Q2 2023 Bowman Consulting Group Ltd Earnings Call
Good morning, My name is Emily and I'll be your conference operator today at.
At this time I would like to welcome everyone to the vitamin consulting groups second 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'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question. Please press Star and then K P.
Please note that many of the comments made today are considered forward looking statements under federal Securities laws.
As described in the Companys 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 publicly update or revise these forward looking statements.
In addition on today's call the company will discuss certain non-GAAP financial information such as adjusted EBITDA and net service billing.
You can find this information together with 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 don't buy them and dotcom.
Management will deliver prepared remarks, after which they will be taking live questions from published research analysts throughout the call attendees on the webcast may pose questions for management to answer on the coal or in subsequent communications, but that'll be no life Q&A from the webcast attendees.
Replays of the call will be available on the company's Investor website. Mr. <unk> you may begin your prepared remarks.
Thank you Emily and good morning, everyone and thank you for joining the Boeing consulting second quarter 2023 earnings Conference call.
Im joined here today by Bruce later, that's our CFO and we're joined virtually by many of our dedicated employees who are listening in on the webcast.
Everything that we accomplished as a result of an extended team effort and we're extremely appreciative of the hard work and client first mindset exhibited by everyone associated with boom in each and every day.
During the second quarter, we welcomed some exciting additions to our organization, which will serve as a solid building block for the second half of the year and beyond.
We completed five acquisitions, adding roughly $36 million and $36 million of annualized net service revenue and over 250, new employees to Bowman.
Each of these acquisitions presented a compelling strategic rationale with respect to clients geographies and complementary service offerings.
But more importantly, the cultures of each of these companies aligned well with ours.
Compatibility is key to rapid and successful integration and facilitating immediate buy into the tenants are worth sharing and cross referrals, which result in accelerated growth opportunities promotional revenue synergies and expansion of customer wallet share.
In addition to the staff we added through acquisition, we organically expanded our workforce during the quarter by adding close to 50 professionals to ensure the timely delivery of work we've been awarded over the past six months and expect to deliver to customers over the year ahead.
Our pace of new orders in the quarter complemented our M&A activity in the quarter.
Once again with gross orders exceeding $90 million, we achieved a book to burn ratio of greater than one which means our backlog grew independent of the acquisitions.
We believe our industry continues to experience strong momentum.
As the overall infrastructure market remains in expansion mode fueled by a positive funding and incentivize environment, coupled with unprecedented demand renovation and transformation.
I am pleased with our ongoing progress toward revenue diversification and I'm also encouraged by the degree of visibility we have into future demand for our broad set of services.
In the second quarter, we delivered 13% organic growth.
I'm often asked how we consistently achieved well above average organic growth rates and how we approach strategic growth.
The answer is we have a multi pronged top to bottom all in commitment both to continuously expanding our breadth of customer relationships.
And to deepening the existing relationships, we have privilege to joy.
Organic growth is supported and realized by four primary pillars of our culture first.
First a companywide commitment to capitalizing on revenue synergy opportunities.
Two full and rapid integration of the firms we acquire.
Second an unconstrained commitment to work sharing.
<unk> referrals and utilization optimization promoted by our leadership and supported by our investments in technology.
And third a strong depth of customer knowledge and trust, resulting from our long tenured staff and an unparalleled commitment to individual and professional development.
And fourth our strong ownership culture in our compensation philosophy. The focuses for our rewards on broad company success, while discouraging protected and Siloed operations.
We believe that our disciplined adherence to these four foundational values enables us to consistently deliver outsized organic growth rates.
I'm now going to turn the call over to Bruce to talk about our financial results after which I will take a few minutes to discuss our markets, our M&A pipeline and our outlook Bruce terrific. Thank you Gary.
Second quarter was active with five new acquisitions to underwrite closed account for and integrate them.
I am pleased to be here today reporting on another consecutive quarter of growth and positive progress toward our strategic objectives of achieving $500 million of annual revenue combined with above average margins.
Gross revenue for the second quarter increased $24 million or 33% to $82 8 million as compared to $62 4 million during the second quarter of last year.
Building infrastructure represented 59% of our gross revenue for the quarter with transportation and power each representing 19% of gross revenue.
