Q2 2021 Bowman Consulting Group Ltd Earnings Call
Comparable GAAP information of the company's earnings power.
This release and 8-K filed with the SEC and on the company's Investor website at investors that Bowman Dot com.
Management will deliver prepared remarks for about 15 minutes after which we will be taking live questions from published research analyst.
The call attendees on the webcast may pose the questions for management to answer on the call or in subsequent communications, but there will be no live Q&A from the webcast entity.
Replays of the call will be available on the company's investor website.
Mr. <unk> you may begin your prepared remarks.
Thank you Adam and good morning, and welcome to the boom in second quarter earnings call, Gary Berman with chairman and CEO of <unk>.
I'm joined here this morning by our CFO Bruce neighborhoods.
I'm happy that we're able to report on another successful quarter before starting I would really like to thank everybody on the team here at <unk>.
All of the hard work.
Very proud to lead this team here of committed and talented professionals our journey as we realize our vision to become a half billion dollar revenue company.
This past quarter it was a transition period for us.
The pace, we're running it sometimes it's hard to believe we have yet to report on a full quarter as a public company.
In May we took the first step on our journey by completing our IPO and we immediately redoubled our efforts to increase scale by way of both organic growth and acquisition.
In the second quarter, we continued successful execution of our business plan we.
We delivered record revenue and expanded backlog with a strong pace of new contracts in bookings.
More important our outlook is positive for the remainder of the year and beyond Bruce will expand on this in a bit.
As we've mentioned before one of our primary focuses is margin expansion through scale.
We intend to accomplishes for both organic and acquisitive growth.
The first step towards achieving our objective of margin expansion as absorption of the recurring operational costs of being a public company, which we currently estimate to be around $3 million annually.
As we discussed during the road show these incremental costs will be initially dilutive to our margins.
Just on recent performance, we forecast that this dilutive impact will be also once we achieve a net revenue growth of about $20 million over last year.
We delivered gross revenue growth of 15% in the second quarter and 13% year to date. So far this year revenue growth has been concentrated in our communities homes and buildings market, where we've recognized 29% increase in gross revenue.
This is consistent with the strong macroeconomic growth trends that we see in residential commercial and municipal development.
The residential business, which includes multifamily continues to exhibit an ever increasing demand for lot inventory.
And the restaurants and convenience store area of our business with clients like <unk> and circle K continues to grow robustly as these operators, both expand their footprint and reconfigure existing stores through.
To accommodate existing patterns of consumption.
The datacenter market across the country is as strong as we've ever seen it with northern Virginia being right here in our backyard the region with some of the most rapid expansion and growth of data center facilities in the nation.
For transportation revenue was down 19% year to date.
<unk> caused by finishing up two large project two large design projects in Texas last year.
Most of this reduction was sub consultant revenue not net revenue.
Government sponsored transportation assignments represented about over 90% of our transportation revenue in both 2020 and 21 we.
We recently announced the $10 million task order contract with Cook County, Illinois.
Have already gotten to work on this project.
We see growing momentum in the transportation sector, which we attribute largely to recovery from Covid, maybe transportation projects have been slow to get started are now being released with notices to proceed issues.
An example of this effect is our city of Chicago $3.7 million Berlais Avenue project.
We were selected for this project well over a year ago.
At our contracts and notice to proceed has just been recently awarded.
The power and utility revenue remained flat compared to the first half of last year. However, in the second quarter, we saw a 13% increase.
Year over year increase.
We believe that the second quarter increase is much more representative of the positive trends, we see in our power utility practice.
We continue to focus on expanding our penetration of the utility market through our infrastructure fortification and support practice, which includes gas pipeline identification and replacement along with utility underground at.
We recently received notice of increases in our assignment from nice source, Florida power and light and southwest gas.
Furthermore, our business with peoples gas is also growing and provides good growth opportunities well into next year.
Our emerging markets, which include energy transition the water wastewater and mining had a small decrease in revenue in the first half.
The decrease in this market is primarily the result of a reduction in revenue from our largest mining client in Arizona as a production was slowed last year due to Covid and has just recently begun to ramp back up.
