NV5 Global Inc. Q1 2023 Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss N V by its financial results for the first quarter 2023 ended April 1st 2023.
Joining us today are Dickerson Wright, Chairman and C. O N V. Five it was funny the F O N V VI and Richard Tong Executive Vice President and General Counsel.
N V but I.
Now I'd like to turn the call over to Richard Tong.
Yeah.
Thank you operator, welcome everyone to <unk> first quarter 2023 earnings call.
Before we proceed I would like to remind everyone that today's discussion contains forward looking statements about the company's future business and financial performance.
These are based on management's current expectations and are subject to risks and uncertainties factors that could cause actual results to differ materially from these statements are included in today's presentation slides and our reports on file with the SEC.
During this call GAAP and non-GAAP financial measures will be discussed.
A reconciliation between the two is available in today's earnings release and on the company's website at Www Dot <unk> Dot com.
Please note that unless otherwise stated all references to first quarter 2023 comparisons are being made against the first quarter of 2022.
And this presentation can be five has included certain non-GAAP financial measures as defined in regulation G promulgated under the Securities and Exchange Act of 1934 as amended.
These non-GAAP financial measures included in this presentation of our adjusted earnings per share adjusted EBITDA and revenues generated by employees.
<unk> provides non-GAAP financial measures to supplement GAAP measures because they provide additional insight into <unk> financial results.
However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP and.
In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures have been be piped to those used by peer companies.
A webcast replay of this call and it's a company presentation are also available via the link provided in today's news release and on the investors section of the company's website.
You May also find today's presentation, which will be referenced during this call on the investors section of the company's web site. We will begin the call with comments from Dickerson Wright, Chairman and CEO of <unk> before turning the call over to Edward Codispoti, Chief Financial Officer for a review of the first quarter 2023 results.
Kristen Wright will then provide closing comments before we open the call for your questions. Dickerson. Please go ahead. Thank.
Thank you Richard and thank you to everyone joining us for this call.
The first quarter positioned <unk> to focus on increasing our technology innovation and subscription based revenue services.
We did this through acquisitions integration of these new acquisitions capital investments and expanding our data center commissioning services.
Let's begin by going to page five.
You will see we required to ask some geospatial a 340 employee firm specializing in geospatial data analytics.
The synergy with our current <unk> geospatial platform was immediate.
Ask them, we'll use our existing data acquisition assets and services involving aerial mapping prior to the acquisition activism was using subcontractors for data acquisition.
Action was just awarded their largest contract to date, which will involve data acquisition.
Through our existing geospatial business.
We also increased our subscription based revenue with the acquisition of the U S. Commercial Geospatial Division of L. Three Harris known as this.
It's a software based service business that includes 16 patents and involves analytics for satellite geospatial mapping acquisition.
All of these acquisitions require a focus on integration.
Our time and investments although not recognize.
Quarter one results.
We'll be rewarded through synergy.
Continuity and growth in the subsequent months to come in fact, 36% of <unk> revenue is now a technology based and 11% of these technology services are subscription based.
Our capital expenditures and bobbing Geospatial mapping include a deepwater mapping vessel built to our specifications to support offshore wind farm energy expansion.
This is a capability that we have not yet previously possessed.
We have also positioned <unk> to capitalize on the ever expanding data center commissioning design and maintenance service business.
Southeast Asia has put a tremendous demand on data centers to support increased cell phone capabilities and use.
Please turn to page six where we discuss our accomplishments in the first quarter.
Also are looking forward to future growth and maintain our guidance for 2023.
And comparing Q1 'twenty three to Q1 'twenty two it is important to understand some key components.
We had one less workday in Q1, 'twenty three burst Q1, 'twenty, two resulting in approximate $2 8 million in less less in revenues.
We were also plagued with significant weather related events that delayed projects to later in this year.
Our real estate transaction business was negatively impacted by the increase in interest rates.
Equipment and procurement revenue for large LNG projects were also recognized in Q1 'twenty two.
However, overall, we realized profitability above consensus estimates.
We go to page seven I would like to discuss our recent acquisitions that either the place where recognize partially.
Q1.
We previously discussed <unk>, III, harriss, which positions us for higher margins and expands our service offering.
However, a full rollout in these acquisitions will be recognized in Q2.
As you know our owner represented.
Business is a service that represents a facility owner for expansion or improvements mostly to existing facilities.
We strengthen this service with the acquisitions of D. C S and God day Associates in Colorado and Florida.
The acquisition of Bromley Cook Engineering further strengthens our construction litigation business.
Bromley Cook specializes in restoration litigation of buildings damaged by Hurricanes.
We will fully recognizing all of the revenue for these acquisitions in quarter two.
