Bowman Consulting Group Ltd.

Good morning, my name is Nadia and I'll be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group's third quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speakers and marks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. Please note that many of the comments made today are considered forward-looking statements under federal securities laws. As described in the company's filings for 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 reconsolidations to the most directly comparable gap information at the company's earnings press release and 8K filed with the SEC and on 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 pose questions for management to answer on the call or in subsequent communications, but there will be no live Q&A from the webcast attendees. Repays of the call will be available on the company's investor website. Mr. Bowman, you may begin your prepared remarks.

Thank you, Nadia. Good morning and welcome to the Bowman Consulting Group third quarter 2022 earnings call. I'm Gary Bowman, chairman and CEO of Bowman. I'm joined this morning by Bruce Leibovitz, our chief financial officer. I want to start by thanking everybody at Bowman for your continued commitment to delivering exceptional solutions to our customers. and for yet another record quarter to our shareholders. We've added many new employees through acquisitions this quarter, and I'm pleased to have all of you as part of the Bowman team. Also recognize that today's Veterans Day, I would like to add a special thank you to many Bowman employees who also serve as veterans. Given the strength of the quarter and the momentum we are experiencing so far in the fourth quarter, there continues to be an apparent disconnect between the behavior of our clients as reflected by the key performance indicators in our business and the recessionary concerns we hear in the media. While we've adopted what we consider to be a cautious and defensive approach to managing the size of our internal investments and our risk and specific growth initiatives, our pace of new orders and high utilization rates gives us confidence that we'll again see growth in 2023. At the time of our IPO, we talked about our five-year strategic growth initiative, which included a 12% organic compound growth rate target, and an aggressive acquisition program which, when combined, would result in a five-fold growth trajectory from $100 million of net revenue in 2020 to $500 million of net revenue in 2025. Nearly two years in, with a $265 million plus run rate by the end of Q3, we're ahead of plan. Since our last conference call in August, our M&A and integration teams have been busy. We closed on three new acquisitions with additional opportunities currently at various stages in the pipeline. Anchor Engineering added marine waterfront ports and harbor engineering skills to our portfolio of services while also adding underwater survey. FEI demonstrates our continued commitment to expanding our energy transition and solar infrastructure engineering practice to support clients with complex energy infrastructure requirements. And spatial acuity reflects our belief in the value of leveraging certain geospatial data collection and reality capture technologies that are in high demand by our customers while also enabling efficient growth. Each of these acquisitions brings a unique value proposition to Bowman. They all provide a meaningful base of business from which we intend to cross-sell our services and grow revenue. Now I'm going to turn the call over to Bruce who will discuss our financial results in detail. And I'll return to talk a bit about our markets before taking your questions. Bruce?