Copper prices have rebounded to all time highs.
The mining operations take time to restart returned to higher production levels. We've recently received significant new orders from our Saco, and Freeport Mcmoran and anticipate significantly higher mining related revenue in the second half of 2021.
The water resources market is a very important component of our growth and M&A strategy and modest growth in this area to help to offset similar reduced revenue in mining.
I'm happy to announce we saw hiring of James <unk> and his staff to help expand our water resource practice out less.
We are excited to add <unk> associates portfolio experienced hours.
In the energy transition space.
We're focused on solar and Microgrid the key areas of growth.
We're experiencing an uptick in request for proposal related to Mike good sign.
Have an ongoing projects with UC, Berkeley to help develop a financial calculator for our neighborhood Microgrid.
We hope this can lead to large scale program.
Super optimistic about our prospects to grow our energy transition practice over the next couple of years.
In the area of M&A, we recently closed on the acquisition of Mcfarland Dire Associates Associates in Atlanta, which is our first acquisition as a public company Mcfarland.
A trial in dire has about a 30 person firm.
In the greater Atlanta area. Prior to this acquisition <unk> already had a small atlanta presence in alpharetta.
Many of <unk> core services overlap ours on a national basis.
Immediately fill a void of dedicated survey landscape architecture, and land planning and resources in the southeast.
Before this acquisition, we generally sub contracted as these services are markets and markets.
South of Charleston.
Therefore, we see here opportunity for revenue synergy from day one.
Bruce is going to go into some further detail regarding the economics of the transaction.
Isolate expecting to file in dire to be the first of several acquisitions will make over the remainder of this year.
Our pipeline of M&A opportunities is robust with firms sizes, ranging from around 2 million to $15 million in over in revenue.
Some of the prospects are in overlapping markets somewhere in markets, we've expressly identified as areas for targeted growth.
In all cases.
Acquisitions will deliver assembled workforce of skilled professionals that we can immediately utilized post closing.
Our guiding principles for acquisitions include revenue synergies post deal organic growth.
<unk> management team committed to long term success.
Diversification geographic market check our service line and attractive valuations.
The firms. We're currently underwriting focus on general Civil Engineering land planning.
Mechanical electrical engineering water resources energy efficiency utility services of transportation and other energy related services.
Given our current liquidity, we're confident we have capital necessary to close on a meaningful number of the accretive acquisitions are in our pipeline.
Now I'm going to turn it over to Bruce to discuss our results then I'll come back with a few thoughts.
Regarding the impending infrastructure bill before turning it over for questions Bruce Thanks, Gary.
Everybody for joining the call.
We've provided a good deal of information regarding our second quarter results and the press release last night, So I'm only going to focus on items that warrant additional explanation.
I'm going to start with a discussion of results and margin will talk a bit about equity equity compensation some of our credit facilities M&A and close with guidance.
Gross revenue for the second quarter was $26.5 million up 15% over last year and year to date gross revenue was $68 million, which is up 13% over last year.
These increases include acquired revenue of $2.6 million for the second quarter and $4.5 million year to date.
Net service billing, which we also refer to as net revenue was up 32 was up with $32.5 million or up 20% from the second quarter, and $61.3 million or 18% year to date.
Net revenue growth outpacing gross revenue growth means not only we are growing but we're producing more of our revenue in house and Thats a positive.
Adjusted EBITDA was $4.2 million and $8.3 million for the second quarter and year to date, representing a 12 nine and 13, 5% adjusted EBITDA margin net.
Respectively.
The reduced margin in the second quarter is in large part the result of investing in growth and the cost of being a public company.
These net revenue is really the driver of profitability of development as opposed to gross revenue.
Focus on gross margin net and SG&A as a percentage of net revenue as indicators of profitability both.
Both will be considered non-GAAP results.
Let's start with gross margin net.
For the second quarter, our gross margin net was 57% year to date, 56%.
It's up around one percentage point each from $56.55 for the second quarter and year to date last year.
