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spk09: 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.
spk05: 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.
spk02: 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.
spk05: Please turn to slide 16. As we look into the remainder of 2021, we believe that we are poised for growth organically and through our M&A programs. We're in a favorable financial position with a strong balance sheet and market conditions are expected to improve as the economy continues to open. Our public sector clients are benefiting from additional gas tax, residential permitting revenues, and stimulus funding from the 2020 American Rescue Fund Act. And the infrastructure and utility markets are expected to remain strong. We expect our building segment to have an additional opportunity for growth as economic conditions improved from the pandemic. We are focused on capturing revenue that was pushed to future quarters by Q1 weather and contracting delays. We believe that a federal infrastructure bill would provide additional tailwinds, but we do not need an infrastructure bill to meet our targets for 2021 and beyond. On the M&A front, we continue to seek opportunities to strengthen our platform and expand high-margin, high-barrier Tantra offerings. Our strong cash flows from operations, significant cash in hand, And low leverage gives us the ability to act quickly when opportunities arise and complete larger acquisitions if they fit within our M&A strategy. Our financial position also provides a strategic advantage when pursuing acquisitions due to our ability to use cash. We also expect to see margin improvements as we invest in high-margin business, realize the benefits of scale, and increase the number of services that we can keep in-house as opposed to subcontracting. For 2021, we are resuming guidance. The opening of the economy provides additional clarity regarding the impact of the pandemic on our business. It gives us confidence to provide guidance for revenues and earnings per share. Therefore, we expect gross revenues in 2021 to range between $695 million and $720 million, which would be a 5% to 9% increase over our $659 million in 2020 gross revenue. We expect full-year adjusted EPS to be between $4.05 per share and $4.45 per share, which would be an increase of 8% to 20% over our 2020 full-year adjusted EPS of $3.72. This completes our prepared remarks, and now we'd like to open the call for your questions.
spk09: Thank you, sir. And at this time, if you would like to ask any questions, you will need to press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. And your first question comes from the line of Chris Moore from CJS Securities. Your line is open.
spk04: Hey, good afternoon, guys. Thanks for taking a few questions. Maybe we could just start with net revenue as a percentage of of gross sales. Obviously, you know, it looks like sub-consultant services was only 15.2% of revenue this quarter. Can you just talk in terms of, you know, kind of expectations of, you know, those percentages moving forward and the drivers there?
spk05: Okay, Chris, sure. This is Dick. I'll start with an answer, and then Ed may want to be a little bit more specific. But we usually – budget about 17% or above in work that is gross revenue. The 15% that you saw in this quarter is a bit unusual, and that is probably because we have more work in the public sector and lesser work in the private sector. But normally, I think you can expect about 17% or so in subconsulted revenue. And it's really driven by requirements that we have to use people and use subconsultants that are a disadvantaged business or a minority business enterprise.
spk04: Got it. It's helpful. In terms of the... the guidance, maybe just talk a little bit about expected quarterly cadence.
spk05: Yeah, sure. Um, normally our weakest or slowest quarter is the first quarter and then the second lowest is usually the fourth quarter with the second and third quarters being much more, uh, uh, larger in volume. And it's tremendous weather-related when clients are releasing work for us to do, and we can work. So it's usually the cadence is first quarter that we just presented is usually our weakest. Second and third quarter tend to be stronger. And we're starting to see indications of that in the second quarter. And then the fourth quarter can usually be somewhat slower than the second and third quarters.
spk04: Got it. Okay. I just want to see if there was any catch-up. Is this year any different on the Q4 side? Got it.
spk05: Well, I think this quarter, you know, Chris, this quarter we were, and I'm going to speak a little bit in some other comments later, but this had a much more significant weather-related impact than we would normally have had experience in historically in the first quarter.
spk04: Got it. All right. I'll jump back in line. I really appreciate it. Thank you.
spk09: And your next question comes from the line of Rob Brown from Lake Street Capital. Your line is open.
spk05: Hi, Rob.