Year over year organic growth of gross revenue in the quarter with over 13%, which included our 2022 Mcmahon and Perry acquisitions, both of which has now passed the one year anniversary Mark.
Within the quarter for sale residential represented approximately 11% of gross revenue.
Commercial which includes a broad collection of Submarkets, including data centers industrial parks MEP work quick serve restaurants convenient stores and big box retail accounted for roughly 27% of gross revenue.
Suburban in dense urban office is not a huge component of our commercial revenue base.
Year to date gross revenue was up $43 9 million or 38% to $158 9 million as compared to $114 9 million in the first six months of last year.
Year to date building infrastructure represented 59% of our gross revenue with transportation and power, representing 20% and 18% respectively.
Last year at the midpoint of the year building infrastructure represented 71% of our gross revenue with transportation of power, representing 12 and 16% respectively.
This diversification has been deliberate.
And the effort continues to be a focus of our growth initiatives.
Organic growth for the six months was 22% again with Mcmahon and Perry included in the comparison.
During the first half of 'twenty three for sale residential represented approximately 11% of gross revenue and commercial accounted for roughly 27%.
Net service billing in the quarter second quarter increased $17 4 million or 31% to $73 8 million as compared to $56 4 million in the second quarter of last year.
Organic growth of net service billings was roughly 12% in the quarter, including Mcmahon and peri or.
Our net to gross ratio remained high at just under 90% off about 100 basis points from last year.
While this ratio will ebb and flow from quarter to quarter. Our goal is to operate at an 85% to 90% net to gross ratio as we grow the top line.
Net service billing for the six months increased $37 3 million or <unk>, 36% to $141 4 million as compared to $104 1 million in the first half of last year.
Organic growth in net service billing was roughly 20% again, now, including Mcmahon and Perry.
Gross margin for the second quarter, with 54%, which was 20 basis points higher than gross margin in the second quarter of 2022.
Year to date gross margin was 56%, which is 20 basis points below the first half of 2022. These.
These margins are in line with what we believe is a normal couple of hundred basis point range, which we will experience given our portfolio of services and assignments.
We continue to work toward overhead leverage as we build increasing scale and plateau, the rising costs associated with being a public company.
Inclusive of stock compensation not accounted for in cost of goods sold SG&A was up 200 basis points as a percentage of net revenue in the second quarter and was likewise up in the first half as compared to last year.
About half of that increase about 100 basis points is attributable to increased stock compensation with the balance being overhead labor bonuses in fringe costs.
The completion of several integrations, including Mcmahon over the past few months will we believe eliminates some duplication of functionality and contribute to the scaling of margins in the second half of 2023.
For the second quarter, we reported a net loss of $600000 as compared to a net loss of 300000 last year.
For the first half of 2023, we generated a net loss of $100000 as compared to a net profit of $1 1 million last year with.
This increase in net loss is attributable both to a buildup of labor in advance of work, we anticipate delivering and to increased noncash compensation costs.
So turning to adjusted EBITDA adjusted EBITDA was up 46% in the second quarter to $11 1 million as compared to $7 7 million last year.
Adjusted EBITDA margin net increased by 150 basis points to 15% as compared to 13, 5% for.
For the year adjusted EBITDA was up 38, 3% to $20 7 million as compared to $15 million last year.
Adjusted EBITDA margin debt during the first half increased by 30 basis points to 14, 7% as compared to 14, 4%.
As we add acquisitions and head count we continue along our non linear journey to our consistent high teen adjusted EBITDA margin net when we achieve our $500 million of debt service billing.
On the tax front.
We continue to monitor for guidance with respect to recently adopted changes to section 174 research and development expense capitalization rules.
In the absence of clear guidance to the contrary, we continue to believe we will not be subject to capitalization of our R&D expenses based on the specific circumstances of our business.
This is evolving tax law and therefore ours is an evolving interpretation, we maintained an uncertain tax position of UTP relating to this potential liability, which reflects through our statement of cash flows before changes in working capital as deferred tax offset by a long term payable.
We will continue to monitor and report on this consequential issue to our industry.
On June 30, that's still and still as of today. We have 100, we have $14 6 million shares outstanding including all shares issued in connection with recent acquisitions and $2 5 million in restricted stock awards that will best between July one 2023 and December 31 2027.
