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spk08: 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, adjusted net income, and net service billing. You can find this information together with the reconciliations, the most directly comparable GAAP information in the company's earnings press release and 8K filed with SEC and on the company's investor website at .bohman.com. Management will deliver prepared remarks, after which they will take 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.
spk02: Thanks, Megan. Good morning, and thank you for joining the Bowman Consulting Group Second Quarter 2024 earnings call. With me this morning, Bruce Leibovitz, our CFO. I also want to welcome all of our new employees, including everyone who joined us recently from Ellman Engineering in Colorado and the SCS Group in Washington State. This morning, I'm going to start off with some introductory comments, after which Bruce will discuss our financial results. I'll then come back on the line for some additional remarks about our trajectory into 2025 and end with Q&A. Okay, during the three months ended June 30, 2024, we generated record quarterly gross and net revenue, surpassing $100 million in a single quarter for the first time. While short of expectations, it is a meaningful advance toward our goal of a $500 million annual gross revenue pace within our first five years as a public company. The acquisitions we made during and after the quarter expand our geospatial business, increase our business capabilities around renewable energy engineering, and they broaden our growing national water services practice. I'm pleased with the evolving position of the firm in the marketplace and the strategy that we're using to grow the business. It gives me great confidence in our collective ability to execute on our long-term vision. So during our quarterly calls and as we meet with investors, we spend a lot of time distinguishing between organic and acquired revenue and the associated growth rates. It's sometimes a tricky distinction to make because while we're highly acquisitive and much of our growth has been through acquisition, we are also both committed to and highly proficient at post-closing integration. By the time an acquired firm reaches its 12-month anniversary closing, it is often challenging to distinguish it within the overall organization and even more difficult to disaggregate it from our overall results of operations. In most cases, we have by that time integrated the entire organization into the organization. We have a wide range of systems, individual practice areas, and professional staff throughout Bowman. While this enables us to be efficient at work sharing, unconstrained by geographic boundaries or legacy affiliations, it makes reporting on organic and acquired growth a challenge. As opposed to seeing this as a negative, it's an aspect of our approach that we're proud of and we believe distinguishes this from many of our peers and adds value for our shareholders. Bruce will present a deeper dive into growth rates in his presentation, but suffice it to say, we believe our diversification efforts have been extremely impactful. With this, I'm going to turn the call over to Bruce to discuss financial results. Bruce? Thanks, Gary. Let's
spk01: turn to slide four. Quick reminder, we refer to net service revenue, net service billings, and net revenue interchangeably. This is a non-GAAP revenue metric that eliminates pass-through billings associated with subcontractors and outside production costs. Since pass-through billings are generally without markup, net revenue is meaningful because it reflects margin contributing revenue generated by our workforce. Reconciliation of all non-GAAP metrics we'll discuss are available in the press release we issued last night. Let's start with the quarter. Gross revenue for the second quarter was $104.5 million, which, as Gary mentioned, is a milestone for us. Net revenue was $94 million, representing a 27% increase over second quarter 2023 with a 90% net to gross ratio, which shows growth of net revenue is keeping pace with the growth of gross revenue. Gross margin was slightly improved during the quarter at 52% compared to 50% last year, with SG&P and A holding steady at around 52% of net revenue. Net loss before tax increased by about a million dollars to a loss of $3.2 million from a loss of $2.2 million. Net loss after tax increased by approximately $1.4 million to a net loss of $2.1 million. Our tax benefit in the quarter was approximately $1.2 million after accounting for the unwinding of our uncertain tax position relating to our net revenue projections. We had a $1.2 million budget for the quarter at the end of the quarter, which is a $14.3 percent margin on net revenue. Not where we had hoped it would be, but up 20 basis points over first quarter 2024, nonetheless, so in the right direction. We're committed to holding overhead, and we're taking actions to ensure our labor is right sized for our adjusted revenue projections, which positions us for higher margins in the second half. Fortunately, this does not require extreme or dramatic action to accomplish. Turning to the first half of 2024, gross revenue for the six months ended June 30 was $199.4 million. Net revenue was up 27%, or $38.3 million at $179.7 million as compared to the first half of 2023. Gross margins for the six months was slightly improved at 52% compared to 51% last year, with