Q3 2021 Bowman Consulting Group Ltd Earnings Presentation

Backlog on one project alone.

Since the close of the quarter, we've been awarded several new transportation assignments from clients, including the city of Chicago for Ovr Cook County in Florida Department of Transportation.

We believe the recently passed infrastructure Bill along with the acquisitions, we have in our pipeline, we will increase the concentration of transportation revenue as a percentage of our total revenue in 2022 and beyond.

Power and utilities represented 16% of revenue both in the third quarter and year to date.

Increased revenue over last year was primarily.

<unk> utility underground in Florida gas pipeline replacement and the upper Midwest and utility infrastructure work in the Austin, Texas area.

We believe the power and utilities market has a bright future for us.

Our contract with gas pipeline replacement engineering in Chicago has been renewed and we started working on a large multiyear cellular expansion project in Virginia.

As with transportation, we believe this market will be positively impacted by the recently passed infrastructure bill as well as the ever increasing need for utilities to bolster their capital spending on strengthening their infrastructure infrastructure.

Emerging markets includes water resources mining renewable energy and energy transition.

Most of our emerging market revenue currently comes from mining clients as mining returns to pre pandemic levels of production, we expect revenue related to copper mining to continue to grow.

Water resources continues to be an area of investment for us as we expect demand for services relating to water scarcity and water management to outpace other natural resource markets.

We were recently awarded two projects relating to implementation of new large scale water systems.

<unk> energy and energy transition our segments in the market.

We are aggressively investing in resources.

The recent addition of solid van meter is a Prime example of how we are committed to building our depth in the renewable and clean energy markets.

We're excited to offer solid expertise to clients, we're planning the development of solar energy generation sites.

As everyone knows by now Congress passed the one two trillion dollars infrastructure Bill last Friday with $550 billion of new investment pledge to U S infrastructure.

This is a significant piece of legislation for our industry and we believe it will have a positive impact in bone on bonus for the foreseeable future.

Both indirect spending and promote the multiplier effect that bill will have on the overall U S economy.

It's a bit early to know exactly how it will impact us and what projects will materialize.

I'm confident we are positioned to benefit from the Bill and we'll continue to update the market on a direct impact on our business and future earnings calls.

In August we closed our Mcfarland dire associates and in October we closed on three additional acquisitions.

Wrangle site design and Raleigh.

<unk> engineering in Denver, and beat key engineering and Louisville.

These acquisitions add both geographic and service offering diversification.

We've talked about Macfarlane dire on our last call.

I am pleased to report that the integration has been very successful and we are already experiencing revenue synergies.

<unk> expands our presence and MEP services and strengthens our building ventilation and mechanical acoustics capabilities.

Triangle adds depth to our Carolinas presence and their team is already working closely with other regional offices to increase revenue for everyone.

<unk> expands our reach into Louisville that structural and cell tower infrastructure capabilities, among others that we can extend nationally.

As I mentioned, we're extremely active on the acquisition front.

Currently have multiple opportunities in the pipeline.

The firm's reevaluating cover water resources transportation oil and gas MEP services ports infrastructure and traditional land planet.

I have a high degree of confidence that we will continue to deliver on our commitment to deploy capital in an efficient manner to achieve growth over time.

With that I'll turn the call over to Bruce who will elaborate on our financial results and on our M&A activity Bruce.

Thanks, Gary and good morning, everybody.

This is another great quarter for us with the IPO closed in the second quarter, we put the transactional distractions and the transitional accounting work behind US we focused on deploying capital, we raised and replenishing working capital through cash flow from operations.

Adjusted EBITDA for the third quarter was $4 4 million, bringing the total for the nine months year to date to $12 7 million. These.

These results combined with our current backlog and the anticipated contributions from recently closed acquisitions puts us on pace to exceed the high end of our previously issued guidance range.

In the third quarter, we delivered record gross revenue of $40 million or <unk> $36 million net service billing.

This represents a 25% increase in gross revenues over last year, a 90% net to gross ratio and a 40% increase in net service billing year over year.

Year to date gross revenues of $108 million with 97 million of net service billing.

This represents a 17% increase in gross revenue over last year, a 90% net to gross ratio and a 26% increase in net service volume here.

Historically, we've run a lower net to gross ratio has reduced the concentration of building infrastructure revenue within our mix. We do expect the ratio to return to a normal more normalized level.

Mid to high Eighty's.

Yeah.

Gross margin net for the quarter was $56 six an increase of seven nine percentage points as compared to $48 seven last year as we came out of Covid.

