Q2 2022 Bowman Consulting Group Ltd Earnings Call
In addition, I'd like to thank all the members of the boom in Keane, who worked tirelessly delivering the exceptional growth that we've been experiencing.
Our people focus our efforts on delivering value to our clients and supporting each other by sharing work and cross selling and by creating an inclusive culture that we're all proud of.
As outlined in our press release last night in the second quarter of 2022 picked up where the first quarter left off with continued strong growth and record results.
Our net revenue in the quarter put us on a pace of over $200 million a year for the first time.
We continue to deliver on our strategy of driving both organic and acquisitive growth with organic net revenue growth rate of roughly 30% year over year.
Looking to the second half of the year, we're confident in the likelihood of continued growth.
Even in light of potentially challenging economic conditions.
The mix of our business, we believe insulates us from any meaningful impacts from rising interest rates and volatile energy prices.
Scott can in connection with our ongoing acquisition program, we are raising our guidance for the full year.
Now I'm going to turn the call over to Bruce who will discuss our financial results in detail and then I'll return to talk a little bit about our markets and our M&A program. Bruce go ahead, great. Thank you Gary welcome everybody. We're pleased to be here today talking about another record quarter.
It's hard to believe that we're finally at a point, where we are now comparing two quarters, both of which where we operated as a public company.
Gross revenue for the second quarter increased $25 9 million to $62 4 million or 71%.
Year over year organic gross revenue was 27%.
Net revenue for the quarter increased $23 9 million to $56 4 million or <unk>, 74% year over year organic growth for net revenue was 32%.
It is important to note that this is true organic growth in the volume of work build not simply the impact of increased pricing we.
We saw growth in orders and net revenue across all our markets, resulting from the implementation of our growth plan, which focuses on cross selling to existing customers throughout our national offices, creating revenue synergies from acquisitions and focusing our efforts on increasing our work with existing clients and winning new assignments.
Adjusted EBITDA for the second quarter increased $3 4 million or 81% to $7 6 million as compared to the year ago period.
This represents an adjusted EBITDA margin net of 13, 4%, which is up 50 basis points as compared to last year.
You can find the reconciliation for non-GAAP metrics in our press release.
Gross revenue for the six months ended June 30 increased $46 6 million to $114 9 million or 68%.
Year over year organic growth of gross revenue was 31%.
Net revenue for the six months ended June 30 increased $42 8 million to $104 1 million or 70%.
Year over year organic growth for net revenue was 34%.
And our business is it is a positive when the growth of net revenue outpaces the growth of gross revenue.
Adjusted EBITDA for the six months ended June 30 increased $6 7 million or 81% to $15 million.
This represents an adjusted EBITDA margin net of 14, 4%, which is up 90 basis points compared to last year.
Gross margin for the second quarter was 50% virtually identical to the same period last year.
Overhead for the quarter was 45% of gross revenue as compared to 47% in the prior year, which is a positive trend that illustrate our operating leverage through the efficiency of scale.
Gross revenue for the second quarter was comprised of roughly 68% building infrastructure, 15% transportation, 13% power and utilities and 4% what we refer to as other emerging markets, which includes water resources mining and other energy transition services.
Diving a bit deeper into the building infrastructure market. We note that roughly 44% of the 68% of gross revenue that was building infrastructure was residential in nature, including for sale housing multifamily housing and mixed use development.
Of that 44% that was residential in nature, 49% related to for sale homebuilding activity.
As such for residential services.
For sale residential services represented approximately 15% of total gross revenue for the quarter.
Gross revenue for the six months ended June 30 <unk>.
Price of roughly 71% building infrastructure, 12% transportation, 13% power and utilities and 4% other emerging market.
Again diving a bit deeper into the building infrastructure market for the six months, we know that that likewise, roughly 44% of the 71% of gross revenue that was building infrastructure was residential in nature of which 49% was related to for sale homebuilding activity.
As such again for sale residential services represented approximately 15% of total gross revenue for the six months.
We think it is important to highlight this because there seems to be a sense in the marketplace that we are highly dependent on for sale residential homebuilding type activities under the downturn in that market could have a substantial drag on our future results.