SG&A up around one percentage point at 52% of net revenue. Net loss after tax increased by approximately $2.8 million to a net loss of $4.6 million. Adjusted EBITDA was up 23%, or $4.8 million for the six months, at $25.5 million, which is a .7% margin on net revenue. Let's turn to slide five. Non-cash stock compensation was just under $6.1 million in the second quarter, down nearly 12% from the second quarter of 2023, and nearly 23% from the first quarter of 2024. We're currently projecting non-cash stock compensation for 2024 to be in the range of $24 to $26 million, including its rules for for 2024-related awards that will not be issued until early 2025. I'll point out that the number in the future expense table in the stock comp footnote of the 10Q is limited to issued awards only. Let's turn to slide six. Based on net losses in the quarter and the six months, the two-quarter gross revenue by verticals were both negative 3 cents for the three months, and they were positive 17 cents and positive 16 cents respectively for the six months. Let's turn to slide seven. Second quarter gross revenue by vertical was impacted by the introduction of SIRDEX as their revenue was allocated to the emerging markets at 9%. SIRDEX-related revenue will continue to be included in emerging markets for the remainder of the calendar year. Let's turn to slide eight. Now I'm going to take a few minutes to discuss organic growth in a bit more detail. In our earnings release, we reported organic growth consistent with how we've reported it in the past. This approach to organic growth eliminates acquisitions from the acquired revenue bucket after their 12-month closing anniversary and reclassifies their prior period revenue as nonacquired. We then compare the results. On June 30, 2024, the acquired revenue pool included excellence, Dennis, CFA, BlanketShip, I-Mesa, Hess Roundtree, TCE, Spieth Lewis, SIRDEX, and more. Richter, Fisher, Holmontes, MTX, and infrastructure converted to nonacquired. Based on that approach, the underlying disaggregated organic growth of net revenue in the second quarter by vertical was 33% for emerging markets, 17% for transportation, 10% for power, and effectively zero for building infrastructure, resulted in the reported weighted average of just around 6%. By the same approach, the underlying disaggregated organic growth of net revenue by vertical for the first six months of 2024 was 57% for emerging markets, 23% for power, 15% for transportation, and around 2% for building infrastructure, resulting in the weighted average of just around 10%. This quarter, however, we went a little further and evaluated organic growth for the first half of 2024 in two additional ways. First, we looked at it on a pro forma as adjusted basis, whereby we increased the base of revenue in the first half of 2023 to add pro forma first and second quarter results for the companies acquired during the second quarter of 2023. This effectively normalized their revenue for the periods, although it no longer ties to our reported revenue. For the first half of 2024, we again eliminated revenue from the companies acquired after the second quarter of 2023. Second approach, we looked at it on a pro forma as eliminated basis, whereby we eliminated all revenue from acquisitions completed in both 2023 and 2024 from both 2023 and 2024 revenue. This effectively created a level playing field of revenue for the first half of 2023 and 2024 based on the end of 2022. In the first case, pro forma as adjusted, organic growth of net revenue disaggregated by vertical for the first half of 2024 was 57% for emerging markets, just under 20% for power, just under 15% for transportation, and negative 1.4 for building infrastructure, with a weighted average of .1% for the six months. In the second case, pro forma as eliminated organic growth of net revenue by vertical for the first half of 2024 was 50% for emerging markets, 9.7 for power, 11.4 for transportation, and negative 10 for building infrastructure, with a weighted average for the six months of 14% for non-building infrastructure and negative 1 overall. Keep in mind, this approach ignores all organic growth associated with acquisitions from the first half of 2023 and beyond. Let's turn to slide nine. Transitioning to the balance sheet, we had approximately $71 million of net debt at the end of the quarter, with $23 million in cash and over $72 million available on the new revolver. Our debt to adjusted EBITDA ratio was just under 1.4 times on the trailing four quarter basis. There's no distress with respect to our capitalization and capabilities to continue to invest in growth. With respect to cash flow, we generated $5.6 million of cash from operating activities during the six months, which is roughly two and a half times last year's results. CapEx spending was roughly 7.5 million, or .7% of gross revenue during the first half, which I will point out is the total of the purchase of property and equipment and property and equipment acquired under finance leases lines on our statement of cash flow. Important that you add those two together. We're pleased with our 70% free cash flow conversion from adjusted EBITDA after CapEx. Shares outstanding on June 30th, 2024, was 17.6 million. As of today, including subsequent acquisitions, buybacks and withhold to cover activity, and activity under our incentive bonus plan, the count's approximately 18 million, with approximately 1.3 million of