Year to date gross margin net was 55, 8% an increase of three four percentage points as compared to $52 four last year.

Gross margin net of the non-GAAP measure, which is defined as gross revenue less contract costs divided by net service billing.

Gross margin net is relatively consistent across our markets and services and not generally affected by our revenue mix.

What affects gross margin is our ability to maximize utilization and realized multipliers.

As a result, we continue to invest and work share platforms automated genetics technologies high resolution imaging equipment and similar to enhance these metrics.

For the third quarter, selling general and administrative expenses increased by $4 million to $18 4 million or 51, 4% of net service billing as compared to $14 4 million or <unk> 56, 9% of net service billing last year.

Year to date SG&A increased by $9 7 million to $48 3 million or <unk> 49, 8% of net service billing as compared to $38 6 million or 49, 9% of net service billing in the year.

In the year ago period.

Eliminating one time IPO expenses would reduce our year to date SG&A as a percentage of net revenue by one six percentage points to 48.

As we continue to build scale, we expect to decrease the rate of SG&A growth benefiting adjusted EBITDA margin net which was 12, 4% for the quarter and $13 one for the year to date.

This anticipated SG&A leverage is expected to contribute to increasing adjusted EBITDA margins over the next few years.

Our cash position at quarter end was $38 $7 million cash.

Cash flow from operations year to date was $3 2 million, which includes one time expenses associated with our IPO.

Last year, our cash flow benefited from our cash basis tax status and certain provisions of the cares act, which deferred operating cash flow obligations into this year and next.

Today, we're utilizing cash to expand our labor base and grow operations. We continue to have a zero balance on our $17 million line with bank of America as.

As we achieve increased scale, we believe operating cash flow as a percentage of adjusted EBITDA will normalize relative to some of our peers.

Since the end of the quarter, we closed on three acquisitions, representing approximately $7 $5 million of annual revenue and $1 1 million of annualized EBITDA.

Total purchase price for these acquisitions was roughly $5 million with total contingent consideration, but additional zero half a million dollars with certain incremental EBIT targets are met.

Based purchase multiple for these acquisitions was just under five times.

These three acquisitions were not included in our previously issued guidance.

Year to date, including all recent acquisitions, we've acquired approximately $19 5 million of annualized revenue.

Representing an estimated $2 $7 million of annualized EBITDA for approximately $13 1 million, an additional $1 2 million of contingent consideration.

This represents a base purchase multiple across all acquisitions of around five X.

Every acquisition is unique and we determined an appropriate multiple based on the facts and circumstance of each opportunity.

Nothing about path multiples. So it should suggest what we'll pay for future acquisitions.

We continue to pursue acquisitions as part of our strategic growth initiatives. We are Curtis currently assessing multiple acquisition opportunities at varying stages of due diligence.

These acquisition opportunities range in size timing of closing and valuation with some potentially closing this year and others potentially closing in early 2022.

Based on our current mix of cash equity in debt, we believe our current capital availability would be sufficient to close these acquisitions there.

There can be no assurance that any of these acquisitions will close.

And we don't elaborate any further on potential transactions or.

Or include them in our guidance until they're closed.

Backlog as of September 30 was $139 million, an increase of almost $16 million from June 30, and $26 million from year end last year.

This represents a 12, 8% and 23, 3% increase in backlog respectively.

Backlog at September 30 was comprised of 53% from building infrastructure, 21% from transportation.

22% from power utilities, and the remaining 4% from emerging markets.

Awards in the fourth quarter have remained strong and backlog continues to grow well.

We remind everyone that backlog is a good indicator of the health of the business, but not necessarily a forward indicator of how revenue will be recognized in the future.

As of November six restrictions and lockup agreements on all of our common stock of expired, although certain stock held by our named executive officers remains subject to affiliate restrictions.

Accordance with our insider trading policy, which can be found on our web site stock held directly or beneficially by any OS may only be sold pursuant to registered <unk> one programs created during open trading windows.

Transfers, which are not for value such as those related to estate planning are not restricted by the insider trading policy.

Currently we expect there will be an open window for insiders from November 16 through December one.

Lastly, I will talk about guidance.

As a result of the three acquisitions closed in October and while our present business and with our present visibility into the fourth quarter.

We're increasing our 2021 outlook for net service billing to be a range from $1 $30 million to $133 million and adjusted EBIT to be approximately $16 5 million.

We're also introducing 2022 outlook of net service billing of $150 to $170 million and adjusted EBITDA of $20 to $24 million again as is our policy our guidance only contemplates acquisitions closed as of the date guidance as issued or updated.

