Bowman Consulting Group Ltd.

Good morning. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group first quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Start followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press Start followed by 2. Thank you. Please note, 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 obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will... discuss certain non-GAAP financial information such as adjusted EBITDA and net service billing. You can find this information together with the reconciliations to the most direct comparable GAAP information. The company's earnings press release and 8K filed with the SEC and the company's investor website at investors.bowman.com. Management will deliver prepared remarks after which they will be taking live questions from published research analysts. Throughout the call, attendees on the webcast may post questions for 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. Bowman, you may now begin your prepared remarks.

Thank you, Candice, and welcome to the Bowman Consulting Group first quarter 2022 earnings call. I'm Gary Bowman, Chairman and CEO of Bowman, joined here this morning by Bruce Leibovitz, our Chief Financial Officer. Before we get started, I want to welcome everyone from McMahon Associates, the most recent addition to Bowman, The additional committed team of talented professionals is going to be transformative to our transportation practice, as well as to our business overall. We're excited to have this transaction completed, and we're really looking forward to the great work we're going to be doing together. The first quarter of 2022 picked up where 2021 left off, generating record results for sales, revenue, and adjusted EBITDA. And the Q1 momentum continues unabated into the second quarter. During the quarter, we closed on a $17 million equity raise. We booked over $60 million in net new orders, and we produced record gross and net revenue. The growth was driven across every one of the markets served by our business. Despite challenging world conditions, we continue to see multiple opportunities for profitable growth. Net service billing for the quarter increased 65 percent over the first quarter of 2021, with an organic growth rate of 36% over that period. During the quarter, we continued with the integration of seven acquisitions we made post-IPO, and we closed on an eighth with Perry Engineering in Tucson. Our collaborative culture of cross-selling and work sharing generated meaningful revenue synergies between our acquisitions and our legacy operations, which positively impacted the quarter results. Continuing to execute on our growth strategy, Last week, we closed on the purchase of transportation engineering firm, McMahon Associates, which is our largest acquisition to date. Within the first week, we've already realized over a million dollars of revenue synergy from this acquisition through a new traffic study engagement with one of Bowman's longstanding quick service restaurant clients. The financial impact of this one assignment alone essentially reduces the transaction multiple by nearly a full term. Gross revenue, In the first quarter, it continued to be concentrated in our building infrastructure market at just under 74%, followed by power and utilities at 14.5%, transportation at 7.5%, and emerging markets at 4%. For the sake of illustration and on a pro forma basis, if the McMahon transaction had occurred on January 1st, transportation would have been about 18% of our gross revenue and building infrastructure would have been 65%. It means the first of a number of steps toward meaningful diversification of our business by way of larger acquisitions. During Q1, building infrastructure grew by nearly $18 million, or 84%, over the same period in 2021, with nearly equal growth between commercial and residential, followed closely by public sector contracts. We continue to see healthy increases in quick-serve restaurants and commercial industrial projects, along with build-to-rent and residential inventory creation for home builders. Quick-serve restaurants represent a dependable source of repeat customer revenue, while development engagements like the Amazon HQ2 project in Arlington, Virginia, represent reliable long-term revenue. Demand for data centers and other industrial facility work is as high as it's ever been, with price and power remaining in our favor. Our current complement building infrastructure clients and projects have so far proven to not be tightly correlated to interest rate movements, and we've not experienced any slowdown in activity or request for proposals. Transportation is clearly in a transitional moment at the moment. While down slightly this quarter over the last year, we're confident between demand acquisition and the upcoming spending we expect to begin later this year and next in the infrastructure bill, this trend will quickly reverse course and the transportation will increasingly become a more meaningful component of our revenue over the next year. Our work on the mile-long bridge and Burleigh Avenue projects