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spk04: Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the fourth quarter and full year, ended January 2nd, 2021. Joining us today are Dickerson Reitz, Chairman and CEO of NV5, Edward Cardaspody, CFO of NV5, and Richard Tom, Executive Vice President and General Counsel at NV5. I would now like to turn the call over to Richard Tom.
spk02: Thank you, Operator. Welcome everyone to NV5's fourth quarter and full year 2020 earnings call. Consistent with social distancing, speakers today are connected from different locations. So thank you for your patience regarding any latency that we may encounter when we answer questions. Before we proceed, I would like to remind everyone that today's discussions contain forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the two is available in today's earnings release and on the company's website at www.nv5.com. Please note that unless otherwise stated, all references to fourth quarter 2020 comparisons are being made against the fourth quarter of 2019, and any references to full year 2020 comparisons are being made to full year 2019. In this presentation, NV5 has included certain non-GAAP financial measures as outlined in Regulation G promulgated under the Securities Exchange Act of 1934 as amended. The non-GAAP financial measures included in this presentation are adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5's financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP. In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies. A webcast replay of this call and its accompanying presentation are also available via the link provided in today's news release on the Investors section of the company's website. We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Edward Kodaspody, Chief Financial Officer, for a review of the fourth quarter and full year 2020 results. Dickerson Wright will then provide closing comments before we open the calls for your questions. Dickerson, please go ahead.
spk03: Thank you, Richard, and thank you to everyone joining us for NV5's fourth quarter and full year 2020 conference call. We are pleased to announce our positive results for the fourth quarter and for the full year 2020. We released a deck illustrating our overall results for this call. So I will start on slide five with the year in review. We delivered a strong performance in 2020 with a 30% growth in gross revenues, 52% growth in adjusted EBITDA, and a 16% adjusted EBITDA margin. On gross revenues generated by NV5 employees, the percentage is 22%. We improved cash flow throughout the year, generating a 141% increase in cash flows from the operations in 2020 versus 2019. We measure cash on a daily basis, which has recently ranged between $65 million to $82 million, and is readily available for corporate use. This strong cash position is more impressive when you consider that we acquired MediaTek, an international technology and engineering design firm, through the operating cash flows and reduced our debt by $52 million in 2020. This debt reduction has resulted in a net leverage of 2.4 times at the end of 2020 compared to 3.2 times at the end of 2019. We also had a successful 2020 growth in EBITDA. This is noteworthy considering the unusual market conditions due to the pandemic. The unanticipated impact of COVID has affected all aspects of the economy. NV5 has been insulated, being an essential service provider, which has limited the impact on our business. We've always managed a scalable business that limits fixed costs. Our organization's ability to adapt, led by our employees, is the key reason for our success this year. Employees strictly followed the COVID health and safety practices as recommended by the Centers for Disease Control and Prevention across the entire organization and in remote locations. We also grew our virtual tools to continue delivering services to our clients remotely. You may have heard me say that the greatest challenge of the COVID environment is maintaining communication with clients and prospects. Our employees develop the creative approaches to foster these relationships. We also use our virtual environment to increase resource sharing across offices. As a result of this coordinated effort, We maintained our forecast of $105 million in just EBITDA, which was projected at the beginning of 2020, resulting in a 52% increase over the full year of 2019. On slide six, I will describe some of the highlights of the fourth quarter. In Q4, we delivered $160 million in gross revenues, which is a 22% increase compared to the fourth quarter of 2019. I think it is important to point out that Q4 2020 also had two less billable days than the fourth quarter of 2019. We also increased profitability in Q4 2020 with a 28% increase in adjusted EPS, 37% adjusted EBITDA growth, and a 29% increase in cash flows from operations compared to the fourth quarter of 2019. In our operations, we continue to drive growth in our utility services vertical. supporting continued investments improving the aging electrical grid. Our LNG business supported the utility services vertical with a good quarter. NV5 continues to support domestic utilities and reliable power delivery and fire mitigation services. Geospatial services continued its strong performance. Our real estate transaction service, which is part of our environmental vertical, was impacted significantly by COVID. But we are pleased to see this business rebound in quarter four. We anticipate year-over-year improvement in 2021 for this business. In our infrastructure business, we continue to see a strong performance in the West. New York