those shares being subject to forfeiture. There's an additional 700,000 shares of performance stock units, which are best based on total shareholder returns over the next four years. Those are not included in today's outstanding share count. Returning to R&D, we reversed the uncertain tax position this period in anticipation of finalizing our 2023 returns in October. Between diminishing likelihood that the Senate would act on the House resolution to repeal the tax change retroactively, and increasingly unfavorable guidance, we decided it was time to unwind the position. The reversal alone had no effect on the P&L, with only reclassifications between long and short-term liability accounts on the balance sheet. The only real net impact was the reversal of approximately $5 million of previously accrued penalties and interest through our tax provision. In the future, if the tax is repealed, we will adjust our accounting accordingly. Otherwise, this is case closed. Let's turn to slide 10. As Gary mentioned in the release yesterday, backlog is up 19% -over-year and 5% as compared to the end of last quarter. The distribution of backlog on June 30th was 48% of building infrastructure, 27% transportation, 18% power, and 9% emerging markets. This relative increase in transportation after the increase for emerging markets is reflective of some of the issues we've been having with transportation starts. Let's turn to slide 11. Lastly, as detailed in the press release, we're revising and narrowing our outlook for 2024 net service billing to a range of $375 million to $385 million, and are likewise adjusting our outlook for adjusted EBITDA to a range of $58 million to $63 million, implying a midpoint margin of around 16%. While we're not pleased with having to lower guidance for the first time as a public company, we look forward to the reset and the ability to return to our old patterns with respect to guidance. As always, that guidance does not contemplate additional acquisitions we expect to announce between now and year end.
spk02: Gary? Thank you, Bruce. Now let's turn to slide number 12. Before opening the call to Q&A, I want to take a few minutes to address markets, share some recent successes and awards, touch on areas of our business that we are excited about for the future, and reassure everyone that we are laser focused on the performance of our operations. In 2022, we acquired Anchor Consultants, a small company in Philadelphia focused on bridge and marine engineering. This acquisition and its talented staff laid a foundation for what is now a flourishing, expanded ports and harbors group. With added depth of leadership, this sub market of our transportation vertical is now proving to be an extremely promising practice area. The group has been very active lately with several winds up and down the East Coast from private and public port operators, both as a prime and as a team member along some of the biggest firms in the industry. Leveraging our extensive skills in geographic information systems, or GIS for short, our ports and harbors group is providing delivery to clients utilizing sophisticated integrated technology that has distinguished us as a leader in port asset conditions tracking, assessment and management. Ports and harbors, they are an interesting micro economies into themselves, exhibiting diverse demands for land and water based infrastructure, logistics, safety and sustainability planning. I'm really excited about the inroads we are making, the successes we are seeing, and the potential for the future of our ports and harbors practice. Over the past couple of years, the growth in our capabilities related to geospatial, high resolution imaging, mapping and GIS services has kept pace with the other practice areas at Bowman. We've gone from being a terrestrial based surveying firm to one that offers multiple altitudes of geospatial imaging, LIDAR and scanning, including both aerial and underwater. Accelerated by the recent addition of CERDX, we've added a variety of new scanning services to our portfolio. As an example, aerial scanning to detect methane emissions provides enormous long-term potential. By combining GIS, high and low altitude scanning and terrestrial based mobile mapping, we've developed a comprehensive -to-end methane detection, documentation, remediation planning and information management offering that is well aligned with numerous federal, state and local funding opportunities available over the foreseeable future. The combination of multiple acquisitions, including 1519 surveying, spatial acuity, MTX, Exelence, CERDX and others has enabled us to credibly pursue this long-lived opportunity. Elsewhere throughout the company, we're seeing interesting transitions and evolutions in markets. As an example, the demand for usable data center land is voracious and commercial and residential land owners along major overhead electric quarters are utilizing us to assess the viability of land use modifications. Climate change and alterations of historical weather patterns have led to significant storm preparedness and response assignments in areas that have and have not been susceptible to extreme weather in the past. As a real-time example, just yesterday it was announced that tropical storm Debbie was predicted to dump 4 to 10 inches more rain on Charleston than the city experienced a mere nine years ago during what was then categorized as a thousand-year storm. We have a very