Q2 2021 NV5 Global Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
Again, ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss some of the 5 financial results for the second quarter 2021 join.
Joining us today are of Dickerson Wright, chairman and CEO of friendly 5 Edward Codispoti CFO of M. D 5 and Richard Tong Executive Vice President and General Counsel of NV 5 I would now what could turn the call over to Richard Tong.
Thank you operator, welcome everyone to NV by the second quarter of 2021 earnings call. Before we proceed I would like to remind everyone that today's discussion points contains 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 and factors that could cause actual results to differ materially from these statements are included in today's presentation slides and our reports on file with the SEC.
During this call the GAAP and non-GAAP financial measures will be discussed the reconciliation between the 2 is available in today's earnings release and on the company's website at Www Dot NV 5 dot com.
Please note that unless otherwise stated all references to the second quarter 2021 comparisons are being made against the second quarter of 2020.
And this presentation and be part of the included certain non-GAAP financial measures and define and regulation G promulgated under the Securities Exchange Act of 934 as amended and.
Non-GAAP financial measures included in this presentation are adjusted earnings per share adjusted EBITDA.
And adjusted EBITDA margin and <unk>.
The 5 provide non-GAAP financial measures the supplement GAAP measures and they provide additional insight into <unk> financial results.
However, non-GAAP measures have limitations as analytical tools and should not be considered and isolation and are not in accordance or a substitute for GAAP and in addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare and non-GAAP measures.
And <unk> to those used by peer companies.
A webcast replay of this call and its accompanying presentation of are also available via the link provided in today's news release and on the investors section of the company's website.
We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV 5 before turning the call over to Edward Codispoti, Chief Financial Officer for a review of the second quarter 2000, and 2021results.
Sure Kristen Wright will then provide closing comments before we open the call for your questions.
And please go ahead. Thank you Richard and thank you to everyone who is joining us for NV by the second quarter 2021 conference call, let's start by turning to slide 5.
We are pleased to announce of record performance and the second quarter delivering the highest gross revenues net income adjusted EBITDA and adjusted EPS since our inception and.
As a result of the NV 5 business model, we generated 180 million and revenue 34 million and adjusted EBITDA and $1.34 of adjusted earnings per share for the quarter exceeding analysts' expectations and GAAP earnings per share increased 153% from 36 per share and.
And quarter, 2.2022, 91 cents per share and quarter, 2.2021 and increased share count of approximately 50 million shares compared to $12.6 million shares and quarter, 2.2020. It.
The adherence to our business model resulted in margin improvement due to our focus on high growth high margin businesses and our continued scaling of the service platform, which we will further discuss and slide 7.
Our cash position continues to strengthen.
With approximately $113 million and cash on hand.
It goes without saying all of our employees contributed to these record results for NV 5 or.
Our backlog and pipeline of opportunities identified across the all of our verticals, including business that were impacted by the COVID-19 pandemic, such as industrial real estate transactions.
And we're strong and we anticipate this continuing throughout the balance of the year.
As is everyone. We are also monitoring developments and the federal infrastructure, Bill, which would also provide tailwind for our business.
We strengthened our environmental health Sciences vertical and quarter 2 with the acquisition of P. S environmental.
We also have multiple potential acquisitions currently and due diligence.
We continue to maintain a robust M&A pipeline.
Consistent with our acquisition strategy, we are targeting companies with high growth high margin service offerings and firms that have a high barrier of entre.
This will strengthen our platforms.
Yes was our fourth acquisition of 2020.1.
Based upon the strength of the M&A pipeline, and we anticipate additional acquisitions and the second half of 'twenty 'twenty 1.
As a result of our record performance and the second quarter and the momentum that we see entering the second half of the year, we are raising our guidance for 2020.1.
We have raised our gross revenue guidance from between $695 million and $720 million to.
A low of $705 million to 727 man and increased our GAAP EPS guidance to between $2.45, a share and $2.84 per share and the increased our adjusted EPS guidance to between $420.20, a share and $4 and 55 per share.
Please turn to slide 6.
And the fives positive adaptation to uncertain market conditions resulted and is this acceleration.
And we anticipate our strong performance to continue through the second half of the year.
We saw increased volume and our northwest and South East infrastructure business due in part to our ability to provide design work remotely and New York City, and increased transportation and infrastructure business and the South East.
Our testing and inspection and consulting and vertical grew and we expanded our traffic service group from just the south east 2 of nationwide platform.
The utility services continued to be 1 of our fastest growing sectors. As you can tell these expanded investments and LNG capacity grid monetization reliability and the fire mitigation.
Our geospatial volume and proved in court to 2021 and we secured a number of awards and the commercial and state and local government groups.
Continued improvement and the federal government sector and the second half.
Finally, we brought more of our work and data acquisition and analytics and house, reducing the use of sub consultants, resulting in lower gross revenues and increasing net revenues.
Our energy efficiency and international businesses delivered excellent results and the quarter with 93% total growth and 23% organic growth versus the second quarter of 2020.
Our environmental vertical grew 71% when compared to the second quarter of 'twenty, and 'twenty and our environmental transactions business delivered the strongest quarter and its history.
