Q3 2024 Bowman Consulting Group Ltd Earnings Call
Element, Robau and FCS.
At year-end, acquisitions we made in Q4 of 2023, meaning excellence through Hess Roundtree, will fall off the acquired revenue list.
Turning to slide 7, on a trailing four-quarter basis, organic growth of net revenue at the end of the third quarter was approximately 8.3 percent as compared to total net revenue for the trailing four quarters at the end of the third quarter last year, during which all net revenue was included in the organic basis.
Speaker Change: Well, granted growth of net revenue during that period was most significant in emerging markets at 63%, with transportation next at 17%, followed by power and utilities at 14%, and building infrastructure at 1%.
Nominally, transportation was the largest contributor, followed by power and utility as emerging markets and building infrastructure.
This trailing four quarters view of organic growth is a little different than we've presented in the past. Given the volatility created by the inconsistent timing and frequency of acquisitions between quarters, we feel this presentation of trailing four quarter growth offers a better perspective for understanding growth trends.
For the nine months ended September 30, gross revenue from acquired companies was $49.8 million, and net revenue was $45.1 million, or roughly 16% of both gross and net revenue.
Speaker Change: Organic growth of net revenue for the nine months was approximately 5.6% as compared to the same nine-month period last year, where all that revenue was likewise considered organic.
Again, the largest percentage growth was emerging markets at 48 percent, followed by transportation at 14, power utilities at 6.2, and building infrastructure at just under 1. Again, transportation contributed the largest nominal growth.
Speaker Change: We believe that organic growth from building infrastructure will continue to rebound into 2025, while growth from emerging markets will moderate a little bit now that the starting basis is higher.
Turning to slide 8, our balance sheet is as healthy as it's been with roughly 12 million cash on hand, low leverage, and plenty of capital available. Our line of credit is close to 70 million dollars available and our equipment financing capacity is sufficient to cover CapEx through 2025.
Speaker Change: Net debt on September 30 was roughly $85 million, which represents a leverage ratio of 1.6 times trailing four quarters adjusted EBITDA, and approximately 1.2 times forward four quarters of adjusted EBITDA.
Cash flow from operations for the nine months was up $5.5 million sequentially from June 30th at 11 million, with $44 million year-to-date cash flow from operations before a $33 million use of cash from changes in working capital.
Speaker Change: With respect to cash and liquidity, interestingly, in October we found ourselves unexpectedly back in the position of having the opportunity to file our 2023 returns in accordance with the R&D position we'd adopted for our 22 returns.
Speaker Change: As it turned out, definitive guidance the IRS was expected to have released prior to October had not been issued as we approached filing our returns.
Speaker Change: This allowed our tax advisors and us at Pricewaterhouse to reach a reasonable basis position for continued R&D expense deductibility and enabled us to file without remitting the approximately $12 million payment we expected to make and without accruing for penalties.
So that $12 million will stay with us for now, and since the filing was deemed to be a reportable subsequent event, you will see further disclosure about the return of the UTP and the 10-Q.
Speaker Change: During the quarter, we used our capital to buy back just about 500,000 shares of common stock under our $25 million authorization at an average price of approximately 23.89 per share.
Speaker Change: This does not include shares of treasury stock purchased to cover taxes associated with stock vesting.
Speaker Change: On September 30th, we had 17.7 million shares outstanding. We've continued to repurchase shares under the authorization since the end of the quarter. And as of today, we have approximately 17.5 million shares outstanding.
Speaker Change: You'll see on slide nine that at the end of the quarter, we had gross backlog of $380 million, which is $81 million more than the end of Q3 2023. And as Gary said, over $28 million more than June 30th.
Speaker Change: Well, approximately $10 million of the sequential increase over the last quarter was the result of acquired backlog. The balance was derived from new orders.
Speaker Change: The distribution of backlog is slightly over-weighted to transportation relative to revenue in the third quarter. Given the nature of our sales cycle and the generally longer-term nature of transportation projects, I would not read much into that mismatch.
Turning to slide 10.