continue to generate meaningful recurring revenue, and the Cook County roadway construction management project is starting off in earnest this quarter. The I-35 Northeast expansion projects in San Antonio will be gearing up for long-term recurring revenue over the next several years. I'm happy to report that Bowman's was recently selected by the only tollway for the upcoming central tri-state I-294 project. We're negotiating the contract. I'll update you on that project in our next conference call. Our power and utilities work grew 16% year over year due in large part to increased spending on utility undergrounding and gas line engineering projects. We recently awarded a renewal in our long-term contract with Southwest Gas, and we continue to build on our long-term relationship with WEC Energy. Most of our long-standing utility clients are looking to increase their spend with us substantially this year over the last. The U.S. power grid continues to face unrelenting pressure to increase resilience and reliability, replacing aging infrastructure and integrate technologies such as electric vehicles, distributed generation, and battery storage. Spending on these initiatives is generally independent of macroeconomic conditions, and we're focused on continuing to invest and grow in this market. Our emerging markets, including mining, water resources, and energy services grew by 5% year-over-year in the first quarter. This increase was led by growth in renewable energy revenue, followed by mining and water resources. In the renewables market, we're providing a wide array of engineering services to solar and battery storage projects throughout the Northeast and Mid-Atlantic, and a growing number of wind energy projects in the Midwest and the West. Growth in renewables-related revenue has so far been organic, but we expect to accelerate that effort through acquisition later in 2022 and beyond. Acquisition integration continues to be a huge focus for us. Our dedicated integration team is doing a great job with both the tactical and the social aspects of integration. Including the man, we've added over 400 employees through acquisition in our first year as a public company. And the staff retention rate of our integrated companies thus far has been close to 97%. Above and beyond the talent we've gained from the acquisitions, our dedicated recruiting team has been able to add nearly 10% to the acquired firm's workforces. Just as important, our integration team immediately gets everybody focused on revenue synergies, and we've already notched a number of successes along those lines. Between the revenue synergies and improved utilization resulting from our recruiting successes, we're benefiting from substantial post-closing effective compression of our transaction multiples. Our M&A pipeline continues to be as diverse and robust as it's ever been, and our outlook for continued strategic transaction activity remains bullish. At $28 million in annualized revenue, McMahon is well above what we expect to be our average deal size in 2022. As we've said, we expect the average to be significantly larger than last year, we're currently shopping many deals in the low double-digit revenue range. We continue to be focusing on deals in the six to seven times multiple range, with occasional deal above and below that. McMahon, as an example, was priced at a multiple of six and a half times adjusted EBITDA without any consideration given to revenue synergies. We're not directly affected by supply chain disruptions, and labor is our only real inflationary exposure. The overwhelming majority of our clients are likewise not correctly affected by material supply constraints, and their demand for our services is only increasing. Across our markets, demand for engineering and design services remains strong, as evidenced by growth in revenue and backfalls. Price and power remains in our favor, as evidenced by year-over-year revenue growth meaningfully outpacing our growth and labor costs. Despite certain headwinds in the equity markets, we remain bullish on our prospects for continued growth and upside in our value proposition to our shareholders. We're raising our outlook for 2022 today, and as new acquisitions close, we'll continue to increase our outlook accordingly. Now I'm going to turn the call over to Bruce to discuss our first quarter results in greater detail. Terrific. Thanks, Gary. As you mentioned, as Gary mentioned, first quarter was a record-setting quarter at Bowman. Last week was the one-year anniversary of the pricing of RPO. I'm extremely proud to say that we've successfully navigated the transition from private to public and completed the year of firsts. Last year, Q1, we were still a private company. So comparisons to that quarter and periods which include that quarter are still a bit apples to oranges. As compared to Q1 2021, gross revenue for the first quarter increased 65% or $20.7 million to $52.5 million from $31.8 million. Of the nearly $21 million increase, $7.6 million was from acquired revenue and $13 million was organic, representing a 41% organic growth