Which reflected at 131% increase over quarter, 2.2020.
The acquisition of P S environmental strengthens our environmental compliance capabilities.
Thirdly and water we.
We have seen improvements and the hospitality education and industrial segments that are building.
This supports.
And saw increases of 52 per cent for sustainability of service and 39% per commissioning services over quarter 2 last year.
Our mechanical electrical plumbing and fire protection design business improved despite supply chain disruptions.
Going to slide 7.
We have highlighted our business model, which is built upon 4 pillars that drive our growth and margins, which exceeded the industry average.
This unique business model allows NV 5 to adapt to changing market conditions and continue our growth trajectory.
The first pillar is our focus on high growth segments.
Targeting segments with rapid growth such as utility services infrastructure and.
And the ESG.
Which resulted in a and b price increased market share taken from our competitors.
The second pillar refers to our high margin service mix.
The margin of offerings, such as terrestrial and oceanographic geospatial technologies and subscription based energy efficiency services complement our traditional engineering and compliance services and drive margins that exceed those of our other firms and our space.
The third pillar of our business model is mergers and acquisitions.
Mergers and acquisitions continue to play a vital role and our growth strategy and the majority of our platform allows us to be selective and the acquisition targets that we choose.
And to pursue.
We focus solely on those companies that will strengthen our platform and operate and higher barrier to entry sectors.
The fourth pillar is scale and and synergy.
The integration of our acquisitions of allows us to fully extract synergies of newly acquired companies through cost efficiencies of our shared service model and commercially the right single NV 5 brand.
Cross selling across verticals allows us to bring work in house at higher margins and sub contracting.
And enables communication across verticals too and create a sense of inclusion across the organization.
The technology also provides synergies our it systems to allow us to work remotely limiting geographic restrictions.
1 result of this investment is the ability to offshore of geospatial data analytics and M. M. P designed to improve margins.
Resources can also be shared across geographies and helping to maximize utilization and support skin.
Annuity of operations, while allowing us to adapt to changing market conditions.
On slide 8 we have highlighted some of the macroeconomic factors that are affecting our business, including public sector funding.
The 350 billion per state and local tribal and territorial governments and the 2021 and American Rescue plan Act is helping to replace public revenue loss during COVID-19.
Grant applications opened in May for the stimulus funding and will help to shore up.
The budgets of many municipalities and state governments.
As part of the proposed infrastructure Bill we are monitoring the develops and positioning NV 5 to benefit from of Bill. If it is signed in the coming months.
And would certainly be a tailwind for our business.
And the major markets that we serve including infrastructure and utilities continues to be strong.
Our municipal and state government clients of healthy budgets and should benefit from additional federal funding.
Investments and aging infrastructure and not discretionary and environmental concerns such as the fire mitigation continued to grow in importance for utilities and public sector clients.
The federal government has made progress and moving forward with the backlog of of contract awards that were delayed due to the change in the administration in.
In particular, we expect federal Geospatial awards to increase and the second half of the year.
And the private sector industrial real estate transaction services are performing at a record level.
And we have also seen an increase in activity in the segment for our buildings and testing inspection and the consulting business.
I will now highlight PFS expansion P. S. The expansion of our environmental platform on slide 9.
T S and environmental engineers, and environmental scientists, whereby the site assessment water resources, and environmental permitting and compliance and litigation support services.
The U S also brings additional capabilities and water resources groundwater and storm water management.
What has become a growing part of our business and we expect to continue growing our water capabilities and the core business and geospatial businesses.
We believe that environmental sustainability and see.
The growth opportunity for NV 5.
Yes, also strengthens our capabilities and ESG.
On slide 10, I will touch on our dedicated focus on ESG.
Environmental sustainability, it's a common thread that runs through all of our verticals and we have completed more than 300 and sustainability centered projects from renewable energy and energy efficiency to sustainable infrastructure.
And the 5 has also been active member of the Harvard Graduate School of design and Advisory Board for sustainability.
And infrastructure.
We've been members for 10 years, and our employees maintained licensing and accreditation to stay ahead of the curve on the sustainable solutions to serve our clients.
From a social perspective, and the problem is a strong focus on undertaking projects that benefit the communities, where we live and work.
Yes, and engineering and consulting business that supports the infrastructure that improves slides 1 can say that all of our business is ESG related.
However, our governance makes the diversity inclusion and integrity.
Fundamental to our values and we believe and driving change through this action.
Our code of business conduct and ethics drive the importance of ethical behavior throughout our organization the.
Focus on diversity and inclusion is driven by management and.
And our leaders drive initiatives to support our talented and diverse workforce.
We are aligned.
We also support the number of organizations, including the National Society of Black Engineers to support students, who aspire to enter the fields of engineering and technology.
On slide 11.
You will see we have built a strong backlog of $603 million.
This backlog only reflects the rolling 12 months and it represents over 80% of our revenue guidance for our 2021budget.
This is a healthy backlog for the remainder of 2021 and entering 2022.
We secured a number of significant awards, and the second quarter, including utility services, and and infrastructure and geospatial and buildings and program management.