spk09: Excuse me, Mr. Brown. Your line is now open.
spk07: Hi, thank you. Good afternoon. I'm at Geodynamics Acquisition. I just wanted to get a little more color on your thinking there, how that opens up the geospatial market, and I guess generally how you see that market in terms of the ability to make acquisitions there and the footprint there.
spk05: Well, great. Rob, I'm going to speak generally in an overview, and then specifically as we wind up talking concluding comments. Marc Abado, our president of our geospatial group, will have more specificity on that. But I can tell you this. We are so happy with geodynamics because it gives our geospatial capability we have really strengthened and that is an oceanography deep water measurements you know we were able with the geospatial lute shoreline and shallower but this now is uh deep water measurements uh and it's a it's a growing business uh in fact anecdotally i just uh i got an email yesterday they were just off the coast of our hollywood corporate office and uh they were doing uh a client surveys uh in oceanography in deep water for deep water measurements. So what it does is it enhances us and gives us a tremendous competitive advantage because we can now do things that not many other geospatial firms have that capability to do. And we really like the geodynamics and the market sector they have and their revenue is not as cyclical as some other commercial activities.
spk07: Okay, great. Maybe you talked a little bit about some of the efficiencies you saw during COVID, and I assume that's related to travel, but how do you see that continuing, and do you see those efficiencies that you can gain? Can you keep those gains going forward?
spk05: Well, we've learned a lot from it, and, you know, as part of some of the concluding discussion I'm going to have is I've really seen our company, and we're very, very proud of our people and our ability to adapt. And it's interesting to note that there's many things you can do that obviously sometimes you didn't think you could do before. So obviously our savings has been in travel-related costs, accommodation costs, conference costs. And as you know, Rob, we've done this together, but roadshows now we're doing virtually and we're doing a lot of conferences virtually. So to some extent, we think that as the economy opens, we will still have some of that scalability and efficiency. And, you know, there'll be some things, of course, nothing beats seeing a client. face to face, but we think that we've saved a lot in costs that were not essential because of this. Another cost we've seen is people are working remotely. We've seen a tremendous contribution from our remote engineers and people working remotely in the utilization rate, and also in our facility costs. We're learning now that a lot of our facilities, we may not need all of that space. So our general counsel and their group is looking very closely at some leases we have. In fact, Alex Hockman, the president of our company, was just in our Southern California areas and looking for lease efficiency and lease space. So we anticipate that facility costs That's a percentage of revenue will go down. We think travel costs as a percentage of revenue will go down, and we think some of the other accommodation costs, et cetera, will go down as a percentage of revenue. I don't think it will be as draconian as it's been through the pandemic, but we certainly will learn by the efficiencies we can have in some of those fixed costs. Okay, thank you. I'll turn it over.
spk09: And your next question comes from the line of Jeff Martin from Roth Capital Partner. Your line is open.
spk04: And thanks for taking the questions. Jake, I was wondering if you could elaborate on the Insight Cloud platform within Geospatial. Is that part of the driver of your expected margin improvement, or is it more broad-based than that?
spk05: I think it's – and as I said, Mark Abada will be speaking specifically to that in our concluding comments. But I think we're looking for it more as a revenue generator and a way to go to market and to maybe drive more of the top line. I just am not experienced enough with it to know what it will do for the bottom line. But as it applies to fixed costs and other costs and more revenue we have, fixed costs will go down as a percentage. So I think that insight will be more of a top-line driver in revenue.
spk04: Okay. And then regarding your comment around business technology services being more severely impacted by the pandemic, could you elaborate on that? I'm not exactly sure what you mean by the business technology services. I guess you have the BTS segment, but...
spk05: Yeah, well, Jeff, it's a fancy name. It's mechanical, electrical, commissioning, plumbing things. And a lot of our client base is based in the hospitality industry. So obviously when our Las Vegas operation was definitely impacted because of The casinos were not growing and expanding during that period of time. It's opening up now. And so that business technology service is something that really applies to our hospitality and our entertainment business. And we were doing and we still do work in our subscription-based revenue energy efficiency work in Macau. But no one can even go to Macau and shut off even from mainland China. So a lot of that has impacted some of the work that we were doing in the mechanical, electrical components of what's going on in hospitality and hotels, et cetera, that just weren't making the improvements. And that's really the business that had been impacted.