City is resuming contracts that were delayed since March due to COVID, and the North Carolina Department of Transportation has increased funding, which are two positive developments for our infrastructure business entering into 2021. We are heading into 2021 with good momentum. Our backlog is strong going into the year, and we believe our margin improvements is sustainable. We maintain a strong cash position to fund acquisitions and reduce debt. We see further opportunities ahead with the new administration expected to increase investments in clean energy, energy efficiency, and sustainable infrastructure that present opportunities for NV5. We expect the reopening of the economy to positively impact our business. We're already seeing benefits of a reopening economy in New York City where engineering design work has restarted and the North Carolina Department of Transportation's increased funding. Finally, we have a healthy acquisition pipeline with over 30 acquisition pursuits at various stages. Please turn to slide seven for a review of our 2020 cross-selling results and a look at some of the key contracts we have secured so far in 2021. Our cross-selling has benefits to NV5 in a twofold way. It increases our profitability by performing work within the company, but it also serves to strengthen the integration of our offices and acquisitions. Cross-selling has become a part of NV5's corporate culture, and our employees are continually finding new ways to add value for our clients and become more embedded in our clients' organizations. We had an excellent cross-selling year in 2020, delivering almost $33 million in cross-sales which was 26% ahead of our target for the year and 41% higher than the cross-sell total for 2019. We expect to see continued growth in our cross-selling program in 2021, particularly between the core business and our geospatial business. As we looked at 2021, we began the year with a strong backlog and we have secured some significant wins in 2021. We were selected for a $100 million contract with the utility in the West to support power grid modernization and improve service reliability and safety. This is the largest single award for our utility services group, and the contract includes services from all six of our verticals, validating the benefit of our comprehensive service offerings for utilities. In California, NV5 was awarded a $15 million civil program management and engineering design contract to support transportation and water infrastructure improvements by California's municipal government. We were selected by Utility in the East for a $7 million geospatial vegetation and asset management award. The award is part of a multi-year sole source geospatial vegetation management contract with this prominent utility client. NPFI was also awarded a $5 million contract by Southeast State Department of transportation to provide geotechnical engineering, materials testing, and inspection along one of the state's toll roads. Our municipal client base has been strengthened by the resurgence of the residential housing market and associated building permit applications. Please now turn to slide eight, where I will provide you with some details about our latest acquisitions. Our acquisition strategy focused on strengthening our verticals to provide greater value to our clients and expanding our capabilities in technologies that deliver higher margin and have significant barriers of entrée. Let's discuss two of our recent acquisitions. First, Industrial Design Associates International is an example of a technology-based acquisition. IDA delivers commissioning services to the high-growth, high-margin data center in technology markets. The large volume of electricity and data used at these facilities requires more specialized, higher-margin commissioning then would be required for a typical building or a facility. In addition, IDA also offers subscription-based energy efficiency services that monitor energy use in real time using sensors placed throughout the facility to alert the building owner or property manager of a problem. These services complement NV5's existing energy efficiency services that are also delivered on a subscription basis. Our most recent acquisition is Terratech Engineers. a geotechnical engineering, environmental consulting, and materials testing company serving the public and private sectors in North Carolina, South Carolina, and Georgia. We expanded our presence in the Southeast infrastructure and environmental markets in 2018 with the acquisition of Calix. We've been looking to strengthen our testing, inspection, and consulting capabilities and expand our existing environmental health science offerings in the region to complement our infrastructure capabilities. Terratech has been working with NV5 for many years on projects for the North Carolina Department of Transportation and other clients. Terratech's strong management team, the quality of their work, and their longstanding client relationships make it a good fit to strengthen our verticals in the Southeast market. And we're excited to add to them the NV5 organization. We anticipate Terratech also supporting our Northeast infrastructure and design operations. We're actively pursuing additional acquisitions for 2021, and the M&A pipeline is strong. Our intention is to complete additional acquisitions this year, and we have a number of targets that we are currently pursuing. Let's go to slide nine. The new federal administration has been proactive in environmental protection and sustainability with new executive orders targeting greenhouse gases, infrastructure, and permitting water