NV5 Global, Inc. (NASDAQ:NVEE) Q1 2022 Earnings Conference Call May 5, 2022 4:30 PM ET
Dickerson Wright – Chairman and CEO
Edward Codispoti – Chief Financial Officer
Richard Tong – Executive Vice President and General Counsel
Mark Abatto – President and Chief Operating Officer, NV5 GeoSpatial
Conference Call Participants
Andy Wittmann – Baird
Jeff Martin – ROTH Capital Partners
Chris Sakai – Singular Research
Rob Brown – Lake Street Capital Markets
Marc Riddick – Sidoti
Good afternoon, everyone. And thank you for participating in today’s Conference Call to discuss NV5’s Financial Results for the First Quarter 2022 Ended April 2, 2022.
Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Codispoti, CFO of NV5, and Richard Tong, Executive Vice President and General Counsel of NV5.
I would now like to turn the call over to Richard Tong.
Thank you, Operator. Welcome everyone to NV5’s first quarter 2022 earnings call.
Before we proceed, I would like to remind everyone that today’s discussion contains forward-looking statements about the company’s future, business and financial performance. These are based on management’s current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today’s presentation slides and in our reports on file with the SEC.
During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the two is available on today’s earnings release and on the company’s website at www.nv5.com.
Please note, that unless otherwise stated all references to the first quarter 2022 comparisons are being made against the first quarter of 2021. In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities Exchange Act of 1934 as amended.
Non-GAAP financial measures included in this presentation are adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margin. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5’s financial results.
However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP. In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies.
A webcast replay of this call and its accompanying presentation are also available via the link provided in today’s news release and on the Investors section of the company’s website.
We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5 before turning the call over to Edward Codispoti, Chief Financial Officer for a review of the first quarter 2022 results. Dickerson Wright will then provide closing comments before we open the call for your questions.
Dickerson, please go ahead.
Thank you, Richard, and thank you to everyone that is joining us for today’s call. You will notice we have provided an investor deck for you to use during the presentation. So, now let’s turn to slide five on that investor deck, where we will discuss our first quarter 2022 results.
Gross revenues were $190 million, a 24% increase over the first quarter of 2021. Our adjusted EBITDA was $29 million, a 19% increase over the first quarter of 2021. Adjusted earnings per share was $0.99 per share, a 13% increase over 2021 first quarter. Even though the share count rose from 13.4 million shares in Q1 2021 to 15.2 million shares in Q1 2022. Growth was driven across all verticals of the core business and the geospatial service line.
Although, we live in a difficult global environment with wars and the COVID pandemic, we continue to see positive opportunities for growth. NV5 has recorded a $683 million backlog with continued strong pipeline of opportunities for organic growth, and mergers and acquisition growth.
Our cash position and cash flows remained strong. This serves as a safety net in an uncertain macro world and also positions us for growth through M&A for the year.
Turning to page six, we will discuss our quarter one highlights and opportunities for the balance of the year. You will see we highlight growth from our six verticals, which all remain robust. We are seeing exceptionally strong growth in energy efficiency, geospatial services, utility and environmental transaction services, all of which are exceeding our budget projections for 2022.
Let’s now go to page seven, where we will discuss our acquisition activity that has either taken place or opportunities that we see going forward for 2022. During the beginning of quarter one of this year, we completed two strategic acquisitions to strengthen our MEP services and our construction quality and tech services.
Fulton Consulting Engineers further strengthens our MEP or mechanical electrical plumbing engineering and energy efficiency services in the Southwest. River City testing allowed us to further expand our construction quality and kick services in the riverside in San Bernardino counties, two of the largest counties in Southern California. We expect to see larger future acquisitions in geospatial and infrastructure in 2022. Our model for acquisitions remains the same, culture, competitive advantage, and a strong history of profitability.
On page eight, I would like to briefly mention our backlog growth, which gives a strong indication of the continual growth of the company for 2022. Our backlog grew in quarter one of 2022 by 17% over the same period of quarter one in 2021.
Now turning to page nine, as you have heard us mentioned many times, cross selling is a major component of our internal organization’s growth. Our cross-selling increases inner office sales between locations through the NV5 network and has been very inclusive for the network. We have increased our cross-selling target for 2022 to $34.3 million for the year from $31.2 million in 2021.
We will now transition the presentation to our CFO, Ed Codispoti to provide an overview of our first quarter financial performance. Go ahead, Ed.
