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spk01: 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.
spk03: 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.
spk01: 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.
spk02: Great. Thanks. Good morning, Gary Bruce. My first question, I mean, really strong start to the year here. Anything to be aware of that might have had an unusually strong impact this quarter, you know, specific programs or contracts? I'm just, you know, the seasonally slower quarter for you. If I analyze that, that gets me to the midpoint of your guidance, frankly, a little bit about that. Just want to be sure I understand all the moving pieces in the quarter and what we should be thinking about for the rest of the year.
spk03: There really isn't one particular contract or one particular client or any one particular event that made the quarter strong. It was just a strong quarter for us. It's the culmination of a lot of hard work in business development and acquisition strategy. there's really a very balanced portfolio of revenue that makes up the quarter. So we think that's a positive, that there isn't one anomalous thing that impacted it positively. I'll just reinforce that, Brent. It is spread all over. There's not any big rock, a couple big rocks that are not sustainable that boost it. Yeah, we were not terribly seasonally weather affected generally. It was a mild, more mild winter in a lot of our markets. And we have become, as we become more geographically diversified, somewhat less impacted by winter weather on outdoor work.
spk02: Okay. Okay, fair enough. And then the next question was just on... you know, the gross margins seem to be fine. I guess, you know, new contracts, you know, how you feel they're sort of appropriately capturing the cost increases we all see out there, fuel, labor, all that sort of stuff seen in the business. And then, you know, how are you kind of monitoring that as new workflows into the backlog?
spk03: And, Brent, we're, you know, we have... I anticipated that and thinking about it this morning, we have really probably hundreds of pricing agents out there, seller doers, and we counsel them, we coach them, and we listen through them. And our customers are experiencing price increases all across the board in their materials, their fuel, their labor. And we're coaching our folks because, you know, we're having a lot of pressure to increase our labor. The price of our labor is going up. So our folks are – and they are not needing resistance to increased pricing. Our customers are expecting it. So our folks are receptive to the coaching, and they're out there, and we're able to get our pricing up. with what's happening in the marketplace. This inflationary environment's new to everybody. The other thing, Brent, just to point out, fuel in particular, since you mentioned that, is not a significantly large component of our costs on a regular basis. We have a fleet of vehicles that are out that do survey work, but the vast majority of the work that we produce and the revenue that comes out of here is done from inside an office. and isn't necessarily, from our cost point of view, particularly fuel-driven, you know, intensive labor.
spk02: Yeah. Okay. Fair enough. And then, Gary, why McMahon Associates? Why was that the right kind of large transaction to expand the transportation for you? I mean, what did you especially like about, you know, this business?
spk03: Great question. A little bit of it is geographically correct. That made it more than bite-sized, but it was a comfortable size for us. It's the appropriate stretch. We really like the culture, similar to our culture. It's a strong ownership culture. lots of stockholders that have been there a long time, and very receptive leadership to taking the next step along with us and growing with us. And certainly congruent with our strategy of growing our transportation practice uh really they have some great clients uh pen dot participating transportation uh uh transportation impact authority uh massachusetts turnpike authority they do work for florida d.o.t which we do with their own design size some really complimentary clients so just lots of factors made them a great fit for us our first really big increase in a diverse market Well, as I say, as we started to do diligence, the way they've grown the organization, you know, as they've grown the size of the business was very professional. The products of information that they were able to provide to us was quick, accurate, you know, organized. And so, you know, they had built in a lot of ways the way we had built as we grew through their size. And so it was very easy to understand them. And, you know, a compliment to the folks who do all of their back office work there. You know, it was an easy – we saw that it would be easy to plug in. And it was – Okay, great. I'm kind of on it from heaven, but it was really, really confirmed literally within the first few days this one deal from – one of our long-standing clients immediately, hey, we closed this seven-figure traffic study deal because we had an advance. Like, wow, that's what it's all about.
spk02: That's great. Maybe just the last one, and I'll turn it over. You know, considering this is a larger deal, I assume there's a little more integration to it. But you obviously have some bigger targets for what you'd like to do, I think, this year in terms of acquired revenue. Do you take a step back here in the short term and focus on integration? Maybe just, you know, how we might think about the deal flow here through the rest of the year.
spk03: They're going to continue to come. We have sales. a very robust integration team, dedicated integration team. And so we've got strong integration bandwidth. And in fact, I will, yes, we've got a lot of lifting to do to integrate McMahon. It's going to be a long haul to integrate McMahon. But the deals will keep on coming. And we've got the bandwidth. We've got the team. We've got the machine built to continue to integrate and bring them into the team here. The man is not going to slow us down.
spk01: understood okay thanks gary thanks bruce thanks bud thank you your next question comes from the line of alex regal of b riley financial your line is now open thank you good morning gentlemen and uh nice quarter and a nice acquisition thanks a couple quick questions um
spk02: You've talked in the past about some other end markets, such as power infrastructure, mining, water, and renewables. Can you talk about the activity in the quarter there and the pipeline of work that you see on the horizon?
