Q4 2023 Bowman Consulting Group Ltd Earnings Call
Good morning, My name is Jerome and I'll be a conference operator today at this time I would like to welcome everyone to the vitamin consulting great fourth quarter and full year 2023 conference call.
Operator: Good morning. My name is Drew, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group fourth quarter and four year 2023 conference call. All lines have been placed on mute to prevent any background noise.
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. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two days.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.
Operator: 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, and the company is not obliged 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, adjusted net income, and net service billing. You can find this information together with the reconciliations for the most directly comparable GAAP information in the company's earnings press release and 8k filed with the SEC and on the company's investor website at investors.bowman.com. Management will deliver prepared remarks, after which they will be taking live Throughout the call, attendees on the webcast may post questions from management to answer on the call or in subsequent communications, but there will be no live Q&A from the webcast attendees. Replays of the call will be available on the company's investor website. Mr.
Please note that many of the comments made today are considered forward looking statements under federal Securities Law.
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 on the company is not obliged 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, adjusted net income and that surface drilling.
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, I invested adult vitamins dotcom.
Management will deliver prepared remarks, after which they will be taking live questions from the published research analysts throughout the cool attendees on the webcast may post questions for management to answer on the cool or in subsequent communications, but that would be no live Q&A from the webcast attendees replay.
Replays of the call will be available on the company's Investor website. Mr. <unk> you may begin your prepared remarks.
Gary P. Bowman: Bowman, you may begin your prepared remarks. Thank you, operator. Good morning.
Thank you operator, good morning, and thank you everyone for joining the boom in 2023 year end earnings call.
Gary P. Bowman: And thank you everyone for joining the Bowman 2023 year-end earnings call. As always, I'm joined this morning by Bruce Labovitz, our Chief Financial Officer. We appreciate everyone taking the time to participate.
As always I'm joined this morning by Bruce Leibovitz, our Chief Financial Officer.
We appreciate everyone taking time to participate I'm going to start off with a quick update on Bowman and Bruce will discuss our financial results.
Gary P. Bowman: I'm going to start off with a quick update on Bowman, then Bruce will discuss our financial results. After that, I'll talk a bit about markets and the pipeline before we open the line for questions. This call this morning is our first call after completing six acquisitions since our last earnings release. I want to welcome everyone from CFA, Blankenship, High Mesa, Hess Roundtree, TCE, and Spiess-Lewis. This is a dynamic collection of organizations with highly skilled and motivated professionals. We're already making an impact in Bowman.
After that I'll talk a bit about markets and pipeline before we open the line for questions.
This call. This morning is our first call after completing six acquisitions since our last earnings release I want to welcome everyone from CFA Blankenship, Hi, Mesa has roundtree TCE and speeds Lewis.
This is a dynamic collection of organizations with a highly skilled and motivated professionals, we're already making an impact on bowman.
Gary P. Bowman: I also want to welcome everyone else who's likewise joined us recently on our journey. I'm going to start off by reiterating our belief that the business of Bowman is foundationally solid. The markets we serve are well funded, and the need to construct, improve, and repair the infrastructure supporting the U.S. built environment remains urgent. Demand for the work of qualified engineers and technical professionals exceeds the supply of resources, and both our culture and our commitment to professional growth continue to attract and retain top talent. Since 2020, that's the year preceding our IPO, we've grown at an exceptional compounded annual rate of 30%, and we've completed 29 acquisitions of operating companies since the beginning of 2021. We've nearly tripled our staff by adding about 1500 employees. We've diversified and deconcentrated our revenue streams, and we've expanded geographically by nearly doubling our footprint in all. We're all tremendously proud of these accomplishments, and I firmly believe in our team and our approach. However, we've not been, nor will we always be flawless in the execution of our strategy. The end of 2023 was disappointing.
Also want to welcome everyone else is likewise joined US recently on our journey.
I'm going to start off by reiterating our belief that the business of Bowman is fine that foundational solid.
The markets, we serve are well funded the need to construct improve and repair the infrastructure supporting the U S built environment remains urgent.
Demand for the work of qualified engineers and technical professionals exceeds the supply of resources.
And both our culture and our commitment to professional growth continue to attract and retain top talent.
Since 2020, that's the year preceding our IPO, we have grown at an exceptional compounded annual rate of 30%.
If completed 29 acquisitions of operating companies since the beginning of 2021.
We've nearly tripled our staff by adding about 1500 employees we.
We've diversified and concentrated our revenue streams.
We've expanded geographically by nearly doubling our footprint of offices.
We are tremendously proud of these accomplishments and I firmly believe in our team and our approach.
However, we have not been nor will we always be flawless and the execution of our strategy.
At the end of 2023 was disappointing.
Bruce J. Labovitz: It resulted from what we consider to be a series of miscalculations on our part relating to the integration of multiple cultures, new and unfamiliar clients, and expectations around year-end utilization. Put simply, we didn't achieve the levels of collective productivity at the end of the year that we have historically experienced and relied on for guidance. While we are chagrined to have missed our forecast by what is, in effect, a couple of days of earned revenue, we are in no means ashamed of the year we delivered. Rest assured, as we persevere with our aggressive business strategy, we continually learn, adapt, and change courses as necessary. We press forward resolute in our commitment to continuous improvement and to delivering growth and shareholder value. Now, I'll turn it over to Bruce. Great, thanks, Gary. Good morning.
It resulted from what we consider to be a series of miscalculation on our part relating to the integration of multiple cultures.
New and unfamiliar clients and expectations around the year end utilization.
Put simply we didn't achieve the levels of collective productivity at the end of the year that we have historically experienced and relied on for guidance.
While we're chagrin through missed our forecast by what is in effect a couple of days of earned revenue.
We're no means ashamed of the year, we delivered rest.
Rest assured as we.
Persevere with our aggressive business strategy, we continually learn adapt and change course as necessary.
So we press forward resolute in our commitment to continuous improvement and to delivering growth and shareholder value now.
Now I'll turn it over to Bruce.
Great. Thanks, Gary Good morning.
Bruce J. Labovitz: I'm going to take a few minutes this morning to walk through our financial results and discuss our forecasts for 2024. For the fourth quarter, gross revenue was $93 million, up $17 million, or 23% from last year. Net service billing, a non-GAAP financial metric also referred to as net revenue, was $80.5 million, up $14.3 million or 22% from last year. Our net-to-gross ratio, the indicator of how much of our revenue is generated by our workforce as compared to outside sub-consultants, was 86.6% for the fourth quarter, compared to 87.5% last year. That one percentage point change is representative of changes in client mix and really isn't consequential. Growth Revenue posted a 6% organic growth rate for the quarter, while Net Revenue posted a 4% organic growth rate. The organic growth rates were depressed as compared to prior periods because of comparatively lower productivity throughout the organization at the end of 2023.
A few minutes this morning to walk through our financial results and discuss our forecast for 2024.
For the fourth quarter gross revenue was $93 million up $17 million or 23% from last year.
Net service billing and non-GAAP financial metric also referred to as net revenue was $80 5 million up $14 3 million or 22% from last year.
Our net to gross ratio the indicator of how much our revenue of our revenue is generated by our workforce as compared to outside sub consultants was 86, 6% for the fourth quarter compared to $87 five last year that one percentage point change is representative of changes in client mix. It really isn't consequence.
<unk>.
Gross revenue posted a 6% organic growth rate for the quarter, while net revenue posted a 4% organic growth rate.
The organic growth rates were depressed as compared to prior periods because of comparatively lower productivity throughout the organization at the end of 2023.
Bruce J. Labovitz: Gross margin was 50.4% in the fourth quarter. Although down around 180 basis points compared to last year, it's still within our 50 to 55% range, albeit on the low end. Compared to last year, SG&A expenses rose in the fourth quarter, both nominally by nearly $10 million and as a percentage of both gross and net revenue. This increase in percentage was to be expected as more operations labor was classified as indirect this quarter, again due to comparatively reduced productivity at the end of the year. Lower than expected revenue in the quarter resulted in a net loss from operations of $3.7 million.
Gross margin was 54% in the fourth quarter.
So down around 180 basis points compared to last year, it's still within our $50 to 55% range, albeit on the low end.
Okay.
Compared.
Compared to last year SG&A expenses rose in the fourth quarter, both nominally by nearly $10 million and as a percentage of both gross and net revenue.
This increase in percentage was to be expected as more operations labor was classified as indirect this quarter again do comparatively reduced productivity at the end of the year.
