions.

And we anticipate entry points to Europe, and the rest of the world to come from a combination of Nvfives International network and potentially M&A.

Moving to the right hand side in strategic focus areas I'll start with offerings touch on execution and finish with markets.

In terms of offerings geospatial analytics are the vehicle through which we answer our customers critical questions.

Sometimes our deliverable is an analytics ready dataset ingested by our customers and leveraged by their in house data scientist.

Other times, we deliver answers along that continuum of descriptive to predictive and prescriptive analytics.

As more data from more sources is blended together on a more frequent basis, our strategic focus will remain on harnessing those data to deliver advanced analytical insights.

How we manage these feature rich datasets deliver insights to our customers allow them to visualize information and interact with it all as a part of our data engagement strategy.

On an increasing basis. This involves cloud enabled solutions proprietary software and custom built Gee I guess systems in applications to solve big data problems.

Operational excellence has been and we'll continue to be a strategic differentiator.

Investing in and applying the right remote sensing technology and delivery platform for the mission is critical to success.

Whether it be light, our hyperspectral imagery or thermal.

Platformed on satellites planes helicopters you weigh these robots are trucks.

Further we continue to develop proprietary algorithms and invest in machine learning to turn unstructured geospatial data into structured usable information at higher levels at fidelity and at a quicker pace supported by advanced automated quality control routines.

Finally, we've grown consistently in our core markets in our strategic focus is to expand our market opportunity further in three ways.

The first is to offer more value added solutions to existing customers of legacy quantum spatial and Dnbi five core business.

The second is to expand further into near adjacent markets, such as telecommunications rail and others and thirdly to expand internationally with existing and emerging capabilities by leveraging Nvfives network candour through M&A.

I'll wrap up by emphasizing that we are focused on expanding our solution offerings to meet the growing geospatial opportunity within our core and adjacent markets.

And with that I'd like it turn it to turn it back over to Dickerson.

Thank you Mark.

I would like to go to slide 17.

And give you my thoughts on public project funding and why we believe that we're positioned for continued success.

We have received many questions about public project funding and I'd like everyone to keep in mind the critical infrastructure is not optional.

We need safe roads, we need safe and reliable power delivery to our communities.

I mean water and water treatment are necessary functions.

All of these continued to operate in good economies and weak economies.

Let me give you some of my observations about each of these areas.

The first is transportation and infrastructure.

Most of the work, we do with state government support transportation infrastructure and many transportation infrastructure projects are funded by gasoline taxes.

Taxes are typically dependent on the volume of gasoline used.

And most people are not still flying.

So how are they getting around and going to the places they want to be.

You are using automobiles more.

The volume of gasoline used in the U.S. dropped significantly in April but.

But it at all it has rebounded as people are driving more because they feel it is the safest way to travel this increase in gas Fuges usage is benefiting road funding.

Another key market for us is utilities.

The population is growing and the need for power is increasing.

We've seen growth in our utility services work as utilities, and fast and upgrades to aging electric grid.

And continue with fire mitigation efforts.

Water is another area, which where we are seeing opportunities.

Water resources and conservation is one of the fastest growing markets for Geo spatial solutions.

And we are a leading provider of specialized technologies.

And data analytics for water resources.

As for municipal funding the increase in residential housing is going to be a source of income.

For municipal governments.

Each of these housing projects will require permits and inspections and property tax revenue will be generated from each home that is constructed.

I hope this provide some high level inside into funding for some of our markets.

And we believe that we are well positioned to continue our success.

In these sectors.

Again, most of our revenue is coming from a central services on public sector. It non discretionary projects, we have shown that the business continuity that we put in place for cobot 19.

It's sustainable for however, long that pandemic last.

And our limited fixed cost to allow us to scale the business effect patiently and effectively.

We continue to focus on growth opportunities in both the core business and geospatial solutions business and we see strong pipeline for M&A to strengthen our verticals and to expand that technology business, which we see I'd say trued differentiator.

This completes our prepared remarks and now we'd like to turn open the call for your questions.

Ladies and gentlemen to ask a question you will need a press star one on your telephone.

Withdraw your question press the pound key please standby and what we compile the Q on a roster.

Our first question comes from Rob Brown with Lake Street Capital markets. Your line is now open.

Good afternoon, congratulations on a strong corner.

Hi, Rob Thank you.

Just just wanted to get a little more color on kind of the new business pipeline and how much if any is that Ben I'm kind of elongated from the from the corporate activity are clearly the results are showing well, but our new business being.

The letting of that slowed any.

Well I think its and I like that you used the word elongated drop.