The improvement of gross margin that's derived from increased efficiency of direct labor, meaning a combination of higher multipliers and increased utilization.
Gross margins generally independent of our status as a private or public company. That's not typically also not typically affected by market mix.
And on the other hand is impacted by our transition to being a public company.
SG&A as a percentage of net revenue was 53% for the quarter and 49% year to date.
This compares to 44% for second quarter, and 47% year to date last year.
So we're up nine percentage points in the quarter and just under two percentage points year to date compared to last year.
In the second quarter in connection with our IPO with a bit over $1.4 million of onetime transaction expenses included in SG&A, roughly 4% of net revenue were nearly half the increase.
Adjusted to exclude these costs SG&A as a percentage of net revenue was 49% for the three months ended June 32021.
We believe second quarter exclusive of the $1.4 million of one time IPO costs is representative of a baseline SG&A costs as a public company.
We believe theres margin expansion to be created for our progressively increasing divergence between the rate of growth of net revenue and that of SG&A.
Sales for the second quarter also referred to as bookings again outpaced revenue, resulting in backlog on June 30 of $124 million up $8 million from $116 million on March 31, and $11 million year to date.
And we see no abatement in the pace of sales activity so far during the third quarter.
Total stock based compensation was $1.6 million for the quarter and $2.7 million year to date.
This is up as would be expected from last year.
Of the $2.7 million year to date, roughly $2.4 million is related to pre IPO grants some grants disclosed in the S. One in connection with the IPO.
The remainder of the year, we anticipate non cash stock comp expense of approximately $5.3 million for a total 2021 noncash stock comp expense of roughly $8 million.
The $8 million approximately six eight will be associated with pre IPO grants.
<unk> disclosed in the echelon in connection with the IPO.
Approximately $21 million of future expense to be realized in connection with these brands were approximately 8 million next year $7 million in 2023.5 billion in 2024 and the remainder in 2025, you'll see this chart in the 10-Q when it's filed.
Our equity incentive plan was initially funded with $2.9 million shares, but as disclosed in the S. One we used $1.5 million in connection with the IPO, leaving $1.4 million shares for future issuance beginning.
Beginning next year, we expect to reach an annual run rate of roughly 4% of outstanding shares for incentive compensation.
Today, we have a total outstanding share count of approximately $11.1 million shares which includes all unvested shares and the shares recently issued in connection with the Mcfarland buyer acquisition.
Our weighted average shares outstanding will take some time to catch up and as such bps. This quarter is a bit inconsistent with reality.
At the end of July we successfully renewed our revolving credit facility with bank of America.
While there were certainly changes to the terms none of them were particularly material.
We kept align fixed at $17 million.
We established <unk> as a replacement for LIBOR and reduced the spread slightly.
As of today, we have $17 million available under the line.
Combined with our cash balance we have over $50 million of capital available.
On the M&A front on.
On August <unk>, we closed on the acquisition of Mcfarland IRR associates.
Total consideration was $4.7 million, which included $700000 of contingent purchase price.
Purchase price included 32000 shares of common stock that are restricted for a period of one year and $1.3 million of seller notes.
We estimate the multiple for this acquisition will be between four 7% and five 7% depending on the ultimate contingent consideration at the end of the period.
In the press release, we initiated 2021 guidance at a $125 million to $130 million of net revenue in 2014 to $15 six 6 million of adjusted EBITDA.
Supplies of 12% adjusted EBITDA margin for the year with a net revenue range of $63 million to $68 million for the second half an adjusted EBITDA range of $6 seven to $7.3 million.
This does not include any acquisitions in our pipeline that may close through the remainder of the year.
We generally experience a modest dip in fourth quarter revenue. So we would expect the remainder of the year to be a bit skewed to the third quarter, but not by a wide margin.
The reduction in margin.
This year over last is related to be absorbed.
Friction of investments in growth and public company.
For 2022 on our plan.
It will spill.
Given that the major components focus on areas of overlap or core business income.
All in including improvements to roads, and bridges transit electric grid, and all manner of water resources.