active presence in Charleston. We recently added senior executive-level leadership to our team with extensive experience in climate change, sea level rise and coastal resiliency. As public utilities and their municipalities struggle to attack professionals to manage their operations, demand for utility services and staff augmentation has increased. As an example, we were just awarded a five-year contract valued at approximately $10 million to embed staff within a local jurisdiction in California. This was a direct result of our infrastructure engineers acquisition in 2023. In Austin and Houston, we were recently selected for county roadway projects valued at more than $1 million with the opportunity to add construction management and inspection services known as CEI as the project progresses. The CEI opportunity in Texas is a result of skills exported throughout the company from our Chicago operation. Also in Texas, we were recently awarded a ,500-acre solar engineering project which is a result of other renewables-oriented acquisitions such as SEI and more. In Arizona, a significant heat-pleached construction support and quality assurance assignment is just one of several recent substantial mining wins. While building infrastructure has lagged in terms of organic growth over the past 12 months, we have both experiential and anecdotal evidence that causes us to foresee a likely rebound ahead. In both Texas and Arizona, we were recently awarded new engineering contracts for single-family master plan communities valued at over $2 million. We expect forthcoming reductions in rates to reignite subverticals of the building infrastructure market, particularly multifamily and -for-rent housing. Convenience stores, quick service restaurants, and even big-box retailers are active with many of our well-known national brand customers engaging us with new projects. Our growing national MEP practice is poised to benefit from recent EPA regulatory changes to HVAC refrigerant standards. Fire protection, part of our buildings practice catalyzed by the acquisition of Fisher Engineering last year, has been notified of a new NAVFAC assignment to perform surveys of hazardous materials storage facilities worldwide, including Marine Corps bases in the continental U.S. and Japan. This is a good example of our complementary philosophies of not expanding our footprint internationally and serving customers anywhere, anytime as needed. We are also recently notified of a pending award to perform small and medium-scale spill and fire testing to support alternative fire protection approaches for aircraft hangers. The public sector clients we are working for in fire protection provide tremendous crossover synergy opportunities. Okay, now let's turn to slide 13. The bottom line to all of this is that our growth plan is working. Every day we're winning assignments that, while not necessarily newsworthy individually, are collectively propelling our growth. I've been in the industry a long time. My experience tells me this is the time for adjacent diversification across complementary verticals and skill sets. And that's what I'm committing to advancing at Bowman as we grow. Now, while the growth and opportunity I've outlined is promising, we all recognize it must be accompanied by sustainable improvement of bottom line results. This is a business for success as built around a right-sized workforce and rationalized overhead. We constantly assess our workforce and overhead considering evolving visibility to both short- and long-term revenue, customer demand, and quality assurance. As needed, we have, we are currently, and we will again in the future adopt our cross structure to changing circumstances as they evolve. With that, I'll now turn the call back to Megan for Q&A.
spk08: Megan, please. This time I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause here just a moment to compile the Q&A roster. Your first question comes from the line of Aaron Spachala with Greg Hallam. Your line is open.
spk05: Yeah, good morning, Gary and Bruce. Thanks for taking the questions. You know, first for me, last quarter you kind of noted you were looking for a very strong year for building infrastructure and now, you know, calling out organic contraction in the first half. Can you just kind of talk about what's changed in the past few months? You know, what end markets are you seeing slow down the most and what areas are you maybe excited about, data centers in the past that we've talked about? I'd appreciate that.
spk01: Thanks. Yeah, good morning, Aaron. I'll say we still do believe, you know, in the aggregate that building infrastructure is going to be a strong performer. I mean, it's when you start to, you know, to assess it in very granular detail between organic and acquired. But it is, we are investing in it. We think it's a, you know, it's a good place to be. It's not somewhere we want to withdraw from. So we do think, you know, that there's going to be strong performance there. Gary, let's talk a little bit to the sort of which parts in what?
spk02: We're selling work in multifamily and, but it's being booked, but being put on hold waiting for a more promising or a more favorable interest rate environment. So that's what we're we are. We are seeing optimism amongst our clients, but they're both rational rationalizing their business models for a new interest rate environment and sitting tight, waiting for the interest rates to decrease.