We will update guidance quarterly in connection with scheduled earnings releases going forward.

Thanks, again for participating and reiterate what Gary Thanks to all of our employees. Thanks to our veterans out there and I'll now turn the call back over to Gary for concluding remarks. Thanks Bruce.

Exciting times at Beaumont, I could not be more pleased with results that we posted here for the third quarter.

Our teams across the country are hard at work identifying ways to position <unk> to benefit from the recent infrastructure Bill.

We recognize the impact will not be immediate or confident that our efforts are going to be successful over time.

Thanks, again to everyone, who works every day to make US successful ill now turn the call back to the operator for questions.

Great. Thank you at this time I would like to remind everyone in order to ask a question. Please press star followed by one telephone keypads.

Just a moment to compile the Q&A roster.

And our first question comes from Brent Thielman from D. A Davidson. Please go ahead.

Hey, Thank you good morning, great quarter.

Thanks.

Gary we hear read a lot about the labor environment, how tied to that can you just talk about your ability to hire and recruit folks right now debt to continue to support this level of growth here youre seeing and expecting.

So Brent.

It's always challenging in good times, we find today to be we don't want we don't find in the current environment for us.

To be.

The challenge to be different than other good times.

And in fact, what we're finding is that there is.

A lot of excitement and buzz about our recent status as a public company.

And all up and down.

The roster.

It gives us.

In many cases, a little bit of a competitive advantage in the marketplace.

So we're just as challenged as all of our peers, but we're finding ways to meet the challenge.

Okay.

And when we think about that the outlook the revenue outlook for next year, how much visibility into 'twenty two to these sort of longer term recurring revenue type contracts.

Give you right now and it sounds like you're seeing an influx of new opportunities associated with that type of work as well. So I just wanted to hear a little more about that.

Brent we have.

Yes.

Yes.

It has been as we were going public before we went public it continues to be a big focus.

Our business development efforts.

So land these recurring revenue opportunities.

We generally have visibility in some cases a year.

Year in some cases as much as three years or so into the future.

Good confidence.

Are you able to quantify and be very confident of the.

The recurring revenue nature.

Yes, we think of it Brian is repeat and recurring.

And so some of our longstanding repeat customers aren't necessarily considered recurring revenue.

The contracts, but they repeat and repeat and repeat and repeat and so at any given time I think you can say that at least 50, if not a little bit more of next year's revenue is from either contracts or clients.

They're already in.

In the fold doing business now and it's been as high as 80% year over year as you look back at it.

Okay.

And I mean, the building infrastructure segment continues to see phenomenal growth I mean, it looks like even 30% organic if you backed out the deals I mean any indication that slowing down.

Whats the temperature of customers there.

No no indications. These one on one of these questions that I feel <unk> surface budget.

I looked at it as strong as ever Brent.

In that market in all sectors of that market the residential and the commercial certainly the data centers.

And as we are through our M&A as we're getting into.

The more vertical part of the building infrastructure.

Expands our capabilities to really get some synergistic revenue recognition.

Okay.

Okay.

That's good to hear last one and I'll pass it on Bruce.

Bruce I missed that the outlay for the three transactions.

Quarter end and then maybe if you could just talk about.

The size of that potential transactions you are looking at within the deal pipeline today.

Yes, so we're not going to get too specific about any one deal and say that they remain.

Consistent with deals that we have done and as we've talked about begin to grow the size of those deals. So if we've been doing the $2 million to $5 million. There are certainly additional opportunities in that range in the pipeline, but youll also see some that go to the five to 10 and maybe a couple that get double digits.

Nothing in the pipeline or plans today that is.

We would consider to be bet, the farms or excessively large.

We still have a very metered approach to how we want to grow acquisition. So that we are assured that we can absorb them integrate them.

And and achieve the objectives of.

Of making them part of Bowman and growing revenue basis. So.

<unk>.

That sort of color on the pipeline.

I can go back so we talked about having done.

Let me go back to.

The three acquisitions.

Represented about $7 $5 million of revenue well over $1 billion of annualized EBITDA.

EBITDA.

About a five X on those.

Okay in the aggregate.

Yeah.

Okay great. Thank.

Thank you.

Thanks Brent.

Brian We will now move onto Alex My Joe from B. Riley. Please go ahead. Your line is open.

Good morning, gentlemen, very nice quarter.

Thank you good morning, a couple of quick.

Couple of quick questions here first as it relates to the guidance I just want to confirm that it.

<unk> does not include future acquisitions.

Does not 2022.

That's not correct.