While we certainly expect to see an uptick in opportunities of this bill is ultimately adopted into law, our recent revenue and billings growth.
Well as our growth in backlog demonstrates with plenty of runway ahead of us with as additional legislation.
We are excited about our near term prospects as we continue to pursue our long term growth strategy.
I want to close again, where I started thank everybody here on the Beaumont team.
Their dedication to the company that commitment to our clients and serves the communities, which we operate.
And now I will turn the call back over to the operator for Q&A.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question is from the line of Brent Thielman with D. A Davidson.
Hi, Thanks.
Morning, Congrats on a great quarter.
Thank you Brian good morning.
Okay.
Communities and building vertical obviously fantastic growth there.
<unk> residential is a big piece of that but was hoping maybe you could dive into some of those pieces on the commercial.
I think trying to get a sense of what might be transitory you talked about reconfiguring.
Some of your customers' facilities related to covid to some of that path or is that continuing at a pretty rapid pace, if not to get a sense of what that commercial portions contributed to that segment.
Yeah.
It's roughly half and half residential half commercial commercial being honest with data centers and we will not end.
Okay.
Largely.
Perfect.
The restaurant achieves source and so forth. So your question about is the increase in C store is there a transitory element to.
Because the reconfiguration.
That that aspect of that market.
It is certainly somewhat transitory or it will go away over time.
It will have.
We will have a pretty long shelf life.
Because a lot of facilities that are being retrofitted over a long time.
We came into Covid with some pretty robust new store growth.
In that area and we still see robust new store growth. So we really don't expect any transitory effect of updated reconfiguration of drive through lanes and so forth so materially.
Later they are flat.
That market in the near future.
It actually in the in both the second quarter and year to date commercial increase outpaced residential just just marginally.
And so.
We definitely see you will see a lot of strength there.
That market.
One thing tons of other thing Theres. Another goes in other income sorry.
This is where we are in this moment versus what we're spending money off.
Okay.
That's helpful.
The transportation piece I appreciate the commentary in the opening commentary just some of that.
Year on year comparable headwinds you have I mean is that to say as we work through the second half of the year youre expecting sort of acceleration in that vertical.
Okay, I'd say for the rest of this year is a modest acceleration, yes, the acceleration of what we're seeing is that.
That market, probably as much if not more so than any market that we are in was slowed down by covid. It was slowed down by just linear.
For the subsidy from the government agencies to improve.
Otis is to proceed so that that just slowed down much more than any other market that we're in maybe the mining market, but that's less loosening up so we're seeing a return to normalcy as far as notices to proceed and we're seeing robust activity and transportation that's core historically, it's a transfer.
Rotation tends to have the highest ratio of sub.
Work in the markets that we're in so when we talk about growth changes as Gerry mentioned is not always necessarily that we're losing net out at a reduction in transportation revenue.
And that's one thing that we'll try to maybe focusing on a little more as we talk about transportation in the future.
Okay, and any updates in terms of the power and utilities group I mean, there's a lot of excitement about they're out there and maybe some opportunities from the stimulus as well just in terms of some new multiyear contracts you're pursuing just wanted to get a sense, what youre seeing out there and had new prospects in that vertical.
Down in Florida.
We're looking to in the fourth quarter pick up a new client on underground.
We are.
A nice source of ore.
<unk>.
<unk>.
<unk> gotten notices from nice source that they are increasing the pace of activity at peoples gas work, we've gotten notices from peoples gas about increases in activity there.
We're we're certainly out.
Shaping our branches for new clients.
And lots of opportunities that the market is robust.
Okay.
Maybe just lastly, Bruce.
Now you've had some extraordinary costs here in the first half maybe thoughts on operating cash flow as we work through the second half of the year.
Yes, we're certainly in a growth mode. So.
As we're investing in working capital and in growing and our consuming cash.
Both operating at industrial I think we'll probably see similar trend through the remainder of this year.
In terms of not necessarily generating.
Large excesses of operating cash flow and then start as margins expand next year and settle into larger growth progressively seeing that improve.
Over the course of next year.
Okay. Okay. Thank you I'll pass it on.