On page eight our backlog is healthy entering into the second quarter of 2023.
Backlog grew to $802 million bolstered by key wins in geospatial technology totaling $26 million in infrastructure totaling $22 million each project support a stable backlog of non discretionary services.
We will now transition that presentation to our CFO , Ed Codispoti to provide an overview of our first quarter performance ad.
Thank you Dickerson and good afternoon, everyone.
If you would please turn to slide 10 of the presentation I will review, our first quarter 2023 financial results.
Our gross revenues were $184 3 million compared to $192 million in the first quarter of last year.
The $5 $9 million decrease in gross revenue was primarily due to decreases in our real estate transactional services business of $9 6 million and our LNG business of $6 $2 million.
The decrease in a real estate transaction services business revenue was driven by changes in interest rates that affected the market.
The decrease in LNG revenue was primarily a result of project cycles, which typically fluctuate during the year, depending on the stage of the procurement cycle.
In addition to these factors weather and one less business day. This quarter also impacted our revenue.
These decreases were partially offset by revenue from acquisitions and organic growth in our geospatial business.
The first quarter included about five weeks of extra revenue since we closed that acquisition in late February .
During the quarter, we were successful in reducing the amount of outsourced labor.
Our gross revenues generated by employees, which is a metric that subtract from gross revenues revenue that is generated from sub consultants and direct costs generated approximately $135 1 million in the first quarter compared to $127 1 million in the first quarter of last year.
An increase of $8 million.
Gross profit was $96 million compared to $93 8 million in the first quarter of last year, but an increase of $2 2 million.
Net income was $5 9 million in the quarter compared to $8 6 million in the first quarter of last year, a decrease of $2 $7 million.
Our adjusted EBITDA was $27 7 million, which was a $1 2 million.
<unk> decreased compared to the first quarter of last year.
Our GAAP diluted earnings per share was <unk> 39 per share in the first quarter of this year compared to <unk> 57 per share in the first quarter of last year.
Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition related costs was <unk> 88 per share in the first quarter of this year compared to 99 per share during the first quarter of last year.
On Slide 11, you can see that our cash flows from operations during the quarter were $11 $3 million. This is not a typical run rate for us, but we were impacted by working capital timing as our unbilled receivables, excluding acquisition balances increased $14 million and our accounts payable balances.
<unk> decreased by $15 $9 million due to accounts payable payment cycles.
As of April one 2023, we had $31 $3 million of cash on hand, and our net leverage was one times, which increased as a result of our funding of the act some acquisition in February .
We also had availability of $248 $3 million under our credit facility at the end of the first quarter.
We feel confident about the strength of our balance sheet and are excited about the expected growth in our business throughout the rest of the year in particular, the second half of the year.
Now I'll turn it back over to Dickerson for some closing comments.
Thank you Ed.
Let's turn to page 13 on the deck, which documents NV five strategic growth position.
The drivers for this anticipated growth include <unk>.
Expanded geospatial.
And software technology.
It also includes the two acquisitions to support our owner's representation business.
The expansion of our utility services with power delivering underground engineering to support the increased demand for safe and reliable <unk>.
<unk> energy services.
There are three key pillars for our increased performance.
Organic growth.
Mergers and acquisition growth and margin growth provided by higher margin service offerings.
Thank you.
Thank you Sir at this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, well pause just for a moment chicken.
The Q&A roster.
Thank you.
First question comes from Chris Moore from CJS Company.
Hey, good afternoon guys.
Hi, good afternoon.
Thanks for taking a couple of questions.
So maybe I'll just start with the sub consultant services.
As a percentage of gross revenue is obviously, a very impressive number I'm assuming that that level is not sustainable, but maybe you can talk about a little bit more about what drove that this quarter and kind of the reasonable target moving forward there.
Okay.
Give you a macro a response and then maybe if there's any specifics or add both our CFO feel free to join in.
Actually the.
Amount of work, we're doing in the real estate business transactional business. Both are two companies that do that.
Rely on sub consultants quite.
Quite a bit.
And unfortunately, as because interest rates has impacted their business as that.
As their total volume is reduce therefore, the percentage or the.
Or a lack of sub consultants that are used.
As opposed to if the business was doing.
Doing more revenue.
Yes, I would agree with that <expletive> and I think over its also a result of the.
The initiatives that we have within the firm.
To in source more of the work.
Rather than outsource and so theres a lot of emphasis on that in particular through our cross selling and so we're seeing results of that of that work.
Yeah.
Got it that makes sense very helpful.
When we look at the backlog.
Roughly what percentage of that is geospatial.
Yeah.
It's about.
It's up.
<unk>.