Lower than expected revenue in the quarter resulted in a net loss from operations of $3 7 million.
Bruce J. Labovitz: After other expenses and a nearly $5 million R&D-related tax accrual, which I'll address later in my update on Section 174 issues, net loss after tax was $7.7 million for the quarter. Adjusted EBITDA for the quarter was $11.2 million, or a 14% margin on net revenue. Adbacks are limited to non-cash stock compensation and acquisition-related expenses.
After other expenses of nearly $5 million of R&D related tax accrual, which I'll address later in my update on section 174 issues net loss. After tax was support was $7 7 million for the quarter.
Adjusted EBITDA for the quarter was $11 2 million or 14% margin on net revenue.
Add backs are limited to noncash stock compensation and acquisition related expenses. This.
Bruce J. Labovitz: This year we closed on 11 acquisitions, with six acquisitions during the fourth quarter. That brought the total post-IPO to 26. During the fourth quarter, we had marginally elevated acquisition-related expenses due to the volume of closing and the closeout of purchase accounting for 15 acquisitions. For the full year, gross revenue was $346.3 million, up $84.5 million or 32% from last year. Net service billing was $304 million, up $68.8 million, or 29% from last year. Our net-to-gross ratio was 87.8% for the year, compared to 89.9% last year. Again, the two-percentage point change is representative of changes in client mix and isn't consequential.
This year, we closed on 11 acquisitions with six acquisitions during the fourth quarter that brought the total post IPO to 26 during the fourth quarter with marginally elevated acquisition, where we have marginally elevated acquisition related expenses due to the volume of closing and the closeout of purchase accounting for 15.
<unk>.
For the full year gross revenue was $346 3 million up $84 5 million or 32% from last year.
Net service billing was $304 million up $68 8 million or 29% from last year or.
Our net to gross ratio was 87, 8% for the year compared to $89 nine last year.
The two percentage point change is representative of changes in client mix and isn't consequential.
Gross revenue posted a 21% organic growth rate for the year, while net revenue posted an 18% organic growth rate.
Bruce J. Labovitz: Gross revenue posted a 21% organic growth rate for the year, while net revenue posted an 18% organic growth rate. Both are significant results we intend to build from this year. Gross margin was 50.8% in the year, down around 80 basis points compared to last year, and is again within our expected range.
With our significant results, we intend to build from this year.
Gross margin was 58% in the year down around 80 basis points compared to last year and again within our expected range.
For the year SG&A expenses rose nominally by 45% by $45 5 million excuse me and as a percentage of both gross and net revenue the.
Bruce J. Labovitz: For the year, SG&A expenses rose nominally by 45% to 45.5 million, excuse me, and as a percentage of both gross and net revenue. The increase in SG&A is principally a result of our growth, but it's also impacted by additional investments in corporate infrastructure and processes required for our upcoming transition out of emerging growth company status at the end of 2026. Net loss from operations was $650,000 for the year.
The increase in SG&A is principally a result of our growth was also impacted by additional investments in corporate infrastructure and processes required for our upcoming transition out of emerging growth company status at the end of 2026.
Net loss from operations was 650000 for the year. After other expenses in the R&D tax accruals net loss after tax was $6 6 million and.
In connection with the impact of the full year loss on our three year cumulative income we performed an in depth analysis of the recoverability of our deferred tax assets most of which are related to R&D tax changes were.
Bruce J. Labovitz: After other expenses and the R&D tax accruals, the net loss after tax was $6.6 million. In connection with the impact of the full year loss on our three-year cumulative income, we performed an in-depth analysis of the recoverability of our deferred tax assets, most of which are related to R&D tax changes. We worked closely with our auditors to conclude, based on multiple forecasted sources of future income, that the recoverability of these deferred tax assets was not impaired, and no valuation allowance was warranted. Adjusted EBITDA for the full year was $47 million, up $13 million or 38% compared to last year. Well, adjusted EBITDA margin on net revenue was up 100 basis points over last year at 15.5. We are disappointed not to have made more progress toward our stabilized long-term goal of high teens margin. Backlog at year end was $306 million, up $63 million from last year and up $8.5 million from the end of the third quarter.
We're closely with our auditors to conclude based on multiple forecasted sources of future income that the recoverability of these deferred tax assets was not impaired and no valuation allowance was warranted.
Adjusted EBITDA for the full year was $47 million up 13 billion or 38% compared to last year.
While adjusted EBITDA margin on net revenue was up 100 basis points over last year at $15. Five we are disappointed not to have made more progress toward our stabilized long term goal of high teens margins.
Backlog at year end was $306 million up $63 million from last year and up eight and a half million dollars from the end of the third quarter.
Year end backlog revenue was 55% building infrastructure, 24% transportation <unk>.
17% power utilities, and energy, 4% emerging markets, including water mining environmental <unk>.
Backlog is accretive both from new orders and through acquisition and has worked on by resources throughout the company.
Our efforts towards revenue diversification continued this year with building infrastructure decreasing from 65% of gross revenue last year to 56% of gross revenue this year.
Transportation increased to 21% from 17%.
Bruce J. Labovitz: Year-end backlog revenue was 55% building infrastructure, 24% transportation, 17% power, utilities, and energy, and 4% emerging markets, including water, mining, and environment. Backlog is accreted both from new orders and through acquisition and is worked on by resources throughout the company. Our efforts toward revenue diversification continued this year, with building infrastructure decreasing from 65% of gross revenue last year to 56% of gross revenue this year. Transportation increased to 21% from 17%, and power and utilities increased to 19% from 13%.
In power and utilities increased to 19 from 13%.
While these changes reduce concentration risk, we don't expect any meaningful margin changes overtime, resulting from this evolution and revenue mix.
On the R&D tax front, we continue to monitor legislative developments and notices with respect to the alterations and potential reversal of tax changes enacted under the tax cuts and jobs Act with respect to the deductibility of research and experimental expenditures during the tax year in which they are incurred.
This change in tax law has had significant negative cash flow consequences for U S companies deemed to be engaging in IRS code section 174 related research and experimental investments.
Bruce J. Labovitz: While these changes reduce concentration risk, we don't expect any meaningful margin changes over time resulting from this evolution in revenue mix. On the R&D tax front, we continue to monitor legislative developments and notices with respect to the alterations and potential reversal of tax changes enacted under the Tax Cuts and Jobs Act with respect to the deductibility of research and experimental expenditures during the tax year in which they are incurred. This change in tax law has had significant negative cash flow consequences for U.S. companies deemed to be engaging in IRS Code Section 174 related research and experimental investment.
As we've discussed we maintain an uncertain tax position related to what we feel are our facts and circumstances relating to IRC section 174 as altered.
Connection with our UTP recorded in lieu of having made accelerated tax payments associated with the alternative tax code, we have $38 million of deferred tax assets and have accrued a $4 $8 million tax expense in 2023.
Good news for now is that on January 31, 2020 for the U S House of Representatives passed the tax relief for American families and workers Act of 2024 also known as <unk> <unk> two for on a bipartisan basis.
Bruce J. Labovitz: As we've discussed, we maintain an uncertain tax position related to what we feel are our facts and circumstances relating to IRC section 174 as altered. In connection with our UTP, recorded in lieu of having made accelerated tax payments associated with the altered tax code, we have $38 million of deferred tax assets and have accrued a $4.8 million tax expense for 2023. The good news for now is that on January 31, 2024, the U.S. House of Representatives passed the Tax Relief for American Families and Workers Act of 2024, also known as H.R.
Along with several other of other features this legislation restores U S taxpayers ability to deduct currently and retroactively domestic research and experimental expenditures paid or incurred in tax years, beginning after December 31, 2021 and before January 2026.
The bad news is that the Senate doesn't seem all that anxious to bring the bill up for vote.
If HR 7024, as timely adopted by the U S Senate and subsequently signed by the President we would be in a position to reverse our UTP related liability tax expense and deferred tax assets.
We continue to monitor this situation and remain hopeful that the overwhelmingly stimulative benefits of deductibility of U S research and experimental expenditures will be restored and widely available.
Bruce J. Labovitz: 7024, on a bipartisan basis. Along with several other features, this legislation restores U.S. taxpayers' ability to deduct currently and retroactively domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2021, and before January 2026. The bad news is that the Senate doesn't seem all that anxious to bring the bill up for a vote. If H.R.
At year end, we had $27 million of cash on hand, and $73 million of net debt.
Our leverage ratio of net debt to trailing four quarters of adjusted EBITDA at $47 million with just under one six times and closer to one two times on a forward basis.