rate on gross revenue. Net service revenue, which we refer to as net revenue, a non-GAAP metric, increased 65.2%, or $18.8 million to $47.7 million in the first quarter, compared to $28.9 million for the first quarter last year. With the nearly $19 million increase in net revenue, $8.6 million was from acquisition, and the remaining $10 million was organic, representing a nearly 36% organic growth rate year over year. Gross margin for the first quarter was 51.5% as compared to 49.2% in Q1 2021. Improvement of gross margin over Q1 last year is principally a function of lower non-cash stock comp expense, but also improved utilization, mix of business, and a bit of pricing power. SG&A was 43.5% of gross revenue in the first quarter compared to 40.1% for Q1 2021. As I mentioned earlier, this comparison is not necessarily meaningful since this time last year we were still private and did not have any of the costs of being public, and we had lower non-cash dot-com expenses. What is notable is that SG&A as a percent of gross revenue is trending down relative to Q4 last year and last year as a whole. We continue to be focused on reducing the rate of growth of SG&A relative to revenue, expect SG&A to fall as a percent of gross revenue as we continue to build scale. Net income before tax is relatively flat year over year, with net profit for the first quarter up 50% to $1.5 million. Adjusted EBITDA for the first quarter was up 81% to $7.4 million, representing a 15.5% adjusted EBITDA margin net. This is an increase of 1.3 percentage points over Q1 2021 and 3.3 percentage points over a full year 2021. Adjusted EBITDA is a non-GAAP metric which adds non-reoccurring adjustments and non-cash expenses to EBITDA. As of March 31st, the company had approximately 12.6 million shares outstanding, which includes all the shares issued in the secondary offering and roughly 2.1 million shares of unvested restricted stock included in that number. As of today, the company has approximately 13.2 million shares outstanding, which includes shares issued in connection with the McMahon acquisition, and now roughly 2 million shares of unvested restricted stock included. As of March 31st, our net debt was negative to the tune of roughly 7 million. Unadjusted for cash, our ratio of adjusted EBITDA to total debt was approximately 1.4 times. We currently have approximately $23 million of cash on our balance sheet and zero outstanding on our $17 million line with B of A, which was recently approved to be increased to $25. That leaves us with upwards of $35 million of deployable capital for growth after accounting for working capital needs. As such, we believe we have sufficient liquidity for the near term to continue our M&A program. Gross backlog on March 31st was $173 million, up from $167 million at year end. We expect roughly 85% or $150 million of that backlog to turn during the next 12 months. Backlog was approximately 65% building infrastructure, 18% transportation, 15% power and utilities, and 2% other emerging markets. Pro forma for the addition of McMahon effective January 1, transportation would have represented roughly 29% of our backlog. Building infrastructure would have been roughly 56%. As indicated in yesterday's release, we're increasing our outline for top line guidance to net revenue of $185 to $200 million and increasing our adjusted EBITDA guidance to $25 to $29 million. This adds the impact of McMahon to top and bottom line, with little or no change to the outlook we issued just a few weeks ago back in mid-March. As is our policy, this guidance only includes acquisitions closed at the time we issue the guidance. It does not suggest the results will be evenly distributed throughout the year, and it likewise does not contemplate additional acquisitions we expect to close this year. As new acquisitions are closed, we will update our guidance accordingly on the subsequent quarterly conference calls. Before I turn back the call over to Gary, I'd like to mention that we will be at the B. Reilly Securities International Investor Conference later this month in California. If you're planning to attend the conference and you've not already done so, please schedule a time to meet with us one-on-one. And I'll turn the call back over to Gary for concluding remarks and Q&A. Thank you, Bruce. This morning we announced the addition of Raymond Vicks to our Board of Directors. I'm very happy to have Ray join us on our upcoming journey. I also want to thank Dan LaFave for his service to the board over the past year. I want to thank everybody here for delivering a fantastic quarter. We all continue to work diligently every day to deliver disciplined growth and return to our shareholders, and that includes many of the fantastic professionals working here at Bowman. Ownership's always been part of our culture, and today more than ever, the alignment of interest between employees and investors inspires us to succeed. Thanks, Simon. I'll turn it back over to the operator to open it up for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Brett Feldman of DA Davidson. Your line is now open.