Bowman Consulting Group Ltd.

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'd like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question please press star and then two. 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 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 8 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 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.

Thank you, Emily. Good morning, everyone, and thank you for joining the Bowman Consulting second quarter 2023 earnings conference call. I'm joined here today by Bruce Labovitz, our CFO, and we're joined virtually by many of our dedicated employees who are listening in on the webcast. Everything that we accomplished is a result of an extended team effort, and we're extremely appreciative of the hard work and client-first mindset exhibited by everyone associated with Bowman each and every day. During the second quarter, we welcomed some exciting additions to our organization, which will serve as a solid building block for the second half of the year and beyond. We completed five acquisitions, adding roughly $36 million of annualized net service revenue and over 250 new employees to Bowman. Each of these acquisitions presented a compelling strategic rationale with respect to clients, geographies, and complementary service offerings. But more importantly, the cultures of each of these companies aligned well with ours. Cultural compatibility is key to rapid and successful integration and facilitating immediate buy-in to the tenets of work sharing and cross-referrals, which result in accelerated growth opportunities, promotion of revenue synergies, and expansion of customer wallet share. In addition to the staff we added through acquisition, We organically expanded our workforce during the quarter by adding close to 50 professionals to ensure the timely delivery of work we've been awarded over the past six months and expect to deliver to customers over the year ahead. Our pace of new orders in the quarter complemented our M&A activity in the quarter. Once again, with gross orders exceeding $90 million, we achieved a book-to-burn ratio of greater than one, which means our backlog grew independent of the acquisitions. We believe our industry continues to experience strong momentum as the overall infrastructure market remains in expansion mode, fueled by a positive funding and incentivized environment coupled with unprecedented demand for innovation and transformation. I'm pleased with our ongoing progress toward revenue diversification, and I'm also encouraged by the degree of visibility we have into future demand for our broad set of services. In the second quarter, we delivered 13% organic growth. I'm often asked how we consistently achieve well above average organic growth rates and how we approach strategic growth. The answer is we have a multi-pronged top to bottom all in commitment, both to continuously expanding our breadth of customer relationships and to deepening the existing relationships we are privileged to enjoy. Organic growth is supported and realized by four primary pillars of our culture. First, a company-wide commitment to capitalizing on revenue synergy opportunities through full and rapid integration of the firms we acquire. Second, an unconstrained commitment to work sharing, cross-referrals, and utilization optimization promoted by our leadership and supported by our investments in technology. And third, a strong depth of customer knowledge and trust resulting from our long tenured staff and an unparalleled commitment to individual and professional development. And fourth, our strong ownership culture and our compensation philosophy that focuses for our rewards on broad company success while discouraging protected and siloed operations. We believe that our discipline adherence to these four foundational values enables us to consistently deliver outsized organic growth rates. I'm now going to turn the call over to Bruce to talk about our financial results, after which I'll take a few minutes to discuss our markets, our M&A pipeline, and our outlook. Bruce?

