Q1 2023 Bowman Consulting Group Ltd Earnings Call
Good morning, My name is Kate and I will be your conference operator today at this time I would like to welcome everyone to the Belmond consulting group first quarter 2023 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press the star two key.
Please note that many of the comments made today are considered forward looking statements under federal Securities Law.
As described in the company's filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed in the company is not obligated to public publicly update or revise these forward looking statements. In addition on today's call the company will discuss certain non-GAAP .
All information such as adjusted EBITA and that service billing.
You can find this information together with the reconciliations to the most directly comparable GAAP information in the company's earnings press release, and 8-K filed with the SEC and on the company's Investor website at investors thought Butman dotcom.
Management will deliver prepared remarks, after which they will be taking live questions from published research analysis throughout the call attendees on the webcast may post questions for management to answer on the call or in subsequent communications, but there will be no live Q&A from the web cast attendees.
Replays of the call will be available on the company's Investor website. Mr. Bowman you may begin your prepared remarks.
Great. Thank you Kate Good morning, welcome to our Q1 2023 earnings conference call and webcast.
Joining me today by Bruce <unk>, Bruce is our CFO will give a few opening remarks, after which Bruce will walk through the financial results for the quarter. I'll then talk about developments in our markets followed by questions from our published analyst.
I'd like to start off this morning by thanking our team welcome welcome you all our new employees from our recent acquisition of Richter and associates we.
We're excited about the opportunities this acquisition creates for us in terms of professional staff.
Services market coverage revenue synergies geographic expansion.
With Richter, we had last mile utility engineering capabilities, which are traditionally fallen outside our scope, but now afford us the ability to secure more wallet share from our infrastructure developer customers.
I'll talk more about M&A pipeline later in the call.
Bruce and I are talking to you. This morning from our downtown Chicago Office.
Our experienced teams here and in nearby Lau, who played a central role in the growth of our transportation revenue over the past year.
We launched our transportation practice in earnest here in Chicago 10 years ago.
Significant recent awards from Illinois, Tollway Authority and I got a couple of the big wins in Pennsylvania, Massachusetts, Texas, and Florida reflect our strong reputation in the transportation market and provide a solid foundation for what we're confident will be continued growth of transportation transportation related revenue are Bowman.
Calendar 2023 is off to a good start with another consecutive quarter of record revenue and exceptional year over year growth.
The pace of new order bookings exceeded our expectations and as a result backlog was up 46% year over year.
During the quarter backlog grew organically by nearly 5% as we again generated a book to burn ratio greater than one.
Coming off holiday seasons. It generally takes a couple of weeks to regain momentum with customers. During the early part of the new year.
As we're sitting here today now four months into the year, we've seen strong momentum return, we remain confident in our projected growth and the acceleration of our results throughout the year.
Within the first quarter, we continued to execute on our strategic growth plan to deliver half a billion in run rate revenue within five years of our IPO as.
As we near the two year anniversary of our IPO. We're at a run rate that is more than half of that goal.
Over the past two years, both our gross and net revenue more than doubled from their pre IPO levels.
Importantly, our net revenue growth has kept pace with our gross revenue growth, meaning that our growth has been productive growth as opposed to just growing the topline on a gross basis purely for growth's sake.
Just last week it was reported that in the last year, we jumped another 31 spots on the engineering news record list of top 500 design firms to number 87.
I'm proud of what we collectively accomplished during our first two years as a public company. These achievements. We also earned US recognition as a top performing industrials IPO of 2021.
Now I'm going to turn the call over to Bruce to review our financial results.
After which I'll further discuss our markets and our pipeline for M&A Bruce terrific. Thanks, Gary I'm pleased to be here reporting on another successful quarter that delivered a 12% organic growth rate on 45% total revenue growth.
With new orders of roughly $85 million in the first quarter. We are on pace to deliver the results. We have previously forecast in our guidance.
During a recent acquisition activity, we are raising our 2023 net service billing guidance once more to a range of $285 to $300 million.
Gross revenue for the first quarter increased $23 6 million or 45% to $76 1 million as compared to $52 5 million in 2022.
Net service billing increased $19 9 million or 42% to $67 6 million as compared to $47 $7 million last year.