It is a meaningful component of our overall business. It is not overweighted in its potential impacts to our future results.
Our balance sheet remains strong with net debt of approximately $6 million and a net leverage ratio well before well below one.
Our capex remained consistent at roughly three 7% of gross revenue for the six months with our Capex spending funded through our capital lease facilities, all of which have plenty of available capacity remaining.
Inclusive of our nearly $10 million change in net working capital adjustment principally comprised of increased accounts receivable as a result of rapid organic growth with.
We generated in excess of $4 million of cash from operating activities. During the six months ended June 30.
We ended the quarter with nearly $26 million in cash and our whole $25 million of availability under our under our revolving credit facility.
We recently received preliminary approval from Bofa to increase the credit facility to $50 million and have received expressions of interest from other sources of non bank debt capital to provide unsecured debt facility as needed.
At this time, we're confident that we have sufficient access to capital to continue executing on our strategic growth plans well into next year without raising any additional equity capital.
That does not mean, we will not continue to use our equity as a component of consideration and acquisitions, but to be clear at this point in time, we do not anticipate a public market equity raise in the foreseeable future.
With respect to equity on June 32022, we had roughly $13 million and 264000 shares outstanding.
There've been no meaningful additional equity issuances since the end of the quarter in.
In July in connection with the PDC acquisition, we issued a convertible note with up to 285000 unregistered shares subject to conversion at $14 per share over two years.
Upon conversion the shares would have a six month holding period, none have been converted as of today.
Our backlog on June 30 was $205 6 million, which was an increase of $38 6 million or 23% as compared to December 31, 2021, and an increase of $82 million or 66% as compared to June 32021 21.
Backlog is comprised of roughly 53% building infrastructure, 30% transportation, 15% power utilities and 2% other emerging markets.
Consistent with gross revenue approximately 13% of our June 30, gross backlog relates to for sale residential housing.
As Gary mentioned, we are increasing our fiscal year 2022 guidance for net service billing to a range of $202 million to $220 million with adjusted EBITDA in a range of 29% to $33 million.
This increase from previously issued guidance of 185% to 225% to 29 is the result of both recent acquisitions and expected continuation of organic growth.
Keep in mind, our guidance only includes acquisitions that have been completed as of the day the guidance is issued.
Acquisitions could have an accretive impact to our forecast.
The integration of our acquisitions into our systems is an ongoing process, which generally takes between three and six months to complete for each acquisition.
Our dedicated integration team and our corporate accounting group are doing a great job, bringing all of these different systems processes cultures and organizations together into one uniform unified platform.
Let's say a particular, thank you to those folks for all their hard work.
I'll now turn the call back over to Gary.
Thanks Bruce.
When I turn my attention now to our business in the state of our markets and the status of our strategic growth plan.
And the future of our business.
I'm going to start by addressing the macro environment that we're working in.
The demand for infrastructure investment is as strong as it's ever been during my 40 years in this business.
Both public and private sector clients and competing for the services of a firm like ours over.
What we're experiencing is a convergence of a growing market.
More business to be had and growth within our business that is clearly taking market share from competition.
On some of the markets, we serve are reactive to interest rates and the owner driven solely by changes in rates.
It's important to remember that in historical context rates there.
Lower than they've been during other periods of inflation and aggressive federal reserve tightening.
The mix of markets and some markets that we serve provides a buffer against economic cyclicality.
While we all hear the same rhetoric about economic conditions and forecast these indications.
Sundar unconquered with resolute confidence that our clients are showing in their businesses and their willingness to spend on infrastructure investment, which has made clear to us by the continued robust demand for our services across all sectors.
Our bookings of new orders, which we refer to as our sales.
<unk> to grow month in month out with a book to burn ratio well in excess of one.
We are acutely attuned to any signals of macroeconomic headwinds that may adversely affect our business and to date, we have yet to experience any systemic slowdown in demand for our services.
We're beginning to see the early stages of dollars flowing from the transportation infrastructure Bill.
And the recent reconciliation legislation that earmarked money for investment in energy transition has already sparked conversations with both current and new clients about future projects.
Our strategic growth plan has two primary components organic growth and acquisitive growth.