Roughly 15% of his geospatial they tend to have.
The lower percentage of backlog as it relates to the full year in some cases, but it is about it is about 15%.
This is a question that includes the axiom and all three Harris okay.
Got it yeah, I'm, just trying to understand kind of as geospatial is becoming a more significant piece of revenue.
To understand the sales cycle for geospatial versus kind of the overall N b five sales cycle and see what that would mean to tobacco go over time is it is it.
Just kind of I understand that the dynamics, there a little bit better.
Well.
In a linear way of looking at it the backlog for the Geospatial group will grow because the backlog that we recorded was through the first quarter of 2003 and both of those companies who had not fully joined us in the quarter, but you would expect to see an increase as the next the second quarter.
Begins and Theyre fully incorporated it.
It included the backlog for <unk>, but not.
That is because that was April close and we were very conservative.
And the inclusion of backlog of we went off of vaccines original budget for backlog, but it looks like their revenue is going to exceed their original budget.
Got it that's helpful.
And <expletive> you kind of touched on this in terms of from Maxim sounded like there was some synergies right away I'm just trying to understand the cross selling opportunities from the recent geospatial acquisitions is.
Is there a significant overlap with with your existing customers.
Well, yes, I think a couple of things first let me say the integration of <unk> is going very well.
Our quantum spatial group enact some have worked together in the past and we are really seeing the benefit set as far as immediate.
Can only say some of the things that we can see immediately.
Most of their service with the animal and a preview of the geospatial data, but not the acquisition they were using sub consultants and subcontractors up for this work and now they'll be using B R and D. Five geospatial platform for the acquisition for the data that they are rather new some subcontract.
So we feel we're going to benefit there.
<unk> organizations, they have a very robust sale organization.
Our geospatial sales organization is also very good.
They seem that there seems to be some overlap there. So what we've done is we've consolidated the sales organization into one organization and that seems to be that seems to be going very well and they have been very active recently in getting work that some work we would not normally have.
<unk> tend to specialize and work more.
With.
This overlaps with our with Al III that al III Harris acquisition and Thats in the.
Aerospace and satellite analytics and in Department of Defense work, which we Werent doing.
As much with the Geospatial group so.
We're looking for immediate synergies and we're getting them and if you were going to measure than it would be true.
Lack of sub contractors for their acquisition work, which should all be using us and it'll be the consolidation of the sales organization, which will certainly help things on the expense side and then it's maybe new a new client base that we're getting with the axiom joining us.
Perfect. That's really helpful. I'll jump back in line. Thanks, guys.
Our next caller comes from our next question comes from Jeff Martin.
And Ian.
Please go ahead.
Good afternoon.
Hi, Jeff.
Hi, <expletive>.
I wondered if maybe this question for Ed if it's possible to quantify or at least take a shot at the weather related impact on revenue in the quarter and then secondly is that.
Pushed out to is it going to be accelerated during Q2, how should we think about the catch up on that.
Well, let me give you.
From my perspective.
If you.
Looked at losing eight four.
Day of revenue.
Which we did for having one less business day that was $2 8 million, but our work in the west represents about a third of our business.
So we would take a third.
And this is certainly back of the envelope, but we would take a third of the revenue.
And by the amount of days, which we have loss, which was somewhere between five and eight days and so you would take a third of the total revenue for the quarter, which was 180 something so that's.
It would be a third of what 50.
Of $60 million of $60 million say and then and then.
We would divide that by the amount of working days for the $60 million. So five in the $60 million is.
Roughly $1 2 million.
The $1 2 million. So if we were going to quantify that and believe me. This is not.
This is certainly not.
Audit this is how I looked at it Jeff and so it's.
$6 million in revenue from just all those unbelievable rains that we had that we just couldn't get to the site and then very conservatively, losing the one business a 2.8 so.
About $8 8 million at eight eight or $8 million to $10 million off of the 184 that you see on the information deck on page six.
Yeah, Okay and then.
I was wondering if you could comment with respect to where consensus is for revenue for Q2 currently at $2 $25 million to $125 million based on the consensus that I'm looking at.
Given that is.
Closed earlier than midyear I think you know we were all expecting to that probably close somewhere around mid year. So that's probably incremental two analysts assumptions for Q2, but I don't know to what extent you can comment on your level of comfort with a $225 million revenue level for for Keith I think I think that's what we're looking at that.
With the consensus and what I like to say and Youre going to see that in some concluding comments.
I really look at the annual I wish our business was linear but I really look at the.
At the annual rate. So Ed is sitting here with me I think we are comfortable with the total.
Amount given by consensus and our guidance was 878% to 915 and how that falls in the quarters is a little bit less.