conservation and protection of public lands. These executive orders demonstrate the growing importance of sustainable infrastructure, clean energy, and environmental concerns at the federal, state, and local level. This presents an opportunity for Envy 5, which has a well-established service portfolio to help our clients achieve a sustainable future. Sustainable infrastructure has been a growing requirement in infrastructure for many years. And NV5 has been at the forefront of this field with employees serving as board members on Harvard University's program for sustainable infrastructure for the last 10 years. NV5 has worked on over 300 sustainable projects as designers, program managers, inspectors, and consultants. And that number will continue to grow as the focus on minimizing impacts and improving resiliency grow. Energy efficiency and clean energy are fields that we expect to see additional investments in the upcoming years. Our growing energy efficiency service helps both private and public sector clients identify energy inefficiencies in real time through monitoring-based commissioning on a subscription basis. There are currently $3.6 billion in utility rebates and incentives across the country to fund these energy efficiency programs. As the country continues to migrate to clean energy sources, reliability will continue to be important. As we saw in Texas a couple of weeks ago, all of us depend on the reliable delivery of electricity and natural gas. Renewable power generation, battery storage, and reliable transmissions and delivery of electrical power are expected to be drivers of our power delivery and energy compliance groups. We also expect LNG to continue to grow as a bridge to renewables and feed our LNG services that help utilities store gas for times of peak demand. We also expect a focus on natural resources, water resources, and sea level rise, which are all drivers of geospatial service. Many of our federal, state, and local governments' geospatial clients, such as NOAA, the Department of Interior, NASA, and the USGS depend on NV5 for mapping of forestry, water resources, floodplains, wetland delineation, and coastal nearshore areas for sea level rise. Please turn to slide 10. Environmental sustainability is a key component of all six of our verticals, with service office in each vertical to support our clients' sustainability goals. The current administration has placed an emphasis on environmental issues, and the marketplace has driven a push towards sustainable infrastructure, energy efficiency and renewables, and protection of water and natural resources. To address these issues, NV5 has been positioned to address the market demand for green solutions through investments in technology-based solutions such as geospatial surveying and monitoring-based commissioning, as well as providing a sustainable design, renewable and low-impact building materials and systems, and a reliable generation and delivery of renewable energy. At the bottom of slide 10, you'll see some examples of recently completed ongoing projects in each of the sustainable fields that we support. For the sake of time, I won't go through each of these project examples, but please reach out to us if you would like some more information about sustainable projects we have performed. I will now hand the presentation over to our CFO, Ed Godaspodi, to provide an overview of our Q4 and full-year 2020 performance. Ed?
spk05: Thank you, Dick, and good afternoon, everyone. If you would please turn to slide 12, I'll review our fourth quarter and full-year 2020 results. As you can see, We had strong results this quarter as our gross revenues increased 22% to $161.2 million. For the full year, our revenues increased 30% to $659.3 million. I will note that we had two business days less in the fourth quarter of 2020 versus the fourth quarter of 2019. And for the full year, we had an extra week in 2020 compared to 2019 due to the way our fiscal calendar works. Once again, our business model performed well in light of the coronavirus pandemic. Our adjusted EBITDA also showed substantial growth as it increased 37% in the fourth quarter to $24.4 million and 52% for the full year to $105.4 million. Our adjusted EBITDA margin continues to improve as it increased 170 basis points compared to the prior year fourth quarter, and 240 basis points year over year. We attribute this margin expansion to our scale as we grow the business and to our mix of business as we grow our higher margin verticals. Our adjusted EPS was also strong this quarter as we came in at 82 cents per share, a 28% increase over the same quarter last year, and $3.72 per share for the full year representing a 14% increase over 2019. Our cash flows also continue to show strength in the fourth quarter as we generated $23.6 million in cash flows from operations, a 29% increase over the same period last year. Full year cash flows from operations were $96 million, a 141% increase over 2019. These strong cash flows have allowed us to further strengthen our balance sheet. As you can see on slide 13, we ended the quarter with $64.9 million in cash. This is more than double the amount of cash we had as of the end of 2019. Moreover, we increased this cash position while also paying down $51.8 million of debt throughout the year. As a result, we were able to bring down our net leverage from 3.2 at the end of 2019 to 2.4 at the end of 2020. This is equivalent to a 25% reduction in our net leverage. With that said, we feel well positioned to go into 2021, and we are excited about the future. I'll now turn it back to Dickerson Wright for some closing comments.
