NV5 Global, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the first quarter of 2021. Joining us today are Dickerson Wright, Chairman and CEO of NV5, Edward Kodispoti, CFO of NV5, and Richard Pong, Executive Vice President and General Counsel of NV5. I would now like to turn the call over to Richard Pong.

Thank you, Operator. Welcome, everyone, to NV5's first quarter 2021 earnings call. Before we proceed, I would like to remind everyone that today's discussion contains 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 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 first quarter 2021 comparisons are being made against the first quarter of 2020. In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Security 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 the NV5 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 prepare 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 and on the Investors section of the company's website. We will bring the call with comments from Dickerson Wright, Chairman and CEO of NV5, for turning the call over to Edward Kodaspody, Chief Financial Officer, for a review of the first quarter 2021 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead. Thank you, Richard, and thank you to everyone joining us for NV5's first quarter. We are pleased to announce a successful first quarter. I will start on slide five with the Q1 highlights. We delivered $153 million in revenue, $24.2 million in adjusted EBITDA, and $0.88 per share of adjusted earnings per share for the quarter. We also had improved margins over the same period as last year. We generated record cash flows in the first quarter with $48.2 million in cash flows from operation. We finished the quarter with $93 million in cash on hand, giving us a lot of dry powder for our M&A program, which continues to be fueled by a healthy pipeline of opportunities. The first quarter is always our slowest quarter of the year, due in large part to winter weather delays. The more severe the weather, the greater the possibility for project delays. One of the big stories in the early part of 2021 was the winter weather. Over 170 million Americans were under winter weather alerts, which was the most in 15 years, and this was the nation's coldest February in 30 years. ND5 did experience some project delays in multiple parts of our business, including impacts to our geospatial route. We had delays in the data collection for some significant projects due to the inability to operate in severe weather. This temporary disruption in the early stage of data collection also displays the timing of some revenue recognition on the data analytics phase as well. We also experienced some delays in project boards and project starts. In our infrastructure-related instances, which include the infrastructure, utility services, and testing, inspection, and consulting verticals, we delivered 4.5% growth over the first quarter of 2020, despite impacts of both weather and the pandemic. Furthermore, the total backlog grew for NV5, and we expect to see accelerated growth in the rest of the year and expect to finish the year ahead of current analysts' consensus for revenue and adjusted earnings per share. As many of you know, NV5 is conservative. We prefer to limit leverage Subsequently, in March, we executed a follow-on offering that raised $141 million in net proceeds, which we have applied along with our strong cash flows to pay down debt and to fund further acquisitions. You can see the results as our net leverage is less than one, which is where we were prior to the climate spatial acquisition at the end of 2019. We have always reduced leverage through operating cash flows and we retired 145 million in debt in Q1. This low net leverage brings us back to our preferred capital structure and along with our significant cash on hand allows us to act quickly when the acquisition opportunity presents itself and it gives us a strong strategic advantage in funding acquisition. Our strong capital position allows us to pursue larger acquisitions that may strengthen our platform or provide entry into new high-margin service offerings. In the first quarter, we completed three acquisitions, with the first being International Design Associates, or IDA. IDA strengthened our commissioning capabilities and subscription-based energy efficiency offerings in the Middle East and Asia, and complements our international group, which has been performing well in 2021. In February, we also acquired Terratech Engineers, which strengthened our geotechnical engineering capabilities and testing, inspection, and consulting services, which complement our strong infrastructure capabilities in the southeast. In March, we acquired GeoDynamics, a sonar-based, full ocean depth geospatial solutions company that strengthens NV5's geospatial, nearshore, and shallow water geospatial capabilities. We expect water due to climate change and sustainability to be a strong driver of geospatial services and the addition of geodynamics expands our marine capabilities and provides a competitive advantage when pursuing a wide range of marine-based environmental and infrastructure related opportunities. Let's turn to slide six for an update on our core business. The infrastructure market is not as dependent on economic cycles. and our businesses have formed well throughout the COVID-19 pandemic. In the first quarter, we secured large contracts in New York, North Carolina, and Florida, three of our largest markets in the eastern U.S., and New York City resumed design services, which have been put on hold for much of 2020 due to the pandemic. In addition, the North Carolina Department of Transportation continued to increase funding for projects throughout the state, In the West, we took steps to expand our transportation infrastructure business in Southern