It's a little less predictable predictable, we could probably be over.
The $2 25, and therefore under maybe on the on the third.
Third and fourth quarters are.
But I say, if you look at everything in total.
Don't know if its going to be 190 to 221.
188, 225% to 39% or $2 27.
But we feel comfortable with the guidance of 878 to 915, Ed you may have a thought.
Well I think I think that's in line I think I agree with the business not being linear and focusing more on the full year.
Numbers I can say that from.
We tried to emphasize that the the results we expect would be more weighted towards the second half of the year and so.
Although those those revenues seem seem reasonable.
From an expense perspective, Q2 is going to is going to require integration time on some of these acquisitions since they are on the larger side and so maybe.
Maybe on the on the earnings for Q2 relative to the rest of the year, we will feel more pressure there, but overall for the year like Vic said I think the overall numbers are still are still reasonable.
Historically, we're running we're coming that Q2 and Q3 are <unk>.
Times of the year. So it would go on just historical precedent that we the consensus would show a higher revenue.
For those for those quarters and Thats typically.
As if business with.
You may now, but Jeff you brought up a good point some of these projects that we couldnt get to were delayed they may spillover into the into the second quarter and.
And they may be they may give us a little more comfort on the on the revenue and as Ed said, we were very involved with the integration of these acquisitions, we've made and that sometimes tends to internal so.
It's kind of a.
It's kind of a push on either way and so.
Is that so we can see it now we think that sets us.
We feel comfortable as I said with the overall annual amount and how that falls into the quarters.
Will.
It looks reasonable and what the consensus has.
And then one more if I could on geospatial.
Yes.
Last quarter there was some.
Push out in terms of funding of projects on Geospatial and then going back over the last couple of years, there's been some delays in contract renewals from government agencies. Just curious if you could provide us an update on what that trend has been so far during 2023.
This is my perspective, Venice, and Ed will comment more specifically, perhaps on the organic growth, but we had we had a very good quarter with our geospatial group and some of that was result on working on some of the delayed projects I think the organic growth was.
It was 8% with 15% organic growth.
In the quarter alone and that probably.
Was due to of course, new wins, new work, but actually maybe some of that delayed projects.
We're spilling over that.
That we were not able to do in the fourth quarter of last year that we mentioned were delayed.
Great. Thank you.
Okay.
Yeah.
Our next question comes from Rob Brown from Lake Street Capital markets. Please go ahead.
Okay.
Good afternoon, <expletive> and Ed Hi.
Hi, Rob.
Just wanted to get a little bit more color on the I think you talked a little bit of stabilization in the real estate transaction business know how.
How is that market stabilizing or whats the visibility there and maybe what gives you confidence there.
Yes, I mean.
It may sound a lot more knowledgeable because I just finished a conversation with both the park.
Real estate group and.
What was very surprising for me to see was <unk>.
Measuring the amount of new business they were getting on a weekly basis and if you remember there were five weeks in the quarter.
And for them and their reporting but on a weekly basis.
Theyre looking more like.
And they're showing an increase of about 10% to 25% on new orders and so we're starting to see that they come back and come around I think.
They will.
Not recover everything they had in their original budget either either units, but the nice thing is is that they're.
They are profitable and they continue to be profitable and they're really taken advantage of.
The scalability of their business, but we do we are seeing both an increase in.
In the real estate transaction business over we're over where it was in the in the quarter. So.
Certainly.
Keeping an eye on that but we do see some positive signs and just to clarify that take the five weeks that we mentioned earlier was where the amount of weeks that we owned at some during the first quarter just to clarify.
Okay.
Okay, Okay, good and then.
Then the.
And then maybe on the sort of the second half weighting of your business.
What's driving that I know theres, a seasonality piece to it but is there some of these geospatial contracts do you have some visibility on them that that gives you this way.
For the second half way.
Well.
We see a couple of things we see we're seeing a significant increase in our international business and I'm going to mention that on what's happening with the data centers and use us for the cloud and support and that we're expecting to see much more of that.
In the second half we also add.
Were also bolstered by some recent significant wins in the.
And the Geos.
Oh special business and our commercial side of the Geo basis actual businesses they've structure. It they both commercial and federal but more so commercial art are indicating a significant increase in their business and it's just two things. It's some some projects that were delayed and still spill.
Over and it's and it also comes about with the additional people that they're going to hire that are billable people.
100% utilized and so we're expecting to see an increase on both of that for that they have a good workload.
They have.
They have some good contracts that theyre working on.
And it looks like they're they're staffing adequately and we are being assisted by accident.
That staffing to the <unk> acquisition. So those are the things that we're expecting this show a better results for geospatial.
Even though they did have a good first quarter, we expect to see some some additional work from them.