spk01: You
spk02: know,
spk01: there's been sort of general, I think, confusion of late, you know, even the last few months in the marketplace between, you know, impacts of discussion of changing evolution in the trajectory of rate discussions, you know, a lot going on, certainly in the geopolitical world and uncertainties. And those have impacted, they've impacted us more quickly, I think, than, you know, than circumstances like these in the past have. But I think they're temporary. I do think it's still a promising market. Data center is obviously very strong. We've got big box retailers who are issuing new orders for new stores. We've got a lot going on in health care. We've got a lot going on in the MEP world. You know, I talked about in terms of sort of preparing for transitions in regulatory environments and fire protection all in that group. But there are definitely the sub markets of multifamily, certainly urban commercial, which doesn't really dramatically affect us, you know, our drag
spk02: areas. A market that was very strong for us up until a year ago was the bill for rent market. And that has really slowed down. But we hear from our clients in that market that they're poised to reignite once interest rates start coming down.
spk05: Okay. Understood. Thanks for the call there. And then on transportation, you noted multiple large projects where you've been selected that are still working through final contracting and notice to proceed. Can you just give a little bit more detail on what items are causing those delays, how confident you are that they'll start up in the second half and that they'll are they still to be added to backlog? And what could this mean for kind of segment growth as we look towards 25?
spk01: Yeah. So the process in that is you submit, you get awarded in broad strokes here. You get awarded, then you go through a negotiation. So you've submitted a price target and a characteristic of your package, but then you still have to go through a negotiation, get the contract executed, and then get a notice to proceed. That just has seemed to take longer in the last six months. More recently, they don't get added to backlog until they're contracted. So there's the process of getting a contract, getting it into backlog, and then getting everybody at the authorities lined up to proceed. In some cases, as Gary talked about with shortages of personnel, things are just sort of dragging a little bit longer than we anticipated with some of these larger projects.
spk02: We are in touch with these DOT clients continuously, and they give us a lot of reason to be confident that it will indeed commence in the second half of this year.
spk05: All right. Thanks for taking the questions. I'll turn it over. Thanks, Aaron.
spk08: Thank you. Your next question comes from the line of Andy Whitman with Baird. Your line is open.
spk07: Great. Good morning. Thanks for taking my questions, guys. I guess I just had a question here about, Bruce, you mentioned that some of the multifamily awards, it sounds like you've got the contract, but the developers are kind of holding off and waiting for interest rates or something else to happen before you are able to get to work. In a situation like that where you have the contract, but the job isn't moving yet, you don't have the notice to proceed, does that still wind up in backlog, or do you also need the notice to proceed for you to feel comfortable putting that in your backlog number?
spk01: A little bit different in the multifamily award. You don't get the same sort of big contract number. It generally comes in phases more so than like a single, you know, big contract with one notice to proceed. But our philosophy is when it's under contract and there is a reasonable determination that is going to proceed, it goes into backlog.
spk07: Got it. Okay. So given all of this and given your comments in the prior answer about just how things are taking a little bit longer, is it a fair assumption to think about the backlog that you are reporting this quarter as maybe extending out in time, or do you think the burn rate will be consistent with historical averages?
spk01: You know, I think there may be on the long end of what is normally, you know, in the backlog. So you sort of figure that, you know, 70, 80% of your backlog turns in a 12-month period. The rest of it turns a little longer. You know, maybe the turns a little longer part turns a little longer than it normally, you know, than it otherwise was. And maybe there's a small portion of that current portion still turns within the 12 months, but it might be a little bit later in the 12 months right now than previously. But I don't, I mean, it's delaying, but we do continue to backfill with shorter-term projects that come and go out of backlog. So, you know, there's probably a little bit of an extension there. I don't know that I would say it's like, okay, now it's two years, you know, as opposed to a year. Yeah. Yep. Yep. Okay.
spk07: Appreciate
spk01: that perspective. And that's part of the reassessment, the second half of the year, sort of okay, contemplating that there may be a little bit of drag in that backlog.
spk07: Yep. That makes sense. I just thought I would ask you to just comment on kind of your outlook for free cashflow this year, Bruce. I don't know what you're thinking, but I thought maybe it'd be a good form to kind of talk about what your expectations are on that end.
spk01: So, you know, everybody, I talk to four people, I get five definitions of how they think about, you know, cashflow conversion and free cashflow. In the absolute sort of simplest of senses, saying, well, we're going to have a little bit of a change in the tax for us. So if you think about adjusted EBITDA, net of cap X, you know, we're running in that 70% range on it. Adjusted EBITDA to cashflow. Things are going to get a little bit impacted this year by the change in the tax for us. If you just think about, you know, the impact of the cashflow, the impact of having to write a big advance of our taxes this year. So that's going to have a short-term negative impact on cashflow conversion from adjusted EBITDA. Cause that, that portion of, of real money that goes out the door for tax is going to go up. But if you think about on a gap. Basis not accounting for timing change. You know, I think we're still consistent with. big change in the way that we're going to be able to. You know, make a difference in where we are today. You know, going forward. Got
spk07: it. Okay. I'm going to leave it there. Thank you very much. Thanks. Thank you, Andy.