Some of the projects are delayed some of the projects simply because.

People that arm statesmen capacities are also not in their offices, so theres a longer time and Alex touched on this and his presentation. It's been a longer time in the official award of the contract. So we don't recognize that until we get the official award so.

Although we see.

The second half.

A stronger.

And you know the consensus that was originally given by the seven analysts that cover us.

We think that we think that is okay. In 2021, it could be a little bit more aggressive, but we do see the only slowdown we see is not so much in the.

Additional work, but it's a delay in awarding the contract and we have seen some softening of course in our.

In our.

Residential.

Business portfolio business that is done with our larger portfolio acquisitions, and so we have seen some softness there but.

Generally the ward the contracts itself is taking a little bit longer.

Yes, okay.

Not a surprise.

And then in the cross selling activity you talked a lot of one of us some great.

Progress there.

How is the cross selling been going with the Q. Aside you spatial business is that still early stages.

There's a lot of up to their but where do you see that progressing at this point.

What we're seeing some benefit from that but we will really see that.

When claims figures is fully integrated and that won't be till the beginning of the 2021. So we do have we're introducing to places and I'll speak to that later, but they they now have some international opportunities for us and Malaysia with the aging grid and with utilities around the country, where they just have not had the introduction.

That we have so it's been a tremendous help to them in the cross selling.

But we will benefit more when they are fully up when they're fully integrated.

Great. Thank you ill turn it over.

Thank you. Our next question comes from Jeff Martin with Roth Capital. Your line is now open.

Thank you good afternoon guys.

Hi, Jeff good to hear from you do.

Good to hear from you congratulation on a very strong quarters now she.

Can you touch on utilization I know that had been trending higher you still seeing an elevated utilization trend.

Well I think utilization is stronger in our growth areas.

Now, it's very strong and our utility in power business, where that utilization isn't that 81% and that's a big piece of our business. We are seeing some softening in the areas, where our business is not as strong and so we see an creep up in the margin because with Billability and some of our commercial and real that really.

State dependent.

Sections of but I would say utilization seems to be about the same although we're starting to see some erosion in the commercial side.

Okay.

And then how should we think about the third and fourth quarters relative to this quarter I'm sure. We think if this quarter as.

Yeah, the base level to build on should we think of it as.

And maybe some seasonality to considering the third and fourth quarter.

And put that in the context, if you wouldn't mind relative to the change in backlog from Q1 to Q2.

Sure I think the consensus overall consensus guideline of or the guidance is in a range of the of use up and analysts have come up with 666 30 to 60 57 or so.

I think some up you are much heavier weighted in the third quarter.

And the fourth quarter, which is a little bit unusual and I think some of you may have gotten a little aggressive there, but I do think overall, we don't have any issue with the overall annual results both in revenue and in adjusted the a P. Eight bps by all of the up.

All of the analysts so I think the big picture.

It's pretty accurate, we're pretty comfortable with there's certainly a certain analysts that have put more waiting and.

Some quarters than others, but up but the consensus looks.

Looks something reasonable.

Okay, and then anything to read in the change in backlog from Q on Q2.

Well, yeah, I think I.

I think our backlog at suffered a somewhat and project delays and recording delays and so I'm not anticipating this strong ramp up.

In backlog in the third quarter.

For the fourth quarter that has been historic and as it because of the delay and awarding of the contracts and usually as our <unk> our cash flow benefits. When we're not immediately implementing these contracts as we're not paying that people every two weeks.

So you'll see an increase in that cash and so I think.

Theres no we don't see a significant cloud over the horizon. However, we cannot record the backlog as quickly as we have done in the past because the are you know the municipalities are just not there to assign those contracts I mean IOP Alex's here, maybe you have more specificity on that I think you've provided good color.

It's a matter.

Projects many times are awarded.

We have noticed that we're going to be when the project for until we actually have you actually contracted detached from or doesn't enter into backlog.

And just because of some of the office closures.

We're not getting any additional contracts executed as quickly.

It makes sense, thanks for that one more if I could.

Want to make sure I understood marks comments regarding QSR correctly that Q3, typically has some seasonality to it relative to Q2 is that correct and then secondly, as it's a the target of 150 million rather than a 35 million EBITDA from Qs I still.

Ah, yes, elevate way to think about how that's progressing this year so far.

I'll first give a general comment and then I'd like Mark to get more specificity to the up to your question first Oh, we do not have any.

Sign that the original budget of 150 million Andy.

Adjusted EBITDA that they're showing they are performing very well with that.