Our utilization between the periods was relatively consistent over a higher head count. So we again attribute our revenue growth to our increased workload combined with about 3% to 4% pricing power or.
Our net to gross ratio decreased by a negligible 200 basis points to 89% as compared to 91%. We consider this a normal variation between periods and is based on our mix of revenue.
We expect this ratio to rise and fall periodically in connection with revenue mix and specific contract requirements, particularly in transportation, where we are often required to outsource work to small and disadvantaged business enterprises to help our customers meet their regulatory obligations.
Our revenue mix continues to be more balanced with building infrastructure, representing just 58% of total revenue down from 74% a year ago.
Building infrastructure revenue grew by nearly 14% in the first quarter, representing 58% of our revenue as compared to 74% of our revenue last year.
Just under half of our building infrastructure category was derived from commercial projects.
Approximately 40% of our building infrastructure revenue was derived from residential activities with around 30% of that revenue or roughly 9% of total revenue coming from what market would consider homebuilding related.
The remaining 12% or so of our building infrastructure revenue was related to municipal projects we.
We continue to feel comfortable that the increasing volume of orders originating from our building infrastructure customers indicates a measure of health underlying the demand in that segment of the economy, which gives us confidence in our ability to continue to grow this market.
Last year, we generated roughly $7 million in revenue for renewables and energy transition assignments, which we had previously characterized as emerging market revenue with.
With the convergence of renewable energy in traditional transmission infrastructure services.
Along with the continued growth we are projecting an energy transition we've decided to consolidate this revenue into our power and utilities category.
We will adjust our comparative historical reporting in future disclosures accordingly.
Gary will be providing additional color on revenue mix of our other markets later in the call.
Gross profit increased $11 7 million or 43% to $38 7 million as compared to $27 million grew.
Gross margin decreased by 60 basis points to 59% from 51, 5%.
We don't consider this change to be meaningful or an indication of a shift in margin profile.
<unk> year over year decline in gross margin was primarily due to a shift in the mix of our work during the quarter as our overall utilization rate was relatively consistent between periods.
We anticipate that our gross margin may fluctuate by anywhere from 200 to 400 basis points from period to period based on the mix of work at our blended firm wide utilization rate.
Cost of goods sold includes all direct labor the cost of operations Labor time spent on customer assignments, plus fringe costs associated noncash stock compensation expense.
SG&A exclusive of depreciation and amortization was roughly 44% of gross and 50% of net billing.
This compares to 44% and 48% in the first quarter of last year, and 46% and 53% in the fourth quarter of last year, which I believe is a better trend comparison on this metric.
SG&A includes all indirect labor, both non customer operations staff and corporate resources, along with all fringe costs associated noncash stock compensation expense and overheads.
Over the course of the past 12 months, we believe that our SG&A has grown to the point whereby we can expect to see the rate of growth in SG&A to be meaningfully less than the rate of growth of our revenue.
Reflecting the positive operating leverage in our business model.
The Mcmahon acquisition, our largest to date is now fully integrated into our operating platform reporting systems and organizational structure.
We recognize increased efficiencies from acquisitions once they are fully integrated.
Stock compensation expense for the quarter was $4 4 million.
Our remaining stock compensation expense for awards issued as of March 31, $25 4 million. This was an increase of $3 2 million from December 31, and reflects new grants awarded to employees in connection with our long term incentive compensation plans.
The future expensive grants issued prior to the IPO and in connection with acquisition retention incentives remains effectively unchanged from year end.
Adjusted EBITDA for the quarter increased $2 3 million or 31% to $9 7 million, which represents a 14, 3% adjusted EBITDA margin on net service billing.
We expect to see this margin increase as the year progresses, and the pace of net service billings accelerates.
Total outstanding share Count on March 31 was $13 6 million. This includes all Unvested time based restricted grants issued prior to March 31.
So it does not include roughly 450000 shares of performance stock units subject to long term future vesting.
Our weighted average basic and diluted share counts were $11 8 million and $12 7 million shares respectively, but that does not include Unvested time based restricted awards.
Our balance sheet remains in great shape with $30 million of net debt down $2 million from year end, representing a leverage ratio of eight three times trailing adjusted EBITDA at six times forward adjusted EBITDA at our guidance midpoint.