spk03: Thank you, Ed. Please turn to slide 15. The greatest contributor to NV5's ongoing success is the strength of our employees. We depend on them to help set our growth targets and then hold them accountable to deliver on those goals. At a management meeting in 2014, we worked together to set our company-wide growth target of $300 million of gross revenues by 2017. This was an ambitious goal as we were only generating around $100 million in annual revenues in 2014. We announced the goal publicly so that we would be held accountable by our investors. When 2017 rolled around, we exceeded our goal and delivered $333 million in revenues. So at our 2017 annual meeting, we set another goal to grow the business to $600 million by 2020 and again announced the target publicly. In 2020, we exceeded that goal by delivering $659 million in gross revenues. In our third quarter 2020 earnings call, we announced our new target of $1 billion in gross revenues by the end of 2024. We are confident in our ability to deliver on this goal and believe that our platform scalability will continue to build upon the higher margins that we have generated in recent periods. Our business model has proven to be successful. We expect to build upon our momentum to deliver strong organic growth, and we will continue to make strategic acquisitions that strengthen our protocols and expand our high-margin services. This completes our prepared marks, and now we'd like to open the call for your questions.
spk04: Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question comes from Chris Moore with CJS Securities. Your line is open.
spk01: Hey, good afternoon, guys. Lots of good stuff happening. Hi, how are you doing? Thank you. Yeah, maybe just start with that $100 million contract for the power grid modernization. That's obviously a really important area. And just trying to understand a little bit better, you know, kind of how did you guys win it? Is it a really competitive market out there? Are there a lot of other players in there? Or is that, you know, kind of that full scope of work is the differentiator here? Well, yeah.
spk03: Chris, yes, there's always a lot of competitors, there's always a lot of competition, and there's always a lot of firms seeking to have a contract of this size. I think our relationship, and I can't name the utility, but we've had a long history, we're embedded with them, we do a lot of support work for them, and we were the go-to firm because we had a experience and track record in doing that work. And one of the things that was enlightening to me was The estimates they used for delivery of utility services and underground services previously, they were anticipating the cost to be about $4 million, and they assigned a small amount of this work initially to us, and their cost is $2.8 million. So we were a natural selection for this work, and I think it's going to greatly contribute to our work going forward over the years.
spk01: Terrific. Maybe just talk a little bit about where you are in realizing the synergies with QSI. Did COVID slow that a bit? Did it accelerate it? QSI looks like it was a terrific acquisition. It just seems like there's still a lot more there, just trying to understand kind of where you are in that process.
spk03: Well, yeah, it's an ongoing process, Chris. They've been with us a little over a year now. We are really doing the full integration process with them now and the back office support. But in the application to clients and in cross-selling, which is very important, they've been very active. And the natural synergy is the work that they were doing and the work that they could do with us. For example, they had little presence with utilities in the West. And through our relationship with utilities, they are doing much of the monitoring and safety monitoring and work for transmission load on the large towers so that they can prevent fire mitigation. Also in vegetation support and aerial support that they've been doing, it is a natural entree to work that we were providing from an engineering perspective. perspective, they are now providing from a geospatial perspective. So we see a lot of opportunities there. But, you know, we're learning as we go. We're integrating and we're introducing them to many of our services and vice versa. They've also introduced us to some of their clients and bases. And I think the key difference that we've been able to support them. The main work that they were doing was with the federal government and Department of Defense and various federal agencies that measure everything from global warming to many of the things that, for insecurity reasons, We now have an entree with those people in our Arlington office, which was doing work directly for the federal government. That's really enhanced their presence. But we've now introduced them to the municipal market, utility market, and markets that perhaps they were doing but not to the extent that they can now do with us. So we're very pleased with that. They deliver a higher margin of service, and we anticipate the synergy and cross-selling will develop even further with them.