We have not made any repurchases under our $10 million stock repurchase authorization.
Backlog at the end of the quarter was approximately $295 million up close to $90 million as compared to June 30 of 2022.
Backlog revenue is made up of approximately 50%, 56% building infrastructure, 25% transportation, 16% power and utility and 3% other emerging revenue areas.
Backlog is up over $50 million from year end 2022, which is in part from acquisitions and in part from sales continuing to outpace revenue.
Last week, we announced the closing on our first amendment to our amended and restated credit facility with Bank of America, what we refer to as our revolving credit facility or revolver.
The primary change to the revolving credit facility with an increase in the maximum borrowing capacity from $50 million to $70 million.
This increased availability gives us additional flexibility in our M&A program.
As of June 30, we had just over $21 million outstanding on the line with $9 million in cash reserves for a net of $12 million.
The second quarter involved an extra payroll period with the final payroll falling on the last day of the quarter.
While this didnt affect GAAP results the timing did add to the amount outstanding under the revolver at the end of the quarter.
The revolver is let's call it a zero balance suite, so the balance ebbs and flows daily as of today. The outstanding has been reduced under $18 million or around $9 million on a net basis.
Net debt at the end of the quarter was $61 2 million, which resulted in a leverage ratio of one five on trailing four quarters adjusted EBITDA and approximately $1 two on the mid point of forward guidance.
Cash flow from operations was $2 million, which included approximately $13 million before working capital with $10 million being expended toward changes in working capital.
In connection with the four new acquisitions added since our last conference call. We are increasing our net service billing guidance from a range of $2 $85 million to $300 million to a range of $300 million to $315 million.
We're also increasing and tightening our guidance for adjusted EBITDA from a range of 44% to $50 million to a range of $47 million to $52 million.
This accounts for approximately $14 5 million of net revenue of $2 5 million of adjusted EBITDA projected from new acquisitions based on the timing of the closings.
With that I'll now turn the call back over to Gary for his concluding remarks. Thank you Bruce.
I'm going to turn briefly to our markets and our M&A pipeline before turning the call back to Emily for questions.
As I mentioned, we continued to make good progress toward achieving market growth rates and revenue diversification. This quarter, we continued to deconcentrate, our presence into building infrastructure space, while growing both our transportation and our power and utility services businesses.
Over the course of one year, we have reduced building infrastructure revenue as a percentage of total revenue from just above 70% to below 60%, while growing our overall revenue base by 40%.
At the same time transportation revenue grew by 141% and nearly doubled its contribution to our gross revenue from 11% to 20%.
Power and utilities grew 60% year over year, while increasing its total revenue contribution to gross revenue by nearly 20%.
Growing from 15% last year to 18% this year.
I'm, particularly encouraged by several awards we received this quarter.
On the utility front, we expanded our relationship with southwest gas into Nevada.
We've had a terrific long standing partnership with southwest gas and I'm appreciative of their confidence in us.
The great work our team has done for them.
On the renewables front, we're continuing to win substantial solar infrastructure and battery storage projects.
We also continue to see the impact of early stage planning for infrastructure Bill funded projects with new large and midsized projects.
On the building infrastructure front, we continue to experience strong demand for data centers.
Our homebuilding customers feel that they have seen the market bottom out and are experiencing much stronger new home demand. So far this year than their business plans anticipated.
Our quick service restaurant clients.
Keeping us busy as they reconfigure their sites to accommodate changing customer habits.
And we are seeing substantial renewed activity in big box retail.
While we continue to diversify our verticals were also concentrate concentrating on developing and expanding our services.
In areas, such as geospatial mapping and data capture.
Hydrology wastewater related renewable energy solutions.
And digital services, including digital twinning augmented reality and hidden infrastructure visualization.
Our strong capital position enables us to be opportunistic with respect to investing in organic service line expansion expansion and technology advancement, we're extremely motivated to maintain a diversified a complementary portfolio of integrated risk mitigating service offerings that enable us to capture the greatest amount of customer.
Wallet share as possible.
While we are not engaged with what is considered to be the high end of.
Artificial intelligence spectrum, we've been introducing practical artificial intelligence tools.
In several areas of our business.