Speaker Change: In the release yesterday, we increased our 2024 Net Revenue Outlook to accommodate the revenue we'll pick up from the recent Excel Tech acquisition, and reaffirmed adjusted EBITDA, which would not have breached the rounding threshold if we added it.
Speaker Change: We also introduced a new net revenue outlook for 2025 of $422 to $437 million, which represents organic growth of net revenue between 5% and 9% based on pro forma full-year 2024 net revenue adjusted for partial-year acquisitions as the basis.
Speaker Change: As always, that excludes future acquisitions not closed as of today.
Speaker Change: As evidenced by the more than 30% reduction to our equity value in response to last quarter's roughly 4% reduction to revenue guidance and roughly 8% reduction to adjusted event guidance, the message is clear that there's no benefit to stretching with respect to 2025 guidance at this time.
Speaker Change: As such, we will revisit our outlook in connection with our quarterly and year-end reports throughout 2025.
Speaker Change: We're hopeful that this quarter demonstrates to the market that Bowman is not damaged and our equity is meaningfully undervalued at current multiples as compared to our peers and other comparable transactions we see in the marketplace for firms our size.
Speaker Change: Before I go I'll quickly mention that I'll be at the Baird conference in Chicago next week, the Craig Hallam conference in New York, and others throughout the remainder of the year and into next year.
Speaker Change: Check our investor website to see a calendar of where we'll be presenting and meeting investors in person.
Speaker Change: Okay, thank you, Bruce. Last week, we announced the acquisition of Washington State-based Excel Tech Consulting. It's a well-established 35-year-old engineering, design, and program management firm. They have extensive bridge design, structural engineering, transportation planning, and environmental sciences capabilities.
Speaker Change: Geographically, this acquisition complements our July acquisition of Washington-based FCS Group, which is a professional services firm focused on rate and financial consulting for the utility and renewable energy industries.
Speaker Change: The acquisition of Excel Tech fits right into our strategic objectives by fueling the growth of our national transportation practice and expanding the breadth of associated offerings.
Speaker Change: The fact that Exceltec and SCS are in close proximity to each other provides Bowman with an immediate combination of regional expertise, established customer relationships, and expansion of our operational footprint to the Pacific Northwest and beyond.
Speaker Change: From a macro perspective, the first Fed rate cut in several years has energized real estate markets.
Speaker Change: However, uncertainty around the pace of future rate cuts and the landscape of regulatory and economic policy is having a sort of paralyzing effect on this market.
Speaker Change: Good news for us is that planning and engineering are the first steps in preparing for project starts and restarts.
Speaker Change: and we see a notable uptick in market activity in real estate related markets, particularly in multifamily markets such as billed for rent and apartments.
Okay, turning to slide 11.
Speaker Change: Several of the Transportation Award starts that were delayed over the first part of the year finally got underway in the latter part of the third quarter.
Speaker Change: Notable among these is the Illinois DOT I-55 Corridor Rehabilitation Project where we're providing multi-year management and design services for a 16 mile section of the highway.
Speaker Change: Others include a design-build project for the Virginia DOT and a comprehensive roadway improvement project for US Route 1 in Philadelphia.
Speaker Change: Large third-quarter transportation wins now making their way through contracting include a ten million dollar award with Cook County, Illinois.
Speaker Change: And furthermore, we fully expect activity relating to the Allegheny Tunnel Bypass Project for the Pennsylvania Turnpike Authority to increase through the end of the year.
Speaker Change: In our Developing Ports and Harbors practice, which we now group with transportation, we were awarded several million dollars in contracts to be delivered in 2025 from both long-standing and new customers.
Speaker Change: Our new Port Asset Conditions Kit is an innovative proprietary delivery platform that we've developed for marine facility operators. We've got high hopes for its prospects moving forward.
Speaker Change: Coastal and resiliency engineering combined with high-altitude aerial surveying has enhanced our ability to pursue public and private sector customers in the aftermath of ever more frequent and ferocious natural disasters.
Speaker Change: Another aspect of our ports and harbors expansion includes enhanced waterfront capabilities, which have been leveraged by our traditional development practice leaders to pursue urban waterfront redevelopment and coastal shore protection opportunities in areas including Kentucky, South Carolina, and Maine.