And the pipeline is strong for additional large wins and the second half of the year.
On slide 12, I will give an update on our cross selling program.
Year to date, we have completed $14.1 million and cross sales between verticals and we're on track to meet our 2020.1 goal of $31.2 million.
And we've seen an increase and our cross selling of technology services, such as drone based geospatial to support our survey and groups and an increase and cross sales between the core business and geospatial business.
We also anticipate additional cross selling opportunities from our newly acquired firms.
On the right hand side of the slide I will highlight some of our recent key wins.
Our LNG business continues to secure significant contracts and last month at 1.8 and $16 million contract to upgrade the liquid vacation infrastructure at a northeast utilities liquefied natural gas facility.
Our utility services vertical also secured a $9 million and surveying contract permitting and technical services to support the and construction and maintenance of the California utilities electric and gas infrastructure.
Our Geospatial group won a far street contract and Alaska to provide them imagery of 2 national forests, and the city of Fresno, and California awarded NV $586 million contract to provide a program management services for a major connector road and interchange and California Central Valley.
Our international business performed very well and 2021.
Securing a $5 million contract by the Hong Kong Hospital authority to provide engineering services for hospitals, and outpatient centers and the Hong Kong Island West region.
I will now hand, the presentation over to our CFO and Ed Codispoti to provide an overview of our Q2 'twenty 1 performance Ed.
Thank you Dickerson and good afternoon, everyone.
If you would please turn to slide 14, I'll review our results for the second quarter of 2021.
As <expletive> mentioned, we had a record second quarter as our gross revenues increased by 10% compared to last year.
We also achieved record adjusted EBITDA of $34.2 million for the quarter and.
This represents a 27% increase over last year.
Adjusted EBITDA margins in terms of revenues generated by employees increased to 27, 1% compared to 22, 1% last year. This is of 500 basis point expansion.
And if we look at adjusted EBITDA margins as a percentage of gross revenues, our adjusted EBITDA margin expanded to 19, 1% from 16, 6% last year of 250 basis point expansion of.
Our adjusted EPS for the quarter was also a record as we generated $1.34 per share compared to 93 per share last year of 44% increase.
We had particularly strong results from our power delivery and utility services business unit, which increased 35% and our real estate transactional services, which increased 131% after having been affected by the Covid pandemic last year.
Our geospatial vertical was down about 3% this quarter when compared to last year as a result of the contract delays. However, we anticipate a stronger second half of the year for this vertical.
With respect to our earnings per share there are quite a few drivers out of contributors to our increase in profitability, including our topline growth as we have previously described.
The scale achieved through our unique business model and the operating efficiencies achieved through our investments and technology.
We also saw a reduction and our interest expense as a result of our paydown of debt and a reduction and our effective income tax rate from 31, 3% to 19, 7% and.
Please keep in mind that the effective rate and the second quarter is not representative of our full year effective tax rate, which typically is in the mid 20% range.
It's also important to note that the increase and adjusted earnings per share occurred despite 15 million diluted shares outstanding this quarter compared to $12.6 million shares outstanding during the second quarter of last year.
If you would please turn to slide 15, I'd like to draw your attention to the strength of our balance sheet and the savings we've been able to generate as a result of our focus on paying down debt.
As you can see our net leverage has come down to half a turn as of the end of the second quarter compared to 2.8 times last year.
This has resulted in considerable savings and interest expense as we reduced interest expense by 64% of savings of $2.8 million per the quarter when compared to last year.
On top of the slow net leverage we were able to close the quarter with a strong cash balance of $113 million.
We believe the strength of our balance sheet positions us well for future growth.
With that said I'll turn it back the Dickerson Wright for some closing comments. Thank.
Thank you Ed.
Let's turn to slide 17.
As we look towards the second half of 2021 and we believe that we are poised for growth as the result of our strategy and business model and we remain flexible to take advantage of the ever changing market.
We are entering the third quarter with a record backlog and the pipeline of new opportunities is strong.
And the investments and reliability safety and fire mitigation continued to grow and the strength of our municipal and state government budgets as expected the free funds for additional infrastructure investment.
We expect the high volume of real estate transactions to continue and.
And we believe that the turnaround of hospitality industrial sectors will continue to progress.
On the M&A front, and we have multiple potential acquisitions and due diligence and we expect to close additional acquisitions in 2020.1 the.
The pipeline for M&A is strong and we continue to identify new acquisition opportunities to build of our platform.
Finally, we are optimistic about the progress of the federal infrastructure Bill.
While we're not depending on of Bill being passed it would be of tailwind for us that would impact all of our verticals positively.
Based on our record performance and the second quarter and our position entering the second half of the year, we are increasing our guidance for 2020, 1 full year gross revenues between $705 million and $727 million and our 2021 adjusted EPS guidance of between $4 in 'twenty.
And $4.55 per share.
This completes our prepared remarks and now we'd like to open the call for your questions.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number 1 key on your Touchtone telephone and great.
The question has been answered or you wish to remove yourself from Mchugh. Please press the pound key.
