Q2 2019 Earnings Call
I will begin momentarily. Thank you.
Good afternoon, everyone and thank you for participating in today's conference call to discuss Nvfives financial results for the second quarter ended June 29 2018.
Joining us today are Dickerson Wright, chairman and CEO of Nvfive.
Edward Codispoti.
CFO of Nvfive, Alex Hockman, President and COO of 35 and Richard.
Executive Vice President and General counsel at Nvfive.
I would now like turn the call over to Richard.
Thank you operator before we proceed I would like to remind everyone that this conference call may contain forward looking statements within the meaning of the safe Harbor provisions of the U.S Private Securities Litigation Reform Act of 1995.
Including statements concerning future events and future financial performance.
The company cautions that these statements are qualified by important factors, including those discussed in the risk factor section of Nvfives annual report on Form 10-K for the year ended December 29 2018.
Which is on file with the Securities and Exchange Commission as well as in other documents that the company files with the commission from time to time.
These factors could cause actual results to differ materially from those reflected by the forward looking statements contained herein.
While the company may elect to update forward looking statements at some time in the future. The company specifically disclaims any obligation to do so even if estimates change and therefore, you should not rely on these forward looking statements as representing views of any date subsequent to today.
During this call GAAP and non-GAAP financial measures will be discussed a reconciliation between the two is available in todays earnings release and on the company's website at Www Dot Nvfive dotcom.
Please note that unless otherwise stated all references to second quarter 2019 comparisons are being made against the second quarter of 2018.
I would like to remind everyone that a webcast replay of this call will also be available via the link provided in today's news release and the investors section of the company's website.
Any redistribution retransmission or rebroadcast of this call in any way without the express written consent of Nvfive Global Inc. is strictly prohibited.
We will begin the call with comments from Dickerson Wright, Chairman and CEO of Nvfive, and Alex Hockman, President and COO of Nvfive before turning the call over to Edward Codispoti, Chief Financial Officer for a review of the second quarter 2019 19 results.
And outlook for 2019.
We will then open the call for your questions.
Dickerson. Please go ahead.
Thank you Richard and thank you to everyone joining us for Nvfive second quarter 2019 conference call.
We are pleased to announce another excellent quarter.
We accomplished revenue and earnings growth, even though some of our operation reported.
Project delays in anticipated projects that impacted revenue growth in the quarter.
As always we want to measure our success objectives.
Therefore, I will briefly mentioned our year over year comparison to the second quarter of 2018.
I will also mention specific accomplishments from first quarter 2019 to second quarter.
2019.
Edge Codispoti, our CFO will speak more specifically on our financial results and Alex Hockman, we'll be we'll highlight our operational accomplishments.
First.
Our overall financial accomplishments for the second quarter.
Year 2019.
Total revenue increased 23% year over year to $120 million per quarter too.
Net revenues or revenues performed in house increased to $99.5 million in quarter, two and an increase of 18% year over year.
Our organic revenue growth was 6% over last quarter.
Adjusted EPS was one dollar per share on 12.5 million shares compared to 91 cents on 11 million shares in Q2 2018.
Cash flow increased 177% to $44.4 million compared to $16 million for the first six months of 2019.
Backlog was 451 million as of June 29, 2019.
A 43% increase from $315 million as of June Thirtyth 2018.
I would also like to comment on the successful cross selling between our offices.
We have said specific financial goals for cross selling add at the end of Q2, we have completed $10.5 million in cross sale between our offices.
This represents work performed by our employees at a higher margin that otherwise would have been performed by sub consultants.
I would now like to comment on the four acquisitions that we have made since the beginning of quarter two.
In June we completed two acquisitions page, one consultants in Florida and at Altira Environmental in California.
Page one expands our construction quality assurance network throughout North, Florida, and Central Florida, including the high growth markets of Orlando and Tampa.
All to environmental strengthens our technical environmental transactional capabilities in the southwest.