<unk> $21 million of our net debt is related to capital expenditures financing approximately $28 million is held by sellers of acquired companies.
Bruce J. Labovitz: If 7024 is timely adopted by the U.S. Senate and subsequently signed by the President, we would be in a position to reverse our UTP-related liability, tax expense, and deferred tax assets. We continue to monitor this situation and remain hopeful that the overwhelmingly stimulative benefits of deductibility of U.S. research and experimental expenditures will be restored and widely available. At year end, we had $20.7 million of cash on hand and $73 million of net debt. Our leverage ratio of net debt to trailing four quarters of adjusted EBITDA, at $47 million, was just under 1.6 times and closer to 1.2 times on a forward basis. Approximately $21 million of our net debt is related to capital expenditures financing.
The remainder is outstanding under our line of credit relating to the cash portion of acquisition consideration and short term working capital needs.
The R&D credit accounting has made the dissection of our cash from operating activities a bit complicated.
For 2023 cash from operations pre working capital includes $4 $7 million of accrued tax expenses associated with the UTP, which is embedded in our net loss. It also includes the addition of roughly $20 million in new deferred R&D tax.
The working capital section of cash from operations, we add back that $24 7 million of deferred tax not paid and the a.
And accrued.
This makes the pre and post working capital calculation is a bit confusing standalone on their own.
Bruce J. Labovitz: Approximately $28 million is held by sellers of acquired companies. The remainder is outstanding under our line of credit relating to the cash portion of acquisition consideration and short-term working capital. The R&D credit accounting has made the dissection of our cash from operating activities a bit complicated. For example, for 2023, cash from operations pre-working capital includes $4.7 million of accrued tax expenses associated with the UTP, which is embedded in our net loss.
Our cash from operations was $11 $7 million.
Which was an increase of $2 6 million over last year as.
As we grow our net contract assets a proxy for work in process increased $7 1 million.
<unk> $7 1 million, which consumed cash but is now consistent with our peers in terms of days of work in process.
To the extent, we continue to post outsized organic growth rates and continue to be highly acquisitive, we will consume faster than we would we will consume cash faster than we would if we were to severely moderate growth and eliminate acquisitions.
Bruce J. Labovitz: It also includes the addition of roughly $20 million in new deferred R&D tax, and in the working capital section of cash from operations, we add back that $24.7 million of deferred tax not paid in the AP and accrued. This makes the pre and post working capital calculations a bit confusing stand alone on their own. Our cash from operations was $11.7 million, which was an increase of $2.6 million over last year. As we grow, our net contract assets, a proxy for work in process, increased $7.1 million, which consumed cash but is now consistent with our peers in terms of days of work in process. To the extent we continue to post outsized organic growth rates and continue to be highly acquisitive, we will consume faster than we would; we will consume cash faster than we would if we were to severely moderate growth and eliminate acquisition.
We still believe that at a high teens adjusted EBITDA margin and normalized organic growth, we would generate a 60% plus cash flow conversion rate.
As of December 31, 2023, we had $15 1 million shares issued and outstanding as listed on our balance sheet.
This includes $1 7 million of restricted stock units that had been granted but are still vesting. So they remain subject to forfeiture.
It is important to remember that these unvested shares are excluded from basic counts on our income statement in.
In addition, there were approximately 700000 performance units, which are subject to vesting confirmation over the next two years. These.
These psus along with approximately 385000 shares that could be converted under outstanding acquisition related convertible notes are not included in issued and outstanding share counts.
As of today, there are approximately $15 3 million issued in outstanding.
On an adjusted basis EPS for the quarter was <unk> 33, basic and 31 dilutive down from 44, and <unk> 41, respectively last year.
For the full year adjusted basic EPS was $1 12, and adjusted diluted EPS was $1 three down from $1 46, and $1 36, respectively last year.
Bruce J. Labovitz: We still believe that at a high teens adjusted EBITDA margin and normalized organic growth, we would generate a 60% plus cash flow conversion. As of December 31, 2023, we have 15.1 million shares issued and outstanding listed on our balance sheet. This includes 1.7 million restricted stock units that were granted but are still vesting, so they remain subject to forfeiture. It's important to remember that these unvested shares are excluded from basic counts on our income statement.
Adjusted EPS is a non-GAAP metric that adds back non reoccurring expenses associated with acquisition residual noncash stock compensation associated with IPO grants and other expenses not in the ordinary course of business we.
We believe adjusted EPS is a more meaningful representation of normalized long term earnings per share you can find a reconciliation to GAAP earnings per share in our press release.
I'm going to conclude with an update to our 2024 guidance, we're increasing our guidance for net revenue to a range of $363 to $378 million and we're increasing our adjusted EBITDA guidance to a range of 59% to 65 with a midpoint net revenue margin of 16, 7%.
Bruce J. Labovitz: In addition, there were approximately 700,000 performance units which are subject to vesting confirmation over the next two years. These PSUs, along with approximately 385,000 shares that could be converted under outstanding acquisition-related convertible notes, are not included in the issued and outstanding share count. As of today, there are approximately 15.3 million issued at outstanding.
These ranges include acquisitions through speeds Lewis and do not contemplate future acquisitions as we mentioned in yesterday's press release. The first couple of months post closing are challenging for an acquired company as they go through the heaviest integration lifts.
This will also negatively affect revenue in the short term.
While considering the impact of future guide of acquisitions, we recommend that everybody keep in mind that we had a prorated amount of announced annualized net billing based on the timing of closing within the year.
Bruce J. Labovitz: On an adjusted basis, EPS for the quarter was $0.33 basic and $0.31 dilutive, down from $0.44 and $0.41, respectively, last year. For the full year, adjusted basic EPS was $1.12, and adjusted diluted EPS was $1.03, down from $1.46 and $1.36, respectively, last year. Adjusted EPS is a non-GAAP metric that adds back non-reoccurring expenses associated with acquisitions, residual non-cash stock compensation associated with IPO grants, and other expenses not in the ordinary course of business. We believe adjusted EPS is a more meaningful representation of normalized long-term earnings per share. You can find a reconciliation to gap earnings per share in our press release. I'm going to conclude with an update on our 2024 guidance. We're increasing our guidance for net revenue to a range of $363 to $378 million.
Increased for what is the equivalent of an additional a few months.
Reduced for what is an additional one to two additional months of post billing.
Billing close to closing depending on the complexity of the integration too.
To account for utilization and revenue disruptions with that Im going to turn the call back over to Gary. Okay. Thanks, Bruce I am not going to take a moment to review our markets our revenue diversification accomplishments and our vision for 2024 and beyond.
We remain committed to our core markets of transportation power utilities, and energy building infrastructure and our other emerging markets, which include mining water resources and environmental consulting.
Over the past several years, we have relentless relentlessly pursued a deliberate expansion of our scope of services and technical capabilities to gain market share through new relationships.
While simultaneously increasing wallet share from existing customers.
We've accomplished this through both strategic hiring and acquisition.
Growing our business such as ours requires continuously adding productive human capital in an efficient manner.
Bruce J. Labovitz: And we're increasing our adjusted EBITDA guidance to a range of $59 to $65, with a midpoint net revenue margin of $16.7. These ranges include acquisitions through Spieth-Lewis and do not contemplate future, As we mentioned in yesterday's press release, the first couple of months post-closing are challenging for an acquired company as they go through the heaviest integration list. This will often negatively affect revenue in the short term.
Our sample group of talented professionals, which continually expands by way of acquisition and subsequent integration into a single operation operating organization is the key ingredient in our ability to deliver exceptional growth and scale.
To that end our acquisition strategy is equally grounded in both expansion of capacity through accumulated.
Accumulation of assembled workforces as well as the realization of revenue synergies.
Once again building infrastructure was our largest market at just under $195 million or 56% of our revenue.
Gary P. Bowman: Well, considering the impact of future guidance on acquisitions, we recommend that everybody keep in mind that we had a prorated amount of announced annualized net billing based on the timing of closing within the year. Increased for what is the equivalent of an additional few months reduced for what is an additional one to two additional months of post billing, excuse me, billing post closing, depending on the complexity of the integration, to account for utilization and revenue disruption. With that, I'm going to turn the call back over to Gary.
Power and utilities hour, however was our fastest growing market nearly doubling year over year.
Starting this year to better describe that market, we will refer to it as power utilities and energy.
Our transportation business grew an impressive 60% year over year and building infrastructure increased 14% year over year.