We were undrawn on our $50 million line with Bofa and have a healthy cash position of $14 million after nearly $9 million of cash flow from operations before changes in working capital and deferred tax.
Speaking of tax we continue to work closely with our advisers at price Waterhouse and await additional guidance from the IRS on the recent change in timing of the deductibility of research and development costs, which includes at risk labor expenditures and associated fringe costs incurred by engineering firms and.
In connection with an uncertain tax position regarding this change we recorded a new $3 7 million provision for what would be 2023 related accelerated tax payments, if incurred but classified them as long term obligations.
Between free cash flow cash on hand, and available debt, we feel confident in our ability to meet the requirements of acquisitions going forward consistent with what we've been doing.
While we have no immediate plans to raise additional capital we are shelf eligible and as we reached the two year anniversary of our IPO. We feel it's good governance to have an S. Three on file for future needs, if and when they arise.
As we mentioned earlier in the call we are increasing our guidance in connection with recent acquisitions and our outlook for the year.
We anticipate a net revenue range for the full year of $285 to $300 million with.
<unk> EBITDA of 44% to $50 million.
As the year progresses, and we achieve more clarity, we'll narrow that range accordingly.
We expect to file our 10-Q later today I look forward to several upcoming investor events, where we will be meeting with existing and prospective shareholders.
Thank you and I'll now turn the call back over to Gary.
Good. Thank you Bruce as I mentioned earlier, new orders for Q1 exceeded our expectations.
What is equally encouraging is that we entered the second quarter with approximately $30 million of on booked net revenue commitments for assignments that we have been awarded so where contracts have not yet been finalized.
This means we have the award in hand, but the revenue has yet to be counted as a new order to be recorded in our backlog.
And our business order flow and revenue recognition tend to be lumpy, while theres no assurance that these currently UN booked awards will become booked in the second quarter independent of these awards are booked new orders for the second quarter are on pace to exceed first quarter levels.
Other remains ongoing uncertainty about the overall economy, we remain optimistic about the markets, we serve and the pent up demand for infrastructure planning.
The level of committed long term public sector funding for transportation infrastructure combined with the private sector incentives for transformative investment in power utilities, and renewable energy along with its positive multiplier effect stronger than I've ever seen in the 28 years I've been in business.
As a leadership team we are laser focused on optimizing utilization through both the pervasive culture and a technology platform, which promotes unconstrained worth sharing throughout the company.
Our company wide volume in this philosophy enables us to build our workforce in the most optimal manner. While at the same time, facilitating broad range exposure to customers and projects, which in turn enhance our opportunities for revenue synergies.
With respect to acquisitions, we intend to stay in our fairway by remaining steadfast.
Growing our core competency of providing professional and technical services to a collection of highly regulated markets. This commitment creates a unique environment, where resources knowledge and experience are easily shared throughout the company, while limiting the impact that the tight labor market has on our business.
At our core we are fundamentally committed to our culture collaboration which promotes revenue synergies through work sharing and cross referrals, both of which create pathways to our increased profitability.
So building on Bruce's earlier discussion of our markets transportation revenue increased four fold from a year ago and increased nearly threefold as a percentage of revenue to 21% in the first quarter.
This is the realization of our efforts to focus on organic and acquisitive growth that would increase the concentration of transportation revenue within our mix.
As I discussed earlier recent wins in transportation point to increasing internal market share for transportation revenue over the foreseeable future.
Within the power utilities market, where particularly committed to transmission utility resilience in energy transition our focus on renewables and energy transmission market is directed to services and investment addressing decarbonization of the power grid, including solar and wind energy battery storage and aerobic recapture.
And clean hydrogen.
Our clients range from startup energy ventures to established utility system operators.
Power and utility services is an active area of focus for our M&A efforts as evidenced by the just closed Richard Associates acquisition at.
Adjusted to include the consolidation of renewables and energy transition our power and utility revenue grew 52% year over year and represented 18% of our total revenue in the first quarter.
Renewable energy and energy transition services contributed roughly $3 million to our first quarter power and utility revenue this year up from $1 million last year.
On the M&A front, we remain active with plenty of opportunities in the pipeline as of today. We are actively engaged in substantive discussions and deal documentation with targets that have a combined annualized revenue that exceeds last year's annualized revenue acquired we expect to be announcing several new acquisitions before our next earnings call.