California, led by a key hire in the Los Angeles area who will lead those efforts with Caltrans. In the Pacific Northwest, we have seen an increase, particularly in our geotechnical engineering group, and we have continued to maintain strong margins. Utility service continues to be the fastest growing segment within MD5 as we push towards our energy 2021 target of a 250 million run rate by the end of this year. Modernization of the electrical grid and natural gas delivery are the main drivers of this business, with an emphasis on the safe and reliable delivery of power. In addition, our real estate transaction services are above pre-pandemic levels. Throughout the pandemic, we have heard many questions about COVID's impact on municipal and state budgets. Municipal and state budget impacts were not nearly as bad as we once feared. Gas taxes, which fund much of the transportation infrastructure, benefited from additional vehicle use as people avoided air travel. The boom in residential housing provided permit fees for municipalities, along with increase in sales taxes, which have definitely benefited the municipalities. In addition, the 2021 American Rescue Plan Act, signed in March, provides a $350 billion in relief funding to state, local, tribal, and territorial governments. We are optimistic that state and local governments will have adequate funding to move forward with their infrastructure plans. Please turn to slide seven for an update on the geospatial business. As you know, we collect geospatial data by drones, fixed-wing aircraft, helicopters, rovers, and vessels using sophisticated remote sensing technology, including LIDAR, sonar, and various types of advanced imagery. As I touched on earlier, weather conditions can sometimes play a factor in the collection of remote sensing data. And due to the severe weather in the first quarter of 2021, we experienced data collection delays, In addition to weather delays, our largest market for geospatial services is the federal government. The transition to the new federal administration did cause some delays in project awards, which contributed to delays we experienced in project starts in the first quarter. However, we believe that we are poised well for an increase for the balance of the year. as we began to see some momentum in March with increases in volume and sales activities, along with a strong pipeline of verbal awards, which are waiting signed contracts. We also secured key wins in April, including our support for a $48 million five-year contract with the Bureau of Land Management. We believe that there is potential for margin improvement in the geospatial business, and we continue to seek opportunities to strengthen our position in the sector and consolidate this highly fragmented geospatial market. Finally, we launched Insight, our cloud-based geospatial data management software platform in the first quarter. The platform strengthens our entrenched client relationships, and we expect it to expand our subscription-based geospatial data and analytics model. It is a new service offering, and the interest from the market has been strong. We have already provided 20 quotes to customers, and we expect interest to grow as the demand for cloud-based geospatial data management solutions continue to expand. Let's turn to slide 8 for an overview of geodynamics, the latest addition to the geospatial NV5 service protocol. We expect water to be a driver of growth in the geospatial space. From water conservation and floodplain mapping to sea level rise and to shoreline resilience, The applications for geospatial services that support water are vast. For shoreline and sea level projects, MP5 Geospatial previously had the capabilities to provide remote sensing analytic solutions for shoreline and shallow water geospatial solutions, but we lacked deepwater sonar-based capabilities. Geodynamics provides that deepwater sonar-based capability to provide a full ocean depth marine geospatial solution. and it positions us to pursue expansion opportunities with key federal, state, and local clients, as well as offshore wind power, where geodynamics has built a strong resume. We're excited about this new addition to our geospatial capabilities, and we will continue to pursue other opportunities to expand our geospatial business. Please turn to slide nine for a look at our record backlog for quarter one. Our backlog is higher than it was a year ago before the pandemic, and we believe that it shows that clients are feeling more comfortable with moving forward on their infrastructure investments. In the first quarter, we secured significant wins in the geospatial utility services infrastructure and buildings and program management verticals. We are conservative with how we calculate backlog, looking at a 12-month rolling backlog. In other words, work that we plan to do in a consecutive 12-month period. We're also pleased with our $586 million backlog number and are confident that we are well-positioned for a strong year. On slide 10, I will give an update on our cross-selling program and some recent key wins. Cross-selling is a focus for NB5, and it allows us to bring work in-house that would otherwise have been subcontracted. On average, work performed in-house is much more profitable, and this year we have increased our cross-selling goal to $600,000 per week, or $31.2 million for the year. It is an ambitious goal, but in the first quarter we are on target. Cross-selling is part of the culture at NB5, and we are confident that we can meet the challenge. On the right side of the slide, we've highlighted some of the notable contract wins for quarter one. including a $50 million contract with New York City Department of Design and Construction to provide engineering inspection services. This is our second time in succession in winning this