These results are consistent with our commitment to revenue diversification and our focus on evolving and well funded sectors of the infrastructure market.
Gary P. Bowman: OK, thanks, Bruce. I'm now going to take a moment to review our markets, our revenue diversification accomplishments, and our vision for 2024 and beyond. We remain committed to our core markets of transportation, power, utilities, and energy, building infrastructure, and our other emerging markets, which include mining, water resources, and environmental consulting. For the past several years, we've relentlessly pursued a deliberate expansion of our scope of services and technical capabilities to gain market share through new relationships, while simultaneously increasing wallet share from existing customers. We've accomplished this through both strategic hiring and acquisition. Growing a business such as ours requires continuously adding productive human capital in an efficient manner.
We continue to maintain a well balanced and diverse customer base with no one customer representing more than 5% of 2020 Three's gross contract revenue.
Beginning with this call and the 10-K, we will file aftermarket today.
We're providing further insight into the distribution of gross contract revenue by sub market.
Over time these categories will evolve when further dissection is warranted.
As you saw on the slide Bruce Bruce presented earlier, we've broken out commercial real estate revenue.
The subcategories of retail hospitality and quick service restaurants.
Office, and industrial data centers health care and other.
Within the transportation sector, we have broken out revenue based on work for clients, who are either public agencies or private developers.
And the power utilities and energy sector, we are reporting revenue from traditional transmission compared to energy transition in renewables.
Gary P. Bowman: Our assembled group of talented professionals, which continually expands by way of acquisition and subsequent integration into a single operating organization, is the key ingredient in our ability to deliver exceptional growth and scale. To that end, our acquisition strategy is equally grounded in both expansion of capacity through accumulated acquisition of the assembled workforce, as well as the realization of revenues. Once again, building infrastructure was our largest market, at just under $195 million, or 56% of our revenue. Power and Utilities, however, was our fastest growing market, nearly doubling year over year.
We hope this additional color on revenue will be helpful to investors.
During 2023, we were awarded our first Arizona Dot project is a prime contractor and just last week, we were awarded a $2 $6 million notice to proceed from the Rhode Island to update their design manuals.
Okay.
We continue to work on the long term and large scale Alleghany tunnel project with the Pennsylvania Turnpike Authority and.
And we are expanding our corridor and program management engagements for the Illinois, Tollway authority <unk> and others.
Almost all.
Money has been committed to states for transportation investment, but only a small percentage of it has been allocated to specific projects and starts.
Gary P. Bowman: Starting this year, to better describe that market, we will refer to it as power, utilities, and energy. Our transportation business grew an impressive 60% year over year, and building infrastructure increased 14% year over year. These results are consistent with our commitment to revenue diversification and our focus on evolving and well-funded sectors of the infrastructure market. We continue to maintain a well-balanced and diverse customer base, with no one customer representing more than 5% of 2023's gross contract revenue. Beginning with this call and the 10K, we'll file after market today. We're providing further insight into the distribution of gross contract revenue by sub-market. Over time, these categories will evolve when further dissection is warranted.
For example, the state of Illinois alone has nearly.
As approximately.
$43 $35 billion to $40 billion to spend on transportation in the next five years or so.
With roughly 20% of all transportation projects spending being reversed on Preconstruction design this equates to roughly $8 billion.
Dollars and engineering fees for these projects.
As of now there is simply not enough qualified transportation firms in the state to meet that demand.
And Thats just one state.
We're focused on expanding our <unk>.
In our transportation and British design relationships this year as demonstrated by our speeds Lewis acquisition in Lincoln, Nebraska.
Our M&A program remains active for two acquisitions closed so far this year and more anticipated to close between now and the next time we report in May.
We remain committed to our communicated strategy of high frequency limited risk acquisitions, which are fully integrated within 12 months of closing.
Gary P. Bowman: As you saw on the slide Bruce presented earlier, we've broken out commercial real estate revenue into subcategories of retail, hospitality, and quick service restaurants, office and industrial, data centers, health care, and others. Within the transportation sector, we've broken out revenue based on work for clients who are either public agencies or private developers. In the power, utilities, and energy sector, we are reporting revenue from traditional transmission, compared to energy transition and renewables.
This is not a mere past time for us as evidenced by the fact that we have grown our internal acquisition machine over the past two years and now have nearly 20 of our SaaS dedicated is the overall M&A process from partner identification to deal negotiation and documentation to due diligence to closing and finally to <unk>.
Gration.
Our primary focus remains on under $30 million annualized net service billing companies. However, we anticipate the average debt service billing size will continue to increase this year of the 2023 average of around $6 million.
Gary P. Bowman: We hope this additional color on revenue will be helpful to investors. During 2023, we were awarded our first Arizona DOT project as a prime contractor, and just last week, we were awarded a $2.6 million notice to proceed from the Rhode Island DOT to update their design management. We continue to work on the long-term and large-scale Allegheny Tunnel Project with the Pennsylvania Turnpike Authority, and we're expanding our corridor and program management engagements with the Illinois Tollway Authority, IDOT, and others. Almost all the IIJA money has been committed to states for transportation investment, but only a small percentage of it has been allocated to specific projects and starts.
Our focus is on transportation power and utilities sectors, along with technology enabled operations and high resolution imaging and geospatial services.
As we've discussed on prior calls we're committed to being a technology leader in the pure engineering and design industry.
We continue to invest in artificial intelligence platforms advanced machine learning systems.
<unk> reality applications, and Gis mapping to support our customers' increasing demand for integrated solutions.
In one recent customer assignment for example, we incorporated Gis data to introduce a where variable to machine learning models that learning process. The vast volumes of data, resulting in greatly improved deficiencies that benefit both us and our customers.
In our transportation group, we're using computer vision to assist with asset inspection and condition assessment.
Gary P. Bowman: For example, the state of Illinois alone has nearly, approximately, $35 to $40 billion to spend on transportation in the next five years or so. With roughly 20% of all transportation project spending being reversed on pre-construction design, this equates to roughly $8 billion in engineering fees for these projects. As of now, there are simply not enough qualified transportation firms in the state to meet that. And that's just one state.
This technology helps to identify payment conditions, the illuminate map issues and guide customers and your capital planning.
Our Geospatial Division uses laser scanning in spatial orientation tools to develop resin models for a wide range of facility developers who.
Who in turn use these building information models to better manage their construction projects.
In our water and wastewater practice, we're utilizing digital twin technology to provide customers real time.
Gary P. Bowman: We're focused on expanding our DOT and our transportation and bridge design relationships this year, as demonstrated by our Speech-Lewis acquisition in Lincoln, Nebraska. Our M&A program remains active, with two acquisitions closed so far this year and more anticipated to close between now and the next time we report in May. We remain committed to our communicated strategy of high-frequency, limited-risk acquisitions, which are fully integrated within 12 months of closing. This is not a mere pastime for us, as evidenced by the fact that we have grown our internal acquisition machine over the past two years and now have nearly 20 of our staff dedicated to the overall M&A process, partner identification, to deal negotiation and documentation, to due diligence, to closing, and finally to integration. Our primary focus remains on companies with under $30 million annualized net service billing revenues.
Information on interactive dashboards and live match to their systems.
We're also using AI internally, where it's combined with other technologies such as generative design three D modeling data processing and mapping information to generate smart intelligence that intelligent data sources that help our designers iterate faster. It makes the most informed decisions possible.
Digital collaboration enabled by an form technology investment fosters repeat revenue and keeps projects performing on time and on budget.
I'll conclude by reiterating we made a we maintain a positive outlook for our markets in 2024.
Thank you for participating in today's call and thank you to all our staff for everything you do for our customers our shareholders and our communities.
Gary P. Bowman: However, we anticipate the average net service billing size will continue to increase this year over the 2023 average of around $6 million. Our focus is on transportation, power, and utilities, along with technology-enabled operations, and high-resolution imaging and geospatial. As we discussed on prior calls, we're committed to being a technology leader in the pure engineering and design industry. We continue to invest in artificial intelligence platforms and advanced machine learning systems. Augmented Reality Applications, and GIS Mapping to support our customers' increasing demand for integrated solutions. In one recent customer assignment, for example, we incorporated GIS data to introduce a where variable to machine learning models that learn and process the vast volumes of data resulting in greatly improved efficiency, benefiting both us and our customers. In our transportation group, we're using computer vision to assist with asset inspection and condition assessment.
Operator, I'll now turn it back over to you for questions and answers.