Speaker Change: Also, we're expanding our focus to inland recreational marinas and boating facilities in areas such as Pittsburgh, Charleston, Savannah, Philadelphia, Houston, and others.
Speaker Change: On other fronts, we were recently contracted to immediately start work at the Charlotte-Douglas International Airport in Charlotte, North Carolina.
Speaker Change: The scope of this work includes comprehensive survey services for a new 10,000 foot runway.
Speaker Change: Additionally, we were awarded our fifth ongoing on-call agreement with Southwest Gas, expanding our service area into western and northern Nevada and California.
Speaker Change: Revenue in our MEP group is trending upwards with strengthened commissioning services and in the power markets, we're seeing an uptick in electrification and decarbonization assessments as the industry moves more toward net zero and all electric solutions.
Speaker Change: Acquisitions continue to have a positive long and short-term impact on the organic growth of the business.
Speaker Change: A notable example is our growing fire protection engineering practice which came from the Fisher acquisition.
Speaker Change: Our contract for surveying hazardous material storage facilities for Marine Corps bases in the U.S. and Japan was recently expanded by an additional 21 sites.
Speaker Change: Over the course of our nearly 30 years in business, organic growth has always been a central focus of our approach to growth and expansion.
Speaker Change: Our long-term track record of a robust organic growth is a result of culture, attitude, risk tolerance, and an eye for good markets.
These attributes can characterize us still today.
Speaker Change: Our recent inclusion as an ENR Top 150 Global Design Firm puts us in good company among industry elites and works to solidify our brand as a premier provider of comprehensive engineering and design solutions.
Speaker Change: Going into 2025, I expect it will continue to be acquisitive, likely with larger average revenue size and a bit less frequent than we've been over the past several years. We'll continue to focus on adjacent businesses and attractive markets that we can readily integrate and grow significantly over time.
Speaker Change: While private equity continues to play an ever more active role in the industry, paying outsized multiples for larger firms, we're confident that our culture and approach will continue to make us competitive and successful in our M&A activities.
Our strategy is working.
Speaker Change: Clearly, we stumbled last quarter in terms of forecasting, but we've recovered our firm footing and are poised to deliver on our commitments during the remainder of the year and into 2025.
Our efforts toward diversification, integration, leadership transition, and process excellence.
Speaker Change: have positioned us to grow organically, expand our services, make acquisitions that broaden our footprint while deepening our customer relationships and wallet share, and most importantly, deliver long-term profitability, cashflow conversion, and value creation for our shareholders.
Speaker Change: With that, I'll now turn the call back to the operator for questions and answers.
We will now begin the Q&A session.
Speaker Change: If you would like to ask a question, please press star followed by 1 on your touchtone keypad.
Speaker Change: If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1.
Speaker Change: As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.
Speaker Change: We will pause here briefly to allow questions to generate in queue.
Speaker Change: The first question comes from the line of Jeff Martin with Rock Capital Partners. Please proceed.
Jeff Martin: Thanks, good morning Gary and Bruce. I hope you're doing well. I'm glad to see the efforts put into the quarter starting to show through. So I guess first question, are we done with the the internal changes? Are we heading in, did you head into the fourth quarter with a clean slate and you know if not what what remains to be done?
Speaker Change: Clean slate, yes. It's always a journey, but over the third quarter, the changes we've made,
Speaker Change: We consider that a, we've reached our destination there. We're ever diligent and deliberate and keeping an eye on that. So it's something that always evolves, but.
Done deal.
Speaker Change: Good to hear that. Okay, and then with respect to your updated 2025 guidance, what level of organic growth are you assuming for that year, and if you're assuming any different equation in that organic growth relative to what you had?
previously assumed maybe help detail that for us.
Speaker Change: Yeah, Jeff, midpoint of that is probably around 7% organic growth for next year. Again, coming out of the chute conservative on that.
Speaker Change: it's basically looking at this year as adjusted for acquisitions at the base growing forward. I don't know if there's any...
Speaker Change: And then the last one for me, you mentioned moving up the size of M&A deals going forward. Could you help maybe give us some relative perspective on how much you plan to move up? And then I guess the second part to that question, I would be curious to get an update on how the CertEx acquisition is performing, since that is one of your largest acquisitions to date.