spk03: Yeah, so those are still, you know, the smaller parts of our business. We definitely saw good growth in renewables over the course of the quarter, a little bit of a decline in water resources and strong activity in mining. But again, sort of as a collective, they represent, you know, less than 5% of revenue today. I think that they are, knowing our pipeline, they are a focus of M&A activity. I don't think anything necessarily in the short term of the size, you know, say that would, you know, that would move them into, you know, a more, you know, to kind of a, you know, a competing percentage as the three other primary. I'll expand a little bit on what you're saying. Our renewables is a focus, although we've not had any hits on acquisitions, but it is a focus. And we've really had some super successes kind of candidly under my radar that just my radar just started lighting up organic growth of successes in renewables. So organically, we're really growing our renewables practice. We're going to continue to focus on growing that by acquisitions. We can really continue our commitment to growing that. And on the mining front, We're looking at several relatively smaller but meaningful acquisitions, and our paradigm is expanding on that. We've been in the mining business some 10 years in Arizona as copper mining, and our paradigm is expanding to include, I'll say, mining slash quarrying with aggregates to be kind of expanded to an infrastructure play to serve the highway and infrastructure market. that market is on fire with the infrastructure bill.
spk02: And then, you know, more broadly speaking, can you talk about inflation risk and in particular, obviously, labor inflation and how quickly you can react to that and pass that along to be able to keep your margin profile fairly consistent?
spk03: Yeah, it's a great question, Alex. And I was anticipating, like I told Brent this morning, anticipating that this morning. And so far, so good. And the way I look at that is, you know, I was I started my professional career when Paul Volcker was chairman of the Fed. So none of us who are in the professional world today really have experienced inflation as professionals. So we all kind of feel our way through it. We, and I said this a little bit before, so far we are finding that our clients are expecting price increases from us they're getting hit from they're getting hit from all sides so they are not that resistant to it and and our it's new for our folks to push that like say we're coaching them to do it they're going out and and they're being appropriately aggressive about pushing the pricing They're learning that the market is receptive to it. So it's kind of new to everybody. So we are finding that we are able to increase our pricing to be able to keep up with our demands to increase the cost of labor. So, so far, so good. Like I said, we continue to feel our way through it. We are optimistic and confident we're going to be able to continue to navigate through it. And honestly, we don't have any meaningful contracts that are old enough that we're out of the money on labor. We're not locked in, and we don't have these kinds of contracts that five years ago we set rates and had no escalators in them. part of the benefit of kind of the term of our business right now is that we are in a somewhat real-time pricing environment for a lot of the work that we do. And then, Bruce, can you talk about rising interest rates and sort of how you think about that as it relates to your capital structure moving forward? Right. So, you know, as it stands today, you know, we're fairly low leverage, you know, interest rates aren't necessarily, you know, consuming a lot of changing rates, you know, interest carries on consuming a lot of capital here. We think that the next, you know, in our near future, you know, as we grow, you know, debt will be a component of what we do, but we're not necessarily looking to lock in a large amount of capital today that we have to carry for a period where we don't really necessarily need it imminently. So I think rate movements of rate movements long term is going to be a cost of playing for us. And we'll deal with rates when we get to when we need more capital. But I don't think it's going to be we're not going to be so highly leveraged ever that it is a huge negative drag on the capital structure here. Does that address what you're looking for?
spk02: It sure does. Great answer. Thank you very much. All right. Thanks, Alex.
spk01: Thank you. We now have a follow-up from Brett Feldman of DA Davidson. Your line is now open.
spk02: Hey, thanks, guys. Just one more on that. Cash flow was particularly solid this quarter. Maybe just your thoughts on how that flows, Bruce, through the rest of the year.
spk03: Yeah, I think we're reaching a stride there. You know, again, our operating cash flow, we believe, is going to be strong. You know, we still consume cash for investment activity and, you know, probably won't be generating necessarily. We've done the financing activity earlier this year, but certainly one of the things that we see over time here and the impact of the growth is that it generates cash. And so sort of back to Alex's question of kind of how do we see interest rates affecting the business? We're looking for for the growth to start generating more free cash flow that can be used for investment in, you know, in additional growth. But, you know, I think we have solid trajectory this quarter for cash flow and expect that we can turn our adjusted EBITDA into cash at, you know, pretty healthy rates going forward.
spk02: Okay, great. Thank you. Thank you.
spk01: Thank you. There are no further questions at this time. Mr Bowman, I turn the conference call back over to you.
spk03: Thank you Candice. We'll wrap it up this morning. Thank you everybody for listening in and thanks Brent and Alex for thoughtful questions and appreciate everybody of being on the call. And thanks for all the Bowman employees for all the hard work and all the investors for the faith you put in us. And I'm just not in this place to work hard to build value here. Good morning, everyone. Thanks, operator. That's it.
spk01: That now concludes today's conference call. You may now disconnect your lines. Have a great day.
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