Okay, great. Thank you I'll turn it over.
Our next question comes from Andy Wittmann from Baird. Please go ahead.
Okay.
Thanks for taking my question guys.
I guess just to understand a little better.
Do you have.
What the interest rate sensitive business as a real estate transaction as well as your <unk>.
Your your residential business that you do the physical.
The property assessment or whatever.
You have the.
How much that was down year over year, just so that we can kind of understand that impact.
The impact to the quarter.
Well I.
The <unk>.
Three segments, Amit the only residential portion of the work. We do is when we act as the building departments for the municipalities, but the transactional basis, which we are really working for large portfolios and Fannie Mae and Ginnie Mac.
They are they're.
They are significantly down from the original from the original budget.
One side of it it does with Fannie Mae I think the original budget was up for the year was $38 million theyre projecting $31 million now.
Don't know what the other side is that it is looking at that but their original budget I would if you total them both together and.
Just on that piece of the business I think we've lost close to $10 million in revenue from the original budget.
Municipal services. So they just won a very nice award in Southern California. So.
So I am not as.
There has been some degradation of their budget, but I'm not as focused on that as we are in the real estate transactional business.
Okay. That's good context, that's helpful. Yeah go ahead Ed.
No I was I was just going to say it was that that $9 $6 million decrease as compared to last year's first quarter.
And.
As a as a percentage.
Yes, roughly.
That's.
That's roughly 48% or so Andy versus last versus last year, where we saw early last year was also because of the real estate. The anticipate we believe because of the anticipated increase in rates we have.
Pretty robust Q1, the first quarter and second quarter last year for real estate.
Yes.
That was actually kind of the reason why I asked the question is trying to understand what.
Good to hear that things are kind of perking up definitely hear the comment but there are some still lingering challenges that that are going to.
It sounds like for persistent at <unk>, regardless.
That context is helpful.
The.
Where do you want to go next I guess.
Okay.
Could we talk about.
I guess previously you guys kind of talked about Watson and EBITDA.
Range Thats associated with your EPS guidance was.
I guess, the EPS guidance Hasnt changed so presumably the EBITDA guidance, that's underneath that hasnt changed either.
Your interest rate exposure has changed that much is that a fair assumption.
Yes. It is.
Got it so as I think we are.
We had previously said.
Although it is not guidance, but we can we can.
We can see having adjusted EBITDA in the $150 million range. This year is what is what our forecast looks like.
That's not guidance.
Yes, that's totally just exactly I just wanted to understand that a little better and then.
I guess just as it relates to.
The guidance.
Some of these deals I think the <unk> Harris one in particular close maybe a little bit earlier than we were thinking maybe than you were thinking.
How does the deal closure timing.
The guidance did you pick up a little bit there.
And we're we're all these acquisitions that you've announced subsequent to the last quarter I think they are relatively smaller.
Do those effects the guidance at all or should they.
The smaller acquisitions.
They really are more strategic and not and they're just not material the timing of all three of the <unk> entity.
We had assumed was going to it was in our guidance when we when we issued guidance last quarter, but we thought it would come in a little bit later in the year. So we picked some of that up and so.
That helped to offset some of some of some other fluctuations in real estate and other but at the end of the day. We ended up in the same in the same place in terms of our overall guidance.
Okay.
And then I guess maybe.
My last question <expletive>.
The custom vessel.
It's something that we.
No that the geospatial and all of the.
Related subsea things in that business are more capital intensive than your legacy traditional consulting engineering business. So so that's a known fact, but I guess when it comes to owning custom vessels. It is a little bit out of the ordinary so I thought I'd just give you an opportunity to talk about really trying to understand what the capex budget.
As for this year with things like that in there and maybe is there a change on the Capex budget overall for the company as you think of it as a percentage of revenue because you have loaded up.
Some of the more capital intensive geospatial work in.
In the business.
Well Andy yes, thanks for the question our capital expenditures because of our our positioning and capitalize on the growth of geospatial. Our cat overall capital has increased I know for example.
It could be more than that but I know that we've I've authorized we bought the rights for $2 million alone for the vessel and it was built to this specific client specifications to do deepwater mapping in particular, the work that was being done.
In offshore wind and so I know no other vessel that can do the deep water.
Measurements.
That we can do now through our Geodynamics group. So we had specific specifications. The client had specifics specifications for that vessel and it was built to our specification I'm going to defer to add on the overall capital expenditure, but I know it's.
It has increased because of our focus on the opportunities in our geospatial platform.
That was about $4 million roughly $4 million.
Last last year's Capex that that vessel you are talking about and we're not.
At the moment, we're not contemplating adding any.