Thank you, Dickerson, and good afternoon, everyone. If you would please turn to slide 11 of the presentation, I will highlight some of our first quarter financial results. Our gross revenues for the first quarter of 2022 increased by 24% over the same period in 2021. If you strip our incremental acquisition-related revenue, our year-over-year growth was 12%.
Net income increased to $8.6 million in the first quarter of 2022, compared to $5.5 million in the first quarter of 2021, a 58% increase. Our adjusted EBITDA increased 19% to $28.9 million in the first quarter of 2022 from $24.2 million in the same period last year.
Our GAAP earnings per share increased to $0.57 per share in the first quarter of 2022 from $0.41 per share in the 2021 first quarter, a 39% increase. And our adjusted earnings per share increased to $0.99 per share in the first quarter of 2022 from $0.88 per share in the 2021 first quarter, a 13% increase.
On slide 12, you can see we continue to demonstrate strong cash flows on top of a relatively low net leverage position. Our cash flows from operations for the first quarter was $46.5 million, which was 1.6 times our adjusted EBITDA and our net leverage was 0.4 times. We believe our strong cash flows and balance sheet position us well for the execution of our business model and strategy and we are excited about the remainder of 2022.
With that, I will turn it back over to Dickerson for some additional perspective on our growth positioning.
Thank you, Ed. Let’s turn now to slide 14 of the presentation. You will see as a result of our strong performance for Q1 2022, we are increasing guidance for full year of 2022, where gross revenues from an original $773 million to $802 million now to $785 million to $810 million and increasing guidance for full year 2022 adjusted EPS from $5.39 per share to $5.70 per share to $5.39 per share now to $5.80 per share. We feel comfortable in our outlook for 2022 based on NV5’s strong position in support of infrastructure throughout all of our services.
Now I would like to turn it over to the Operator to begin the question-and-answer session.
Thank you, sir. [Operator Instructions] Our first question will come from Andy Wittmann with Baird. Please proceed.
Great. Thanks for taking my question, and good evening, guys. I just wanted to start out, Dickerson, with a question on some of the businesses that you have around the commercial real estate, you have got clearly the MEP stuff that you have talked about and I know that you have been high on real estate transaction services, where we have seen very good momentum and that’s evident on your slide that you put out here today. I am just curious, I mean, I expect that the quarter is obviously good on both of those. On a forward-looking basis in a rising interest rate environment, can you tell us what you have seen historically and how those businesses react in a world that’s starting to look a little bit more realistic for higher rates and a more challenging economy?
That’s a good question, Andy, and it’s one that I often ask, how we are doing in their real estate transactional service business, because they are very sensitive and subject to interest rates. In fact, I spoke to one of our key operators in the group today and they are busier than they have ever been.
And it could be two things, it could be the portfolio, we do very large portfolio transaction services and I think many people are probably trying to get those done before they see the interest rate could go up.
I can’t give too much away on forward thinking, but at the April results continue in that area from both groups. Our recent acquisition of Global Services and the Bock & Clark one that are make up our transactional real estate, both are operating very, very strong.
But in that area, there could be erosion, there could be erosion at — it’s a natural thing with interest rates to this type of services depending on those. So it’s not realistic to continue to see at a zero interest rate at the services would continue at the same pace as they are now.
But I can say from what we see and what we know now they are continuing very, very strong. That is probably the main area that we have that is subject to — really subject to interest rates and I will speak in our concluding comments, how we try to position our company to be more end mandated work so that it’s not as sensitive to interest rates.
I see. Thanks for that color. And I was just wondering, maybe a little clarification on the guidance here. I think I heard in the script that organic growth was 12% in the quarter and I was just wondering with the acquisitions that have been filtered in here, what’s your thinking the organic growth rate could be for the year that’s implicit in the in the revenue guidance that has been updated here today? And if there is any acquisition revenue in there that has not been publicly announced in other words, is it assuming any future acquisitions that we don’t here in the public markets know about yet?
No. We are not assuming any future acquisitions. We did two very small acquisitions that were strategic that I mentioned in the — in my covered remarks. We do not consider acquisition that we haven’t taken place. We don’t consider any growth in that. So when we gave guidance, it did not include any anticipated acquisitions that we may have.
I would say though that at our growth, we would continue and we feel comfortable sill with the hot mid-to-high single digits overall organic growth and that would be based on work that we are going forward replicate from now through the remainder of the year.
We did have a very good quarter on organic growth in our first quarter and but we still think that our guidance of 5% to 9% or so of organic growth is what we are anticipating for the rest of the year.
Great. I will leave it there. Have a good evening. Thank you.