The Geo design acquisition was completed at the beginning of July .
And it provides 75 with a strong geotechnical engineering presence throughout the Pacific Northwest and Los Angeles.
Our latest acquisition WH Pacific a firm founded in 1912 gets a strong engineering design capabilities and growing markets, including the state of Washington, Oregon, Idaho, Arizona and New Mexico.
An additional benefit of both Geo design and W.H.B. Pacific is the support that these two companies to provide for our energy 2021 initiative.
By providing us expanded capabilities and cross selling opportunities for our power clients in the Puget Sound region and Pacific Northwest.
Our mergers and acquisition pipeline is still full of opportunities.
However, our focus for the balance of 2019 will be on more strategic acquisitions that will densify existing platform and give us a competitive advantage in new service lines and geographies.
I would now like to introduce the discussion Alex Hockman the precedent of Nvfive.
Alex will comment specifically concerning our national operations and projects Alex.
Thank you take yourself and good afternoon, everyone.
One of the priorities of the power delivery group is to further expand its geographic coverage.
And in Q2, the group successfully delivered for new Master services agreements and targeted geographies.
These initiatives include substation transmission and distribution services for a large utility in the southwest.
Engineering services for a Rocky mountain southwest State energy provider.
Transmission engineering consulting services for a Texas utility.
And engineering and design services for utility in the Pacific Northwest.
For a wide array of services provided by the power delivery group include engineering and design for natural gas transmission electrical overhead and underground transmission distribution substation projects and fire mitigation projects.
Some of the key contracts secured in Q2 by the power delivery group include $5 million in new projects for California utility, including engineering design and permits support for a vehicle charging station infrastructure and the replacement of a tier four diesel generator.
In addition to power delivery group was awarded $10 million in new projects in contract additions with another California utility, including $7 million in engineering services to support fire risk mitigation efforts.
And an additional $3 million for third services, including feasibility studies fielding and design services for wireless fault indicators and distribution design services for expansion of an existing substation.
The building technologies group secured approximately $20 billion in new contracts in Q2, with some significant new wins for MVP and commissioning services.
One of these new wins or 750000 dollar contract for the remodel of a Las Vegas Casino.
We were also awarded a $450000 contract for renovations at a prestigious institution of higher education and Massachusetts.
Finally, we were awarded a commissioning project valued at $1.7 million at the Salt Lake City International Airport.
The east and west regions of Nvfives infrastructure verticals continued to demonstrate their ability to win large contract awards and expansion of our expertise and services.
One notable contract win includes owner's representation oversight and review of electrical transmission electrical distribution landfills parks and recreation public works and planning for a city and northern California and device fees for the broad range of services could exceed $20 million.
Andy five was also selected for a 5 million dollar land surveying project by Southern California Department of public works for projects, including water sewer and wastewater pipeline projects buildings bridges roadway paving process facilities and site work.
In New York Nvfive was awarded a $5.5 million in contracts by a public purchase orders for civil and site engineering traffic engineering and construction management.
And Wi Fi was also selected for a 5 million dollar contract to provide design and permitting of a 22 mile section of the Greenway project, which will connect all of your trails within Camden County, New Jersey.
Nvfives International team, which specializes in mechanical electrical plumbing fire protection technology, and energy analytics secured wins for several high profile projects, including a three year contract with Hong Kong government architectural services Department.
In Malaysia, Nvfive is providing full and partial floor Fedex for city banks call out for office, and MVP and fire services and design review and sovereigns Malaysian facility that manufactures carbon dish breaks for commercial aircraft.
In the Middle East Africa, and be fibrosis selected to provide a conditional survey of existing NBP ICTI and security at the Riyadh Mall in Saudi Arabia.
In Macao Nvfive is awarded several key contracts at the Wynn Macau Wynn Palace, and MGM, Macau, providing a variety of services, including MVP and gas engineering technology and fire services.