Our vessels that will be of a material cost.
So when we think about this year's Capex I do expect it to be.
A little bit higher than last year, but not not.
Nothing too impactful.
Last year was around $16 million or so.
It may be a little bit higher than that but again, we're not planning on continuing to add to the fleet necessarily I think with with this current.
Arrangement of vessels.
For this for these wind farm initiatives et cetera in the geospatial offshore work.
Got you.
The assets that we need Rick yes.
I was speaking from a historic basis I think before we were.
We were involved as much in geospatial I think our toll.
And if you look at run rate revenue is going to be about 200.
60% to $180 million on just our geospatial work.
Alone, but prior to that we were capital light in our consulting and service business in the core business probably more like.
$3 million to $4 million and capital expenses expenditures so so.
That was a good.
Good that you pointed out that a handy that its correct the capital expenditure gone up.
What has happened to like just to expand a little bit more on that in the act and its all.
The predominant amount of it is for acquisition expenses and so airplanes.
Lidar equipment and things like that what is good though is we happen to happen to be able to.
Offset the sale of some of the some of the equipment to get more modern and new equipment and I know right now.
There is in that budget, we're assuming acquisition of King Air aircraft.
And but and where Ed said, we don't think we're going to have any real significant changes in the capital expenditure because we will probably just use that.
We will that will be used to replace another aircraft that we have it's going to be somewhere in the neighborhood of $20 million, most likely and the capex for this year.
Yes.
Okay. Good that's all my questions. Thank you gentlemen.
Okay. Thank you.
Okay.
Next question comes from Michael <unk> from Bank of America. Please go ahead.
Hey, guys. Thanks for.
Private mi.
Hi, Mike.
Hey, Jason how are you just on that was really helpful. On the Capex I'm just curious.
On.
The free cash flow, what we should kind of be thinking for the year and does the later start to the year does that kind of pushout, maybe somewhat <unk> free cash flow maybe into 2024.
Mike it's hard to.
The working capital is going to fluctuate throughout the year right. So.
If you think about it without the impact of working capital and just.
Consider on adjusted EBITDA in the mid $150 million range and the Capex numbers that I just gave you.
That that free cash flow, we would expect to be higher than than last year.
And so.
That's that I believe is the best way to look at it.
Understand your point about there being a.
Q1, having a low cash numbers so.
Are you kind of take the run rate and divide by three.
Yes.
The working capital is going to fluctuate, but overall.
Without the.
Characterization of of working capital fluctuations, we would expect to be higher this year commensurate with our with our increase in earnings per share.
Just a comment.
We're used to seeing.
Cash flow conversion from.
EBITDA to the cash flow of about 85% to 95%.
Yes.
It's Scott.
Chuck kicked under the table here.
Yes.
I think I think from a free cash flow perspective.
It would be without again without any working capital fluctuations.
Closer to home.
So 60% or so.
So it's.
It's going to fluctuate.
And then also with.
Sure Richard.
I mean their working capital.
Yes.
Also means.
Work in process as part of the working capital so that simply means if we're recognized revenue and some of the offices will be billing at a later date. So obviously we have the expense.
But we don't have the cash coming in and so that that will have an impact on the cash flow.
Perfect.
There's a lot of it.
As you know a lot of headlines around the debt ceiling potential government shut down.
It seems like <unk> doing really well right now.
Curious how you kind of are you hearing anything.
From from from the field about this these growing headlines we're seeing rising headlines, but what it could potentially mean in terms of just orders in the pipeline.
As we tried to navigate some of these headlines.
No no we haven't seen we haven't seen anything usually the government budgeting process, which is the federal funding, which you would be.
No maybe.
Affected by this.
That is the budgeting process for federal governments, whether it be military which we were involved with or if it's any of the national programs. Those budgets really come about in September . So hopefully we would have would have some resolution to this status you buy the <unk>.
They go to the budget process.
So thats.
So that is the impact we're seeing and hopefully this thing will get resolved before.
The end of September so one when the federal budgets that fund these things that are going for geospatial and go ahead for some of our.
Other work.
What would be.
It'd be something that we'd be concerned with.
Perfect and just speaking of headlines obviously, we're seeing a regional banking crisis and credit tightening.
Lot of concerns Ryan I know, we've talked about real estate, but also the commercial real estate I'm, just wondering like Dixon from Europe Vantage point.
Are you seeing any impact from customers ability to payment hearing from the field in terms of pipeline and some of those areas. Just curious as we see the headlines and concerns how it if it is at all trickling down to the.
Yes.
Yes from my <unk>.
Perspective.
And what I've seen only particularly.
Just had my <unk>.
My.
Calls with our real estate transactional group and <unk>.
