Q3 2022 NV5 Global Inc Earnings Call
$1 million, which represents over 80% of our planned budget activity.
I would also like to update our cross selling through Q3 on page 10.
As you know cross selling represents and your office work for our 105 offices of MB five that would otherwise have been given to sub consultants.
You will notice activity to date of $48 8 million, which represents new and historical wins.
Since inception of the cross selling program, we have bought $174 million of awards in house.
Cross selling also serves another purpose.
It allows all of our offices to participate in the growth and profitability of the <unk> platform.
We will now transition that presentation to our Chief Financial Officer, Ed Codispoti to provide an overview of our third quarter performance go ahead Ed. Thank.
Thank you Dickerson and good afternoon, everyone.
If you would please turn to slide 12 of the presentation I will review, our third quarter financial results.
We had strong growth in the third quarter as our gross revenues increased 10% to $204 $1 million.
Compared to $185 6 million in the third quarter of last year.
Net income increased 28% to $16 1 million in the third quarter of 2022 compared to $12 6 million in the third quarter of 2021.
Our adjusted EBITDA increased 4% to $36 million in the third quarter of 2022 from $34 7 million in the same period last year.
Our GAAP diluted earnings per share increased to $1 <unk> per share in the third quarter of 2022 from <unk> 83 per share in the 2021 third quarter, a 27% increase.
Our adjusted earnings per share increased 20% to $1 50 per share in the third quarter of 2022 from $1 25 per share in the 2021 third quarter.
And our cash flows from operations increased 65% to $26 1 million from $15 8 million in the third quarter of last year.
On Slide 13, you can see we continue to strengthen our balance sheet.
Our cash increased to $54 2 million from $48 million at the beginning of the year and our debt is down to $84 2 million from $135 2 million as of January one of this year.
As a result, our net leverage is down to <unk> 28 times from <unk> 65 times at the beginning of the year.
Moreover, with just $53 $8 million outstanding under our $400 million credit facility, we had capacity of $346 3 million as of the end of the third quarter.
Our strong balance sheet position combined with increased cash flows and lower leverage continues to position us well for future growth we.
We can fund most acquisitions from cash flows and have the capacity to complete larger transactions as opportunities arise.
As a result, the organic momentum we have today combined with our strong positioning for M&A makes us very excited about the future of MB five.
I'll now turn it back over to Dickerson for some closing comments.
Thanks, Ed why don't we turn to slide 15.
Youll see there that <unk> has delivered record year to date results for growth and profitability.
And we believe that our strong performance will continue.
We have strong tailwind from increased infrastructure spending.
Anticipate increased opportunities for utility services fire mitigation in offshore power generation.
Our international offices have driven over 30% organic growth.
As you can see our record backlog and strong M&A pipeline gives us confidence for increased growth and our profitability going forward.
As a result of these factors and our strong performance throughout the first three quarters of the year. We are reaffirming guidance for full year 2022 for gross revenues up 795 million to $815 million and a full year 2022 adjusted earnings per share of $5 43 to.
$5 82.
I want to thank everyone for your participation in the Q3 2022 results. We are very proud of the accomplishments of our people. This concludes our prepared remarks.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
First question will come from the line of Chris Moore with CJS Securities. Your line is open.
Hey, good afternoon, guys congrats on another good quarter.
Thanks, Chris.
Alright, it looks like the revenue growth guide is still at that rough.
Roughly 14% at the midpoint.
Can.
Can you just what's the.
Kind of organic growth versus M&A split there that you're thinking about for 2002.
Well.
Not anticipating.
M&A or up for the growth of the company organically, it's hard to come up with the number we are still in the budget process, but from what we're seeing preliminary we think organic growth is going to be at least 5%.
And that does not include what we have in the pipeline and acquisitions, we anticipate closing in 2023.
Got it and it looks like geospatial as it is.
Exciting to begin with but it's it's really taken off.
Can you maybe just talk a little bit further about what youre seeing there and and.
That's a big jump in terms of record quarters.
Yes.
As you know.
Chris in 2022, they had some projects delayed that spilled over to 2003, we still are anticipating.
Larger.
Growth in our geospatial activities from.
From new projects that will be awarded I think what we're really starting to see.
We've really developed more of the integration with our geospatial team and they have a phenomenal opportunity for cross selling and we're exposing them.
More and more each each.
Each day to our existing core utility business in it so geospatial activity, where theyre doing through aerial survey theyre doing a lot of acquisition work.
Real strength, though in our geospatial has been analytics and I think youre going to hope to see in the coming year in 2023 more.