I would now like to turn the call over to our Chief Financial Officer, Edward Codispoti for a more detailed overview of the financial results for the second quarter of 2019, and mobile will provide our outlook for full year 2019, Ed.
Thank you Alex and good afternoon, everyone.
First I'll review the company's results for the second quarter 2019, and then ill provide our outlook for full year 2019.
Total revenues for the quarter were $128.9 million, an increase of 23% year over year.
Gross revenues under GAAP for the quarter were $128 million also an increase of 23% year over year.
Net revenues for the second quarter of 2019 were $99.5 million, an increase of 18% compared to net revenues of $84.2 million in the second quarter of 2018.
EBITDA for the second quarter of 2019.
Was $15.8 million or 16% of net revenues.
An increase of 20% from $13.2 million.
Were 16% of net revenues in the second quarter of last year.
Net income in the second quarter of 2019 was $8.8 million, an increase of 15% compared to $7.6 million in the second quarter of last year.
Second quarter 2019, adjusted EPS was one dollar an increase of 10% from 91 cents in the second quarter of 2018.
And as we typically define it adjusted EPS excludes the impact of amortization of intangible assets from acquisitions.
Our second quarter 2019, adjusted and GAAP EPS reflects weighted average shares outstanding of 12.5 million shares compared to the weighted average shares outstanding of 11 million shares in the second quarter of last year.
The increase in weighted shares outstanding reflects the issuance of 1.27 million shares of common stock from our secondary offering in August of 2018.
As of June 29, 2019, our cash and cash equivalents were $44.4 million compared to $16 million as of June 32018.
And during the quarter, we drew $10 million from our credit facility in order to fund anticipated acquisition as of June 29, 2019.
Cash flows from operating activities. During the six months ended June 29, 2019 were $17.4 million compared to cash flows of $10.8 million. During the six months ended June 32018.
At June 29, 2019, we reported backlog expected to be recognized over the next 12 months of $450.9 million, an increase of 43% from $314.6 million as of June 32018.
We are raising 2019 guidance for revenues, we expect full year 2019 revenues to range from $530 million to $545 million, which represents an increase of 27% to 30% when compared to gross revenues of $418 million in 2018.
Net revenues are expected to range from $413 million to $430 million, which represents an increase of 24% to 29% from 2018 net revenues of $334 million.
We expect full year 2019, adjusted earnings per share will range from $3.81 to $4, an eight cents per share an increase of 18% to 26% over 2018 adjusted EPS.
We now expect full year 2019, GAAP earnings per share will range from $2.57 per share to $2.84 per share.
This completes our prepared remarks and now we'd like to open the call for your questions.
Thank you, Sir ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on telephone.
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And our first question will come from Rob Brown of Lake Street Capital markets. Please proceed.
Talked a little bit about some project delays in the quarter could you give some color on that and how much that.
Flowed into the back part of the year.
Hi, Rob I don't know that Hi, this is <expletive> and good afternoon.
I'm of course, I'm here with with our team I don't know if I heard the first part of your question was it concerning what specific project delays that we had.
Yes, I think you might have mentioned to us maybe some delays in the quarter and just wondering what they were and how much might might fall into the back half of the year when they when they.
Moving forward.
Yeah.
Well.
Some of the projects that were just extended.
I know in Central Valley, California, some of our trends our Pride program management with our key contracts were delayed and we're just we're just extended that.
We had hoped would begin at the beginning of the first quarter and had.
Started later in the quarter. So we could we could not recognize all of that revenue and they were miscellaneous other projects that.
Were expected.
And that is why our performance was pretty close to budget, but.
But we were expecting the.
Projects to start a little sooner in the quarter than than they did.
Okay.
Great and then on your power business you named a number or you talked about a number of projects that were.
Going in active in and just wanted to kind of step back and kind of get into how much is that market growing and you seem to be getting good traction there.
Do you feel like you've reached a critical mass in that market or are there. Other pieces you can add that they can really accelerate that growth.
Well, you know, Rob I'm very optimistic and I feel we just touched the surface there that initiative.