Right, um, the, the, uh...
Speaker Change: It's an evolution in our M&A strategy. Really, it's a recognition as we're getting larger and larger, it takes larger deals to move the needle. So we don't have.
Speaker Change: any real, we don't have a target size, but just in a strategy and get larger and the larger they get by definition almost a little less frequent.
Jeff Martin: As far as CERDECS, we're pleased so far. We're seeing lots of cross-selling and revenue synergy, and it's moving along fine.
Speaker Change: Jeff, we've averaged sub-10 this year in our acquisitions and sort of setting a goal to get that into double digits next year. You know, you think about the number of acquisitions and we talk about that in terms of revenue.
for Revenue Bond. Serdic was an outlier.
Jeff Martin: in that, so kind of putting that aside, I think doing things more in the sort of, let's call it the recent Excel tech, which is closer in that, you know, but the FCS is this, the Excel tech's closer to the tens.
Jeff Martin: as opposed to the smaller ones, the TCEs and the elements and species that were earlier in the year, and try to cut a couple turns in terms of number of acquisitions out, but still continue to increase the amount of revenue bought.
Thank you.
Speaker Change: The next question comes from the line of Erin Spatiala with Craig Holland. Please proceed.
Speaker Change: Yeah, good morning Gary and Bruce. Thanks for taking the questions. Morning, so maybe first on transportation, you know, good to see some of those awards come in there. You know, I know that's been a big focus for you. Can you just talk about how that pipeline looks there, you know, continue to expand to more DOTs and, you know, starting to see that that IIJA funding come out here in the back half of the year?
So it's a big focus of our inorganic growth strategy.
Speaker Change: But the acquisition several years ago of McMahon and our Chicago operations, they're seeing some good, robust and large transportation projects.
Speaker Change: Again, you'll see we're focused on DOTs, certainly. That's kind of like, let's call that a depth, but there's also a breadth.
Speaker Change: and Brett being things like the adding bridge engineering, you know, bridge design and that sort of structural element of transportation engineering to try to expand how many things we can do for a ever-growing base of clients.
Jeff Martin: We've already started, I think we mentioned, we've already started working with XL Tech in advance of the acquisition, and they're already teaming with them on projects where their skillset brings additional.
Jeff Martin: capabilities and opportunities to groups that are better entrenched with larger transportation departments than they would have been nationally.
Jeff Martin: but with an additional scope of services. We're in early innings with CERDECS, but CERDECS is
Jeff Martin: We were not able to serve big transportation markets prior to joining us, and now with our broad clientele, we're looking into actively marketing state DOTs for aerial survey work at Cernak Springs.
Jeff Martin: And it's one of those that it kind of has a bit of momentum. It's an accelerant. You get one, two, three, five, twenty DOTs. Now the next ten of them are easier to get than the first ten to twenty.
Speaker Change: No, that's really helpful, Culler, thanks. And then just second for me, can you just maybe some early reads or thoughts just on the election and what that might mean for your business here moving forward?
Speaker Change: Certainly, speaking of early innings, we're barely up to the plate on assessing that.
Speaker Change: We think, if anything, it will be positive for our business.
Speaker Change: We have a presence in fossil fuels and oil and gas.
Speaker Change: We think the change in the regulatory environment will make that a more robust market. We're looking forward to that.
We fully anticipate that the infrastructure spending is
Jeff Martin: The dye is cast on that, so we're quite confident that we won't see any adverse effect on that.
Jeff Martin: Analysts feel that the new administration may move to some more privatization of infrastructure, so we're already thinking how we focus on marketing to our PPP developer clients.
Jeff Martin: and in mining, the lack of the change in the regulatory environment probably increased mining.
We're cautiously optimistic on the renewables.
There's, there's
a lot of
Jeff Martin: thought that the renewables, the IRA, has created so much economic activity in red states.
Speaker Change: All right. Thanks for taking the questions. I'll turn it over.
Thank you, Aaron.
Thank you.