spk04: Okay, great. And then? Well, just curious if you could give us some sort of insight into what you're thinking in terms of Q2, and you don't have to necessarily give revenue guidance for that, but to help consensus be more accurate for Q2, just curious if there's any color you can provide so that we can get a sense of how that's going to play out.
spk05: Well, the color's going to be pretty gray, Jeff, but what we can say is that What we can say is that we're starting to see improvement. We're getting some clarity on April, and we'll learn more about May. But we're starting to see an improvement in the business and an improvement in revenue for that. And we're seeing that's really affected by the opening of the economy and delayed projects that we mentioned, the pipeline projects. that are getting to start. And so we're starting to see an improvement in Q2, but it's really much too early to say exactly what we're expecting in revenue other than an improvement that we're seeing.
spk04: Okay, great. And then one housekeeping item. I missed the number on geospatial that Ed gave regarding the revenue dollars that was down.
spk02: 11.7 million.
spk04: Great. Thank you.
spk09: And your next question comes from the line of Michael Fenniger from Bank of America. Your line is open.
spk04: Hey, guys. Thanks for taking my questions. Just on the growth of Thank you. Just on the gross revenue guidance, with the acquisitions that have closed, how much is there a contribution to that gross revenue number that was not in 2020?
spk05: Well, it's minimal because a lot of the acquisition depends on the timing in the quarter. of the acquisition so we got little benefit from all three uh whether and obviously there were smaller acquisitions but we got little benefit from any of that in the quarter uh minimal uh at best uh and in and i would say even a cumulative maybe three to five million maximum
spk04: Okay, but that's for the quarter. I was just curious for 2021, like what we should be kind of expecting with that range. Is there a number of how much of that revenue range that you guys have provided, which is great that you reinstated guidance, how much of that is organic versus acquired revenue?
spk05: Well, the acquired revenue of all three is probably going to be a maximum of about $15 million for the full year. And then the rest will be the growth of the company.
spk04: Great. And just on that, I'm curious how we should think about the backlog, which is good to see that it was up 4% or 5% year over year. But if we look at your backlog relative to your revenue over the next year, nine months, it looks lower than where it was the last three years relative to what you guys were able to deliver. So I guess I'm just curious, like how much of that backlog is set to be delivered in 2021? And does that mean you guys got to win more work where you guys are now deliver that outlook than maybe you guys were a year ago and the year before that? Any context around that would help.
spk05: Okay, sure. If you go to the slide that we showed, the bar chart, and you can see the backlog increasing. A very good backlog in our service engineering business is about 65% of the anticipated revenue over a 12-month period. And so if you take that 580-something number, 586, and look at the low end of our guidance, that is certainly above the 65%. It's 84%. So we think that the backlog will be an indicator of strong growth in our guidance.
spk04: Got it. Okay. And then just lastly, if we could squeeze it in, on the acquisition, the pipeline, you talked about potentially large acquisitions, you guys moving – towards higher margin, higher services, I'm just curious. We're hearing that there's a lot of aggressive private equity in the space. We're seeing more M&A. How should we think about you've got your appetite to do a bigger deal and how to think about maybe the multiples for these types of higher value-add services, the geospatial type of businesses, if those multiples have, in fact, creeped higher in the last few months or in the last six months? Thanks.