They are though quite dependent on the federal business and Mark will speak to that but the federal contracts that whole budget, there's going to be a tremendous release.

Of pent up work and with the federal budgets that usually comes around September thirtyth, but mark is prepared at least me for this and so maybe mark you can explain to Jeff a little bit on how that works and how you're seeing the year in the backlog.

Sure, Jeff and from a seasonal perspective, you has more to do the timing of awards not necessarily the flow of business and executing against the backlog, but the seasonal component Dick just alluded to does relate specifically to the federal business that represents about 40% of our book of business with their year.

Trend ending on September Thirtyth.

We see a seasonal uptick in awards each and every year during the third quarter, that's where our backlog begins to to rebuild itself. In addition to that we had several larger utilities, who is annual programs renew in the third quarter. So from Q1 to Q2, we see an expected and seasonal decline.

In backlog to be rebuilt in Q3.

And we fully expect that to occur again this year.

Great. That's the connection I was trying to tie together thanks Mark.

You're welcome.

Thank you.

Our next question comes from Michael Feniger with Bank of America. Your line is no but.

Hi, everyone. Thanks for for taking my my question just first off with what's your comments to first up great great quarter, you guys are controlling what.

What you can control, but we're not anticipating a strong backlog in in Q3 and Q4 and it is there risk when we see like concept has like 13% EBITDA growth for 2021, I know, there's a lot of moving parts right now with the fast acting stimuli.

It's just right now is that is that looking a little aggressive from where we're sitting with a few weeks ago with the fast Act expiring at the end of September and if that fast Act can can you help us understand what you're thinking base case, a good scenario snort or that could be.

If we just see a one year resolution what what are you looking at with without the effect and the September what that could mean, maybe for your ability to build the backlog for 2021.

Oh.

Mike very good questions and I.

I think a very observant I was going to comment on data and my including comments I think 13% organic growth. It's a bit aggressive I think I think we have a of the seven out of analysts and thank you all seven per covering us to have been a.

Significantly aggressive in there.

But they feel are our growth is going to be and our adjusted earnings per share increase I don't up I think we'll try for that I think we'll certainly try for double digits organic growth. Then you know it could happen we're going to try our best we're going to continue to be focused as we are but I think.

We don't have any concern or issues with a with a 2020 overall results as I said before and that is a adjusted $3 and roughly adjusted $3.17 a share.

I think so I think the increase in and and also on the revenue or we were not that that's not an issue. We do have some questions concerning.

The projections on certain analyst for a job for 2021, and so it's probably best that they take us take another look at what they have and we appreciate very much you, believing it off this much but I think maybe you could have gotten a little aggressive.

Fair enough and maybe you could just touch on the fast act or or maybe you're saving it for for your end results and just on Mark on on Q Aside I understand your explaining the seasonality of how the backlog.

Works and you expect the backlog could build in the third quarter odd there is some concern that utilities utilities might be Lauren Capex next year, obviously, there's a lot of uncertainty right now with with the federal government right now and stimulus and I guess is there any risk I know you usually you guys Bill.

Old in the third quarter, but because of some of the dynamics of coal bid is or is there any concerns when you sit here today that maybe building that backlog might be a little bit more challenging and maybe just kind of slipped into into the next quarter. So thank you.

I'll take the second part of that question as it relates to the utilities in the types of solutions, we provide they are.

Not capex sensitive from that perspective, a lot of what we do is related to own and budgets and it's specifically designed around regulatory compliance risk mitigation security and safety is the grid resiliency, so those are not discretionary or or.

Optional on on the part of the utilities and therefore, we do not anticipate there could be a significant impact in the in a sustained impact as it relates to code at 19 on on that book of business.

Thank you.

Thank you. Our next question comes from Chris Moore with CJS.

No.

Hey, good afternoon guys.

Yeah, maybe just I.

I wasn't sure what the organic growth was for in the quarter.

Well.

It was very difficult to utilize organic growth and so we didn't we didn't report it because we.

We had to go off the be analysts' consensus analyst consensus just the total growth. So they use the same at the same acquisitions that we would have not to use so I would you know I would say.

Apples to apples last year organic growth this was relatively flat.

But without a true indicator this time when you're going you had consensus because you guys.

Including CGS does include.

The did not separate acquisitions from organic growth at least I didn't think you to Chris.

Got it it's helpful I'm.

Just from a second half kind of free cash flow expectation.

I'm just trying to get it.

Any sense, you might be able give us there.

Yeah, I'll defer to add on that.

He watches our cash very closely.

Yeah, Hi, Chris so.