spk08: Thank you. Your next question goes to line of Brent. With DA Davidson. Your line is open.
spk04: Order. Yeah. Thanks. Bruce. I guess hoping you can create maybe a little more of a bridge. The EBITDA. This year versus last. And some of the moving pieces within that. I mean, if I. Kind of go back and tally up the deals you guys have done since the second quarter last year, it's around. I think we're up to about $2.5 million. And we're up to about $2.5 million. Kind of 60 plus million and annualized net service buildings. But, you know, we're up two and a half million. And EBITDA from last year. So. Understand some of the moving pieces you give it, you've given from an organic perspective, but maybe just around EBITDA. I'm just wondering if you could talk about what, what's working against you and what's working for you. Cause I wouldn't have thought we'd seen a bigger increase. Just from those deals.
spk01: Yeah. I mean, I think what's working against us is we're not hitting the. You know, the, the revenue that we. Expected the, the labor force we have to be able to generate. And. That, you know, we. I think that's the, you know, the answer is that we're a little out of whack on our. You know, on. On our conversion of labor to, to revenue. And, and associated profitability.
spk03: Okay.
spk04: And. You know, obviously there's an implied. Kind of back half ramp. And EBITDA here. And it seems like a lot of that. And correct me if I'm wrong. It's contingent on converting this. Sort of transportation awards or backlog. You know, being an August now, is there, is there any evidence in the business that's that's happening? You know, I heard you give a couple of signals there, but any other details that kind of give you a confidence that that's going to convert here in the second. Versus. Yeah, maybe push. I would actually.
spk01: Yeah, I'm slightly, I suggest it's like a little bit differently, Brett, that the, the revision in our outlook contemplates. That we think there is some delay in revenue and. You know, We do have a strong. We have strong base of business. We have a strong. Demand from clients, a good backlog. And we do feel that there is. The reason we've adjusted to where we have is that that's, that is visible. To us. You know, at this point in time. And believe that, you know, that. That's achievable. We don't need additional cost structure to generate additional. Revenue. That we can, you know, So, you know, we think we can, you know, that. That the increase in. In case. In the second half. With with upside from some of the things that we think are scheduled a little later than we think coming in a little sooner. Then we think.
spk04: Okay. I think that's a good point. And just the last question is you've evolved the business here in the last. Few years and agree. You know, the diversity is benefited you in the long run. But it seems as though you, you are taking on. Larger sort of assignments. Does that. Does that mean we should sort of. Expect more lumpiness. Is that the new normal in the business? Or you'd sort of consider these. Isolated issues.
spk01: I think, you know, there. They're isolated issues that, you know, frankly, may be. There may be a little more regularity to the isolation. You know, we are growing. We are getting bigger. We are taking on bigger. Assignments. Impact to them can have bigger. Bigger short-term effect. They can also, but they're also. You know, very productive. In the long run. To have, so I, I'm not sure I would call it the new normal. It may be a little more extreme, but I think there is. You know, In all honesty, there is some likelihood that there, you know, That. Some bigger projects could have. And I think at this period where we are transitioning. I think that there's a lot of things that are happening. You know, there can be some more impact from them. We will get to the other side of that, where there are enough of them. And they are the norm and they really don't. Have effect. I think we're in that sort of growth spurt. Where they could for the short term have a little bit more. Visibility, if that makes sense.
spk04: Okay. I'll pass it on. Thank you.
spk08: Thank you. Thank you. Thank you. Your next question. It comes from the line of Alex. With the Riley. Your line is open.
spk06: Morning, Alex. Thanks. Good morning, Gary and Bruce. A couple of. With a softness. Sorry. With a softness and organic growth. Are you seeing any pressure on billing rates? I'm not seeing any pressure on pricing. Any thoughts directionally on gross margin over the next couple quarters?
spk02: We're not not seeing pricing pressures downward. So we are. That's that's not been an issue that we're seeing in the marketplace.