<unk>.
I'm going to conclude today by taking a moment to thank every one of the Beaumont to you once more for everyone's continued hard work and dedicated.
Dedication to our collective vision for the future.
Culture embodies what makes us successful and enables our growth.
I'm now going to turn the call back over to the operator for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Alex Rygiel with B Riley Your line is open.
Thank you may be on mute Alex.
I am sorry about that Bruce Gary Congratulations on a great quarter and same to your team there.
Thank you al.
To date to date, you've made a lot of smaller acquisitions and they've worked really well and they have definitely been complementing our organic growth in the business here, but now that the company gets larger or are you looking to make larger acquisitions or are you still thinking along the lines of sticking with the smaller acquisitions.
That really compound organic growth.
We are progressing two larger acquisitions.
Aye.
Proceeding in the foreseeable future continue.
Continue our mix of.
We'll still be storing in I'll call them smaller acquisitions, along with the size that we've that we've been doing.
<unk>.
As we get larger we certainly are looking at and have in our sights for larger acquisitions. So we're sort of opening the aperture to say to the.
The larger deals.
And then thank you for that sort of the new segment breakout here as you think about your five verticals.
Which vertical right now is sort of offering.
The strongest organic growth potential out there I suspect it might be power and utilities.
But feel free to correct me if I'm wrong.
On a percentage basis.
Yes.
We've.
We've increased our transportation so much so I'd say overall.
Overall percentage of our size of our company today transportation, maybe relatively speaking the power and utilities are in renewables.
Maybe as a percentage of growth of that segment.
Theres just tremendous potential we're hitting a good stride there.
It's been eight months or maybe coming up on a year since we hired.
Brought in a leader.
That segment.
So with just tremendous potential in that segment, yes, So think nominally building infrastructure still has.
We're still seeing a lot of organic growth in that sector. It somewhere we're well entrenched and.
Lot of existing relationship so.
Just purely in dollar volume, but if you think about it in percentage basis, I mean, thats a harder harder category.
To achieve the same kind of percentage growth as it is transportation and power.
And then if one were to think about some of the more difficult sort of end markets.
Residential new construction stands out, but maybe you could comment on sort of what youre seeing in that market as well as the data center market.
So on the residential.
Seeing some really.
Nice firming up in that market.
I use.
Have a good presence heavy presence in Phoenix.
And.
And the recession and Thats a market that got hammered as bad as any.
We probably saw.
Much softening in the Phoenix area as any area that we are in.
And the past few months, we're seeing some notable rebound in residential in Phoenix and across the market. So we're seeing some some we feel for our observation we feel like we've hit bottom and are.
Our business in residential is picking up and that was not a bad bottomed to hit.
If I'm reading that reading that right.
The dataset.
<unk>.
The data centers.
I'm just trying to think of the right analogy I'd say the data center market is just blowing up.
It's just when you think how can they is that thing going to mature or are they going to build that out it just seems like.
Just keep on coming so.
We're seeing the outlook for data centers.
It seems to be stronger than I've ever seen it I think we're also seeing an interesting convergence of data center from building infrastructure with power and utilities, because the the demand for datacenter and how to power them is becoming a consolidated crisis of our clients. So.
Having the skill set in both has enabled us to enhance the services. We provide the data center developers, we hear some of the rhetoric about data center market.
Yes.
Our experience has been to the contrary so far.
Okay.
I have the perfect crystal ball on it but.
There is this an interesting crossover between those two markets now from what we're seeing.
Great. Thank you very much.
Thanks, Alex.
Okay.
Okay.
Again, if you would like to ask a question.
Press Star then the number one on your telephone keypad.
Our next question will be from the line of Brian .
Amen.
Davidson Your line is open.
Hey, Thanks, good morning, great quarter.
Thank you.
Hey, Gary that $30 million on book Award I don't Bill.
<unk> you guys had called that metric out in the past I guess I was just curious is it 10 years sort of unusually larger compared to what you typically see in that business.
I'm wondering around the call out there.
So it was a big a big rock.
Nice Big awards that are on the cusp of being signed up but haven't gotten signed up by the end of the quarter. So I figured it was it was worthy of note.