I move that the company will make to strengthen our analytic capability and really this is we think this is a differentiator between up from us and the competitors in the geospatial area.
So we're excited about our geospatial activity, we're looking for more integration and we're looking for a significant cross selling opportunities with our utility business as we go forward.
Got it very helpful. I'll leave it there I appreciate it.
Thanks, Chris.
Okay.
Our next question comes from the line of Rob Brown with Lake Street capital markets.
Your line is open.
Good afternoon, and I'll add my congratulation, Rob this quarter they are up.
Just quickly on the geospatial business.
Could you go into a little more color on the recovery in the federal and state activity into next year and some of the projects that I think were bigger projects that were.
To wait a little bit and what those coming into 'twenty.
Yes.
As you know Rob we we always try to.
Have we've tried to be positioned, particularly in all of our core business and the geospatial business to not.
Yes.
Two clients that are not subject to increased interest rates are we're looking for really mandated activities.
Got it.
Elective activities. So those there were some defense projects that were delayed.
That we're selling that we're starting to see recuperated now. We've also had some significant new wins that we're not ready to announce.
Quite yet with the state agencies that that we think we were anticipating in 2022.
That will spill over into the last quarter of 2022 and into 2023, but what youre seeing in our geospatial is a combination of two things, it's really the integration with our core business and we're looking for very good opportunities in new service offerings that we can but we could.
Go through our traditional utility clients and you're seeing.
Their growth through analytics and the delay of projects that were.
The federal projects that you've mentioned that we're now starting to see.
Come to fruition in the last quarter of this year and and hopefully into next year. So that's where you would really see if a one off and the organic growth was from delayed projects with geospatial and Theyre.
The cross selling activities with our core business.
Okay. Thank you and then on the utility services business I think you want to recent LNG contract could you maybe give us some color on the developments in that market and sort of some of the macro drivers there.
Yes, we're very appreciative of what LNG is that business is doing this year. The one that you are probably mentioning are referencing as our $60 million award that was a conversion from a traditional natural gas utility to an LNG storage facility and we are doing everything.
In that project, which is.
Defined as <unk>.
We're not only doing the procurement, where we're doing the installation and the design and construction and so that full $60 million that you see is work that we anticipate getting.
For this particular project over the three years, and we're seeing more and more utility conversion to LNG. So that they can they.
They can store this in half.
Greater capacity. So we're very happy that's coming from R. R.
<unk> debt that does LNG work and it's more with our percent of completion related projects.
Okay, great. Thank you I'll turn it over.
Our next question comes from the line of Andy Wittmann with Baird. Your line is open.
Hi, Good afternoon, sorry, just a clarification I think the first question was a question on <unk>.
22 organic growth rate.
It sounded like you might have answered that you are expecting 5%, 6% I just wanted to confirm the at least 5% was that your organic growth outlook for 'twenty three.
Well, yes, thanks, Andy let me be a little bit more clear we.
Don't know the specific organic growth for 2023, but through the budgeting process that we're seeing.
Right in the middle of our budget process now and the budgets come from ground up from every unit and what we're seeing is we're anticipating 5% or greater and an organic growth for 2023, I think we've had better than that organic growth in 2022, but we're anticipating at least 5% for 2023.
Okay.
And to confirm that that makes sense I mean with the backlog up.
12% here into the fourth quarter it looks like the implicit revenue guide for the fourth quarter is not quite plus 12.
And obviously 12, if it would be 12, that's a lot bigger than five but any reason to believe that any reason not to believe that the backlog.
Is it some somewhat representative of what the revenue burn rate or the revenue organic growth rate could be I guess, specifically what I'm asking for are there larger projects in today's backlog that take longer to burn and therefore wouldn't necessarily convert to the same level of growth that the backlog would imply.
Okay backlog, it's never absolute and the reason, we use as a barometer of 65% to 80% or so what we what.
What we envision that backlog turning over to be in the budget process because for many different reasons projects that are recorded as a win as we had seen in geospatial may be delayed maybe pushed over to another period of time, So we can't count that fully in the backlog but.
And others that we don't record we only record in backlog the work that we anticipate doing in a 12 month period, but sometimes that work is delayed and pushed over and we've seen some delays in the federal and defense work that geospatial is doing and so that's the only softness I would see Andy from what we <unk>.
And the backlog I can't speak of any particular project right now that we are anticipating a delay on but.
These things tend to happen.
And obviously, we tried to steer our business to and mentioned may be that in some concluding thoughts I have that are not so interest rate sensitive and we know that many of.
Many of our competitors and many much of the project is.