And then as it relates to your M&A. After you acquired call. It $20 million. This year in revenue can you, possibly talk about bracketing sort of a target might be for 2022 or maybe how much capital you might be interested in spending on acquisitions in <unk>.

'twenty two.

So just for clarification just so it's all of the 20 million includes acquisitions in calendar 2021. The <unk> acquisition is included that was pre IPO I just want to make sure that.

So we're clear on all of that don't want to get too.

Too granular about 'twenty two in terms of of acquisition because it's a very fluid thing is as we're going through.

Deciding what comes when what sequences, where what we can absorb ware.

Certainly.

We've communicated growth objectives for the company going forward $20 million would not be enough.

If all you did was repeat in 2022.

Would consider that to be insufficient to put us on the glide path to where we want to go.

So.

Okay. So the question of the number of them and the size of them, but.

I think when you look at what we've talked about in the past about having a pipeline that that has a meaningful amount of revenue in it I wouldn't put it at at let's.

Let's see that would be nine digits of revenue.

Revenue growth, but it's going to be in.

The 90 days.

Hundreds of millions, it's going to be below 700.

Yes.

Brian.

B.

We don't think it's going to break 100, but.

We don't know.

I think we.

We're we're working our way towards increasing increasing M&A activity.

And then with a number of acquisitions completed recently.

Are these heavy lift integration efforts.

Or are these sort of plug and play transactions.

And therefore, we really shouldn't expect sort of that.

A dry patch and from new M&A activity over the next let's say six months because you're focused on these most recent.

No I would I would certainly say don't expect a dry patch I think we were deliberate in indicating we expect there will be additional acquisition or acquisitions this year and.

And we expect to be active in the first half of next year.

And that's sort of the idea of the sequencing that we talked about is that.

We look to bring them in a way that allows us to pivot. After we've made the acquisition to the next one and not get overwhelmed by one right.

Right now the integrations have been going very well.

We've already got.

Is there a process in place that takes them from due diligence to a pre integration to an integration team.

And then <unk>.

Handed over internally and introduced.

Introduced around the company in the accounting Department of the business development groups. The operations group everyone can ahead there.

Is there a way to go so.

The integration has been very smooth.

In part because we didn't go out and do a $50 million acquisition day. One it has a lot to do with what the company looks like what the consistency of their services are to what we do how many locations how many people, but so far.

I do not.

Spec that theres going to be.

Dry spell.

Any links.

Gary I'll elaborate a little bit.

Very deliberate deliberate about building.

A dedicated integration team.

That's going to be sustainable in the long run.

We're committed to that.

Yes.

Program in the long run.

So.

We are dedicated to making sure that the integration process does not bottleneck the M&A activity.

That's great and then Gary in the beginning you referenced that the building infrastructure outlook continues to be very good but as a percent of total it would shrink.

I'm, assuming that that is a suggestion that in the <unk>.

M&A pipeline, you're absolutely seeing a lot more transportation and power utility opportunities if you could confirm that and then.

Maybe give us a little bit more color on sort of maybe.

Terrific.

And markets that are more evident in your pipeline across those more attractive spaces.

Let's say you hit on maybe two or three we have.

Very deliberate focus on transportation.

Power utilities and energy transition.

Lots of lots of focus on renewable.

Firms that service to renewables market.

And in water resources.

Lots of focus in those three areas.

We are.

High degree of fully.

We expect that next year.

We will see more diversification from the M&A activity.

And to extend from natural evolution of whatever comes from the the infrastructure Bill is going to not necessarily next month or the month after or maybe even not even the first half for nine months of next year, but it will naturally evolve.

Important Alex said, we're not shying away from we're not trying to deliberately reduce the amount of business. We do in building infrastructure, we're just expecting to continue to build around it and.

And diluted concentration but.

The Fisher biting.

Pulling the right out of the water and heading towards.

To a different lag.

Understood. Thank you very much next quarter.

Thanks, a lot Alex.

Great. Thank you Alex for your question as a reminder, if you'd like to ask a question. Please press star followed the law on your telephone keypad.

Thats a star then the number one on your telephone keypad.

There are currently no further questions at that time, Mr. Bowman I'll turn the call back over to you.

Thanks, Victoria, and thanks to everyone for participating and listening to our call. This morning.

We certainly appreciate the confidence of our investors put it in and again.

Certainly appreciate all.

The hard work that the Bowman staff puts in to make US successful. Thanks, and good morning, everyone look forward to talking to you.

With the year end results.

This concludes today's conference call you may now disconnect.

Yeah.

Yes.