Our energy 2021 initiative is going very well, we continue to win work on projects and some you know there are some delays and announce its because we have to many we have to get client approval, but.
The project.
The initiative I should say is going very well as far as some specific projects that we're working on that we can announce.
Ill deferred.
I'll defer to Alex perhaps you can maybe you want to mention some of that.
Power generation projects, but maybe particularly the one that we just announced a well I think in particular with respect to power growth. It's also the geographic coverage. So we're nowhere near critical Masters there is huge upside for expansion.
As we mentioned we are now working with the power utility in Texas, and that's relatively new we are expanding our market share and the Rocky Mountain region and also in the Pacific Northwest.
And we have a a group that also is not power power delivery, but does some power distribution in the northeast and there's a tremendous opportunity for growth in that market. So it is it is a service that has been able to grow organically at a very large rate and we see that in the foreseeable future to continue.
Robert just some more color we.
Recently announced the acquisition of WH PE, which.
I mentioned in the narrative that design firm with key offices in the northwest and that now gives us the opportunity in Portland, where we had two people will relocate them into their more established.
Offices, and we now have an opportunity to approach.
Clients, such as Portland General Electric we also through W.H.P. now have eight a broader and deeper contract with Pacific gas and electric which we were not doing as much as we want it to so we really think two ways. We think with the power initiative, but we can be operated optimistic of course on organic growth and we can use a platform for that growth the new acquisitions, we made.
Okay, Great and then last question your M&A strategy, I think you talked a little bit about maybe focusing on more strategic pieces.
Let me clarify sort of your thinking for the back part of the year as being bigger bigger acquisitions or is it different areas or clarity on what your thinking is there.
Okay, great yes.
Thank you.
Listen very closely we now have we recently made and.
Unfortunately, these the acquisitions happen and were offered opportunistic and some go on.
Back to back and and quicker you know we made six this year.
We are going to integrate.
We have some integration now which is extremely important to us.
Of these companies that we made but we now are still open selectively open selectively for recurring revenue product acquisitions for the second half of the year high EBITDA high barrier of Entre acquisitions.
Many in the technology space.
Some that will give us more opportunity in the Andy.
Gee I F surveying space space that.
The spatial surveying and aerial surveying work that we think some opportunities that would really expand our.
Our servicing capabilities and aerial surveys. So we're looking at opportunities there for the second half of the year and.
We will always be open for acquisitions, we actually saw were cash flowing very nicely and we have the opportunity to to be opportunistic.
When when we see a target.
Okay, great. Thank you I'll turn it over.
Thank you. Our next question comes from Jeff Martin with Roth Capital Partners. Please proceed.
Thanks, Good afternoon guys.
Hi, Jeff.
<expletive> wanted to get some perspective about the around the guidance revision relative to the acquisitions were made subsequent to the end of the first quarter with a thought that guidance would have come up a little bit more wondering what what the what bridges the gap to perhaps what could have been higher guidance.
As far as the on the earnings then on revenue both.
Jeff is that the question.
Yes.
Okay well.
On revenue, we tend to be we tend to be conservative and that also applies to our EPS.
Our guidance and adjusted EPS guidance, because we know that.
From what we see now we have some integrations to do we have these other companies and it's important that we really focus on the long term and what their long term contribution is rather than immediately look for scalability. So we tended to be conservative on the.
On the revenue guidance and on the.
EPS because we wanted to allow for a very conservative period for integration, but.
The guidance that we gave was conservative and.
Obviously, there is an upside to that.
Okay, and then is the use of sub consultants in the quarter or what you would consider a normal level given that the comp.
Book of business today.
Seems a bit higher than its run in the past.
Yeah kind of last two quarters now with that and other direct costs have been running in the 22% range or so.
Wondering if that's kind of the new norm or if there's something anomalous items and those numbers so last wealthy.
In our core business and across selling obviously the core business is business that is mostly public.