Obviously, we have very strong first half I think when you when you think about a four year from a free cash flow perspective.

We have a targeted decreased 60.

$80 million in free cash flow hopefully more on the.

Hi, your end of that range of course, it depends on working capital usage, which were focusing very carefully on it and it has a lot of our attention, but I think in terms of.

The full year.

Plan for free cash flow think about it between $16 million.

Got it helps.

And the last one for me just obviously very strong EBITDA margins.

Was it was that mostly a function of QSR <unk> or were there also.

There are any cost savings in there that that you know kind of unique to the second quarter or just kind of how to look at it.

Yeah, I think you have to look at it two ways chose idle formed on her budget they were not they were not.

Focused on reduction scalable cost and reduction of cost because they were not completely integrated.

I think.

So whatever they provided they provided the improvement so we're in the core business an improvement in the core business was the absolute we reduced overall travel by almost 600000 amounts we reduced our we reduce conferences by a cost. So 500000, a month, we've had rent abate.

And deferrals to almost 500000 a month. So we were really operate could operate much more efficiently now.

Some of that will continue some of that we've learnt from it and that will continue so when you see the improvement in the when you've seen the improvement in the percentage I think you're sticking out that 20% on on a.

Net revenues the line showed that improvement came from the core business.

That's helpful I'll jump back in line thanks, guys.

Thank you all our next question comes from leases with singular research. Your line is now open.

Thank you you mentioned doing the presentation that one of the challenges facing the company is the softness in real estate transactions market.

Oh pretty cool, but what was the contribution from this to revenues of approximately and are you seeing any improvement in real estate transaction market in the third quarter.

Well it's.

You know the way we do it we look at everything which includes.

Which includes the real estate market, 30% of our businesses, we consider the commercial sector.

With that business of that business about Oh, roughly what would that be that would be roughly.

8% to 10% of that business is with our big portfolio transaction that we do with a company that we own. It 75, now, but we call the Bakken Clark and they do the property surveys, but the building is being built new or old and they do both on all the survey physical survey and they do environmental work.

We've seen a slowdown in that business. The other slowdown we saw that is starting to have some a little green shoots has been a new miscible service business, we do a lot a significant amount of our of our what we call commercial work.

Residential is supporting the small municipalities around the country, becoming their building departments. When things are slow and then when we see things building up hot and there's more building permits as you see more housing permits we benefit by that by getting out outsourced work also so those are the two areas that we saw so.

Off me.

Okay. Thank you.

Thank you as a reminder, ladies and gentlemen Star then one to ask a question.

Next question comes from Marc Riddick with Sidoti Your line is now.

Hi, good evening.

Hi, Mark.

So there's a couple things I wanted to touch on that that you just maybe get a little more color around that you mentioned, which is really interesting one of which is just to start around the possibility of future office cost reductions around.

Experiences that you've had with the with the virtual workforce successes I was wondering if that's something that is are there upcoming office lease expirations that we should be thinking about where you know there are there some signpost as that but you can sort of target there or do you think that's something that's how you see.

That evolving as we're sort of sort of moving forward with expenses that you've had so far.

It's not meaningful to you.

Mark I think you know, we constantly and Richard Tommy shared with us.

We manage our real estate portfolio very closely anytime we can see opportunities where through acquisition where lease expires. So we can consolidate offices. We do so so we haven't really baked anything into the go forward budget on now we're not going to utilizing these things, but we're learning a lot we're learning a lot that maybe people.

So can work remotely no. There's a consequence of that we still need mentoring, we need senior leadership of those people, but we don't specifically isolate any one.

And Richard May have but for this for the purposes up your question. We don't isolate any you know we have over 120 facilities around the country in the world. We don't isolate any one specific thing that says, whom this is going to this is going to improve our results for next year. This is all this is this all gets pretty well distilled in ferreted out at bunch of time for us which is.

So.

Towards the latter the latter end of the on the fourth quarter.

Okay, Great and then that actually kind of ties a little bit into we're always going Nexsan. You had made mention of some of the the utilization flexibility around cross training and I was wondering if you could just maybe a little bit more mentioned the of maybe what's taking place over the last several weeks you know given the covenant.

And that's a is it a little different or accelerated versus what it would have been in a normal environment. How should we think about the what's taking place from a cross trained perspective.

Well, Alex May care to comment on that or for me. It's the word would be opportunistic.

We.

On that times of a natural disasters, we are DHS environmental Health services group, we do a tremendous amount of training of people in the core business I can do that work that may not have not been able to do some of the construction projects that were shut down so we we.