For example, we employ AI and our transportation group, where we're utilizing computer vision to assist with asset inspection and condition assessment. This technology helps our engineers and designers identified problem payment conditions and mapping integrity issues, while enabling us to help our customers.
With their capital planning.
We're also using AI internally in combination with other technologies, such as generative design three D modeling data processing and Gis.
These tools allow us to generate smart and intelligent data sources that help our designers make the most informed decisions possible.
We don't approach AI is a replacement technology to us it's unleashing the potential of our professional staff to utilize their learning expertise to provide better timelier and more cost effective solutions to our customers.
As we noted we were very active we were very active in the M&A space in the second quarter.
The acquisitions, we have closed this year are experiencing strong business conditions, which we believe will enable them to make solid contributions to our future results I am pleased to have the leaders and the professional staffs.
From Richter Fisher, all Montes, MTX and infrastructure engineers to join our team.
I spend a meaningful amount of my time, working with Tim Vaughan, our director of M&A on developing and advancing our pipeline of opportunities I am encouraged by the consistency of our opportunities and the prospect for several more acquisitions during the second half of the year.
I am confident we will once again be discussing newly completed acquisitions or acquisitions.
On our next earning call.
I'll conclude by reiterating that we continued to maintain a positive outlook towards the remainder of this year.
And towards achieving our long term strategic goals over time.
Emily I will now turn the call back to you for questions.
Thank you at this time I would like to remind everyone and I will just walk a question. Please 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 Brent Thielman with D. A Davidson. Please go ahead. Your line is open.
Hey, great. Thanks, good morning.
Gary.
<unk> an update just on the progress you feel like you've seen from revenue synergies.
Relevant is that to the low double digit.
Organic growth you're seeing in that business, maybe how you've been able to leverage.
All of the transactions, you've done and sort of expanding revenue from new customers existing customers and so forth.
It's quite quite relevant.
The the synergies from our success in realizing synergies from the acquisitions is a is a very substantial contributor to our organic growth rates.
Okay, we definitely okay, and then I was a little.
Go ahead Brett.
No. Please Gary you were adding to that.
Okay.
It's.
Since we since we've started on a program that's been part and parcel of our strategy is to is to search is to maintain the cultural compatibility there.
That was consistent with with realizing revenue synergies and our and our culture of work sharing and revenue.
And.
And referrals cross referrals.
We can do that from the first day that.
The acquisition target comes on board.
So we've we've been very successful in realizing the revenue synergies from from acquired firms.
Understood. Okay. I appreciate that Gary and then I was a little surprised to see the revenue and the backlog and the transportation vertical a little lower relative to the first quarter.
There is some lumpiness to that business completion of certain activities.
And then maybe just your view on the prospects for that vertical here through the rest of the year I assume there's no <unk>.
Plenty of opportunities out there.
You identified it as it is quite lumpy and we have some some very good prospects coming up for the rest of the year.
Brett.
Europe could you.
To be more just what is it you said you were.
Notice.
I was referencing that just the backlog quarter on quarter, maybe im mistaken bulletproof, but backlog, okay, I thought thinking about actual revenue.
Sure so about actual revenue sorry.
Yeah.
You talk about the composition of backlog.
Yes, just within the transportation vertical I guess, okay alright.
Yes.
It's just the timing of orders.
Yes fair enough.
And then Bruce Thanks for the comments just around SG&A.
<unk> forward you'd mentioned some elimination of duplicative costs I think you called out.
Manmade.
Now that among other things should be a tailwind in terms of just better SG&A leverage here is there something unique about that transaction and the overhead with it I know it was a relatively larger deal for you I'm just wondering.
Just because the size of the other transactions Youre doing are also getting getting larger.
Yes.
There is certainly the difference in scale of the acquisitions has impact on sort of the transition cost right.
But but just more so until an acquisition is fully integrated from a systems point of view.
Youre running dual systems youre running dual accounting processes.
Duplication of payrolls and duplication of.
The cost of of auditing that so yeah.
Yes, theres some relativity, but it's more of the buying area or are they or art day that create some leverage opportunity.
So as we're bringing some of the the second half of last year had some big acquisitions that a lot of activity and as we were completing the.
The integration certainly we're seeing some some efficiency out of that.
Got it okay, and just last $136 million in acquired revenue through the first half obviously very active here in the second quarter.