Terrific. Thank you, Gary. Second quarter was active with five new acquisitions to underwrite, close, account for, and integrate. I'm pleased to be here today reporting on another consecutive quarter of growth and positive progress toward our strategic objectives of achieving $500 million of annual revenue combined with above average margins. Gross revenue for the second quarter increased $20.4 million or 33% to $82.8 million as compared to $62.4 million during the second quarter of last year. Building infrastructure represented 59% of our gross revenue for the quarter with transportation and power each representing 19% of gross revenue. Year-over-year organic growth of gross revenue in the quarter was over 13%, which included our 2022 McMahon and Perry acquisitions, both of which has now passed their one-year anniversary mark. Within the quarter, for sale residential represented approximately 11% of gross revenue. Commercial, which includes a broad collection of sub-markets, including data centers, industrial parks, MEP work, quick serve restaurants, convenience stores, and big box retail accounted for roughly 27% of gross revenue. Suburban and dense urban office is not a huge component of our commercial revenue base. Year to date, gross revenue is up 43.9 million or 38% to 158.9 million as compared to 114.9 million in the first six months of last year. Year-to-date building infrastructure represented 59% of our gross revenue, with transportation and power representing 20% and 18% respectively. Last year, at the midpoint of the year, building infrastructure represented 71% of our gross revenue, with transportation and power representing 12% and 16% respectively. This diversification has been deliberate, and the effort continues to be a focus of our growth initiatives. or grant organic growth for the six months is 22%, again with McMahon and Perry included in the comparison. During the first half of 23, for sale residential represented approximately 11% of gross revenue and commercial accounted for roughly 27%. Net service billing in the quarter, second quarter, increased 17.4 million or 31% to 73.8 million as compared to 56.4 million in the second quarter of last year. Organic growth of net service billing was roughly 12% in the quarter, including McMahon and Perry. Our net to gross ratio remained high at just under 90% off about 100 basis points from last year. While this ratio will ebb and flow from quarter to quarter, our goal is to operate at an 85 to 90% net to gross ratio as we grow the top line. Net service billing for the six months increased 37.3 million, or 36%, to $141.4 million as compared to $104.1 million in the first half of last year. Organic growth of net service billing was roughly 20%, again, now including McMahon and Perry. Gross margin for the second quarter was 50.4%, which was 20 basis points higher than gross margin in the second quarter of 2022. Year to date, gross margin was 50.6%, which is 20 basis points below the first half of 2022. These margins are in line with what we believe is a normal couple hundred basis point range, which we will experience given our current portfolio of services and assignments. We continue to work toward overhead leverage as we build increasing scale and plateau the rising costs associated with being a public company. Inclusive of stock compensation not accounted for in cost of goods sold, SG&A was up 200 basis points as a percentage of net revenue in the second quarter, and was likewise up in the first half as compared to last year. About half of that increase, about 100 basis points, is attributable to increased stock compensation with the balance being overhead labor, bonuses, and fringe costs. Completion of several integrations, including McMahon over the past few months, will, we believe, eliminate some duplication of functionality and contribute to the scaling of margins in the second half of 2023. For the second quarter, we reported a net loss of $600,000 as compared to a net loss of 300,000 last year. For the first half of 2023, we generated a net loss of $100,000 as compared to a net profit of 1.1 million last year. This increase in net loss is attributable both to a buildup of labor and advance of work we anticipate delivering and to increase non-cash compensation costs. So turning to adjusted EBITDA, Adjusted EBITDA was up 46% in the second quarter to $11.1 million as compared to $7.7 million last year. Adjusted EBITDA margin net increased by 150 basis points to 15% as compared to 13.5%. For the year, adjusted EBITDA was up 38.3% to $20.7 million as compared to $15 million last year. Adjusted EBITDA margin net during the first half increased by 30 basis points to 14.7% as compared to 14.4%. As we add acquisitions and headcount, we continue along our nonlinear journey to a consistent high-teen adjusted EBITDA margin net when we achieve our $500 million of net service billing. On the tax front, We continue to monitor for guidance with respect to recently adopted changes to Section 174 research and development expense capitalization rules. In the absence of clear guidance to the contrary, we continue to believe we will not be subject to capitalization of our R&D expenses based on the specific circumstances of our business. Because this is evolving tax law, and therefore ours is an evolving interpretation, we maintain an uncertain tax position, a UTP, relating to this potential liability, which reflects through our statement of cash flows before changes in working capital as deferred tax offset by a long-term payable. We will continue to monitor and report on this consequential issue to our industry. On June 30th, and still as of today, we have 14.6 million shares outstanding, including all shares issued in connection with recent acquisitions and 2.5 million in restricted stock awards that will vest between July 1st, 2023 and December 31st, 2027. We have not made any repurchases under our $10 million stock repurchase authorization. Backlog at the end of the quarter was approximately $295 million, up close to 90 million as compared to June 30th, 2022. Backlog revenue is made up of approximately 56% building infrastructure 25% transportation, 16% power and utility, and 3% other emerging revenue areas. Backlog is up over $50 million from year-end 2022, which is in part from acquisitions and in part from sales continuing to outpace revenue. Last week, we announced the closing on a first amendment to our amended and restated credit facility with Bank of America, what we refer to as our revolving credit facility or a revolver. the primary change to the revolving credit facility was an increase in the maximum borrowing capacity from $50 to $70 million. This increased availability gives us additional flexibility in our M&A program. As of June 30th, we had just over $21 million outstanding on the line with $9 million in cash reserves for a net of $12 million. The second quarter involved an extra payroll period with the final payroll falling on the last day of the quarter. While this didn't affect GAAP results, The timing did add to the amount outstanding under the revolver at the end of the quarter. The revolver is what's called a zero balance sweep, so the balance ebbs and flows daily. As of today, the outstanding has been reduced to under $18 million or around $9 million on the net basis. Net debt at the end of the quarter was $61.2 million, which resulted in a leverage ratio of 1.5 on trailing four quarters adjusted EBITDA and approximately 1.2 on the midpoint of forward guidance. Cash flow from operations was 2 million, which included approximately $13 million before working capital, with 10 million being expended toward changes in working capital. In connection with the four new acquisitions added since our last conference call, we are increasing our net service billing guidance from a range of 285 to 300 million to a range of 300 to 315 million. We're also increasing and tightening our guidance for adjusted EBITDA from a range of 44 to 50 million to a range of $47 to $52 million. This accounts for approximately $14.5 million of net revenue and $2.5 million of adjusted EBITDA projected from new acquisitions based on the timing of the closings. With that, I'm going to turn the call back over to Gary for his concluding remarks.