Thank you, Andy.
The next question is from Jeff Martin with ROTH Capital Partners. Please proceed.
Thanks. Good evening.
Hi. Nice quarter. Great to see it. Hi, Dick. How are you?
Thank you. Good. Good.
Dick, I was just curious if you could give us an update on geospatial with respect to contract bidding activity, contract awards, if the government-related delays that we saw in 2021 are clearly in the rearview mirror now? And then also on the tie that into how geodynamics has been performing you go in that a little over a year now and that ties in well with the QSI business?
Yeah. Let me mention. I am going to let, Mark Abatto, the President of our GeoSpatial Group is on the phone and he may have some of the specific things, but let me give you a macro picture. One, we are very happy with the geospatial performance this year. And in fact, they had anticipated growth of about 14% organic growth from their budget and they are right on that budget. And included in that budget was Geodynamics because of the acquisition happened, we have them in a full year rate right now.
Initiatives, I — we are going to be speaking up specific initiatives that we are doing for the year that continue to grow the company, and that hopefully what we mentioned some of those during our Investor Day presentations on May 26th.
However, some of the things that we are looking at is offshore wind. Geodynamics has — their structure of that acquisition was an earn-out and they have made all of their revenue projections. They have had a slight delay in one project that is going to be starting, but now we given through capital expenditure, we have given them the ability to do deepwater mapping that they weren’t able to do before and we are having a ship modified to do just that.
So the geospatial area, we think is, where — I am very pleased with it, certainly pleased with what’s been going from last year and that’s why I think we have some specific initiatives for the geospatial work. Mark maybe, you are there, if there’s anything specific you would like to comment, feel free to.
Yeah. I’d be happy to jump in. I think that what we saw very encouragingly in 2021 was that, the large federal IDIQ contracting vehicles did start to close out in a timely fashion. And those are the leading indicators to future work at large scale with the federal government in particular.
The pacing of awards is roughly about the same as what we saw through 2021 and that is to say a little bit slower, but it’s a matter of timing and working through some of the kinks in the procurement cycle.
So we are still very encouraged by the contracting vehicles sort of proceeding on time. The demand is no different than what we had expected. It’s just that there has been some delay in timing for a federal perspective.
At the same time, as Dickerson mentioned, Geodynamics is doing incredibly well. They are positioned very well in a market, which is beginning to grow relative to offshore wind in cable corridor landing, which they are tailor made for, as well as a number of coastal resilience and charting projects. So those are starting to come through as well. So we are feeling very good on the government side.
Thank you, Mark.
Yeah. That’s very helpful detail. Thank you for that. And then I just have a couple of questions for Ed here. One on the direct — the other direct cost line of the model that increased about 50% year-over-year, haven’t seen a number in the $15 million range on a quarterly basis in history as a company. Just curious, if there are certain things contributing to that and if that’s an unusually high number, how we should think about that going forward? And then second question for Ed is, was there any change in contingent consideration estimate liability within the P&L this quarter? Thanks.
Hi, Jeff. Yes. So with respect to other direct cost, it is really driven by — primarily by mix of business. In particular, our LNG business, which at times throughout the year depending on what phase of the projects they are in may have more pass through costs and others. So we would expect that to normalize throughout the year.
And with respect to your question on contingent consideration, we did pay off about $1.5 million during the first quarter related to one particular earn out. So, not material, but just a sign that some of our acquisitions have been hitting their targets, which is a positive thing.
Okay. My question was more around was there any change in the contingent consideration liability that hit the income statement during the quarter?
Not in the first quarter, no.
Okay. Very helpful. Thank you.
Our next question is from Chris Sakai with Singular Research. Please proceed.
Hi. I am in for Lisa Springer. Just had some questions. Let’s see, so NV5 just recently added deepwater geospatial capabilities. What types of customers need these services and what factors do you see driving increased demand in 2022?
Well, and I am going to let Mark go this, speak to the — Mark Abatto speak to the specific of demand. But generally speaking, our work for any of the deepwater mapping and measurements, our clients are government agencies that are looking for mapping up and erosion of the seawall and many of that those measurements are taken because of change in the environmental conditions. But those clients tend to be government clients and this is not really a commercial application. But Mark, you may want to comment further.
I think that’s well said. I think that we are starting to see a real balance in terms of demand for full ocean depth solutions whereas before I think the Government space clearly was the driver for demand.