spk06: And then. I don't think this. Question really came up yet. I'm sorry. Net service billing growth is up kind of 27% year over year. Backlog growth is only up about 19%. So what do you think organic growth inside backlog is right now?
spk01: I'm only pausing because it's a little complicated in some. Respect. It depends. Sort of. Sort of set when. When it. Delivers at what point in the life cycle of an acquisition. You know, in terms of. What, whether they're in their first year period or not from the way we think about it. There is. You know, as I'm not, I'm not exactly sure how to parse it out. There's a, what organic growth is in backlog. I didn't say I would expect that it's slightly consistent. Overall. With our, you know, mid single digit. Organic growth rate.
spk06: Perfect. Thank you.
spk07: Thanks, Alex.
spk08: Thank you. Again, if you would like to ask a question, press star. Then the number one on your telephone keypad. Your next question comes from the line of Jeff Martin with Ross. MKM. Your line is now open.
spk03: Thanks. I wanted to drill down a little more on transportation segment. Those new awards, are those existing markets? Are those new markets? And is the funding. It's funding. The primary issue or there are other factors that are delaying the starts.
spk01: It's not funding at all. That's really not the issue. And when you say new markets, they are. I think that's a good point. They're, they're existing geographies. They're generally existing clients. Sometimes they are new services. Within. The portfolio of things to do because the. Authorities are expanding. The range of things that they're subcontracting. And, you know, an outsourcing. So there are. We are continually. We are constantly expanding the capabilities in those markets. I just
spk02: reinforce what Bruce said. The big contracts that we're. We're we're we're we're sitting tight. To get notice to proceed on. They are, they are in markets that we've been serving. Okay.
spk03: Great. And then you've answered X almost four months now. I know that's not a long time, but just was curious if you could provide an update on. One integration into. The ability to take their services across, across your business lines.
spk02: We're very pleased with, with. The prop. The pace. And pro progress and integration. And also very pleased with. with the, with the, with the, with the, with the, with the, with the. Some of the synergies, even this, this early on. We there's been a good bit of cross selling. The folks are, are, are very excited about the cross selling opportunities. And, and I mean, I'm hearing anecdotally that. Some of the folks that may be. that we have had initial some reluctance to go to a new provider, that being ourselves are seeing successes and getting over that reluctance. We are quite pleased with the prospect of synergies.
spk03: Great. Then one more if I could. You mentioned a market focus and labor adjustments. Just was curious if you could elaborate on that one and two. What kind of timeline you anticipate that to be over?
spk01: Well, Jeff, we are looking at we want to be able to deliver improved margin during the course of the rest of this year, particularly fourth quarter have it be evidenced. It's not, we are not going through and making huge adjustments. but it's assessing where we can be better at labor sharing as opposed to growing labor. It's looking around and deciding where and how we can optimize what we call the revenue factor on our business units by addressing how we utilize labor around the system.
spk00: Thank you. Thank
spk01: you.
spk08: Your next question comes from the line of Aaron with Craig. Your line is open.
spk05: Yeah. Hi again, guys. I just had one follow-up on guidance. Can you talk about how you are thinking about the split between third and fourth quarter? Are you still trying to be conservative on 4Q given some of the issues last year and maybe just a breakdown on organic growth in guidance? Seems like it might be mid to high single digits but just wanted to confirm.
spk01: Yeah, so I think at the moment we are looking at the third and fourth quarter relatively rateably, maybe a slight marginal higher third than fourth but not dramatic certainly. As I look ahead at the end of the year, I think that's about at the mid point of the guidance and I think about on the pro forma adjusted basis that we talked about in the call maybe in the 6% to 6% to 8% organic rate for the year. That's not going to tie to our actual revenue. Because we are doing a sort of pro forma basis.
spk05: That's about the same as the Okay. No, I think that's helpful to just kind of try to parse that out. Thanks for that. Okay.
spk08: Thank you. Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Mr. Bowman, I turn the call back over to you.
spk02: Great. Thanks, Megan. Just to wrap up, we've had a very successful run in our first three years as a public company. But that said, we are not going to rest on our laurels. We've got a lot of work to do to achieve our profitability and long-term organic growth goals. Rest assured that both operational excellence and organic growth are and will continue to be a primary focus with both myself and our entire leadership team. I want to thank everybody for the participation in this morning's call. Good morning.
spk08: This concludes today's conference call. You may now disconnect.
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