They will soon.
That amount will soon be added into the backlog, yes, Brett we've been we've been hearing we evolve as we go through our journey here being public and we've been hearing from shareholders in U.
Alex like us little more color on on new orders and so we've introduced more more talk now and expect to continue to talk in the future more about orders of.
Visibility to the future.
But as we sort of broke that down.
That led us to the discussion of Okay. There's also this category of on booked and let's look at debt to the trajectory.
The story.
So we'll try to keep that number alive.
Just because it was a big number this quarter, but talk about it in the future.
Yes.
I appreciate that Bruce and the extra transparency there.
You guys have a sort of a unique perspective and being close to you and narrowly phases into a client kind of capital plan I guess I'm wondering outside at the clients and transportation.
Yes, some of the other area of Cmos with government funding right.
What's the mood or temperature of your private sector clients.
B and more impacted by tightening credit sensitivity to economic changes I'm wondering.
Youre seeing any shift in priorities and with who.
We are.
Brent we're seeing.
Kind of like I mentioned with this rebound we're seeing in residential.
<unk>.
We're getting a lot of evidence that clients a lot of deals that are still very very viable from a market standpoint from a demand standpoint.
The capital stack got thrown out of whack as interest rates went up.
We're reworking their capital re penciling the deals.
And rework from financing so.
We're actually that's part of how we're seeing some new breadth into the market.
As some.
Some of these deals.
Regained their footing and your financing.
Forward talking to a number of private folks will get the feeling that they're seeing this as.
A top of the curve that has a long shelf life that interest rates are permanent.
Necessarily a permanent fixture of their projects.
They have to manage through the current environment, but there's another side that that's still makes their project viable.
And in the public so intuitively the public sector is panicked about spending their money fast enough.
How can they outsource even more of their serve.
Their engineering services planning services, because they can't staff their internal departments, that's very fast enough to spend the money they have to.
And also in the energy side that the private sector with the tax credit.
Time horizons are very anxious to lock in permits to lock in steps that will secure these tax credits for a long period of time.
Yes, that's interesting I appreciate that.
Yes.
The comment and the just the evolution at the end market mix is notable just since the IPO a couple of years ago.
Infrastructure now 58% of the mix.
If you fast forward another couple of years and hopefully Youll go through number 87% number 25.
What do you think this end market mix starts to look like will it be more even more sort of evenly dispersed across your existing practices with the objective there.
So you.
Yes that question as we as we're really in the midst of a long term strategic strategic planning.
Or maybe just kind of wrapping up long term strategic planning so we.
Ask ourselves that question form that vision.
So over the next several years, certainly certainly see that flipping to where the infrastructure related markets outweigh the the private building infrastructure markets and then we even sort of imagine our future.
Future vision towards the end of the decade, where where that that balance has shifted much more toward.
The infrastructure related transportation energy grid water resources.
I don't know just to pick a number say more in the three quarters to one quarter ratio.
The trend of long term trend that we are looking at moving this company towards.
Okay helpful. Gary last one just thank you all right.
Low teens.
Organic.
This quarter is that about your expectation embedded in the guidance.
For this year.
We've talked about that at the end of last year early this year that through our pro forma projections are look ahead basis about a 12% organic growth rate keeping in my breath that each quarter. We're shifting some of our acquisition related revenue into the organic base category because it reaches its one year anniversary.
Suri.
So we look at the business growing 12% organically over the course of this year that we've got our guidance.
But that basis of what is organic and acquired will change over the course of the year.
Okay, Alright, thanks, guys I appreciate it.
Thanks, Brian appreciate it Brent.
There are no further questions at this time, Mr. Baumann, I will turn the call back over to you.
Thank you Kate will just wrap up again, thank you everybody here at Bowman.
One more time for all the hard work.
And thank you to all of our investors and owners who show faith in us.
Really happy to be here in Chicago, where.
10 years ago actually is 11 years ago, we met the folks that we've formed the nucleus of this group and really has.
10 years ago propelled.
Our presence in the transportation market. So it's a good time to reflect on what we've accomplished collectively here so with that I will wrap it up good morning, and thank you everyone.
Yes.
Sure.
That concludes today's conference call you may now disconnect.