Bowman Consulting Group Ltd.

Good morning, my name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group first quarter 2023 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star two key. Thank you. Please note that 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 directly comparable GAAP information in 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 analysis. 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 begin your prepared remarks.

Great. Thank you, Kate. Good morning. Welcome to our Q1 2023 earnings conference call and webcast. I'm joined today by Bruce Leibovitz. Bruce is our CFO. I'll give a few opening remarks after which Bruce will walk through the financial results for the quarter. I'll then talk about developments in our markets and followed by questions from our published analysts. I'd like to start off this morning by thanking our team and welcoming all our new employees from our recent acquisition of Richter & Associates. We're excited about the opportunities this acquisition creates for us in terms of professional staff, services market coverage, revenue synergies, geographic expansion. With Richter, we had last mile utility engineering capabilities, which have traditionally fallen outside our scope, but now afford us the ability to secure more wallet share from our infrastructure developer customers. I'll talk more about M&A Pipeline later in the call. Bruce and I are talking to you this morning from our downtown Chicago office. Our experienced teams here and in nearby Lyle have played an essential role in the growth of our transportation revenue over the past year. We launched our transportation practice in earnest here in Chicago 10 years ago. Significant recent awards from the Illinois Tollway Authority and IDOT, coupled with big wins in Pennsylvania, Massachusetts, Texas, and Florida, reflect our strong reputation in the transportation market and provide a solid foundation for what we're confident will be continued growth of transportation-related revenue at Bowman. Calendar 2023 is off to a good start with another consecutive quarter of record revenue and exceptional year-over-year growth. The pace of new order bookings exceeded our expectations, and as a result, backlog was up 46% year-over-year. During the quarter, backlog grew organically by nearly 5% as we again generated a book-to-burn ratio greater than one. Coming off holiday seasons, it generally takes a couple of weeks to regain momentum with customers during the early part of the new year. As we're sitting here today, now four months into the year, we've seen strong momentum return. We remain confident in our projected growth and the acceleration of our results throughout the year. Within the first quarter, we continued to execute on our strategic growth plan to deliver half a billion in run rate revenue within five years of our IPO. As we near the two-year anniversary of our IPO, we're at a run rate that is more than half of that goal. Over the past two years, both our gross and net revenue have more than doubled from their pre-IPO levels. Importantly, our net revenue growth has kept pace with our gross revenue growth, meaning that our growth has been productive growth as opposed to just growing the top line on a gross basis purely for growth's sake. Just last week, it was reported that in the last year, we jumped another 31 spots on the engineering news record list of top 500 design firms to number 87. I'm proud of what we've collectively accomplished during our first two years as a public company. These are achievements we've also earned recognition as a top-performing industrials IPO of 2021. Now I'm going to turn the call over to Bruce to review our financial results, after which I'll further discuss our markets and our pipeline for M&A. Bruce? Terrific.