I mean any objective.
For the second half of the year in terms of your acquisition program should should we sort of non anticipate.
First half faithful.
The <unk> co branded card with their Gary agrees.
We're not going to put a number on it lessen.
Lesson learned.
But I think that we certainly intend to continue to be active we have said.
Our goal is always to to do as well as last year.
Yeah.
And try to exceed it but without any specific target that we're setting we're looking for good acquisitions and as Gary said, we do expect to be talking about additional acquisitions by the time, we get on the call in November . So it gives you an indication that we expect to continue to be active.
We're very pleased with the pipeline we have out there right now.
And I think Directionally generally I appreciate it guys.
Directionally, Brent generally consistent with what we've been doing right.
There is opportunity for larger.
The sweet spot right now is what you've been seeing.
Understood. Thank you guys.
Thanks, Brett.
Your next question comes from the line of Alex Rygiel with B Riley Alex. Please go ahead. Your line is now open.
Hey, good morning, I already Gary and Bruce very nice.
Thanks questions here.
What surprised you in the quarter, if anything either strength.
Strengthening or weakening or anything of that nature.
I'm, sorry, what surprised you in the quarter any any any economic.
Thing about the business that you found.
I guess a pleasant surprise is is how soon it seems like the homebuilding industry has bottomed out and recovered.
We have seen some softening early.
Late last year and early this year, but lots of optimism.
Amongst our customer base there so that has certainly been a pleasant surprise.
And not necessarily a surprise, maybe a crystallization like I mentioned on the in the remarks.
Of this.
This trend was a quick service restaurants of of the <unk>.
Continued reconfiguration, we saw during COVID-19 that seems to be a permanent trend.
Reconfiguration of their sites to accommodate this.
People are eating in the restaurants, now, but theyre its more drive through more carrier.
Yeah.
And then.
Within the transportation business have you started to see or even buildings business have you started to see any.
Federal funding evident yet in backlog driving.
Customer capital investment.
We are yes, yes, yes.
A number of the projects that that we are.
There are opportunities and that we're providing proposals on.
And that that actually we are.
We anticipate closing on the next quarter or two are driven by federal funding, yes, we sort of survey the groups and the project managers for for directional indication or certainly that sense.
Of optimism remember we're at the very early stage and most of these projects where the predominance of the funding will come to build whatever it is but it's the sense of confidence that the fundings available debt.
They will that unlocks the willingness to initiate the project.
And so it may not always necessarily be a direct correlation of one to one there is a fund that funds, what we do but its a funding is in place to start the process to feel comfortable to issue the rfps to get started with the process.
And that's where we benefit the most.
And then Bruce as it relates to M&A it sounded like you suggested that.
There is increasing opportunities for larger.
Transactions can you talk about that.
A little bit more detail on any relevant sort of end markets that maybe some of these transactions the target of that.
Yeah. So as soon as we have said.
M&A is a spectrum of large and small I mean, we have what we think is our high frequency sweet spot that's a.
A little higher than last year that you've looked at the last couple of acquisitions as being in that.
$8 million to $10 million range and it really is where we're focused we like these low risk <unk>.
Z to do <unk>.
Tactful kinds of acquisitions, but that doesn't mean there aren't.
Similar to last year with a mcmanus.
You had you had higher dollar value acquisitions scattered in there so.
So in the pipeline there are larger opportunities.
Said that we're not out hunting for 50, and 100 million dollar opportunities, sometimes you stumble on to bear, but that doesn't mean that we're necessarily looking for one where we're really focused is is kind of in that sweet spot of let's call. It five to 15 and then a few that may be you have to then essentially <unk> on them.
Front of them.
And a lot of this is.
You play the opportunities, but your hunt for the for.
Where the game is.
Without the most.
Super helpful. Thanks go to keep it up guys.
Alright, Thanks, Alex Thanks, Alex.
There are no further questions at this time, Mr. <unk> I'll turn the call back over to you.
Thanks, Emily and thanks, everyone for listening to the call. This morning.
And thanks, all Bowman folks for continued.
Hard work that you put in and to all our investors for the continued support good morning.
This concludes today's conference call you may now.
The hard work that you put in and to all our investors for their continued support and good morning.