Public client base, where there is certain.
DB requirements and so we try to we try to do as much of that work we can internally.
While still meeting those requirements. However, we have to really growing and successful pieces of our business that use sub consultants that there's a significant markup on those sub consultants and that is our.
Chr I, which is the LNG conversion business, where they do have sub consultants those sub consultants.
Worked very well and we have a high margin markup were not limited.
Whereas with public with a public client base were limited to the amount that we can we can mark up.
The other is our recurring revenue.
A company that we acquired which does the surveys officer basin does the existing property and they were known as Bakken Clark, They're now Nvfive. They also have a larger subcontractor base. So as they as they grow and they are doing very well as they grow.
We probably will say the new norm is going to be a little bit higher than the 20%. We were shooting to be under that there were some times that we were when we when they were not or we didnt own them or they did not have as big a piece of the.
Business that they have now, but I would think now I would look for although we are still working on that cross selling and keeping it up.
Our work done.
Internally by our employees is the most we possibly can we don't we still want to encourage the growth of the.
Up our survey recurring Ulta survey business and with the LNG conversion business, where subconsultants are used at a high markup.
Okay.
And then not to pick what came out here, but I wanted to talk about DNA, a little bit ran almost 11%.
Net revenue in the past that generally run on that.
And.
8% to 9% range was curious are there any anomalous items in the DNA line in the quarter.
I think.
That is something we are looking at.
We are really addressing addressing that the GDP, so I am perhaps add or.
Alex May have more specificity and.
Certain things that were addressing and and what that is and why it's higher in the quarter.
So this event Codispoti.
Part of the reason for that.
Greece, and Gionee has to do with it as you know we have.
The material weakness that we announced at the beginning of the year, so along with that we have.
What I would call temporary increases in professional fees on the part of the auditors and and the entity that assist us with with internal.
With internal audit and so.
That's an overage that that we will see this year as we remediate and hopefully we'll be able to.
10 for that going forward.
And.
And then a lot of a lot of the rest of that increase has to do with just the as we bolt on these acquisitions going forward, there's going to be increasing gionee and of course, we're going to try and we will take advantage of scale as we move forward into the future.
Okay is it possible to quantify the.
Temporary elements of that professional fees and Overages and.
Specific to Q2 and then.
Do you have a given estimate for the balance of the year on that.
I.
I don't have an estimate for you for the balance of the year.
I can tell you that well and I don't.
We've.
Okay.
Yes.
Yes, without speth I know this we had and it hit because of Richard and I were just the.
We had an additional expense of 430000 from our Deloitte and Deloitte auditors because there's extra work done that we also have the another consultant that that works on.
On the right thing so I don't expect to see that.
Expenses continue that did hit and we are amortizing those additions those costs or costs over there.
Over the subsequent quarters, but they are due to run out in the end and I think we're well underway on addressing that the.
The material weakness so.
Those are the expenses that you saw hit in the second quarter that Reis se the race the indirect costs.
And we know that we will have some additional expenses, but those are mostly amortize now for the rest of the or they will I don't feel they will be as much as we have experienced in the second quarter.
Yes, okay. Okay.
And then final question can you give us an update on on.
How youre large.
Projects in the northeast are going those are those are projects that my understanding is well underway and there and they're moving along nicely now after having experienced some delays a couple of years ago, just kind of give perspective in light of your comments at the start of the call that you're experiencing some other.
Project delays, but I think it's interesting to see how those I'll, let al I'll, let Alex does come out yet.
I'll, let Alex addressed that I did say, though within the west the eye.
From what I see at him involved we are doing very well and our northeast work, but Alex it could answer that specifically so the northeast is not experiencing the delays in the northeast is actually ahead of budget. So those projects are moving along quite nicely. We saw a little bit of a of a slowdown on project starts in California, particularly with the proposition to our.
Regarding Senate Bill one.
But since that did not pass and the funding is remaining in place those projects are just delayed and now they will they will ramp up in Q3 and Q4.