spk01: Got it. Very helpful. I'll jump back in line. I appreciate it.
spk04: Our next question is from Rob Brown with Lake Street Capital Markets. Your line is open.
spk06: Good afternoon. Hi, Rob. First question's on the, I think you talked about the real estate transaction business normalized in Q4 a bit. Could you give some further color on that? And I know it got hit earlier in the year, but how's it come back and how's it looking into 2021?
spk03: Well, they had a very strong fourth quarter. And usually in our business, whether it be the real estate transaction or the core business of NV5 and even the geospatial business, Our first quarter tends to be slower. It's just historic. But they are starting to see now a lot of portfolio acquisitions that were delayed because of not knowing the environment. Those people have been coming back to doing that work. So they're starting to see the larger transactions and portfolio transactions They do very little with individual residential real estate. But, you know, as that whole market comes back and transactional work comes back, Bach and Clark, our transactional firm, has benefited from that. And they're starting now to see, as the economy reopens, we're starting to see much more investment by the larger portfolio acquisitions, and Bach and Clark has been benefiting from this.
spk06: Okay, good. And as you look into 2021, how does the organic growth rate look this year with the backlog that you have and the environment normalizing a little bit? How do you sort of see organic growth playing out this year?
spk03: Well, we still, you know, we want to be conservative. We're still considering anticipating organic growth be high single digits, somewhere between 5% and 9%. And the dilemma that everyone has with – firms that do a lot of acquisitions, is how do you measure that? We like to integrate. We like to look at opportunities. Sometimes we acquire a company, and there may be one whole piece of a portfolio that we don't think fits our core business, but we do like the overall company. So sometimes that piece goes away. So it's very difficult to measure organic growth through same-store sales, but we generally think in measuring firms that we've had for one year and but we can start to apply our systems to them. And so we still this year are anticipating organic growth to be in the high single digits.
spk06: Okay, great. Thank you. I'll turn it over. And nice job on the quarter and the year and hitting your EBITDA number in a tough year. Thank you.
spk03: Thank you, Rob.
spk04: Our next question is from Jeff Mertz with Roth Capital Partners. Your line is open.
spk00: Thanks. Good afternoon, guys. I want to echo Rob's comment on a nice job hitting the original EBITDA target for the year. That's really impressive. Dick, I wanted to dive a little bit into the path to the 2024 goal of a billion dollars of revenue. It appears to me that pursuing technology and compliance services I know you're layering in more subscription-type recurring revenue, remote monitoring-type solutions, but help us kind of understand as we go from, you know, 660 today, a million revenue, to get to a billion. Some of that's going to come from M&A, but what is the strategy behind that M&A? And then, you know, assuming organic growth is probably embedded in there, a mid-single-digit assumption. Yeah.
spk03: Yeah, well, you know, it's not constant, but we assume around 5% organic growth. And as we do acquisitions, the base for that organic growth gets larger. I think, Jeff, where we have been, you know, this is just me seeing how we're involved. we see a lot more opportunities to be selective in the acquisition. Now, our platforms are pretty well established. We can look at acquisitions in two ways. One, we can support the existing platforms from our traditional businesses. But as you listened and heard, we think there's phenomenal opportunities in this new technology. And we can look for those and be very selective in acquisitions and still grow them. So, I think that growth is going to come from organic growth about 50 percent, maybe 48 to 52 percent.
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