How are these are two distinct avenues of growth the overlap in many areas as we evaluate potential acquisitions. Our primary objectives are to identify cultures that are consistent with ours.
<unk> that are in attractive markets and geographies.
And that provides opportunity for value creation through revenue synergies.
While there is a deep market the kinds of companies that were willing to buy at the valuations. We are willing to pay the tricky part is integrating these companies not simply from an operation point of view, but from a mindset of cross selling and revenue synergies.
With close to 70 offices around the country, we have a tremendous opportunity to grow revenue by cross selling our services to existing clients of acquired firms as well as increasing our share of our current clients were matched Nashville.
We've begun integrating our transportation practice with demands practice and have begun cross selling our clients with additional capabilities related to traffic studies.
Successfully landed large projects on the Gulf coast, who favor.
And have been able to penetrate in building services assignments for our new MEP practices.
From our 15 19 acquisition, we've expanded our survey services, the oil and gas providers throughout Texas and beyond.
We've grown our revenue from acquired firms such that in less than a year. We have in the aggregate picked up over a half turn on purchase price.
With 12 acquisitions completed in the last 18 months.
Created a platform from which we can deliver almost any civil engineering through each of the markets we serve.
We've learned some great assignments recently that are resulting from the acquisitions that we closed.
Skill sets they bought us the technical resources that we've added.
Our vision for this company is to continue to build on the depth of experience and breadth of services that we can offer to the markets we concentrate on.
We are focusing these efforts, especially on energy transition power and utilities and transportation infrastructure markets.
Our M&A pipeline is as deep as it's ever been with plenty of opportunity within our target valuation range.
Year to date, we've acquired approximately $50 million of net revenue at an average multiple of under six times estimated 2022 adjusted EBITDA.
We expect to continue to be acquisitive throughout the second half of the year, but will likely maintain a lower risk profile with respect to acquisition size until things settle down in the overall economy.
We will continue to look for companies that diversify our portfolio of experiences and opportunities and extend additional revenue synergies synergies and cross selling opportunities.
Again, thanks to everyone, but we're working hard every day.
Exceeding expectations of our clients and.
And creating value for our communities and our investors.
And for cultivating a culture that makes <unk>, a great place to build a career.
I'll now turn the call back over to the operator for question and answer session.
At this time I'd like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Just a moment to compile the Q&A roster.
Your first question comes from the line of Brent Thielman of D. A Davidson. Please go ahead.
<unk>.
Okay, great. Thanks, Gary Bruce Good morning.
Good morning, Brian .
Was curious first off I'm, just curious if there's a way to think about the contribution to organic growth.
Sort of more billable hours versus higher billings per hour I.
I think you'd made a comment in the prepared remarks, and I was curious about that.
Yes.
<unk>.
Yeah.
And I am not sure there is there specifically a way to answer that.
The way of asset.
<unk>.
I think the key.
Comment in the prepared remarks was that the organic growth is not simply a function of the same workforce at the same utilization rate at higher billing rates. It is a function of an increased head count working at slightly higher utilization rates.
More clients.
Yes.
Okay. Okay. Thanks Bruce.
And then it looks like the non housing piece to building buildings infrastructure.
A vertical.
<unk> continues to grow really well, maybe you could just talk about some areas that had been really strong so you're in that that side of the business.
That's a commercial.
Municipal.
Both both of those markets are very robust.
So it's all of the government markets we're in.
Or I guess fully recovered from Covid.
They're spending at very healthy spaces.
Pursuing new projects at healthy basis.
And the commercial and retail developers I'd say developers.
Our end clients are more often than not.
The actual retail chains and they are very aggressive in their expansion. So that's I think very healthy so specifics submarkets that you would see data centers.
Within building infrastructure has been extremely strong.
Schools and and other.
Educational type facilities had been very strong we've seen industrial commercial has been strong we work with Amazon for instance on their HQ2 projects.
In in the DC area.
That's the JPG really strong.
A strong market.
What type of work so all of those areas have been have been positively impacted.
Okay.
And then in March it you'd laid out sort of these plans to be able to acquire $75 million more in annualized.