Great. That's helpful. Thanks, guys.
Thanks, Jeff.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one on your touched on telephone.
Our next question comes from Lisa Springer with singular research your line is open.
Thank you good afternoon, Hi, Silicon Valley high enough.
And the conversation about M&A you mentioned.
One of your focus would be acquisitions that can build recurring revenues.
I Wonder if you can comment on what percentage of revenues right now is recurring and where you might want to take that over the next couple of years.
You know that.
Great question, Lisa that is.
That answer can be given in 15 different ways.
If it's recurring clients, we have about 92% of our work.
In our core businesses with existing clients. So many people classify that as recurring revenue.
What we like to say on recurring revenue is more subscription based and most of our Energens piece, which is a small piece of our business about $5 million in fees almost 100% of that is recurring revenue.
Much of the work that I mentioned with.
With the high sub consultant Bakken Mark is recurring revenue.
So it's really by the I cannot quantify that by percentage, but.
I can tell you that my client, we have a tremendous amount of recurring revenue.
Okay. Thank you that's helpful.
Okay.
Thank you.
At this time this concludes our question and answer session.
I would now like to turn the call back over to Mr. Wright for closing remarks.
Thank you.
Well once again, we are very pleased to report another successful quarter.
You know I'm often asked by investors what is the key to our success in fact have how to.
A couple of investors recently say actually say what is your what does the Nvfive secret sauce.
And I know.
I was reflective on that and I think a one word answer is and you hear it so much but it's our culture. So I'd like to define what our culture is.
We at Nvfive.
Our truly we it's not a culture of us and them. We're all in it together and the link is that aren't in key employees their employees that deliver that service to our clients are truly engaged they feel part of something they feel like they are shareholders and have an opportunity to grow with the company and I think that is a culture of inclusion. So we know that our people that we try our best to have our people to be part of what we are doing so that when we approach a client they know that they have the support of Nvfive and that they are doing something that they are being recognized for and they have an opportunity to grow at a tenbfive growth.
But that is just not with our and the key thing and I mentioned this earlier about integration that is just not with our existing employees, but it's all those companies that join us through.
Acquisition, we want to be sure that they are welcome. There included they feel they're part of Nvfive and we spend a tremendous amount of time of being proactive in meeting with all our people. So.
I think I'd leave it with the three key principles now that I thought about it that really maybe perhaps can differentiate us from.
But from other companies and maybe really doing it not so much saying it.
One word is we are United.
We are nvfive is one firm.
It is a firm that each of our business or service lines feel that they are equally important to the success of nvfive. So.
Whatever the vertical whatever the service line. They know what they are doing in that unit is very very important to the overall success of our company. So they feel United are part of it. The second thing we try to uncover courage is growing together.
We try to instill a culture of.
Organic growth growing their client base growing their service line and so we encourage we encouraged to a flat organization we encourage.
Ideas, we encourage recommendations we incur from any anyone what can we do to support you better. So that you. When you are in in front of our clients and our you were having this.
This thought of growing growing your business growing your service line and the organic growth and the last thing is.
We want to engage everyone. So we are proactive we try our best.
To have direct in frequent contact with our employees and our leadership, we like to talk to everyone and often many people hear me say.
It doesn't cost a nickel to smile.
Just be encouraging so we tried to really promoted nvfive, a flat organization, where everyone is important and that whether it be through our existing employees have been with us for many years all of those new companies that joined US. They all have a key role in the success of Nvfive. So we hopefully that we will continue to to follow that.
We appreciate art, certainly our shareholder base and the support that all of you listening this call a tad.
And the support that you're giving our company. So I want to thank everyone for listening today, we look forward to a very good balance of the year and we encourage you to is to continue to follow that what we're doing and I. Appreciate so much the opportunity to speak to you today and.
At times when we meet thank you.
Ladies and gentlemen, this concludes today's conference thank for joining and have a wonderful day.
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