The first question, we have Chris Moore from CJS Securities. Your line is open.
Hey, good afternoon, guys nice quarter. Thanks, Thanks, Mike.
Good afternoon.
So backlog record $603 million.
Are you seeing you know lead times stretched at all on some projects kind of more of the typical given the environment.
We have not seen thanks, Chris for the question, we have not seen anything that and the core business that is unusual. However, there has been some delays and the federal funding on our our geospatial business and that's mainly because of administrative delays and so that's the only stretched.
Now that we have seen and the project is really not so much and the core business, but more on the art geospatial.
Services.
Got it and that's helpful.
Q4 is typically the <unk>.
Softest quarter of the year is there any reason to think that pattern will be different. This year is there any catch up in Q4 and certain products or anything like that how should we do we look at that.
Well, thanks, Chris normally Q1 is our slowest quarter and.
Q4 is very.
It can go a number of different ways. If we have good weather than projects will continue.
<unk>.
We have accruals that we will we will adjust and there'll be certain tax rates that we will have an effect but.
And it's really more difficult to predict or will be and Q4 because of lot of that is start to start to become and weather related and there are 2 holidays and that quarter that also impact the revenue.
Got it and that's helpful. Just last 1 from me hearing lots of talk about utilities.
Burying power lines, especially on the West coast and minimize the impact of the virus is that something that you're hearing much about and does it prevent present much of an opportunity for you guys.
Yes. Thank.
Thank you, yes, we are hearing not only we are hearing a lot about it but we have been.
And the key the key utilities and the west that we do.
With us of mainly P J and <unk> and we've had meetings and we are starting to use.
Use of that relationship and.
We are so far ahead of normally the curve, what we're doing per sandy of gas and electric Piccinini is just starting on their bearing of the utilities and we look at the become and embedded very good resource Fritz providing that so it looks like a very good opportunity for us.
We hate to see with this with the buyers the way they are but it seems like the utilities now are starting to bear at the local.
Transmission and distribution line. So of course, it's the major big transformer lines cannot be buried but it's mostly the local ones that and.
<unk> is starting to do that now and we are positioning ourselves.
To do this work.
Got it I appreciate it I'll jump back in line. Thanks, so much.
Next question, we have Rob Brown from Lake Street Capital Your line is open.
Good afternoon.
Hi, Rob.
I think you talked a little bit of about the pipeline building and and sort of extending the strength you saw and the second quarter could you give us a sense of of sort of the size of some of the pipeline activity that youre looking at and the back half and.
And how are you sort of see of playing out.
The pipeline are you speaking of the physical pipeline, our pipeline of opportunities and the backlog.
Yes, yes, sorry, I'll talk about the pipeline of our of our pipeline of new contracts that you're that you're pursuing.
Yeah I think.
We are very encouraged about the amount of activity.
That we're seeing we're seeing an increase and opportunities and of course, it's always we are fighting the same thing as any other technical service provider and that assess the staffing requirements to do this work, but we we see of very strong uptick and infrastructure, we see it and and.
And all regions of the country and we also see a very strong uptick and and our conversion of the utility work.
First of the conversion of course of <unk>.
Overhead the utilities to underground with the belief that seem to be wider that's increasing and with particularly with some of our clients of utility clients and the west and then also from the smaller utilities that are converting from natural gas the LNG we see.
Expanded opportunities there.
The other area, we're seeing and.
At first was unexpected, but we've really positioned ourselves nicely for this is the transactional.
Real estate market, which is really going strong and we don't spend much time on the residential as much time and the residential real estate, but we do see a tremendous amount of REIT activity and portfolio activity and industrial real estate that we expect to see a real growth and that area and 1 more thing.
And that's kind of spills over to.
Usually whenever there is a.
And improvement and transactional work for real estate it helps the utilities and so on.
Municipalities and so at the mid <unk> also.
Look for expanded opportunities there and that's all mentioned and the concluding comments I think we will help our the utilities to position themselves or funding, but this infrastructure build that has just passed today.
And then my second question is of the infrastructure Bill how does that sort of flow and your business. How long does that take to for to show up and does it does it show up in certain areas or does it show up and AR and and overall improved our organic growth rate.
Well you know I.
I think.
The first benefit we will see and the infrastructure Bill is the application for funding, but the actual construction and building permits we'd seen permits go up as long as 8 years too. So it's really going to be the permitting process that will really slow down the actual construction, but we're trying to position ourselves now to help the municipalities.
These to get funding and that is for writing helping them at the right. The grant helping them with the specifications, but the actual construction that's going to be dependent on the permitting process.
Normally the smaller projects will go quicker than the than the larger.
<unk>.
Okay, great. Thank you I'll turn it over.
The next question, we have Andy Wittmann from Baird. Your line is open.
Oh, great. Thanks.
Sorry, I just wanted to get some of the numbers right and.
And it may have missed the Easter in the prepared remarks and of so I apologize but.
I did want to just make sure I heard the total company organic growth rate for the quarter. I know you gave it by a couple of different segments, but I don't know if I heard the total company consolidated and if I've missed it I'm sorry.