At this time I would like to remind everyone in order to ask a question press star.
Then one on your kind of thank you Pat.
Last question today comes from Brent Thielman from D. A Davidson. Your line is now open. Please go ahead.
Great Hey, Thanks, Good morning, Gary.
Good morning, Good morning, Ryan.
Gary I appreciate it.
Andy can comment on some of the challenges you faced.
In the quarter.
Can you talk about some of the things you said.
Specifically faced and kind of what you've done.
On the kind.
The temporary integration issues and I guess, what you've seen from the acquisition date.
Pretty get us more comfortable with the go forward cadence here.
But looking back when we really see it as sort of a.
Our integration is an ongoing thing and we had maybe a critical mass of.
Newly acquired companies.
That.
Just.
We had not gotten the cultural integration.
Far enough along.
Gary P. Bowman: This technology helps to identify pavement conditions, illuminate map issues, and guide customers in their capital planning. Our geospatial division uses laser scanning and spatial orientation tools to develop Revit models for a wide range of facility developers, who, in turn, use these building information models to better manage their construction projects. In our water and wastewater practice, we're utilizing digital twin technology to provide customers real-time information on interactive dashboards and live maps of their systems. We're also using AI internally where it's combined with other technologies such as generative design, 3D modeling, data processing, and mapping information to generate smart intelligence that intelligent data sources that help our designers iterate faster and make the most informed decisions possible. Digital collaboration enabled by informed technology investment fosters repeat revenue and keeps projects performing on time and on budget.
To impress upon everybody the need to keep moving throughout the year.
What.
We are learning from that.
And what is it really just.
Improving and concentrating on the phone.
On the cultural integration and.
And getting everybody onboard at the same at the same time.
Yeah.
Okay.
And then I guess, just with respect to the outlook for 2024 that comment about uneven growth in net service billing kind of come <unk>.
Bruce can you give me just sort of clarify that I mean, presumably youre expecting sort of a sequential ramp in revenue.
And the first in the third quarter as you typically see but would love any more clarification to that.
Yes, so Brian if you think about you start with an average of the year of $25 25 to 25, and say well, we get out a little bit slower we pick up second and third and we might moderate that a little bit in four I would just maybe shave a.
Couple of points off the front and the and add them to the middle and have just looks slightly uneven distribution. So that there is a ramp up 1% to three maybe a plateau.
Gary P. Bowman: I'll conclude by reiterating that we maintain a positive outlook for our markets in 2024. Thank you for participating in today's call and thank you to all our staff for everything you do for our customers, our shareholders, and our community. Operator, I'll now turn it back over to you for questions and answers. At this time, I would like to remind everyone that in order to ask a question, press star and then one on your telephone keypad. Our first question today comes from Brent Thielman from DA Davidson. Your line is now open, please go ahead.
Or or sort of thinking in our heads for don't get have it happen again, so maybe.
Got it.
With pro forma it a little bit of.
A drop off or plateau in the fourth quarter not continued growth in the fourth quarter. So I'll just take a couple of points and move them around the spectrum.
Okay.
Brent Edward Thielman: Great. Hey, thanks. Good morning, Gary, and Bruce. Good morning.
And then just lastly, I guess, if you take a step back with new transactions here recently throughout 2023, Gary there arent necessarily any real large ones I'm thinking about mcmahon or kind of PDC 10 million plus right.
Gary P. Bowman: Gary, I appreciated your sort of candid comments on some of the challenges you faced late in the quarter. Can you talk about some of the things you specifically faced and kind of what you've done to move beyond the temporary integration issues and, I guess, what you've seen from today to get us more comfortable with the go-forward case? But looking back, we really see it as sort of an integration is an ongoing thing. And we had maybe a critical mass of newly acquired companies that just aren't, we had not gotten the cultural integration far enough along to impress upon everybody the need to keep moving throughout the year. We're learning from that, and it's really just improving and concentrating on the cultural integration and getting everybody on board at the same time. Okay.
Right.
Are you finding those types of deals more competitive is there an appetite for those transactions at prevailing multiples just just curious there.
The bigger we get in the attractive markets they are more competitive.
But we're continuing to focus all throughout the size spectrum. So we're we have a <unk>.
<unk> this year.
And.
And some good pipeline potentials of some more of the bigger acquisitions.
Okay, Great I'll pass it on thank.
Thank you.
Thanks, Pat Thanks.
Okay.
Our next question comes from Jeff Martin from Roth and <unk> your.
Your line is now open. Please go ahead.
Thanks, Good morning, Gary and Bruce.
Bruce J. Labovitz: And then, I guess, just with respect to the outlook for 2024, the comment about uneven growth and net service billing, kind of from 1Q to 3Q, Bruce, can you just sort of clarify that? I mean, presumably, you're expecting sort of a sequential ramp up in revenue as we as we move from the first to the third quarter, as you typically see, but I'd love any more clarification. Yeah, so Brent, if you think about, you know, you start with an average of the year 25, 25, 25, and you know, and you say, well, we get out a little bit slower, we pick up second and third, and we might moderate that a little bit in four, I would just maybe shave, you know, a couple points off the front in the end, add them to the middle, and have just a slightly uneven distribution so that there's a ramp up one to three, maybe a plateau, or, or, you know, we're sort of thinking in our heads for don't get don't have it happen again.
Good morning, Jonathan.
I can see that.
Good morning, I wanted to dive in the power and utilities segment a bit.
Just noticing the growth year over year.
In conjunction with the increase in backlog.
Up $20 million year over year.
<unk>.
Typically you'd see backlog more flattish when you have that kind of outsize crowd, so maybe comment.
With respect to the segment, where you're seeing particular strength are you adding customers.
Are you able to capture new types of projects as a result of some of the acquisitions, we've done over the past year.
Yes, we're continually adding new customers, Jeff and especially in.
Customers dealing with energy transition and renewable.
Energy lots of solar lots of battery storage.
Some wins.
And our R. R power resiliency work is continuing to grow also.
The utility underground and so forth.
We are through our acquisitions, we are adding some.
Some new or enhancing our capabilities so.
Bruce J. Labovitz: So maybe we've kind of, we've, we've performed a little bit of a drop off or plateau in the fourth quarter, not continued growth in the fourth quarter. So I just take a couple of points and move them around the spectrum. Oh crap. And just lastly, I guess if we take a step back, looking at your transactions here recently, throughout 2023, you know, Gary, there aren't necessarily any real large ones. I'm thinking about McMahon or some kind of PDC, you know, $10 million plus.
For instance, where we are.
Increasing our ability to do more and more of the electrical engineering for these clients.
Okay, and then on the transportation segment, you know obviously the opportunity is there I mean is there.
What things do you foresee positioning the business to take advantage of that and beyond what you've got today in terms of when they'll be adding resources pursuing additional acquisitions.
Partnering up with other firms.
Yes, yes to both.
We have over this year, we've added some resources that will get us into especially some of the bigger program management aspects of this that's an area, where we see the dot's.
Gary P. Bowman: Are you finding those types of deals more competitive? Is there an appetite for those transactions that prevail in multiples? Just curious.
Gary P. Bowman: The bigger we get and the attractive markets, they are more competitive, but we're continuing to focus all throughout the size spectrum. So we have a focus this year and, and some good pipeline potentials for some more of the bigger acquisitions. Great, I'll pass it on.
Really going to be there.
They're going to be short on staff to administer all this so that will be an area of growth and also it is a particular function of our our focus of our M&A strategy.
<unk> that that serve the transportation markets and will continue to be able to take advantage of the IHA a funding.
Geoff Martin: Thank you. Thanks, Fred. Thanks. Our next question comes from Geoff Martin from Roth MKM. Your line is now open, please go ahead.
Gary P. Bowman: Thanks. Good morning, Gary and Bruce. Good morning.
I think you can see Jeff there's been a lot of D O T.
Gary P. Bowman: I wanted to dive into the power and utilities segment a bit, just noticing the growth year over year, in conjunction with the increase in backlog, up 20 million year over year for the segment. Typically, you'd see backlog more flattish when you have that kind of outsized growth. So maybe comment with respect to the segment where you're seeing particular strength. Are you adding customers?
I didn't mean to cut you off there.
I was just saying there has not been a lot of focus on.
And expanding the number of of CRT clients and the depth within those clients.
Right right, Okay, and then last one for me on the Geospatial side.
You speak to the enhancements you've made two acquisitions and maybe organically and I know that she is broadly across your segments, but yes.