contract. We're pleased to continue growing our relationship with the city. In the geospatial business, we secured a $48 million contract with the Bureau of Land Management, which will support the Bureau's land management and conservation mission. In our utility services group, we secured a $23 million contract to modernize the vaporization equipment at a utility LNG facility. Our LNG business has been performing very well and securing great projects throughout the country. Finally, in South Florida, our testing inspection and consulting and program management groups secured key projects supporting high rises and online retail distribution facilities. We expanded our program management services into Florida last year, and we have been pleased with the success that they have in such a short amount of time. Now turn to slide 11. We received many questions about proposed infrastructure packages, and I wanted to take a moment to discuss how an infrastructure bill might impact NV5's business. Before we look at any of the proposed investments of the infrastructure bill, I would like to point out that infrastructure is essential. It is not optional, so even if no infrastructure bill is passed, spending on infrastructure will continue. NV5 has been billed without a major infrastructure bill, and we continue to grow in infrastructure services. We are optimistic that a bill will be passed, and we expect it to benefit NV5. In the currently proposed bill, approximately $1.2 trillion of the $2.3 trillion in the infrastructure proposal would impact segments that NV5 serves. Transportation infrastructure would receive $449 billion for projects that could be served by all of NV5's verticals. $200 billion is being proposed for utilities and broadband, which our utility services and geospatial business could support. $128 billion is being proposed for water and infrastructure, which could be supported by our geospatial infrastructure, environmental, and our testing and inspection and certification vertical. Finally, $393 billion is being proposed for buildings and facilities, including public buildings and sustainable retrofit of residential and commercial properties. Our MEP... commissioning, technology design, energy efficiency, and buildings program management businesses could support projects funded by this investment. I cannot provide estimates on what the specific impact would be on NB-5 because we don't know when a bill will be passed or what would be included in the final bill. We'll keep an eye on the progress of the proposed bill and make sure we are well positioned to act quickly should a final bill be signed into law. I will now hand the presentation over to our CFO, Ed Kodaspody, to provide an overview of our Q1 financial and full-year 2021 performance.

Ed. Thank you, Dick, and good afternoon, everyone. If you would please turn to slide 13, I'll review our results for the first quarter of 2021. Before we review the results for the quarter, I believe it's important to point out that we are comparing our results against the first quarter of last year. which was only partially affected by the pandemic, versus the first quarter of this year, which was a full quarter under the COVID-19 pandemic. In light of this, our gross revenues decreased by 7% when compared to last year, driven in large part by the geospatial segment, which decreased $11.7 million when compared to last year. This decrease in geospatial revenue was driven by contract award and project start delays as well as delays due to weather. The decrease in geospatial was largely offset by strong performance in our infrastructure-related businesses, while our business technology services continued to be affected by restrictions due to the pandemic. We are pleased that we maintained our adjusted EBITDA at $24.2 million while also expanding our adjusted EBITDA margin to 21.3% versus 19.9% last year as a percentage of gross revenues generated by employees. Furthermore, adjusted EPS increased to $0.88 from $0.84 in prior year. we can attribute much of the improvement in adjusted EPS to the increase in our adjusted EBITDA margin driven by our scale and operating efficiencies. Some of these efficiencies are the result of our response to the COVID-19 pandemic, and we expect to continue to benefit from these efficiencies as we move forward in the post-pandemic environment. We also saw a reduction in our interest expense as a result of our pay down of debt throughout 2020 and Q1 of this year, and a reduction in our effective income tax rate from 25.1 to 24.3%. The increase in adjusted EPS occurred despite an increase in diluted shares outstanding. Also worth highlighting is that we had a record quarter in terms of cash flows from operations as we generated $48.1 million compared to $13.6 million in the first quarter of last year. $36 million of this was a result of collections of billed receivables, which is a testament to our focus on working capital and the quality of our balance sheet. If you would please turn to slide 14, we'll discuss how we strengthened our balance sheet in order to enhance our ability to execute our growth strategy. On March 15th of this year, we completed a secondary offering that raised net proceeds of $141 million. As I mentioned earlier, we also generated cash flows from operations of $48 million. As a result, we were able to pay down a significant amount of our debt this quarter as we paid down $145 million in debt. As of the end of the quarter, we had $93 million in cash and our net leverage ratio was 0.8, which is a 75% reduction when compared to December 19 when it was 3.2. We feel confident in the strength of our balance sheet and how it can help fuel NV5's growth, including our M&A strategy. With that said, I'll now turn it back to Dickerson Wright for some closing comments. Thank you. Thank you, Ed.