Speaker Change: Good morning and thank you for taking my questions. I guess I just wanted to ask a little bit more about the early look here at 2025 and specifically if you've looked at
Your backlog today
Jeff Martin: How does it compare to like historical levels in terms of the amount of that 2025 work that you're guiding to that's covered? Is it more? Is it less? And can you also just comment?
Jeff Martin: about the level of permitting and notices that you've received on this work.
Speaker Change: you know, comes out of the last quarter where some of those delays were some of the reasons for the shortfall. So I just wanted to get your confidence that the permitting and the things that are needed to get to work are in place for this 25 outlook.
So, Andy, I would say that the backlog is...
Jeff Martin: relatively characteristically similar, maybe a little bit more beneficially stacked for next year, only because of some of these timing issues we've had in the last couple of, you know, quarters and a half or so. There's a little bit of more ready-to-go kind of stuff that, you know, that might hit a little quicker. But I'd say generally speaking, you know, we
Jeff Martin: The backlog is similar in nature. It's bigger, obviously, than it's been, but relative to what we forecast for next year, I think it's characteristically aligned.
In terms of permitting, we don't...
We don't anticipate any real hurdles with that.
OK.
Speaker Change: that's helpful. Just maybe a couple of clarifications here then. It looks like the the one-time cost associated with the staffing adjustments was that it looks like there's the in the other line for your Justin Yvette bridge is more than a little bit than it has been historically. Is it in there an added back Bruce?
and then I'm sorry just on the on the
Jeff Martin: In your script, the comments on the changes related to the calculation of organic growth, excuse me, can you just go through that one more time?
Jeff Martin: just so I can make sure I understood what you're doing.
Speaker Change: For the quarter for the for the quarter for looking at third quarter. We we looked at a trailing four quarter
Speaker Change: organic growth rate using the same methodology we've used in terms of anything that is
Jeff Martin: More than four quarters prior was in the organic base from which we were growing. Anything that was acquired in the last four quarters is eliminated from the total net revenue used to calculate the growth on top of that. In terms of the year to date, it's the same as it's been.
Speaker Change: Sorry, so you're saying that the, the, the, uh, what was it, the 8%
Speaker Change: organic NSR growth that you highlighted in your release is based on a four quarter result that's reported for this quarter. Did I understand that correctly? Trailing four quarters, trailing four quarters from third quarter so it would be fourth through third and then a third fourth so 422 to 423 versus 423 to 324.
with everything from prior year being reassigned to work.
Got it.
Speaker Change: Okay, I'm going to try this maybe a couple different ways. What would the calculation have been under the old methodology for the third quarter?
Speaker Change: So the third quarter in discreetly would have been about flat because there was because of the timing of acquisitions in the previous year.
singular Q over singular Q, it was more flat.
Speaker Change: Okay, yeah, that's us trying to understand. Okay, that makes more sense. Okay, so then, just in terms of...
Speaker Change: The M&A pace, I'm just kind of curious, did the organizational changes in the quarter at all impact the deal flow that you're able to execute? Or were they kind of mutually exclusive actions for the company during the quarter?
Speaker Change: The organizational changes didn't adversely affect our ability to do deals and the pace of deals. I'll call it our machine is still in place.
Speaker Change: Got it. Okay, I think that's all my questions for today. Thanks.
Thank you, Randy.
Thank you.
Speaker Change: The next question comes from the line of Britt Dillman with D.A. Davison and Company. Please proceed.
Speaker Change: Great, thanks. A question around the margin expansion applied in 2025. What are the levers you're going to be able to pull to support that? Just thinking about that in context to what we've seen in
2024 that's far as it beneficial contract mix is it
Speaker Change: Is it the margin expansion implied in 2025? I mean what are the levers you're going to be able to pull?
to support that.
Thank you.
Speaker Change: So we think that we are, again, continuing to improve our economies of scale.
Speaker Change: We think that we are as we're growing the top line, you know, we're starting to
Speaker Change: to be able to better meter the overhead costs associated with the revenue.
Speaker Change: like some of the, I don't know that I would say it's built into the contract rates.
Speaker Change: We certainly are seeing some improvement in, I think, some of the multipliers that we think we can be getting on some of these projects, marginally, and that's all it takes is marginal improvement.