Gary P. Bowman: Are you able to capture new types of projects as a result of some of the acquisitions you've done in the past? We're continually adding new customers, Jeff, and especially customers dealing with energy transition and renewable energy, lots of solar, lots of battery storage. Some win, and our power resiliency work is continuing to grow also, especially utility undergrounding, and so forth. We are, through our acquisitions, adding some new equipment or enhancing our capabilities. So, for instance, we're increasing our ability to do more and more of the electrical engineering for these clients.
And maybe speak to the take rate or the uptake rate in terms of.
Clients are using geospatial increasingly sought out here.
Folio of segments.
It's.
An area, where we're currently at.
The greatest amount of our sort of our digital.
<unk>.
Skills and talents.
It enables us to.
A lot of our acquisitions.
Fine don't do the geospatial work, so we're able to immediately add a wallet share to the clients we acquire.
The technology as well.
Hi, Hi definition scanning.
Gary P. Bowman: And then on the transportation segment, you know, obviously, the opportunity is there, the funding is there. Now, what things do you foresee positioning the business to take advantage of that, beyond what you've got today, in terms of maybe adding resources, pursuing additional acquisitions, or maybe partnering up with others? Yes, yes to both. This year, we've added some resources that will get us into especially some of the bigger program management aspects of this. That's an area where we see the DOTs really going to be short on staff to administer all this.
And developing some digital twins.
So.
That those technologies have been advanced by several of our recent acquisitions.
Okay. Thanks for taking my questions.
Thanks, Jeff.
Our next question comes from Alex <unk> from B Riley. Your line is now open. Please go ahead.
Good morning, Gary and Bruce very very nice year congratulations.
Thank you Alex Alex.
Couple of quick questions here.
Notable mix shift away from building infrastructure towards transportation and power and utilities over the past few years.
Noting your earlier comments that this hasnt really changed your margin expectation.
But has it changed your organic revenue growth outlook at all and what is your sort of 2024 or intermediate multiyear kind of view on what organic growth could be for this asset.
Bruce J. Labovitz: So that will be an area of growth. And also, it is a particular function of our focus on our M&A strategy, firms that serve the transportation markets and will continue to be able to take advantage of the IIJA. I think you can see, Jeff, there's been a lot of focus on DOTs. I didn't mean to cut you off.
Okay.
This asset being Bowman or.
Yes, sorry.
No.
Okay.
Okay.
Gary P. Bowman: I was just saying there's been a lot of focus on DOTs and expanding the number of DOT clients and the depth within those clients. Right, right. Okay.
Are we see organic growth this year being in the low to mid teens.
And the and that saves us.
The change in mix that was our strategy from the sort of the day.
Gary P. Bowman: And then last one for me on the geospatial side, speak to the enhancements you've made through acquisitions and maybe organically. And I know that it's used broadly across your segments, but maybe speak to the take rate or the uptake rate in terms of, you know, how clients are increasingly using geospatial increasingly throughout your, throughout your portfolio of segments. It's an area where we're currently probably applying the greatest amount of our sort of digital skills and talents. It enables us to make a lot of our acquisitions. I'll find don't do the geospatial work.
The day, we decided to.
Embarked upon this journey of being a public company.
Its execution of our strategy.
We don't really we don't see that <unk>.
Changing our strategy as far as organic growth, our expectations and our ability to execute on our organic growth, yes from a margin point of view I don't think that necessarily the markets themselves.
Within each market there is pockets of differentiating margin, but essentially at the end of the day, we're doing the same things.
And different markets, it's really a concentration of risk strategy more of that in terms of diversifying markets, but but to earlier questions or the introduction of technology and disruptive services could for periods of time have margin enhancing benefit.
Gary P. Bowman: So we're able to immediately add a wallet share to the clients we acquire the technology High Definition Scanning and developing some digital twinnings, that those technologies have been advanced by several of our recent actors. Great, thanks for taking the question. Thanks, Jeff. Our next question comes from Alex Rygiel from B Reilly. Your line is now open, please go ahead. Good morning, Gary and Bruce.
So it's really sort of more in the services that we see that there is opportunity for margin and it is in the distribution of revenue between markets.
Alexander John Rygiel: Very, very nice year. Congratulations. Thank you, Alex. A couple quick questions here.
That's helpful and then sort.
Looking at your end markets, maybe Gary could you maybe rank the two or three strongest end markets from an organic growth standpoint, and then maybe identify.
Gary P. Bowman: There's been a notable makeshift away from building infrastructure towards transportation and power and utilities over the past two years. Noting your earlier comments that this hasn't really changed your margin expectation, but it hasn't changed your organic revenue growth outlook at all. And what is your sort of 2024 or intermediate multi-year view on what organic growth could be for this asset, this asset being Bowman, or... Yes, yes, sorry.
The ones that are either sort of declining or flattish at this moment in time.
The.
The strongest right now from organic is the power and energy.
And especially those aspects like I mentioned earlier are dealing with energy transition and renewable energy.
That growth has been fairly phenomenal and it's been almost all organic.
Gary P. Bowman: No, this asset being Bowman. Thank you. We see organic growth this year being in the low to mid teens. And I say the change in mix, that was our strategy from the day or before the day we decided to embark upon this journey of being a public company. So it's the execution of a strategy.
I will say.
2023.
The building infrastructure was probably the softest, we see that.
What we're seeing in the market.
Gary P. Bowman: We don't really, we don't see that changing our strategy as far as organic growth or our expectations and our ability to execute on organic growth. Yeah, so from a margin point of view, I don't think that necessarily the markets themselves, you know, within each market, there's pockets of differentiating margin, but essentially, at the end of the day, we're doing the same things, you know, in different markets. It's really a deconcentration of risk strategy more than a mark in terms of diversifying markets. But to earlier questions, the introduction of technology and disruptive services could, for periods of time, have margin-enhancing benefits. So it's really sort of more in the services that we see that there's opportunity for margin than it is in the distribution of revenue between markets.
Indicates that we'll probably pick up some this year as as interest rates peak and the outlook for interest rates.
Start going down.
I think I also say is that the markets themselves are the strongest organic for us again, starting from smaller basis, the way to accelerate growth and create future organic bigger organic growth returns is to acquire into those spaces increase our capability. So short run.
Our organic growth rate within a market may not exactly line up with the organic growth rate of our market.
So the difference because we may we may acquire our way to a bigger basis to then take more opportunity from the organic growth nature of that market.
Gary P. Bowman: That's helpful. And then sort of looking at your end markets, Gary, could you maybe rank the two or three strongest end markets from an organic growth standpoint, and then maybe identify the ones that are either sort of declining or flattish at this moment in time? The strongest right now from an organic standpoint is power and energy, and especially those aspects, like I mentioned earlier, dealing with energy transition and renewable energy.
And then lastly, Bruce or maybe Gary you mentioned on the call that the.
The class of acquisitions in 2024 in the aggregate will probably be on average a little bit larger than the class of 2023.
Can you comment as you kind of look at larger businesses here does that suggest or imply that maybe the purchase prices are greater as well <unk> suggest or imply any other.
Gary P. Bowman: That growth has been fairly phenomenal, and it's been almost all organic. I'll say in 2023, building infrastructure was probably the softest. We see that what we're seeing in the market indicates that will probably pick up some this year as interest rates peak and the outlook for interest rates start going down. The markets themselves are the strongest organic.
Improved.
Growth opportunities or risks.
<unk>.
Okay.
We're not we're not envisioning that in 2024 on hole will be paying more pounds per pound far acquisitions. So in the <unk>.
Bruce J. Labovitz: For us, again, starting from a smaller base, the way to accelerate growth and create future organic, bigger organic growth returns is to acquire into those spaces and increase our capabilities. So in the short run, our organic growth rate within a market may not exactly line up with the organic growth rate of a market. If we follow the difference, we may acquire our way to a bigger basis to then take more opportunity from the organic growth nature of that market. And then lastly, Bruce, or maybe Gary, you mentioned on the call that the class of acquisitions in 2024 will probably be, on average, a little bit larger than the class of 2023. Can you comment as you kind of look at larger businesses here? Does that suggest or imply that maybe the purchase prices are greater as well, or suggest or imply any other, you know, improved growth opportunities or risks?
As we are evolving to larger acquisitions, we're still.
Say in the in the same general ballpark so the same.
The same expectations for what we pay.
What we're finding.
It's not quite so much size dependent again in the area, where we're doing business.
We need to get more aggressive on the pricing in the more desirable market with transportation businesses.