Your next question is from the line of Alex Rygiel with B Riley Your line is open.
Thank you very nice quarter gentlemen, congratulations.
Thank you Alan I.
Appreciate the note this morning.
Youre welcome.
Quick questions here first on end markets.
The residential market homebuilders.
In an incredibly busy in the first half of this year.
Like they got a little bit behind the curve in developing lots sort of during Covid 2020 can you talk about that activity level on a residential side, obviously, it's a little volatile but.
Have you seen any indications.
The strength here diminishing anytime soon.
I can say the quick answer is no.
Okay.
<unk> on that.
And obviously, but.
Relative to.
We've gotten familiar with our business that portion of those that we serve is getting out in front of power.
Of supplying that lock pipeline when the entitlement work with design work and Suncorp.
And.
That appetite and just continues to be durations.
The appetite for the end product of durations, but even coming into Covid there was almost.
Structural imbalance of supply of lots.
Given the weak demand and Sullivan exacerbated which is important for us.
Yes.
Market's been behind the curve for probably the last five years at least in terms of.
Building and our supply for demand.
And there's probably still a little off.
Pain from from last recession and so.
There is plenty of there's plenty of demand pent up.
So turning to the next end market would be data centers I suspect to hear answers can be somewhat similar but I'll, let you answer for sure, but if you could talk about the diversity of snap revenue stream across customers and maybe across geographies and then take it to another level and talk.
About opportunities to grow with those core customers.
In the future.
So we.
Our backyard as I said.
Paired remarks.
<unk> our headquarters here in Northern Virginia.
Kind of.
And thank you.
In terms of kind of ground zero for data centers.
Maybe as well as some other things but.
So our data center work.
We got involved in it.
567 years ago, serving northern Virginia.
We've expanded the Chicago Dallas.
Phoenix area area.
With terminating some out there so we have.
And that is an area where were really discrete about who we work for that's a key area where we are.
We're really bound to confidentiality.
The declines we are expanding our client base.
Several of our.
M&A prospects, we're looking at expanding the services that we'll be able to provide to that market.
And looking to expand in some other geographies too.
Expanding the footprint that we serve that market.
To your revenue base.
<unk> question is do we see.
Any any.
Any slowdown in that market and the answer to that is no.
<unk>.
We've been working to residential market.
As long as we've been in business. So we know that market like the back of our hand feel feel lot better about knowing the fundamentals of that market and what's driving it.
A lot more confident I do our thing.
Of the of the continued potential in that market.
Data center market just continues to grow.
Our video.
But the fundamentals.
Or are there.
And then last end market transportation clearly transportation is in the headlines with.
Progress in PC.
In aggregate your transportation business is a little bit under weighted realm.
Relative to some much larger sort of engineering peers, how do you think about.
Changing your mix of business meaningfully with with this.
Very long term visibility in funding of transportation in the up cycle, that's about to start to develop there.
This is a disease.
Yes.
Big focus of our M&A activity.
And whereas right now.
Colin Dyer being an example for $5 billion company.
Over the rest of this year, we will generally see.
Acquisitions, I'll say in that size range that might be more representative that.
We may even have one this year, but there are several really good prospects and when we make acquisitions in the transportation market. The sizes will be multiples of that so that's how that's how we're going to.
Accelerate.
And we will accelerate our presence in that market with by M&A.
We will not get there organically.
Is that all of our organic growth efforts into transportation.
So simply this wouldn't get where we should be in the debate will be.
Very helpful. That's all I've got thanks, guys great quarter.
Thanks, Alex.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
And there are no further questions at this time, Mr. Bergman and Mr. Lebovitz, I'll turn the call back over to you.
Thanks, operator, thank you everybody for being on the call. This morning.
And.
All of that that are everyone for your interest for your investment.
Those were on the team listening in thanks for all the hard work, we look forward to getting back to you in three months, hopefully and very optimistic for no very good quarter excellent. Thanks, everybody and look forward to talking to people.
Over the course of the next couple of days.
Thank you. This concludes today's conference call you may now disconnect.