Yes, I guess net service billings youre up today looks like over $40 million now helps how robust the discussions today kind of how is this evolving economic climate impacting those discussion that working against.
Achieving that target is it helping the pipeline just to be curious about that.
The pipeline is robust.
And I don't we certainly don't sense any change, let's say in the sentiment of the seller.
And there are expectations haven't changed their expectations.
Or are the same but the market is still as robust as it's been.
Say, we are probably.
And quite quite we really like.
These smaller acquisitions.
There is a lot of integration involved.
What we're finding we get a lot of it we're getting a lot of synergy Bang for our board.
So I know we were talking about a higher I think maybe I think maybe we said.
Average size of $10 million, they're not going to average $10 million this year.
But if we don't hit $75 million will be close to it this year so the.
The marketplaces is robust and our pipeline as robust as it's ever been but I think it's important also remember 75 with aspirational. It is not incorporated into guidance in any way necessarily so we don't include an acquisition unless it's close so we still would like to continue to be acquisitive 68.
75 or 50.
We will continue to decline.
We'll continue to update guidance as we are successful in that strategy, but it's but a.
Sides on that number wouldn't affect guys in volume.
I think the bottom line is this.
The market and the environment is is just where we expected and hoped it would be at this time of year.
This time of the year.
Okay, and then others in the engineering space have started to talk about the transportation.
<unk> end markets.
Increasing either as a director sort of indirect resulted.
The increased infrastructure funding are.
Are you seeing that in your bid activities now.
Yes.
We're seeing some of it up in.
In Illinois.
Mcmahon I know some of it.
Some of their clients are seeing some activity, yes, we are.
We are starting to.
Okay.
Projects.
Projects hitting the street that are as a result, a result from the transportation Bill.
Okay. Thanks, guys I'll get back in queue.
Thanks, Brett.
Your next question comes from the line of Alex Slagle Levis guarantee.
Your line is open.
Thank you good morning, gentlemen, very nice quarter couple of quick questions here. Thank you, Alex Bruce coming back to that Bruce to come back to that first question as it related to organic revenue growth obviously.
Again, a lot of different components kind of building into about 34% growth year over year.
I guess the question here is there a way to kind of simply think about how much of it is due to.
Improved pricing.
Versus organic volume versus synergistic volume.
Not without it being a bit of a lag.
Because.
Yeah.
Very hard to look at.
We're not like a hotel room that sort of year over year, what's the price our day over day.
If I had to try to disaggregate that number into the kind of form you've asked Alex I'd say.
80% of that is really just organic growth in work that we're being asked to do from clients that we have or clients that we are acquiring not through acquisition right.
Right there is.
Another component or 10% of that would be.
Sure synergistic maybe 20.
Kind of somewhere between that 10, and 20% of Okay cross selling and synergy, but I kind of think of those first two as one big suite together, where we're generating more work from.
We're not acquisitive sources.
Our head count is growing not just because of acquisition, but because of increased volume of work to be done.
Yes, there is some value accrue.
Accretion that's occurring because of the shortage of supply of people like us in the market to do work.
But.
We're not just the same head count during the same utilization generating more revenue.
Yes, I would.
That's helpful. That's helpful.
Then.
As it relates to your backlog.
What end markets, you're getting you're expanding the fastest organically right now.
Probably transportation and power and utilities out of our backlog and then.
Growing so I would call those of the nominal the fastest growing percentage fastest growing might be the energy transition business, but it is not necessarily having the same bang for buck kind of impact that the other two are having.
But it sounds sort of out of out of favor to say, but building infrastructure is continuing to grow organically.
We monitor our homebuilding, we monitor the commercial developers we monitor everybody.
You listen to the Hortons in total than ours, and they are talking about not slowing down their investment in inventory.
It may be slowing their starts a bit but theyre not abating, there demand for lot inventory they might be shifting it off their balance sheet to a private developers balance sheet looking for more finished lot acquisition as opposed to direct acquisition, but that's still in the aggregate demand for our service unchanged or increasing.
So yes.
We feel pretty good about.
The three primaries water is growing fast just by virtue of it being a resource that is becoming more scarce in certain parts of <unk>.
The geographies that we serve.
And then lastly, as it relates to your guidance.