Interest rate dependent in the backlog, we don't see a tremendous amount of commercial our commercial work that would be very dependent on interest rates, but those also have a tendency to be delayed or canceled, but I don't I can't name anything in particular right now from the backlog that were anticipate.
<unk>.
Not going forward.
Okay. Thanks for that color I guess.
Just on the on the profit margins.
Year over year, they're actually down I mean, your profit margins are always very high but they are down year over year, and I guess against a really strong quarter for geospatial, which tends to be some of your highest margin work I guess I'm a little bit.
Confused as to why that would be the case. So could you talk either Ed or talk about what it was in this quarter's mix of business that led to the or maybe it was the prior year comparison that led to the decline in year over year margins for the third quarter.
Sure Andy Hi, This is Ed so.
Youre right that the margins do appear that way, but in reality, it's more of a temporary.
<unk>.
The impact that we've had this particular quarter and I say that because for a number of reasons. For example, you do have about a $1 million of acquisition related costs embedded in that G&A for op expenses this quarter, which is nonrecurring.
Also have some travel expenses that are particular to the third quarter that are not recurring.
In professional fees for various project suite that we have that really are discrete in this third quarter. So when you adjust those back to work.
They should be if you look at the operating margin last year was about 10, 2%.
When you adjust those things out it should be very close to 10% or so so I wouldn't look at it so much.
I wouldn't look into that too much if you look at the nine months.
Margin the operating margin went from 2021, 9% between two 3% so look more at the year to date periods in the quarter because of the quarter has some noise in it.
Okay. Thank you for the perspective I have a good evening guys.
Thank you thank you Andy.
Our next question comes from the line of Michael Feniger with Bank of America. Your line is open.
Hey, everyone. Thanks for.
Kicking taking my question just just to follow up on Andy's question.
The EBITDA gross revenue was up 10, EBITDA was up only four.
You are kind of explaining.
Some of the quota pressures I guess you guys guide on our revenue and EPS basis does the EBITDA in the fourth quarter kind of grow in line with with gross revenues.
In the fourth quarter, just trying to think about that because your EBITDA was up 14% in the first half and up 4% in Q3 on a year over year basis, I'm just trying to assess this.
Temporary nonrecurring impact in Q3.
Can we see some of that in the fourth quarter as well.
No in reality this.
I see it more of a.
Q3.
<unk>.
Phenomenon.
Q4, we expect to normalize those margins.
Again, it was really timing. So as you said, we guide using adjusted earnings per share in that case, we are adding back for example, with acquisition related costs that I mentioned earlier, but if you look at that at.
Face value on the offered on the income statement.
It's going to impact those operating margins, but we add those back for purposes of adjusted earnings per share. So again Q3 had a number of nonrecurring items in it that created that noise, we expect too.
Resume.
More normalized margins going forward, having said that there are some.
Some lines of business that again for timing reasons have had.
Some.
There is some fluctuations in their margins and so whether that equalizes in Q4 and Q1 of next year.
It's a matter of time, but we expect to continue to expand those margins over the course of the following year.
Yes.
Thank you that's helpful and just if you didn't know more M&A how much incremental revenue do you get next year just from closing some of these acquisitions. This year I know, we talked about at least 5% organic growth next year, but just curious if we don't do any more M&A how much is <unk>.
Carries over into into next year.
When you look at 2022 of the acquisitions that we completed this year were really more strategic in nature.
From the perspective of the financials.
We're very materials to be honest with you so.
You could use that as a basis.
That said, we always target at.
At least 5% on a consolidated basis.
We would.
As we complete the budget process here over the next month or so we'll know more but that's.
That's the minimum kind of target that we'd like to achieve.
And Mike. This is Derek we're very still very active in M&A and but unfortunately, we can't choose a specific time when a certain acquisition is going to close so we have not in our budget process right now we have not anticipated any acquisitions.
Although they.
We are confident that something will happen, we have not anticipate anything in the budget process. So the 5% that Ed has mentioned that is a purely organic growth and our total growth will be.
Will be supported by acquisitions that are intended to happen in 2023.
Perfect and if I could just squeeze one more in.
You guys are flat like really strong growth in geospatial seeing momentum in utilities offshore wind.
The LNG opportunity I guess, what is the portfolio Dickerson is lagging.
Two youre seeing these robust growth rates in some of these really attractive areas. Just curious if if there's other pockets in the portfolio that are holding back the total growth from being much stronger.
That's a very good question Michael.
I think it's and I would say that the strategy of <unk> is to have it.
With these verticals as to not have everything in one place or one basket. So we really the first structure as we try to have 70% of our work towards the public sector that are not so.