Speaker Change: a continued focus on operational excellence. That's a lever always to be pushed.
renewed focus on that.
Speaker Change: When we look at this quarter, we're in that. We're in the range of that.
Speaker Change: Right, so the expectation and especially some of the things you've been doing here internally in the last three, well more than nine months, that you should be able to outgrow your SG&A.
Speaker Change: Yeah, we think we can squeeze a little bit more out of labor, you know, the relationship of, you know, with labor, labor multiple of, revenue multiple of labor and SG&A. And again, I think, you know, this quarter we're in, we're in the range of where we want to be for the whole year.
next year.
Right.
Speaker Change: Some companies talking about, you know, sort of slower trends as of late. I know you're not really directly tied to the starts per se, but is that area of your business stable for you? It sounds like maybe you're anticipating it to reaccelerate based on conversations you're having. Just be curious. We could talk around that.
Speaker Change: Yes, it's stable and not to quote what you just said, but we are, based on conversations, based on level of activity, on proposal activity, we do see new energy being injected into that going into 2025.
Okay, thank you.
Thanks Brent.
Thank you.
Speaker Change: The next question comes from the line of Alex Riegel with B Riley. Please proceed.
Good morning, gentlemen.
Speaker Change: A couple quick questions here. First, stock-based comp declining as a percentage of revenue. Is this a change in compensation strategy? Is it a swap into more cash comp? Can you talk about that comment a little bit more?
Speaker Change: I think it's a combination of a couple things. Yes, it is metering of the utilization of stock as compensation, you know, looking ahead, there is the burn off of old
Speaker Change: grants that burned off now from pre-IPO days. It has to do with, yes, there may be some shift towards more cash-based compensation. I don't know that it is an increase in overall compensation.
Speaker Change: but a shifting of paradigm there a bit, and just growing into, you know, the level of having revenue grow at a pace, you know, such that it absorbs from a percentage basis more of that stock out.
That is helpful. And then,
Speaker Change: Two questions as it relates to some of your end markets. First, any update on the data center market and in particular, these really large AI data centers? And then secondly, if you can provide any comments on whether or not you're seeing multi-family opportunities re-accelerate?
Thank you.
Speaker Change: on the residential, on the multifamily, yes, we are seeing some significant movement in multifamily. Like say, as far as proposals.
Speaker Change: level of interest from the market. So we have a high degree of optimism that we'll see some acceleration in the multifamily activity next year. Yeah, Alex, the data center market constraint today is the power, not the land.
Speaker Change: And so in a lot of ways, things are bleeding across a couple of different sectors for us. So I think there is activity we see in the capacity side of power to provide for what is an ever increasing demand for the physical data center locations.
Speaker Change: he's early reading about how folks are starting very preliminarily to look at SMRs as power sources for for data centers so we're working it's coming at us from two different directions. One of the things that we're
Speaker Change: seeing, hearing from the data center market, the AI data centers.
use this term, I think it's right, extensive to the latency. So there's a lot more flexibility to where AI data centers can be located as far as proximity to the fiber corridors. So that just, that opens up more opportunities for us with our geographic dispersion.
Speaker Change: to do data center work in areas that we weren't doing it before. We do get a lot of inquiries, I'm told, from landowners, you know, thinking about re-
Speaker Change: rezonings or reuse applications to change over. Hey, can I be a data center? Everybody now has got a couple acres wants to be a data center.
Very helpful. Thank you very much.
Thank you, Alex.
Thank you.
Again, to ask a question, please press star 1.
There are no additional questions left at this time.
I will hand it back to Gary for closing remarks.
Gary: Thank you, Tia. Just I'll close by thanking everybody for participating this morning.
Speaker Change: Thank you to those who are part of Bowman for all the hard work done, all the good work over this quarter, certainly to our investors and stockholders. Thank you for the faith you put into us and we're quite pleased with Q3 and quite pleased with our progress in continuing to evolve this company and reach our growth goals. At that, we'll wrap it up for the morning. Thank you everyone.
Speaker Change: That concludes today's conference call. Thank you. You may now disconnect your line.