If anyone would be our more on one side of the business is affected by the interest rates and that is in there.
That is the side of the business that handles a large portfolio acquisitions and things like that and if Bob it's not so much the interest rate itself. It's the movement of the rate.
If they if they are going to be a constant steady rate.
So that has had some impact on our business and that is.
Is the funding of the non governmental projects on the other side of our transactional business. They have received funding on for Freddie Mae and Ginnie Mac, but they have not seen they.
They have not they have seen a slowdown in the actual use of those funds. So those are the two areas that we are seeing it and I think.
No. We're all concerned I don't think as far as the <unk>.
Other.
The vast majority of our business.
Not tremendously to met dependent on that.
On the commercial sector and I think we're split with about.
$60 $40 65 up 45 from government agencies, and 35% of our commercial but to the extent, we will be impacted in the commercial side to the extent that.
There is this interest rate issue.
That's very helpful and just lastly can you just remind us out of the 870 890 915 of gross revenue guide this year, how much we should be expecting from from acquisitions.
Well in the guidance. It only includes acquisitions that had been performed I cannot say.
I would look forward to some additional acquisitions being done, but I think the guidance.
Has assumed the acquisitions that we performed year to date, yes, axon and we used we havent, even though we hadn't closed but we have signed the deal for US we include them as well and then the smaller acquisition.
We have done.
So but that does not include any new acquisitions and some that were in due diligence right now and but.
<unk>.
So.
And that is immediately considered in the guidance.
Thank you.
Yeah.
Okay.
Okay.
Our next question comes from David Maris from singular research. Please go ahead.
Hey, guys. Thanks for taking the question.
In the 'twenty three guidance can you talk about what percentage of your project.
Projected revenue is expected to come from our real estate business specifically.
Sure.
No I can't not specifically I can tell you the impact that we've had from the budget which at.
We had an earlier question that we showed that degradation of $10 million, how that is affecting our municipal permitting and outsourcing business that also depends on interest rates I don't have a specific number.
But it's definitely less than 10%, yes that is less than 10%.
Okay.
Okay.
Got it and then.
Yes.
Understood and then just I just wanted to affirm that.
Yes, the guidance with the reaffirmation of guidance kind of implying.
Pretty substantial growth rate year over year.
Balance of the year.
In light of the macro environment still feel pretty confident in that.
Well it's.
It's total growth right. So.
So there are a portion of it is will be what our business units our existing business units are generating and then.
<unk> of it has been acquisition and that normally.
Normally has been over the years about 50% of the growth has been coming from.
Acquisitions, and so I wouldn't assume that that would that would change that would change at all so.
The total growth rate that you see in the guidance over 2022 is just that it's total growth rate includes both organic and <unk>.
Acquisition growth.
Understood. Thanks, so much guys I appreciate you taking the questions.
Okay.
Our next question comes from Mike <unk> from.
S E T.
Please go ahead.
So Adobe will help you with that Sidoti.
Hi, good evening everyone.
I know there's been a lot of questions already.
Been answered, but I did want to touch a little bit on owner's representation opportunities I was wondering if you sort of just give us some thoughts there. It certainly seems like a really interesting space, where maybe you could talk a little bit about maybe sort of.
Big picture opportunities in the type of growth potential thats there. Thank you.
Okay.
Great.
Getting a little in front of my concluding comments, but I can tell you.
The growth areas that we see.
Data center support what we see in software we are just touching that the basis of that with those making use of the 16 patents that are L. Three Harris our bis group has in the trademark work, we're just touching that and Thats a world of opportunity because that.
<unk> now represent only about six.
Maybe 6% 5% of our.
Our budget and so we think theres phenomenal opportunity in software we think it's.
Because of that we're looking at a real opportunity in subscription based revenue revenue that's kind of like.
What you pay for cable youre going to pay for that anyway, we're seeing some real growth in that area and our energy efficiency space and in in the software space and we also see some phenomenal opportunities.
<unk> geospatial work that we haven't.
Done as much before and Thats with the department of defense and with satellite.
Analytics. So those are the kind of the growth areas that we're looking at.
Specifically for the group.
I'll comment more on that.
And.
And the conclusion of our discussion today.
Okay I appreciate it didn't mean it still any futures.
Good morning.
Okay.
Yes.
Just kind of you had me.
I mean, a little more expect ex temporariness, there, but that's fine.
Thank you.
Our last and final question comes from Pat <unk> from Exxon Group. Please go ahead.
Hi, Kate Hi, how are you.
Hey, Thanks, Scott from Max So just a follow up quick follow up did I hear you say, 36% of revenue is tech based roughly and as that book for L. Three and just including a partial quarter of <unk>.