Our extensive.
Those dealing with energy grid are more expensive.
That's where we see the.
While our expectations to have to pay increase based on the market they serve.
Very helpful. Thank you very much nice quarter. Thanks, Thanks, Alex.
Our next question comes from Aaron <unk> from Craig Hallum. Your line is now Eitan. Please go ahead.
Gary P. Bowman: We are not envisioning that in 2024, we'll be paying more pound per pound for our acquisitions. So, in the, as we are evolving to larger acquisitions, still, I'll say in the same general ballpark, so the same, The same expectations for what we pay, what we're finding, is it's not quite so much size dependent again in the area where we're doing business. But we need to get more aggressive on pricing in the more desirable markets, like transportation businesses are expensive; those dealing with the energy grid are more expensive. So it's That's where we see the, where our expectations of what we have to pay increase based on the market. Very helpful. Thank you very much.
Yes, good morning, Gary and Bruce Thanks for taking the questions.
Hi, good morning Erinn.
Good morning so.
I appreciate the commentary earlier about still seeing more demand for services than available supply can you just talk about any changes you might be seeing.
As it relates to pricing in the market and then just maybe an update on labor as you manage the growth here moving forward.
We are.
We're expecting that and foresee the pricing in the marketplace today.
Yes, the same as last year, obviously inflation, you have to sort of adjust but inflation adjusted we see.
Alexander John Rygiel: Nice quarter. Thanks, Alex. Our next question comes from Aaron Spychalla on behalf of Craig Hallam. Your line is now open, please go ahead.
We anticipate being able to still get again pound per pound.
Aaron Spychalla: Yeah, good morning, Gary and Bruce. Thanks for taking the question. I don't want to hear it.
The same thing in the near future that we've been getting in the past.
Gary P. Bowman: Morning. So, you know, I appreciate the commentary earlier about, you know, still seeing more demand for services than available supply. Can you talk about any changes you might be seeing as it relates to pricing in the market and then maybe an update on labor as you manage the growth here? Um, we're expecting and foreseeing the pricing in the marketplace to be the same as last year, obviously inflation, you have to sort of, you know, adjust, but inflation adjusted. We anticipate being able to still get, again, pound for pound, at least the same thing in the near future that we've been getting in the past. We've done a good job of managing our labor costs. The labor costs certainly are increasing with inflation, but we're seeing an ability for prices and the cost of labor to increase at the same rate in this parallel line.
And the <unk>.
And our we've done we've done a good job in managing our labor costs.
Labor costs, certainly are increasing with inflation, but we're seeing a an ability for the pricing and the cost of the labor to increase at the same rate as parallel lines.
Okay.
So I think part of what we're saying Oh, sorry, so we're not expecting hyper inflation in pricing.
Our growth in the future, it's not just because of the same clients are paying.
One five times, what they were paying before there it's really foundational growth right there will be pricing growth we.
We continue to be those are continued to be unique in an hour.
Gary P. Bowman: So I think part of what we're saying is we're not expecting hyperinflation in pricing. Our growth in the future is not just because the same clients are paying 1.5 times what they were paying before. It's really foundational growth.
Amongst our peers in terms of the construct of the company and our ability to use <unk>.
Equity as a as a form of compensation and benefits us in our in our <unk>.
Bruce J. Labovitz: There will be pricing growth. However, we continue to be unique amongst our peers in terms of the construct of the company and our ability to use equity as a form of compensation. And it benefits us in our attraction and retention of labor to be what we are today relative to the competitive market for clients and the competitive market for labor. And we work very hard in both markets to gain market share. Right, right, understood. Okay.
Attraction and retention of labor.
To be what we are today relative to that it is a competitive market for clients in the competitive market for labor and we work very hard in both markets to gain market share.
Right right understood. Okay, and then maybe second can you just kind of talk about the visibility you have into 2024 guidance from from the backlog in the pipeline today, maybe how that compares to the past years and then just maybe a little bit on other visibility you have from from the some of the reoccurring projects are sort of phased in.
Bruce J. Labovitz: And then maybe second, can you just kind of talk about the visibility you have into 2024 guidance from the backlog in the pipeline today, maybe how that compares with the past years, and then, you know, just maybe a little bit on other visibility you have from some of the reoccurring projects or sort of phased-in projects that might come in over time that aren't in backlog. I would say we certainly are seeing a bigger impact from long-term projects. As we get bigger, that's one of the benefits of size: we are more engaged with more. That doesn't mean it's a majority yet, but we're more engaged with more long-term, more long-term visible projects. So that helps with visibility.
Projects that might come in over time that aren't in backlog today.
Yeah.
And I would say, we certainly are seeing.
Seeing a bigger impact from long term projects that as we get bigger that's one of the benefits of size is that where we are more engaged with more that doesn't mean, it's a majority yet but were more engaged with more long term more long term visible projects, but so that helps with visibility backlog.
Bruce J. Labovitz: Backlog, generally, we can look into our backlog and try to see when projects will deliver. It's hard to be so granular that you're literally by day planning what's going to deliver. But you get a general sense from the bottom up that we really do spend a lot of time looking at when we think projects will deliver, what we think our backlog will support in utilization, and therefore, how much revenue we can earn over a period of time. We generally go into a year expecting that 70% to 80% of our backlog will turn in a year, and then there's a lot of intra-year selling and delivery that sometimes never even Shorter-term deliverables that you sell on January 3rd, and you deliver them on March 29th, and the market never sees them as backlog.
Generally have we hit we can look into our backlog and try to see when projects will deliver it.
Hard to be so granular that you know youre literally by day planning.
It's going to deliver but you get a general sense from the bottom up we really do spend a lot of time looking at when do we think projects will deliver what do we think our backlog will support and utilization.
And then therefore, how much revenue we can earn.
Over a period of time, we generally go into a year expecting that 70% to 80% of our backlog will turn in a year and then there is a lot of intra year, selling and delivering that sometimes ever even makes it to backlog.
Shorter term deliverables that you sell it on January 3rd and you deliver it on March 29.
The market never sees it as backlog. So we feel like we have good strong visibility to being able to deliver and again with the caveat. It always with the world doesn't fall apart in front of us.
Bruce J. Labovitz: So we feel like we have good, strong visibility to be able to deliver. And again, we caveat it always with the world doesn't fall apart in front of us. On the trajectory of the markets today, we have confidence between our pipeline of opportunities and our backlog that the guidance will be delivered.
On the trajectory of the market today.
Confidence between our pipeline of opportunities.
At our at our backlog that the guidance is deliverable.
Got it and then just maybe last on kind of the regulatory backdrop, you know last quarter, you mentioned kind of less than 20% of the infrastructure Bill and I are a funds.
Gary P. Bowman: And then just maybe last on kind of the regulatory backdrop, you know, last quarter, you mentioned, kind of less than 20% of the infrastructure bill and IRA funds. It sounds like start, that's starting to come more to the state level. But is that still something that you think is more of a kind of late 2024 and into 2025 dynamic for when you know you might see more of a benefit from that? We are forecasting it, not to repeat what you said, but in that kind of time frame. IIJA has contributed fairly meaningfully to our revenue in the past 6-12 months. It's picking up. I think it's ramping up slower than anybody anticipated that it would, but in our in our outreach to our clients and our feel for the market, we are expecting it in the second half of this year and well into 2025.
It sounds like start that's starting to come more to the state level, but is that still it's still something that you think is more of a kind of late 2024 and into 2025 dynamic for when you might see more of a benefit from that.
We are we are forecasting that to repeat what you said, but in that time to time timeframe.
<unk>.
J J has contributed fairly meaningfully to our revenue in the past six to 12 months, it's picking up I think its I think its ramping up slower than anybody anticipated that it would but.
And our outreach to our clients and.
Our feel for the market, we are expecting second half of this year and well into 2025.
Bruce J. Labovitz: Yeah, what we appreciate is that we expected, I think everybody expected it maybe to come a little sooner. We've still delivered the growth that we've delivered. And that's still in front of us. And so we're, you know, well, it's good and bad news. The bad news is that it hasn't come as quickly.
We appreciate it.
We expected I think everybody expected it maybe to come a little sooner, we still delivered the growth that we've delivered right and and that's still in front of us.
And so.
While it's good or bad news Bad news. It Hasnt come was quickly. The good news is we've been able to do what we've been able to do without it coming as quickly as everybody thought and Thats still solid our backlog because it's a lot of that work hasn't been let yet.