In particular, some of the scientifically based agencies NOVA, being a very good example of that where we will providing coastal resilience, ocean floor mapping, charting tape solutions. But as the offshore wind energy market is developing, that is a space where we are investing and it’s a very under penetrated market and we see some great growth opportunities there as well and that happens to be more private sector.
Okay. Great. And so you mentioned at the end of your last call that your Geodynamics business was well positioned to pursue offshore wind energy opportunities and as a result of the 16 projects currently underway. Could you give us a sense of what would be your average contract size for this type of project and if our customers for this type of project are generally more multi-site developers or not?
Well, I would give you that answer, but I may have to kill you, but so we don’t want to do that. And the reason I am a little bit hesitant, we will be speaking on Investor Day on some very specific initiatives that we are doing to capture the offshore wind power work.
Those contracts tend to be larger though. They tend to these up six-digit in contracts. And so with each individual, there is one main general developer that we have just signed two initial contracts with and those are, I think, those contracts are for $3 million.
But I can tell you the 16 — of the 16, how much each of those are going to be, but there is one general contracting fact that we are having a ship built that’s being built to do that measurement and it should be completed, but it’s being done to the specifications that where we require and this particular client for the wind offshore has asked for.
We see a tremendous market there. But I’d really defer — I’d rather defer to our Investor Day, where we speak and we will have some visual on what we are actually doing — going to be doing on wind and offshore measurement.
Okay. Great. I suppose to try and find Lisa first. Last question on from me, so it seems like there is a lot of acquisitions you have had in California. Could you comment on opportunities for your Utilities Services business in that state?
Could you repeat the question please?
Could you comment on any sort of opportunities that you are seeing in California in the Utilities Services business?
Yeah. There’s a lot of opportunities and I am glad that you mentioned a specific reason. In the West, there’s huge issues with taking overhead power lines and putting them underground for fire mitigation and fire mitigation work and the major utilities in California, all have issues with buyers being developed from transmission lines.
And so, we are doing a lot of work in the mitigation area and design area and those are for the Western utilities and so we think that there is a very good opportunity for that. Nation-wide, there is an aging grid. The overall grid for supplying electrical power, it needs constant improvement. So we see some very good opportunities there as well.
Okay. Great. Thanks for the answers.
Okay. Thank you. Thanks for the questions.
Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed.
Hi, Dick. Nice quarter.
I wanted to clarify on the demand environment. Are you seeing any of the Infrastructure Bills pending or is this growth or strength really kind of other things going on and from your own internal cross-selling efforts, just help me understand the demand environment drivers there?
Yeah. Well, that’s good. I think you and I will probably agree on the definition of infrastructure. Maybe this administration doesn’t agree on what infrastructure is or not. But as far as pure ground up projects we have seen very little actual support from the Infrastructure Bill.
We think that we are in a very nice space. We like the idea that we have tailwinds rather than headwinds, because infrastructure absolutely, it’s something that is mandated, it needs to be — needs to have improvement.
That infrastructure can be anything from water delivery service, drinking up clean water, going over safe bridges, going down roads that need to be done, then it’s probably we are defining infrastructure as work that for services that we actually provide. So I think we have seen the government funding that we are expecting to see hasn’t come to realization yet, Rob.
Okay. Thank you. And then my second question just on the place environment and you can adjust that with some of your government contracts, but are you trying to kind of play catch-up in general or do you — can you manage your cost structure and your contract’s kind of within in a similar time period?
Well, I don’t know if you mean from staffing, obviously, we want to keep most of our people utilized. And most of our work, so it’s based on our unit price basis where we have the people, we pay the people, they do the work. So it isn’t that we are being overwhelmed, but we can only utilize more people than we can. We would watch the utilization rate.
But I wouldn’t say we are at maximum capacity to do this work. But I certainly think that the guidance we have given as far as the revenue generation, we certainly have the staff to support that guidance.
Okay. Great. Thank you. I will turn it over.
[Operator Instructions] Our next question is from Marc Riddick with Sidoti. Please proceed.
Hi. Good evening, everyone.
So I wanted to start with, I am trying to, if I remember correctly, last year geospatial started the year, maybe a little slowly or had some impacts around the weather and seasonality, just wondering if Mark could talk a little bit about that, because as to how that looked this year versus last year if I am remembering that properly.
You have a good memory. That’s right. Mark will answer that for you.
Yeah. From time-to-time the weather patterns, particularly in the Northeast, snow and ice do disrupt the first phase of our value chain, the data collection and that was an impact in Q1 of last year.
I think we saw a fairly similar situation towards the latter part of the first quarter this year as well. The difference being and the reason why we were able to grow in spite of some of those challenges is that we entered 2022 with a stronger backlog.