Thanks, Gary. I'm pleased to be here reporting on another successful quarter that delivered a 12% organic growth rate on 45% total revenue growth. With new orders of roughly $85 million in the first quarter, we're on pace to deliver the results we have previously forecast in our guidance. Factoring in recent acquisition activity, we're raising our 2023 net service billing guidance once more to a range of $285 to $300 million. Gross revenue for the first quarter increased $23.6 million or 45% to $76.1 million as compared to $52.5 million in 2022. Net service billing increased $19.9 million, or 42%, to $67.6 million as compared to $47.7 million last year. Our utilization between the periods was relatively consistent over a higher headcount, so we again attribute our revenue growth to our increased workload combined with about 3% to 4% pricing power. Our net-to-growth ratio decreased by a negligible 200 basis points to 89% as compared to 91%. We consider this a normal variation between periods and is based on our mix of revenue. We expect this ratio to rise and fall periodically in connection with revenue mix and specific contract requirements, particularly in transportation where we are often required to outsource work to small and disadvantaged business enterprises to help our customers meet their regulatory obligations. Our revenue mix continues to be more balanced with building infrastructure representing just 58% of total revenue down from 74% a year ago. Building infrastructure revenue grew by nearly 14% in the first quarter, representing 58% of our revenue as compared to 74% of our revenue last year. Just under half of our building infrastructure category was derived from commercial projects. Approximately 40% of our building infrastructure revenue was derived from residential activities, with around 30% of that revenue or roughly 9% of total revenue coming from what market would consider as home building related. The remaining 12% or so of our building infrastructure revenue was related to municipal projects. We continue to feel comfortable that the increasing volume of orders originating from our building infrastructure customers indicates a measure of health underlying the demand in that segment of the economy, which gives us confidence in our ability to continue to grow this market. Last year, we generated roughly $7 million in revenue from renewables and energy transition assignments, which we had previously characterized as emerging market revenue. With the convergence of renewable energy and traditional transmission infrastructure services, along with the continued growth we're projecting in energy transition, we've decided to consolidate this revenue into our power and utilities category. We will adjust our comparative historical reporting in future disclosures accordingly. Gary will be providing additional color on revenue mix of our other markets later in the call. Gross profit increased 11.7 million or 43% to 38.7 million as compared to 27 million. Gross margin decreased by 60 basis points to 50.9% from 51.5%. We don't consider this change to be meaningful or an indication of a shift in margin profile. The slight year-over-year decline in gross margin was primarily due to a shift in the mix of our work during the quarter as our overall utilization rate was relatively consistent between periods. We anticipate that our gross margin may fluctuate by anywhere from 200 to 400 basis points from period to period based on the mix of work and our blended firm-wide utilization rate. Cost of goods sold includes all direct labor, the cost of operations labor time spent on customer assignments, plus fringe costs and associated non-cash stock compensation expense. SG&A, exclusive of depreciation and amortization, was roughly 44% of gross and 50% of net billing. This compares to 44% and 48% in the first quarter of last year and 46% and 53% in the fourth quarter of last year, which I believe is a better trend comparison on this metric. SG&A includes all indirect labor, both non-customer operations staff and corporate resources, along with all fringe costs associated non-cash stock compensation expense and overheads. Over the course of the past 12 months, we believe that our SG&A has grown to the point whereby we can expect to see the rate of growth in SG&A be meaningfully less than the rate of growth of our revenue, reflecting the positive operating leverage in our business model. The McMahon acquisition, our largest to date, is now fully integrated into our operating platform, reporting systems, and organizational structure. We recognize increased efficiencies from acquisitions once they're fully integrated. Stock compensation expense for the quarter was $4.4 million. The remaining stock compensation expense for awards issued as of March 31st is $25.4 million. This is an increase of $3.2 million from December 31st, and reflects new grants awarded to employees in connection with our long-term incentive compensation plans. The future expense of grants issued prior to the IPO and in connection with acquisition retention incentives remains effectively unchanged from year end. Adjusted EBITDA for the quarter increased 2.3 million, or 31%, to 9.7 million, which represents a 14.3% adjusted EBITDA margin on net service billing. We expect to see this margin increase as the year progresses and the pace of net service billings accelerates. Total outstanding share count on March 31st was $13.6 million. This includes all unvested, time-based, restricted grants issued prior to March 31st, but does not include roughly 450,000 shares of performance stock units subject to long-term future vesting. Our weighted average basic and diluted share counts were 11.8 million and 12.7 million shares respectively, but that does not include unvested time-based restricted awards. Our balance sheet remains in great shape, with $30 million of net debt down $2 million from year end, representing a leverage ratio of 0.83 times trailing adjusted EBITDA and 0.6 times forward adjusted EBITDA at our guidance midpoint. We were undrawn on our $50 million line with B of A, and have a healthy cash position of $14 million after nearly $9 million of cash flow from operations before changes in working capital and deferred tax. Speaking of tax, we continue to work closely with our advisors at Price Waterhouse and await additional guidance from the IRS on the recent change in timing of the deductibility of research and development costs, which includes at-risk labor expenditures and associated fringe costs incurred by engineering firms. In connection with an uncertain tax position regarding this change, we recorded a new $3.7 million provision for what would be 2023 related accelerated tax payments, if incurred, but classified them as long-term obligations. Between free cash flow, cash on hand, and available debt, we feel confident in our ability to meet the requirements of acquisitions going forward, consistent with what we've been doing. While we have no immediate plans to raise additional capital, we are shelf eligible, and as we reach the two-year anniversary of our IPO, we feel it's good governance to have an S3 on file for future needs if and when they arise. As we mentioned earlier in the call, we are increasing our guidance in connection with recent acquisitions and our outlook for the year. We anticipate a net revenue range for the full year of $285 to $300 million, with adjusted EBITDA of $44 to $50 million. As the year progresses and we achieve more clarity, we'll narrow that range accordingly. We expect to file our 10-Q later today and look forward to several upcoming investor events where we will be meeting with existing and prospective shareholders. Thank you, and I'll now turn the call back over to Gary.