spk05: Michael, I think you're dead on. We've seen a lot of involvement of private equity, and that's pure financial buyers. It's interesting, though, the private equity has been a majority participant but not 100% total acquisition. So the multiples tend to go up, and we're seeing in our core business, The multiple increasing from what we would historically look at 6% is increasing to 7% and higher. In some of our high barrier of entree business, the multiples have gotten as high as 10%. What we try to do is... we try to be a you know of course we're a strategic buyer not a financial buyer so we're really uh interested in people being with us and we use our uh we use a natural arbitrage in the in in the stock portion of the acquisition to get to allow that multiple to get a little bit higher So, I mean, there's a bit of pause. So, what I'm saying is that we're tending to see more utilization of our stock as part of the transaction. And as our stock appreciates, we can apply that more. And that would, even though the valuation is rising, the utilization of our stock allows for more of an arbitrage in the price of our stock and the multiple of the earnings that we're pursuing.
spk09: And your next question comes from the line of Lisa Springer from Singular Research. Your line is open. Thank you.
spk08: My question is, so what happened to the Colonial Pipeline kind of highlights how susceptible U.S. infrastructure is to an outside attack. I'm wondering if, you know, providing security for infrastructure, how big an opportunity that presents for you and then what areas of your business would be affected?
spk05: Well, cybersecurity is always an issue, and we've taken more of a defensive posture, and we are really making sure that we have the security in place of all of our people, and we've applied a certain software protections for what we're doing. But I don't know if that's going to create an opportunity for us more than it's going to be more of a defensive pressure that we want to put up more of a firewall against the ransomware.
spk09: Okay. Thank you. And your next question comes from the line of Mark Riddick from Sedoti. Your line is open.
spk05: Good evening, everyone. Hi, Mark.
spk06: So I wanted to touch a little bit on it. I know there's a lot of questions around it. sustainability of cost savings and expense savings and some of the differences of what we may see sustain over time. I was wondering if you could touch on some areas that you might see as internal areas of investment that maybe could benefit from the savings of other areas that you might be looking to shore up and what we might look for future internal investments within the company.
spk05: Mark, I'm not quite sure I understand your question, but Are you looking at what further efficiencies we could look for? Maybe you could ask me that again.
spk06: Yeah, sure, sure, sure. I'm looking more so on the offensive side of things. So I'm thinking along the lines of investments in labor, investments in technology, things like that. Are there areas that you are looking at internally that you might end up – you know, going on the offensive as far as increasing spending to take advantage of some of the savings that you're getting from other places internally?
spk05: Well, I'm, you know, I certainly, I don't know if I can speak for Alex and Ed, But, you know, I'm fairly allergic to spending if it's not directly applied. So we feel we have a – our scalability comes from our efficiency in integrating and managing the companies that we have. So we always – there's a budget. There's a budget for our management team. uh of the support services and the support services of course are are legal and financial our human resources our accounting our i.t and overall our overall branding and marketing of all of the organizations and that they have a set budget and obviously the more our revenue grows the more efficient or the more that'll drop through the bottom line because of the scalability of our network. Now, I'm not certain of specific IT tools that would would allow for more efficiency. I can say this, our international group is really benefited by software that we've had that allows our people to work remotely. And it's come in quite handy in the COVID area where people working remotely. So our engineers can apply software that they don't necessarily have to be housed in a one central specific location. And so we think we've seen some efficiencies there, and we'll explore more ways of efficiencies that we can deliver our service in a more cost-effective manner. But as far as the actual support service management, there are specific budgets that we manage very closely.
spk06: okay great and then the last question for me i was wondering if you just maybe share some thoughts as to now with the with the uh leverage levels back down to below one time uh and and the acquisition pipeline that you have before you as one if you could sort of just share some general thoughts as to how you feel about leverage levels going forward, whether we should think about it as being somewhat similar to what we had seen historically prior to the geospatial acquisition, or just in general, how we should think about maybe what your comfort level is with the general range of leverage going forward.
spk05: Thank you. Well, amazingly to me, Ben, I'm going to defer to Ed on Amazing to me is that we've grown this company from an absolute startup to our guidance of close to $700 million in revenue with little leverage and leverage under one. Now, you're going to hear from many astute financial people, let's say, that you can have more leverage. We just think that We would like to operate at a cash flow. We'd like to keep our leverage under one. But, you know, Ed can speak to what the highest our leverage has been. I think he had a slide to that. And really what our comfort level is we just don't – we don't believe in leverage unless it's our specific opportunity, such as we had with quantum spatial. But, Ed, maybe you can speak a little bit to that.