Thank you, Gary. We're pleased to be here today discussing another record quarter. When I refer to the quarter, I mean the three months ended September 30th, 2022. And when I refer to last year, I mean the period ended September 30, 2021. Throughout my presentation, I'll refer to certain non-GAAP financial information such as EBITDA and net service billing, which we also refer to as net revenue. You can find this information together with reconciliations to the most direct comparable gap information in yesterday's earnings release and in our 10Q, which we will be filing on Monday since the SEC is closed today in honor of Veterans Day. Last night, we released results for another consecutive quarter of record gross revenue, net service billing, and adjusted EBITDA. We've continued to deliver exceptional organic and acquisitive growth in the third quarter of 2022 and year to date. When you normalize the acquisitions closed during the quarter and in the fourth quarter, we're pacing at a net service billing rate of over $265 million annually. Based on acquisitions closed since our last call and order trends we've been experiencing so far in the fourth quarter, we raised guidance for the full year and concurrently introduced net service revenue and adjusted EBITDA guidance for 2023. which we believe suggests, as Gary indicated, rational optimism about next year. Gross revenue for the quarter increased $31.5 million, or 79%, to $71.2 million. Year-over-year organic gross revenue growth was 23%. Net service billing for the quarter increased $29.2 million, or 82%, to $64.9 million. Year-over-year organic growth for net revenue was 25%. Net income for the quarter was $3.4 million, or $0.26 per share basic, and $0.25 per share diluted. This is an 8.5-fold increase over the prior quarter. Adjusted EBITDA for the quarter increased $5.2 million, or 118%, to $9.6 million as compared to Q3 2021. This represents an adjusted EBITDA margin net of 14.8%, which is up 240 basis points as compared to Q3 2021. Turning to the year, gross revenue for the nine months ended September 30, 2022 increased 78.1 million, or 72%, to 186.1 million. Year-over-year organic growth of gross revenue was 28%. Net revenue for the nine months increased 71.9 million, or 70%, to $169 million. Year over year organic growth for net revenue was 31%. Net income for the year was 4.5 million or 36 cents per share basic and 34 cents per share diluted. This is a fourfold increase over the prior year. Adjusted EBITDA for the year increased 11.9 million or 94% to 24.6 million. This represents an adjusted EBITDA margin net of 14.6% which is up 150 basis points compared to last year. Based on relatively unchanged utilization rates and a 23% growth in our core non-acquisition headcount, we estimate that approximately 92% of the organic growth in net revenue is the result of increased work, suggesting roughly 8% of the organic growth is due to rate inflation. Gross margin for the quarter was 52% as compared to 51% last year. Overhead for the quarter was roughly 49% of net revenue as compared to 52% in the prior year. We believe this 300 basis point improvement demonstrates our thesis regarding the operating leverage we can achieve through the efficiencies of scale. The distribution of gross revenue for the quarter was roughly 63% building infrastructure, 19% transportation, 12% power and utilities, and 6% other emerging markets, which includes water resources, mining, and other energy transition services. Given market uncertainty around certain aspects of the building infrastructure market, we again dug a little deeper into the distribution of revenue to give as much transparency to the market as possible. To that end, for sale residential related services represented approximately 11% of total gross revenue for the quarter. Again, turning to the year, the distribution of gross revenue for the nine months ended September 30th, 2022 was roughly 68% building infrastructure, 14% transportation, 13% power utilities, and 5% other emerging markets. For sale residential related services represented approximately 12% of total gross revenue year to date. As we discussed last call, While for sale residential services are a meaningful component of our overall business, we do not consider it to be overweighted with respect to its potential impact on future results. During the year, we have reduced building infrastructure from 74% to 63% of gross revenue, while increasing transportation from 8% to 19% and emerging markets from 4% to 6%. While power and utilities has grown nominally, it has declined marginally as a percentage of gross revenue. We hope to reverse that trend over the next few quarters. Our balance sheet remains strong with $23 million in cash as of September 30th, net debt of approximately $19 million, and a net leverage ratio well below one. Our debt is a combination of fixed-rate seller financing notes from acquisitions and capital leases. We have no balance sheet We have no balance, excuse me, outstanding under our B of A revolver. With our existing debt, we have no meaningful exposure to escalating interest rate carry due to rate increases. Before changes in working capital, we generated nearly $24 million from operating activities, with just over $12 million from operating activities after changes in working capital. The change in working capital is, again, principally the result of increased accounts receivable because of our rapid organic and acquired growth. Our backlog as of September 30th was 230 million. This is a nine-month increase of $63 million, or 38%, as compared to December 31st, 2021, and an increase of 91 million, or 65%, as compared to September 30th, 2021. Backlog is comprised of roughly 51% building infrastructure, 33% transportation, 13% power and utilities, and 3% other emerging markets. In general, we expect roughly 80% of our backlog to turn into revenue within a 12-month period. As Gary mentioned, we're increasing and narrowing our fiscal 2022 guidance for net service billing to a range of 230 to 234 million, with adjusted EBITDA in a range of 33 to 35 million. This is our fourth beat and raise of 2022 guidance since introducing our outlook last November. The increase from previously issued guidance is the result of both recent acquisitions and expected continuation of organic growth. We're also introducing fiscal 2023 guidance for net revenue of 270 to 290 million and adjusted EBITDA in the range of 42 to 48 million. This represents an adjusted EBITDA net margin of approximately 16%. Growth next year is the result of existing revenues, projections from discussions with clients, and expected growth. Keep in mind, our guidance only includes acquisitions that have been completed as of the day the guidance is issued. Future acquisitions could have an accretive impact to our forecasts. Finally, yesterday after earnings released in connection with a regularly scheduled meeting, our board meeting authorized a stock repurchase plan of up to $10 million. The program is to be used as deemed reasonable from time to time to address market inefficiencies with respect to our stock. Our top priority for capital allocation remains investment and strategic growth, both acquired and organic. We're confident that we have sufficient cash on hand, cash flow from operations, and access to debt to meet all potential demands for capital. While we have no current intentions to execute a structured equity offering, we will continue to use our equity as a component of consideration in acquisitions. I wish to thank everyone for being on the call, and I'll turn the call back over to Gary.