We had done enough of the data collection for some large projects, particularly for Utilities in the fourth quarter of 2021 with that kind of information available to us. The processing in the analytics phase is where we focused quite a bit of our time in Q1 of this year.
I see. It didn’t necessarily seem as though weather was particularly your friend this year either, so the idea that you were just still able to benefit is certainly a positive. Quick switching of curiosity, so appreciate the increase of guidance. Quick question on, is there a general share count assumption which we are looking at for that range of guidance?
We are basically using the 15.3 million shares.
Which is an increase of up from our 13.8 million, but we could probably easily go to 15.5 million. I think the balance sheet in our financial statement shows 15.2 million shares.
Okay. Okay. Excellent. And then I was sort of thinking about the as far as with deepwater, is there sort of a general way we should be looking at the competitive dynamic in that part of the business and maybe what your thoughts are there around that compared to the rest of the company?
Correct. I — Mark can comment on this too, but it’s really geography driven. We have the capabilities in deepwater measurement in the Atlantic Ocean. There is probably a competing firm one the Pacific — in the Pacific area that we can still do some of that work, but not as much deepwater work.
So, I think that the competitive landscape is really who has the equipment and who is really has the expertise. And right now what I know of is, we are probably the main person on the Atlantic Coast and then there is a competitor in the Pacific. And Mark, maybe you can comment on that a little bit more if you like.
Sure. Happy too. I think on the government side and the IDIQs under which we participate, they are multi-partner. We definitely enjoy a significant share of wallet under those contracts. But as Dickerson mentioned, the differentiating factor is, what — how we have invested in the equipment, the advanced technology, the processing and the analytics. I think that sets us apart from a number of the competitors in that space, particularly on the Eastern Seaboard.
But as we also expand into offshore wind, that are very under-penetrated market, with very few competitors, especially in the particular part we play in, which is the nearshore cable corridor landing environment. So we really like our position there and that’s where we will be investing.
So very encouraging. So thank you very much. Really appreciate it.
At this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Wright for closing remarks.
Thank you, Operator. I thought I would have and the company should have a few comments to give a sense of where we are, what their presence is. And to do that, I’d first like to go back. NV5 was historically structured and we have always been structured to support the public market demands.
And we have ranged, but basically speaking, our public entity service demands is usually 70% and this is mandated work and you have heard me say many times, this is work where people need to drink clean water, they need to go over safe bridges and they are not so dependent on that economy.
With that in mind, we have always structured no organization to be nimble to look at opportunities and be opportunistic on the most current market trends. So we have all been following the news and you know the international news, it’s very apparent that energy sources and delivery of those of energy is a worldwide concern. There can be geopolitical reasons, there could be many different reasons, but obviously, the supply of energy outstrips. It does not face or the demand, I should say outstrips the supply.
So we are anticipating from our space, an increased focus on alternative energy sources, conservation and delivery systems that will address these concerns. So there will be much more investment and we have seen this all over and this has been stated and you can see that there is going to be a tremendous amount of more investment in North America, where energy and we at NV5 want to be prepared and are prepared to support that.
So what we will be doing and you have heard me reference this, we are having an Investor Day on 26th of May and you are going to see three specific initiatives that we will be talking about that will support the energy delivery systems, energy demand, existing utility support, and all of these will be initiatives that we tended to continue to do and add corporate resources to grow those.
So we will be introducing those three and we invite anyone to — any investor to come and attend who is in Chicago on May 26th and also for those that cannot attend in person, there will be a website and we will be answering many questions.
But I think it’s fair. I am very encouraged about what we are doing to grow this initiative, how we are supporting it from the corporate level and you will see a tremendous focus now on systems to deliver energy and new ways to map that, and hopefully, you will see those and we will be presenting those at the Investor Day to help grow the company.
So, anyway, we live in very fragile times we know with the economy is changing and it’s very important that we at NV5 be nimble, as I said before, so that we can support opportunities and we can change. We can change from things that could be affected by interest rates, those that may not be, those that will be affected by higher demands for all of our services. So we keep this in mind and we hope that we want to stay focused on what we do in our vertical flat organization.
So I want to thank everyone today for joining us for this call. We are proud of the first quarter results. We feel very –we look forward to a very successful 2022 and we want to continue to support you and our employees. We want to support them so that they can support you.
So, anyway, thank you for the time you have given us today and we look forward to speaking to you either during the Investor Day or certainly be speaking with you in the next quarter. Thank you.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.