The low end of your revenue guidance of $2 five would suggest that the back half of the year.
Sort of declines from to Q.
Is that your typical seasonality that you expect.
Or are you being conservative or do you see something in the marketplace that would suggest kind of a slowdown from the pace in Q.
So we generally do see just a slightly lighter Q4, the holidays I mean, we're a people business people take vacations you can only build hours that people are working so we generally are that Thanksgiving to new year's period can be a little bit slower.
Slower for us not not always Alex its probably just more we I'll turn the news on every morning, we all hear what's going on we want to be in a position, where we're not being dismissive to the potential for slowdown.
So thats, our low end, but I think that we are.
Sure.
We gave a range because we feel that the low end is just that.
And are more optimistic.
That there could be a higher end as well.
Very helpful. Thank you very much.
Thanks, Alex.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
We have a follow up question from Alex Rygiel with B Riley Securities. Your line is open.
I'll come back to one last question yeah. Thanks.
You've made a number of acquisitions. So far you have a number of acquisitions plans going forward can you just touch upon startup.
Power systems integration is going how back office integration that is going.
Some of the successes or some of the complications that you've had and how youre platforms kind of established for layering on.
We're having another kind of couple of years on active M&A.
Yeah. So integration is one of the most challenging parts and there is there's really two components to it and I can refer I can address the systems side of it the cultural side of it it's just equally as challenging but we have a great team of people that work every day to get the cultural and.
And orientation kind of integration going system side, Alex we have a really strong back end.
Process here, we we've got strong ERP in place going public that was something we knew was going to be part of our life and health.
It was something that was well vetted ahead of time that we had the capability to implement this plan. It is absolutely challenging it has cost us head count, meaning we've had to add people.
It's a challenge.
Our systems that range from Shoeboxes in.
Our notes to quickbooks too to the <unk>.
Same kind of ERP systems that we have.
They're all good companies with good organization and good knowledge of their businesses and so we go through a process and first couple of months first things. We do is integrate what we consider it would be critical processes, such as cash management revenue recognition.
And then we work towards.
Fully integrating our billing processes and creating visibility uniformly in one platform. So all of our data is probably the most challenging part of the first couple of months of any integration is.
Getting your arms around all of the data.
I can presented in a way to our leadership team.
A meaningful to them.
And I'll speak to what Bruce has talked with you about the cultural part in that process.
A lot more than just you and everybody at bow Manhattan wallet card with our cultural values.
We concentrated tremendous amount.
On inculcating from the word go a culture of cross selling.
And that has been tremendously successful I'm truly exceeded our expectations.
We've actually begun here in the past several weeks to start to quantify that.
And.
It's something that's.
A little bit of gray area to quantify it but as we start counting it up.
We are.
Kind of mind blowing.
I don't know if we can come up with the kpis on that or not but.
Theres still a wallet card is also a business called <unk>.
We do all that stuff, but I think what we have done that.
What we focus on one.
One thing I will just close out with it I do not anticipate there being any substantial requirement for big Capex spending.
To support the back end of all of this integration with people, but we've got all the systems and capacity in place from a sort of from ERP point of view to keep going.
Very helpful. Thank you.
Okay.
Uh huh.
And finally, we have a follow up from Brent Thielman.
Your line is open.
Hey, Thanks, Hey, Bruce with your cash flow expectations for the second half.
And I think similar to what we're seeing in the first half we are continuing to invest cash generation in growth.
No.
Yes, we can.
When we make acquisitions the acquisitions provide working capital as part of the consideration kind of the conditions of of acquisitions.
And our organic growth continues to consume cash flow, but I think we're now kind of on a trajectory for the second half of the year that will probably mimic.
The first half of the year, if not improve it just slightly.
Okay. Thank you.
There are no further questions at this time, Mr. Bowman I turn the call back over to you.
Thanks Lydia.
And then just wrap up.
Very happy to be on the call. This morning report such great quarter I want to thank everybody for spending time with US. This morning, certainly thank all of our investors for the faith that they put in us.
And we are committed to continuing to create value here good morning to everyone. Thank you.
This concludes today's conference call you may now disconnect.
[noise].