That includes a partial that includes.
Well Ed.
<unk> finance team.
Validated this number so I'm going to frisbee at question right over to add right now.
36% includes both <unk> and <unk>.
Okay.
As being the garrison.
Alright, alright, thank you very much.
Okay. Thank you.
Any other questions.
We have no further questions at this time I would now.
Now I'd like to turn the call back over to Mr. Ray.
Okay.
<unk>.
I wanted to say a few thoughts here may be a little bit more in the concluding comments than we normally do so I'd just like to introduce where we've been.
And where we're going and.
Okay.
As you know our business is not linear we're going to have some quarters that are higher in revenue than.
<unk> will have some that are less but overall I really want us to concentrate on the.
Overall look I know we're.
We're a public company and I know if we are analysts that are looking at us.
There is a good tenancy to live quarter by quarter, but we really want you to focus on what our annual.
Performance is going to be so we please we should all understand we are maintaining our full year guidance we.
We want to measure those guidance that guidance and revenue growth.
Growth in our earnings per share and our growth and growth in our adjusted adjusted earnings per share.
We've been a public reporting company for over 10 years.
And we've always always said that.
And this is through history.
<unk> like the first and the last quarter are our slower quarters than we really accelerate more and are our second and third quarters.
This year.
And we've also said why is the first quarter somewhat in the fourth quarter will have slower well in businesses in the northeast and businesses, where we are doing things.
Certainly winter related by weather.
We have never had though up this quarter, such a amount of stoppage in work and rain.
Degradation of weather and flooding that we've got on the west. So we were hit with both we were hit with a slowdown that was anticipated and in the.
But losing a tremendous amount of work opportunities that were delayed because of weather.
Weather and.
In the West I don't like to use that as an excuse so I don't want <unk>.
Mentally excuse, but I just want us to be aware that we just didn't have the opportunity. It's not because there was a slowdown in business. We did not have the opportunity to address these projects I would like to talk about the positioning of the company now.
We have a saying that says beyond engineering.
The heck does that mean.
Means.
The SNB <unk> want to be diversified we want to be not just the standard engineering company and so we want to focus on things that are.
Through innovation technology.
But really have will really have a an important.
And the overall growth. So we have grown the geospatial business. We first entered it at a very small piece, we were doing maybe $3 million and we made the acquisition of quantum spatial and we added another $120 million or so but now we're showing a run rate in that whole geospatial business.
<unk> of $280 million roughly.
But we think that makes us one of the larger if not the largest geospatial.
Provider.
Why is this important because this is really part of our stability of revenue and earnings and it comes at a much it's growing much faster than our typical business. This has been and it's at a very much.
Much higher profit rate that comes of course with capital expenditures that are needed.
Uh huh.
However.
The combined growth and you see this on slide five.
Of that 36 look for that to grow and look for the technology piece at 11%.
That to grow even more in the coming days, so we're really positioning our company for that.
Other thing and that is the last thing I want to talk about and positioning is I have recently visited our operations and in Southeast Asia and.
It should have done in a sooner but.
What is being discovered now is we have a growing growing business in the commissioning of big data centers.
But there has been such a explosion of cell phone usage and applications of cell phone.
There is.
At least a third of the world. This living there and they are finding out that there is many other things that they can do on that cell phone rather than just.
Rather than just calling so all of that information.
<unk> and the things the photographs that many of the things that are doing those up to the cloud in and right now.
Clients with.
Sure all of the Blue Chip <unk> clients that are familiar to you we cannot in Asia. They cannot build data centers that's enough to support this growth and so we look at a phenomenal opportunity. We're looking at positioning ourselves even more in that area to grow that market. So I just wanted to recap.
On the things that we.
We are looking for we want to position the company.
To take to be beyond the engineering take advantage of many of those things that are growing growing organically growing profitably and we wanted to make sure that we are limber enough and we're focused focused enough to either.
Entered the market and we have chosen many times to enter those markets by acquisition or by advancing the people that are that are currently working for us to take on this up this bigger responsibility so.
We are very very optimistic.
About the balance of the year.
We feel that we.
We feel that a key part of the future growth of <unk> five is going to be and how we've repositioned. The company. We had a good quarter, we're going to have a good year and I just want to thank everyone today for listening in and allowing us to <unk>.
Collaborate and answer questions that you may have and so we look forward to speaking to you shortly.
And for those for all of US who have had an interest in <unk>. We thank you for your interest and our job is to work for you and our job is to continue that performance the positive performance of the company. So thank you.
Thanks.
Ladies and gentlemen that concludes today's call. Thank you for joining you may now disconnect.
Okay.
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Okay.
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Yes.
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