Bruce J. Labovitz: The good news is we've been able to do what we've been able to do without it coming as quickly as everybody thought. And that's still not in our backlog, because a lot of that work hasn't been released yet. But as we talked about, just in Illinois, there's a backlog of $35 to $40 billion for transportation work, and, you know, at 20%, that's $8 billion just in one state for fees coming to pre-construction firms. Right, right. No, definitely not.
But as we've talked about it just in Illinois.
Log of $35 to $40 billion of transportation work in.
At 20% that $8 billion, just in one state of fees come into pre construction firms.
Right right no definitely we'll stay tuned for that thanks for taking the questions I'll turn it over.
Aaron Spychalla: We'll stay tuned for that. Thanks for taking the questions. I'll turn it over to you now.
Operator: Thank you, Aaron. Our last question is a follow-up from Brent Thielman from BA Davidson. Your line is now open, please go ahead.
Thanks Erin.
Our last question is a follow up from Brent Thielman from D. A Davidson. Your line is now open. Please go ahead.
Brent Edward Thielman: Welcome back, Brett. Thanks. Thank you. Bruce, an accounting 101 or 202 question, I'm not sure which, but on the uncertain tax position. Can you explain what would happen if H.R. 7024 were miraculously adopted by the Senate and President?
Welcome back Brian.
Yes.
Thank you Bruce and accounting 101, or two of your question I'm, not sure, which but on the uncertain tax position.
Can you explain what happens with HR seven Q4.
Miraculously adopted by the Senate in practice.
Bruce J. Labovitz: I mean, what should we expect to occur in the financial statement if this... If my tax nightmare goes away? Yeah, my tax nightmare, you know, goes away. First, I have a lot more free time.
Two we expect to hear in the financial statements.
Yes, My if my Nightmare.
<unk>.
Yes, my tax Nightmare. It goes away first I have a lot more free time.
But what happened is really is in the P&L you would see a reversal of tax expense.
Bruce J. Labovitz: But what happens really is in the P&L, you would see a reversal of tax expense, that $4.7 million. So there is nothing to adjust at EBITDA as a result of that. And the impact of the R&D amortization is not impacting short-term tax expense, other than that $4.7 million we talked about.
Of that $4 7 million, so nothing to adjusted EBITDA as a result of that.
And the impact of the R&D amortization.
Is not impacting short term tax expense other than then with that $4 7 million we've talked about.
So you wouldn't see a huge P&L impact, but you would see a reversal of the liability.
Bruce J. Labovitz: So you wouldn't see a huge P&L impact, but you would see a reversal of the liability. And you would see the impact really run through the cash flow. But really, it would be neutral. You would just see these wild swings.
And you would see the impact really run through the cash flow, but it really it would be neutral you would just see these wild swings you'd see this big reversal of deferred tax assets and a big reduction in accounts payable and accrued.
Bruce J. Labovitz: You'd see this big reversal of deferred tax assets and a big reduction in accounts payable and accrued expenses. So there's a lot of noise around but not a lot of impact. The biggest impact for firms in this space has been the cash impact of this huge acceleration of tax payment that we have not yet experienced because of the positions that we've taken. You wouldn't see a huge P&L impact; you'd see a big cash flow change. But on a net basis, it's neutral.
Expenses.
So there's a lot of noise around not a lot of impact the biggest impact.
Sure.
Firm in this space has been the cash impact.
<unk> of this huge acceleration of tax payment that we have not yet.
Experienced because of the positions that we've taken so you wouldnt say huge P&L impact you'd see a big cash flow change, but on an net basis, it's neutral.
Brent Edward Thielman: It would just take a lot of the anxiety out of the market and put a lot more investable cash back in the hands of firms like ours. I don't know if that was an accounting answer, www.globalonenessproject.org. The impact on the cash flow is negligible because you're already and Gary Bowman. Thank you for joining us. Yeah, because we have to booked it, then we booked this offset to it.
It would just take a lot of the anxiety out of.
Of the of the market.
A lot more lot more investable cash back in the hands.
Firms like ours.
I thought that was an accounting and the impact.
The impact on the cash flow.
It will because youre already.
Dressing that in the working capital portion is what Youre, saying is declared yes, because we have we've had to book it when we bought this offset to it right. So it's it's it's and in the pre working capital.
Bruce J. Labovitz: Right. So it's, it's, it's in the pre working capital section, sorry, out in the pre working capital section, and back in the working capital section. So But from a net income perspective, we would recover that $4.7 million of tax expense. Which, by the way, if for some reason we withdrew our tax position, we would also recover, but then we would be out of cash. Call your senators, tell them to pass the bill. I suspect this will get fleshed out maybe a bit more in the 10k and the end market disaggregation. It'll be interesting to see that.
Sorry, it's out in the pre working capital add back in the working capital section. So.
<unk>.
But from a net income perspective, we would recover that $4 $7 million of.
Tax expense.
Which by the way if for some reason we withdrew our tax position. We would also recover but then we would be.
The cash.
Okay fun stuff.
The other one I apologize.
Is that all your standards government passed the bill.
[laughter].
I suspect this will get fleshed out maybe a bit more in the 10-K in the end market disaggregation will be interesting to see that.
Gary P. Bowman: But I mean, I think about this, you have a rather large land survey operation, and it seems there are some rather large land-consuming projects out there, manufacturing and industrial development data centers. How much are these moving the needle in the building infrastructure segment today? Think about this kind of low to mid-teens or, I'm not sure I exactly follow the question. Is it how surveying is affecting it, or how are large land projects impacting the concentration of revenue? Well, I think that the topic du jour out there is there are a lot of people coming back to the United States while tapping into manufacturing. Lots happening in data science; I'd just be curious how that's impacting business. So the CHIPS Act, I think, you know, we're kind of talking now about the impact of sort of the reclamation of manufacturing and stimulus.
I think about this you have a rather large lands or day operation. It seems there are some rather large land consuming projects out there in manufacturing and industrial development data centers, how much should be moving the needle and the building infrastructure segment today and as you think about this kind of low to mid teens organic.
That growth rate.
I'm not sure exactly.
Was it is it how is surveying affecting it or how our large land projects impacting the concentration of revenue.
Well I think that the topic du jour out there, there's a lot happening in supply chain coming back in the United States lots happening with any factoring plenty happening in data right.
How that's impacting the business.
So the chips Act I think we're kind of talking now about the impact of.
Sort of the reclamation of manufacturing and stimulus.
We don't do a lot of manufacturing facility engineering, but what happens is it's a stone in the pond and it has a ripple.
Gary P. Bowman: We don't do a lot of manufacturing facility engineering, but what happens is it's a stone in the pond, and it makes a ripple. So when there is demand for resources in this market, and let's say a larger firm addresses that, it limits their ability to satisfy all demand of their existing portfolio, so things spill out and kind of come downstream, um, so directly, I would say Gary, you can add to the sort of the large land uh, what we're seeing is the utility project, that these mammoth pieces of land, say for solar farms or large transmission lines.
When there is a when there is <unk>.
Demand for resources in this market.
And let's say a larger firm addresses that limits their ability to satisfy all demands of their existing portfolio, so things spill out and kind of.
And come downstream.
So directly I would say Gary.
To add to.
This was the large land.
So where are we.
We're seeing it is the utility projects.
These mammoth pieces of land for solar farms for large transmission lines. So that's driving it and our data center work is tremendously robust in an area of tremendous growth.
Gary P. Bowman: So that's driving it, and our data center work is tremendously robust in an area of tremendous growth. So in the power and utilities, and data center for the markets that we're serving, we are really seeing that being a driver for geospatial in particular and to the entire business, very helpful. Thanks. Thank you. There are no further questions at this time. Mr. Bowman, I turn the call back over to you. Thank you, operator. Again, I just want to thank everybody for participating in the call this morning. And I want to thank again all our staff for all the great work we do hard work. I look forward to talking to everybody again in May. Take care. This concludes today's conference call; you may now disconnect.
So in the power and utilities and data center for the markets that we're serving we're really seeing that being a driver to geospatial.
<unk> in particular and to the entire business.
Yeah.
Very helpful. Thanks, guys.
Thank you Brett.
There are no further questions at this time, Mr. <unk> I turn the call back over to you.
Thank you operator again, just want to thank everybody for participating in the call. This morning.
And I want to thank again, thank all our staff for all the great work, we do hard work and.
Look forward to talking to everybody again in May take care.
This concludes today's conference call you may now disconnect.
Yeah.
[music].