Well, the total growth and our core business was about 10% and as Ed mentioned that there was a slight flattening of retraction and the geospatial business. So the total growth.
And for our business that most of the core and the geospatial was about 8%.
Okay. That's helpful.
And then.
I guess and.
Some of the acquisitions in the quarter because of system.
The big 1.
Can you talk about.
How much that contributed maybe to the backlog and how much any acquisitions that were closed and the quarter, including P. S. And I think geodynamics has also closed in the quarter can you talk about.
How much are those contributed yes, the backlog as well as anything you could tell us about how they affected the guidance for the year versus the last quarter's guidance.
Okay, well, let me start with the last question first and then Ed will give some more definitive comments on <unk>.
First up.
Very little contribution.
Either of both in <unk> and backlog of growth from either 1 because of the timing of of the act was acquisitions.
1 came we got more from Geodynamics, then than we did give them. The IMAX also had suffered a little bit from delays and <unk>.
And federal government, so not a tremendous amount there I think.
Guidance, we don't anticipate it's very very hard for us the to say what our guidance is going to be based on acquisitions. Because we just don't know when theyre going to close we just don't know what to bake in as far as the time of the the year and that we can count on net revenue. For example, we may be looking at some companies with significant <unk>.
Run rates.
Trailing 12 month basis, but we may not be able to acquire them until late in the third quarter of the second quarter. So it's very very difficult to really bake and what the guidance is going to be obviously.
We have some acquisitions of pipeline and where and due diligence on 3 right now and if they closed sooner than they would that would be and the higher end up our guidance of $727 million and if depending on the.
Closing of both acquisitions they would be in the.
Lower portion of the guidance of the $705 million, but Ed may speak a little bit of about when we closed on both the.
Geodynamics and on the PFS and maybe their contribution sure. So if you recall we had 4 acquisitions. This year. There was there was terror attack, which was in late February Geodynamics late March.
<unk>, which is the international acquisition in mid February and Pts, which was in mid May and combined in terms of how much revenue. They represented and the second quarter. It was about 8 or 8.8 and a half million dollars' worth of revenue.
Okay. So just sorry, I just want to make sure I'm understanding this correctly it sounds like the deals that are kind of queued up here. The 3 deals are.
Are factored into guidance to some extent, but the timing of which can swing. It around is that is.
Is that a fair characterization dickerson.
Yes, I would say this if we probably don't do any acquisitions and look for and the lower end of the guidance and then timing of these acquisitions will push us towards the higher and higher and up the guidance. If we can close those sooner and the remainder of 2021, okay. Okay. Thank you.
And then I guess, maybe my final question here has to do with the profit margins and particular the ones against your own what I think you've called it against your own revenues or with some companies would call like a net service revenue kind of metric.
The 27% of that's obviously very very high and so I was hoping you could talk a little bit more about what drove that.
It sounds like mix and utilization were probably the 2 biggest drivers, but I'll. Let you correct me if I'm wrong on that and I was just wondering is there any.
Accounting changes or Closeouts or things, where you picked up on the 1 time basis, but also helped the segment margins.
We just have to ask the question just because of the margins were what they were.
Well, let me do it I'm good at I'll answer very general and interest specific Ed will speak specifically of any changes and assets that we may have you are right. Its service mix and utilization, we were really watching our utilization we've seen.
We've seen some increase and as high as 80% on the utilization and some cases, but it's actually the service mix that has been the.
And that has been profitable.
We should learn on what we're doing that the more that we grow we really watch our support services to be scalable and we really want that the more efficient and obviously.
The more.
The higher our volume the more efficient we want our support services should be and legal and finance and accounting and so those all add to the improvement I think there was some specific changes in and.
And concerning net revenue and and.
And maybe Ed can speak to that and maybe speak of the any benefit from taxes.
Of that propelled the March and to 27%.
Sure and I think when we when we look at that margin expansion.
Based on our mob business model of that Dickerson was just referring to but as you alluded to Andy Theres also the the.
The mix of business and particularly across our verticals. So we.
We had.
Some some of our business.
The lines that we mentioned earlier for example, the real estate transactional services.
And environmental that tend to have a higher margin and those those performed.
The relatively better than others in terms of their and their growth and although geo came down in terms of revenue slightly and their margins continued to expand and that's as a result of our investments and technology, which allows us to benefit from from that that efficiency and those improved margins.
So it's a mix of scale, our investment and technology and the mix of business and across our verticals and let me just add too.
And the please look at the effectiveness of our cross selling when we can do the work internally, it's much more profitable.
With sub consultants, it's almost of pass through administrative costs and we.
We are pushing and I can tell you that the cross sell and Israeli growing its even above the $14.1.
And that was reported and this quarter and that also adds to the profitability and it also affects the net revenue I mean, because it's work that's done internally its not affecting the total revenue, but it does affect what we call. The net revenue and and we may want to comment too on the.
Work performed by our employees and network that Theres, an interpretation on revenue and Thats done by employees short and you alluded to the the referenced the net revenue. So we don't use the term net revenue anymore. Because there is a there's a preference by the SEC that we referred to a pure revenue.