Economic dependent however, as interest rates rise and we've had nominal contributions from our real estate transaction business, we see that softening somewhat and we're not anticipating in 2023, and we started to see the softening in the real estate area because of the significant rise in <unk>.
First rates and so although we feel pretty confident in the budget going forward, we don't where you've probably seen some lack of growth has been anything that has been sensitive to interest rates.
Thank you.
Our next question comes from the line of Jeff Martin with Roth Capital Partners. Your line is open.
Thanks, Good afternoon.
Can you give us high <expletive> I was wondering if you could give us an update there was discussion at your May Investor day.
<unk> Western utility underground 10000 miles of distribution lines I was just curious if theres any development.
On that opportunity.
So are you positioned to capture a material amount of business from that.
Well I don't think Youre more curious on I am.
Jeff, but yes, we think we have I can tell you we.
We have really focused on that particular utility we've hired four additional people that are all direct so.
Our president and operating Officer, Alex has assured me that all of these people.
Contributing to the revenue of revenue from that very initiative with the.
The underground utility I don't really want to mention the name, but you have been reading things and knowing the fire mitigation and what they're doing they've really they've really put in put in a focused effort in doing that and we had through one of our strategic initiatives. We hired a key person there and recently, we hired three more people for this and so.
We are anticipating a contribution in the fourth quarter, but we're thinking even more of a contribution in 2022, but that is that specific utility that we did mentioned in the investor Investor Day, you've got a good memory Chuck.
So it sounds like some positive developments does that.
Making traction believe me.
I only ask about it every 37 seconds left.
It's certainly getting traction.
Excellent excellent and then I wanted to thank Ed for the color on the on the transaction related costs.
That were onetime in nature in the quarter.
The benefit future M&A.
Along the same lines of M&A.
I wanted to get your thoughts on rising rate environment I believe you.
Bofa facility as a variable rate.
This facility.
How do how does the higher interest rate come into play with perhaps making pulling the trigger.
On a larger transaction than you normally do on on the.
<unk> side.
Couple of things, Jeff first of all Luckily, we've been able to.
Bring down our leverage as you saw in.
And so that helps a lot.
If you look at ironically, while rates have gone up our interest expense has gone down sequentially quarter over quarter.
So we're positioned well.
From from.
Appetite for M&A perspective, really we view M&A in the same way our borrowing costs will continue to be relatively low in the sense that there.
Leverage at the leverage we're at now or any <unk> were below one times.
Our rates are LIBOR, plus 1% and so.
It really not.
On a relative basis too significant and so it wouldn't.
Have a shy away from any good opportunities that would come our way.
Okay.
Jeff we are.
<unk> interest rates, we are sensitive to that maybe you all mentioned a little bit more of that in our concluding comments, but.
It's a very good question and we try not to be leverage because for that very reason because of this increase in borrowing fees.
Yeah, Okay and then.
I was just curious if I could put in a request that in the future you disclose quarterly bookings number or a book to bill.
When youre not doing much M&A, it's easy to back into off the change in backlog I am.
Getting about somewhere probably between 270 $280 million of bookings in the quarter, which would imply two thirds of that is non geospatial just just wondering where the bigger chunks of that bookings in the quarter came from.
It's not a the recommendation is well taken and received we will include that so your question is how much were you asking a question on what we booked this quarter.
In the core business I'm trying to I guess.
Yes.
Am I am I backing into that number right the bookings in the quarter were around 270 or $280 million.
Doing that by changing the backlog on a sequential basis plus revenue in the quarter the way of.
Backing into it.
And then if geospatial is close to a $100 million I was just curious what's the other 180 consisted of was that a lot of utility was it towards it.
Your typical group.
Grouping within your different verticals or was there any vertical that had a larger bookings in the quarter.
Well.
I think our specific bookings in the quarter.
I think we.
We announced the LNG in the fourth quarter, though.
We did one yes.
We won that LNG project, which was significant in the third quarter, we may not have recognized.
The booking until we actually announce it but a lot of the activity is coming from our utility and from our our gas conversion and energy business as a whole. So I would suspect that the majority of that came from that those areas.
There isn't any one huge specific project that I can mention in any of the core business and then we have ongoing work continued work in our <unk> work in our forensic work, but in specific bookings it really was.
<unk> LNG or natural gas energy and our utility services.
Business and if you look go back to page nine you can kind of see that we're mentioning about what is that.
<unk>.
$35 45 about $60 million and all of those were.
Primarily the majority of those versus the core business. There were some geospatial work and the California University of California, and USGS Geological survey, but a lot of that was bookings our bookings that we did in the quarter and the majority of that Youll see was in the core business transportation utility and.
In energy.