Do an awful lot of work that way, we have been very involved in cobot protocols and writing those calls it's I'm not saying it's enough to to replace the entire.

Business, but we really the cross training is to train those people to do some of the inspection services and no me, maybe Alex you may want to comment on that.

The things that we've talked about is the services, we provide to two power utility companies and everything from underground.

As well as the entire hardening and many services that we haven't many Iran is our specialties.

One of the things that we're seeing is now that we're working remotely to a much larger extent, we recognize the ability to interface with teams just through.

Flex programs like Microsoft team. So what we're looking at now is how we can cross trained that we're able to have our utilization and lots of fast that has a high degree or specialty.

Also be generalists, so, whereas we're opportunistic as Dick said when we got her project, we can do a much better job of utilizing our resources nationwide.

Okay. That's that's that's great color and very helpful. Then the last one for me I wanted to switch gears over to Geo specialist essential for a moment I was one of the things I was sort of curious about is the commentary around the growth opportunities in international markets and that was wondering if if you could speak to maybe some of the.

Bigger picture thoughts around the potential for international market expansion for for that part of the business of any.

Specific competition hurdles that you might see slash opportunities I mean, the opportunity certainly makes sense, but how should we think about the potential for for international expansion for for Geo Special solutions like.

Well, Mark we really do want to speak to you at length on this and I think so the first time, we have ever spoken and I don't think you've reached out to market auto, but let me just answered. This and then and then we're gonna have to go.

We feel that [noise].

Tremendous opportunity that we see is going to be in the high utility support service energy and some of these countries are expanding very rapidly, but they have an aging grid and a key portion of that is what we will do analytically, we're not going to be buying airplanes, and we're not going to be using physics.

Equipment, but we're going to take data the data and we're going to take that data and a useful way so internationally, it's going to be mostly.

Focused on generating and supporting the utility utility grid. So anyway, we really would love to talk to you more about this and I can arrange for a markup auto I see your phone number there mark will reach out to you and specifically.

Speak to what the international opportunities that are ahead.

Much appreciate it. Thank you okay. Thank you.

Thank you at this time this concludes our question and answer session.

Now I'd like to turn the call back over to Mr. right for closing remarks.

Oh.

Thank you I'm hearing all types of music going off of my ears, now, but hopefully you can you can hear me.

[music].

I just part of this as we were looking at what we're going through and.

You know we all we all as people we all of the company we live in very interesting times.

Not only must we adapt in our personal life and adjusting our personal lives.

Tutor people from home and work from home, we need to do that.

But as a company we have to adjust to the market conditions.

It's not business as usual, it's really how we can adapt to the current business environment. So what differentiates nvfive from our competitors.

It's a support that we're getting from all of our technical personnel.

And we want to support them. So that they are free to continue to have contact with the clients not so much maybe by in person, but by phone and we want to make that this is their priority.

We were fortunate enough and and the results show that in the quarter, we gave them the technology and software for them to work remotely.

And this must continue.

We are in kitten continue to encourage them to call their clients reach out to the clients look for things that they can do with the clients, even though even though they may not be able to see them.

See them.

In person.

I think we.

We want to speak a little bit about.

What is going to happen.

In the year.

We're very optimistic about 2020 I appreciate the seven analysts and the guidance that you gave us and and we are strengthened by the optimism you have shown in the company.

We think a.

2020 is looks.

Okay with us I think it's something.

We can do and we don't see any erosion in that I think in 2021. Please go back and look at some of the things you've had because the up consensus of organic growth is closer to 14% and we're going to try that when try our best but but we may have been a little too optimistic in that.

And the rate increasing adjusted earnings per share has.

Significant for just to have you analysts so please.

Take a look at that.

We anticipate a great year in 2021, we will continue to focus as we're doing and I think I appreciate everyone's continued.

Support up the company.

One of the areas that we are very focused on in our M&A activity is technology and how technology can give us opportunities, it's going to give us opportunities domestically.

It's going to give us opportunities internationally and right now we're looking for.

Companies that can enhance platform that we received from our Geo spatial quantum.

On a special services and our dip spatial work so.

We are starting to see many opportunities and the more we integrate the more we support we support this integration.

<unk> of quantum figures on the technology, we think we're going to continue to grow and improve the mark margin. So we're excited about the opportunities ahead, we're surprised us a pilot very excited about that we had and we really look forward to speaking to guys again.

[music].

In the.

Next quarter, the third quarter anytime, though please reach out to us any questions. You may have we want to be available for brand you all of our people and all of our investors. So thank you everyone for listening in today and this will conclude our our comments on our on our Q2 earnings. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].