And it by employees, so that we eliminate any any markup within some of the sub components. So the 27% margin as a percentage of of of pure revenue generated by our employees without any any output from from sub consultants or or labor or.
Some of it started sub consultant costs.
Got it.
Okay.
Scott.
Okay. Thank you.
Next question, we have Jeff Martin from Roth Capital Partners. Your line is open.
Thank you. Thanks, guys how are you.
Hi, good.
<expletive> wanted to get some relative perspective on the second half improvement from GI space, So special and specifically <unk> and then also wanted to get a sense of how the integration of geodynamics into what <unk> is doing is progressing.
Progressing and.
And maybe what.
When we should see some fruits of that labor.
Okay, Let me make a general comment and then Mark of motto is here also and he may comment on the integration of <unk>.
The dynamics and from my perspective, it's going very well, we're able to do some things that before we would have to sub out that they are doing internally.
And we have not and I don't want it.
Look for some releases as soon as we get.
Approval, you'll see some significant wins that of releases from our geospatial group for the second half and we're starting to see contracts to come around that were delayed and I think so I think you'll see that improvement I'm encouraged by some of the recent wins I have seen that we have not released yet wait.
Waiting of course on client approval, but I do think that I am encouraged by seeing the cadence of awards that are coming from geospatial and the second half of the year that I anticipate or we anticipate improvement on but maybe on the integration Mark of the Geodynamics and house Sloan and Chris are doing and.
You may want to comment on have a comment on that.
Yeah, absolutely and I'll, just emphasize what Dickerson had said in terms of the momentum.
And in Q2, I mean, the contract awards and tasking that were delayed late last year and into Q1 are beginning to fall into place the the geospatial bookings and Q2 were up 30%.
Most notably and utility services, and our state and regional government sectors and and the pipeline is strong across all of our geospatial sectors, including federal and and we started off Q3 win with $18 million and in bookings and July alone, which represented about 58% increase over.
And just a year ago as far as positioning for the second half.
Especially given the cyclical nature of the Federal Awards in September which is the final months of the federal fiscal year and and also we've got some annual renewals of several large utility contracts, where we're very.
Very optimistic in terms of of that that momentum continuing into the into the second half of the year.
Relative to the geodynamics.
We've followed the <unk>.
<unk> the that <unk> has and.
Employed over and over again with with its and its acquisitions and the integration is going incredibly well not just in terms of of.
Some of the support services, but in terms of how we're presenting ourselves to the clients bolt on the.
And the utility side, and we're seeing some very positive momentum relative to renewable energy and in particular offshore wind opportunities.
But as well with.
And with some of our anchor clients on on the federal side, most notably no where we're able to take our services that go.
The previously up to and including some of the the shallow water and near shore areas into the deep Ocean with the acquisition of Geodynamics. So it's significantly expanded our capabilities and that's been.
Very well received by a number of our clients.
Great. That's great color. Thank you Mark and we'll have new.
With 2021 being moderately suppressed year for geospatial and not of any fault of your own doesn't the set up for you know.
Quasi hyper growth here in 2020, 2 and if so.
What what kind of additional resources do you need to staff up from that.
Yeah.
Well I think your characterization is probably accurate and the sense that we've seen timing delays, but in terms of the macros that are that are driving growth or we expect to drive growth and geospatial there, they're as strong as ever and I think that that does the.
And that speaks to just the core dynamics and not even withstanding some of the the tailwind from the infrastructure Bill So I.
I do think that the.
The momentum that we're seeing here in Q2 and into the second half.
Bodes well for 2022, and a stronger backlog heading heading there.
And I think that 1 of the benefits that we have and in terms of our our traditional investment in technology and software in machine learning and and developing capabilities and and AI are allowing us to expand our capacity without necessarily have.
And to invest proportionately in the and resources.
So in other words, we're able to do more with less that said, we've got a strong pipeline of.
Talent through the University systems that we partner with.
And I think we've got a very good perspective in terms of the technology that will need to.
And to have access to in the coming years in order to maintain that that leading edge.
Relative to efficient operations and and so I think that we're built to do this and and we will continue through 2022 and beyond to to stay on that leading edge technology.
Great. Thanks, and good luck with the second half of the year.
Thank you.
Yeah.
Next question, we have Lisa Springer from singular research your line is open.
Congratulations on the very good quarter.
And thank you Lisa.
You mentioned during your remarks of the hospitality business, you've seen some improvement, but how is that tracking compared to pre COVID-19 levels. I mean, how much recovery is left to be done with that business.
Well, there's a lot of room for it.
Recovery I mean.
And we can really see and opening of.
In the hospitality network, and our program management group and NR.
And the casino related business, but with the Delta variant there so theres been a little bit of a setback, but we were awarded of very significant project.
And in Las Vegas on the new very large casino projects. So we look at we look at that.
<unk>.
To do better than it has been.
Post post Covid, and we'll get back to where we were pre COVID-19.
Okay. Thank you.
Yeah.
Next question.
Marc Riddick from Sidoti Your line is open.
Good afternoon.
Hi, Mark.