Okay, Great I'll leave it there thanks.
Okay.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Our next question comes from the line of David Marsh with singular research. Your line is open.
Hi, guys great quarter, Thanks for taking the question.
So.
So you guys continue to be pretty acquisitive I was wondering if you could just kind of recap for investors more generally some of the <unk>.
Criteria, you look at when considering acquisitions and then perhaps maybe just comment broadly on what the acquisition landscape looks like in terms of the opportunities that youre seeing and.
What what you think the outlook is on that front.
Thanks, David as you know, we can't speak of any any specific acquisition, but we can certainly speak to the strategy and the areas. We're looking for and what purpose, we see in the in the acquisition space.
I think we're really we've been focused on technology, we think technology that will enhance enhance all of our service offerings, but particularly will enhance our geospatial work. So we are so I would anticipate youre seeing some acquisitions involving technology I think you'll also see.
Acquisitions that we want to build up our owner's representation work, where we are the owner's rep on.
Various projects and maybe not so much transmission of trends.
Irritation related but more on facilities and building related we will do that but we have the luxury now with our acquisition program. Our verticals. Our platform is a pretty established so we're looking for any acquisition that would support those existing platform. So we're not looking for any.
Huge acquisitions, but acquisitions that we consider use of $100 million or so.
<unk> will enhance the existing platforms, we have with our focus being on technology.
Acquisitions for technology, and technology that will increase the stability of our platform and support their organic growth. So I think thats.
Those are the general areas, we're looking at and I can say this the pipeline is very robust we have.
A number of opportunities right now in due diligence a number of opportunities that we.
Hopefully very soon we'll be able to announce and we think that would support support our work going forward, but.
Those acquisitions now we are being much more selective in the areas that I mentioned.
And in terms of pricing.
Are you seeing any.
Any moderation.
In the terms at all with rising rates or is it pretty much holding steady because everybody has some liquidity available and it's still pretty competitive.
Well I think it's.
Anecdotal right now, but I'm going to mention.
Our aversion to that and why that puts us in a better position. We've known we've noticed some softening from financial investors, who need to borrow money somewhere and with increased interest rates that makes up one or two things that makes either them less competitive or they're looking for better terms with the target. So we're still.
I need to see some of that.
But it's still too early to see any see changes in the.
And the price of acquisitions I think time is certainly going to tell and I think as people become more and more levered I think the.
I think there would be they would be less likely to complete an acquisition and we think its.
Better it's prudent to be.
Yes.
Levered or having less borrowing.
When interest rates are increasing.
It makes a lot of sense. Thank you so much guys I appreciate it.
At this time. 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 operator.
Just wanted to mention a couple of things.
Really a lot of it is in line from the questions that were asked.
We've all seen disruptions in the public market and conditions.
And that disruption in the overall economy because of inflation and the fight against it.
It was previously thought for many years that debt or leverage allowed for a company to be opportunistic in pursuing growth.
The thought was debt at historically low interest rates was an ideal way to grow the business.
But we've never really subscribe to that theory of allowing that to be the driver to grow the business. We always believed in that to be used very selectively and to grow our business add up the cash flow or profits of the company and as you can see we've had a.
A focused effort on decreasing our amount of leverage so let's fast forward to present day.
We ended the fiber and a very good position and we have minimal debt our leverage and we continue to try to reduce that and in fact, youll see over 30% reduction of leverage or debt in the in the in Q3 down to two 8% of EBITDA and we know many other financial firms will go as high as five.
Times leverage that's just not what we do so we think that.
Our lack of dependence on debt to grow our company has really put us in an excellent financial.
Robust activity, both for M&A and to fund future initiatives in future.
Projects that we were doing projects you heard me mentioned in my comments.
We're completely funding in a project for our deepwater surveying that we're going to do for geospatial with a ship designed specifically to do that so.
We have and this has caused us to have the advantage of staying focus not being distracted on opportunities in front of us opportunities that the nation has to do with infrastructure improvements.
Things that are not dependent on an economic cycles and so our the strength of our balance sheet.
Our continued focus on business and the lack of debt to support our growth.
We remain very optimistic about.
Our continued performance we remain optimistic about the fourth quarter of this year and we look forward to a positive <unk>.
2023, I'd like to close by thanking everyone for your support of the company and what we're doing and of course, we could not do it without our our wonderful employees in our impassioned leaders.
And our business. So once again, thank you we want to be stewards, and we wanted to be prudent in our growth and we appreciate your continued support of the company. So we will look forward to talking to you about our results in the fourth quarter and hopefully we will have more positive things to report.
Thank you.
This concludes today's conference call you may now disconnect.