So I was wondering first of all of the there's certainly quite a bit.
And I was wonder if you could talk a little bit about maybe how does the pace of order flow.
And something that built through the quarter and and coming out of the of course, because certainly there are there certain scenes and its been communicated a good amount of of.
The positivity and.
Obviously that was part of your guide, but I was wondering if you'd talk a little bit about the order flow pacing of what you saw and sort of how that ramps throughout the quarter.
Well I think mark and.
Hopefully it and the concluding remarks, you'll see another slide that we added that really showed not only just the comparison of what we were doing versus last year, which was COVID-19 related but also where we were in 2019 and.
And.
We'll have that slide we could probably mentioned it now and the show the cadence of business. So.
The overall business is very good very strong.
The order of business is we see that strongest stronger than ever.
But obviously staffing and getting good engineers and getting people to staff. It's a nice problem to have but we have a tremendous amount of work and.
And we can see it much stronger than it has been and in the past and its staffing is something that is the challenge that we will continue to do.
I think we.
Had the slide up there if you look at the page 18, and both cat and I can comment on that but I thought it was really meaningful not so much of show the comparison of Q2.
The 2000.
'twenty 1 over 'twenty, because we had COVID-19 related issues, but if you look at <unk>.
'twenty, 1 over 19 prequel, but youll see a tremendous increase we've had and gross revenues and net income and.
Adjusted EBITDA and everywhere across.
We're showing improvement and it really measured against what life was like pre COVID-19. So maybe add there maybe something you may want to comment on cash flow or something you may have a comment.
Sure I mean.
When you consider the.
The comparison to the second quarter of <unk>, 19, which was of pre pandemic quarter. Our gross revenues were up by 40% our net income 55%, our adjusted EBITDA very strong and interest of 86%.
And all of our adjusted earnings per share are very close to GAAP also both both of the 30 and 31%.
And cash from ops.
A very significant during the second quarter of 2019, we generated.
Just about $1 million from cash from operations and during the second quarter of this year, we were at $14.1 million. So that's the that's over 1000% increase so very very significant I think we've made good traction in terms of recovery as <expletive> mentioned, there is some business units that.
And are still and the process of recovering like hospitality, but overall, we're seeing very good sites.
Excellent and then I was wondering if you could sort of highlight you mentioned and certainly really appreciate the commentary around the acquisition pipeline and what you're seeing there.
Just wanted to circle back as far as.
Where we are leverage levels, I think where we're now kind of.
US slightly below 1 times I guess or maybe it's just sort of just a quick update on that I. Just I don't have that in front of me. Unfortunately of the moment, but wanted to sort of.
Think about sort of how we should think about leverage levels that you're looking at going forward and what we might see there.
Sure sure.
And I mentioned earlier that when you look at our our net leverage.
Actually at about half of term right now above <unk> 5 times so.
And it's under 1 times and.
And.
We've made.
We brought that down significantly as compared to last year last year that was 2.8 times and so we've been focused.
Through the the pay down of debt.
Alright also the golfer and that we did earlier in the year and and the growth and our EBITDA.
Really come together nicely and you see that in our and the benefits of that and our and our not only our balance sheet, but our interest expenses.
Last quarter, the first quarter of this year.
We generally we incurred $2.3 million and interest expense and it's come down to 1.6 and.
And.
It was over $4 million last last year's second quarter. So.
Really nice progress that you see not only on the bottom line, but and our cash flows and so the.
It's really looking nicely.
So mark some ex us and my summation, we have plenty of firepower to really accelerate the acquisitions. We are in the very strong cash flow position, but we also have the very significant facility and case week. So we can be very opportunistic and the nice.
Problem. We have is not only can we be opportunistic, but we can be very selective and so we're looking for that high margin high technology business and something that constraint and strengthen our existing platform. So.
As far as our ability to do acquisition. So we are in the.
We are and a pretty strong.
Cash position and be able to do that.
Very good thank you very much.
Okay. Thank you.
Next question, we have Michael Feniger from Bank of America. Your line is open.
Hey, everyone.
And taking my questions and he and.
And apologies if this was already touched on earlier just the 1 trillion stimulus that passed the Senate today can you just help US you know.
And the idea of what the baseline funding level of infrastructure spending you see a year and how much is incremental increase on funding and some of these markets and <unk> and how long does this increase and funding kind of take the trickled down and too.
The discussions on projects eventual backlog and then into revenue.
Okay, well, Michael I think.
<unk> is the key thing that we have here, we are and the infrastructures servicing business we are in that space.
As I said I think our immediate opportunity is going to be helping the municipalities get funding and then it depends on how long projects have been ready to go but have not had the funding and infrastructure, we could see some immediate benefit from those areas and the infrastructure work.
A lot of the this is dependent on permitting so if it's a brand new project.
Unless they can somehow accelerate the permitting process, we're not going to see and immediate impact and and larger construction and and so the big big firms that are doing the hot and Big Transportation works and.
Unless that project and it's already been and the pipeline and are in the queue.
They're going to have to go through the permitting process to so our main focus is to is the strength of the local municipalities and how that how we can get get that work also I have Alex Hockman here with me too who runs our core business infrastructure business, maybe you have a different view on the infrastructure of Bill Alex I don't know I mean I think.
At this point, you've done quite well and it's a matter of timing to see how it's going to impact and what stage. Some of these projects are from the perspective of both design.
The funding as well as ultimately permitting.
Got it and can you guys just help me with the the guide raise what the.
The implied EBITDA range it looks like this year.
Well.
Yes.
I can't help you with that I think we can assume it and a conservative.
The EBITDA I think we're going to be.
20% or more and.
And EBITDA are you talking of $1 of EBITDA and percentage.
I was just taking dollars but.
That helps.
We don't we don't give specific guidance on EBITDA, but I think something and the mid twenty's would be reasonable.
Okay. That's super helpful guys, and then just on fixed and you touched on this like being selective on projects.
Sounds important because there is concern about inflationary pressures.
Just what's your confidence on on margin expansion next year I mean, obviously you guys have had good margin expansion.
Through Covid this quarter margins were up nicely, what's your visibility on on margin expansion and next year does that expansion and start to get a little limited because theres more focus on the top line or can you continue to expand margins at this at this freight and 2022.
Well, we are certainly hopeful that's our intent we don't we want to always improve but I think Michael you should focus more on the scalability of our shared services and our support surfaces.
Scalability of our financial team the scalability of our legal team.
The scalability of our I T.
And the scalability of our human resources, you know they don't we don't necessarily have to we can.
Take on a tremendous amount or an increase in volume and not so much.
The impact of this in our shared services. So the more efficient we can be we certainly should improve we should certainly improve on the margin and the second thing of course, we are being very selective now I think we see very good opportunities and and our high growth businesses and businesses that come with the higher margin and have a high.
Barrier of Entre so our M&A pipeline now is mature that we can be selective and so we should see a margin improvement from both of our scalability and the projects that the.
And that we're doing.
We want to be.
And.
Very efficient and what we do and and we want to continue to be a consulting work and not so much of.
Percentage of completion of our projects the projects at risk. So we expect to see the margins certainly we'd like to see those margins improve and we anticipate that.
Thank you.
Yeah.
At this time.
We have Andy Wittmann from Baird. Your line is now open.
Great. Thanks for taking my fault lines and the cube and the 2 times of acute and that's.
Yeah.
Okay.
Okay.
And I felt inclined I thought I thought this 1 merits of clarification because of its important I know people are okay to the us so.
Hum on the implied EBITDA question from just a second ago I heard 2 answers you said something in the mid 100 Twenty's on a dollar basis and <expletive> you said something and the 20% range on a percentage basis.
And 20% of at the midpoint of your guidance would be something like $140 million of EBITDA and non teller basis. So I just wanted to give you guys the chance to be a little bit more kind of 1 of I think of it can both lithia and languished.
The number is.
If clarity we will.
We give the total amount and the guidance on gross revenues when we were referring to 20%. That's based on net revenue so that would come in closer to that 120 or lots of 120 range because of our.
Income our EBITDA adjusted EBITDA percentages based on net revenue. So if you take take that and I don't want of back of the envelope. This but if we have a <unk>.
17% of.
83% of that number is net revenue then you would take the 20% of that and you'd get pretty close to 120.
But we can't be very specific.
Ed is just.
And we'll shoot me here, if I get very specific zone, and so I know that's fine and I just sort of of that makes total if it's gross revenue versus net revenue explains that and that explains it.
Okay and that wasn't immediately clear so I'm glad you clarified that.
And it up we should've been we should've been clearer and when we set it anyway. Thank you. Thank you and thank all of you for your questions.
And so fine.
This concludes our question and answer session I would now like to turn the call back over to Mr. Wright for closing remarks.
Thank you and thank you for everyone listening and those sort of asked questions.
We obviously had a strong quarter and I just want to focus on what we.
We want to accomplish I think we've been at this the team with me we've been at this for many years and we realize that growth comes from doing good work, having good people and also being able to integrate those acquisitions that we do and stick to the model and the advantages.
We've had I think we spoke of the 4 pillars that that indicate our.
How we how we have an advantage of doing that and so if you look at those things those are extremely important to us that's our strategy and the market place and and.
And <unk>.
We are focused on high growth segment business is high margin with technology.
Feel like we are a known entity and the M&A space for what we do and.
And we must be scalable many companies that successful and up with many administrative cost because they don't stay focused on their strategy or the business model. So hopefully we will continue to do that and our success has really been through the great efforts of our people and the award and work to adapt.
I mean, we have many many people working remotely we have many people that are that are <unk>.
Pressing issues and following what's going on and being able to adapt and ever changing and the world of <unk>.
Of the marketplace. So I just wanted to take this time the thank you everybody and thank our investors. Thank our employees and we hope to continue with another strong quarter and.
Of our growth. So I think everybody from the time that you spent with US today and we look forward to to speaking to you again.
As we progress thank you.
Thank you presenters. This concludes today's conference. Thank you again for <unk>.
Your participation and have a wonderful day you may.
All of this disconnect.
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