spk02: Yeah, I was going to say the same thing, Dick. You know, Dick and I both feel the same way in the sense that we're very comfortable being under one times. There would have to be a specific opportunity where we'd come in in an opportunistic way, and it would have to – justify bringing that leverage up right like in the case of quantum spatial but other than that we you know in the ordinary course of business we would prefer to be under one times that's very helpful I really do appreciate and I appreciate all the detail that was included in the remarks in the presentation thank you thank you and again if you have any questions just press star 1 on your telephone keypad
spk09: Your next question comes from the line of Andy Whitman from Baird. Your line is open.
spk04: Great. Super. Thanks for taking my questions this afternoon. I guess I was just hoping to understand the weather impact a little bit more. I was wondering if you could quantify how much revenue you think got pushed out of the quarter and if that revenue that was pushed out into the quarter will all be made up in 2Q or if it basically kind of pushes the whole chain of events associated with that work out through the year, then So I just wanted to try to understand how much of an impact that was.
spk05: Sure. Well, we would hope to recover a lot of that revenue, but in the service business, you have to be opportunistic and you have to supply the service when it's needed. When projects are absolutely shut down or you just can't acquire due to weather, just some facts. Seventy percent of our addressable service area was affected by the severe winter. And I think the loss in revenue was twofold. One, we lost – and it's very hard to be very specific as to what revenue was lost. But in the geospatial area, we lost business days because we couldn't fly. And then that has a twofold effect. If you can't acquire that data – Then the other revenue generating with the geospatial business is the analytic side. So the acquisition of data feeds the analytic side. So when you can't fly, you've lost a significant amount of revenue. we also were affected by covid we we uh you know we had been impacted in some phases of our business but the weather was something that we just uh did not anticipate and as i said 70 percent of our addressable market was under severe weather conditions in february and uh quantitatively i'm not going to say that all of the geospatial revenue uh will can be recovered, but we're certainly hoping that some of those projects were delayed and can move further. But Marc Abado will give, with more specificity, what he anticipates seeing in the second and the remainder of the year as far as geospatial, and he'll be commenting on that shortly. Thanks.
spk04: I was just wondering, with so much going on with reopening or whatever you want to call it here. I was hoping you could talk a little bit more detail about if the bidding submission pace, I don't know if you track the amount of bids that you've got out pending response from customers, or if there's anything you can at least sink your teeth into that can help us get a sense of how much or if the bidding pace with your private sector as well as your public sector customers has improved, if at all.
spk05: Well, you know, we're probably a little bit unusual in one way, Andy. We don't really look at things in the bidding process. You know, we'd rather be selected on qualifications, and we usually have a go-no-go decision on 70% of them. So we're not, you know, I don't really gain a tremendous amount on what bidding opportunities are. that we have i look for more is what is the ratio of wins of the opportunities that we know we can we can apply to as far as what i see uh and i don't want to be anecdotal about this but what i see is uh a certain increase a significant increase in activity but uh in the concluding comments we're going to ask alex hockman specifically who runs the majority of our core business he will also give his outlook on what he sees on how he sees the market growing. I certainly have seen, I'm optimistic, I've certainly seen a significant increase in activity, but I think Alex will mention some specific projects or specific material on what we see going forward.
spk04: Got it. Okay, guys, I'll leave it there. I'll catch up with you later. Thank you.
spk09: And our last question comes from Michael Fenniger from Bank of America. Your line is open.
spk05: He gets two. He had one already, but we'll allow a second one. Go ahead.
spk04: Thank you. I just wanted to squeeze one in. I appreciate it. It was a great cash flow quarter, Dickerson or Ed. I mean, can you guys just help us quickly with the guidance? I know you gave the revenue and the EPS just great. you know, or maybe this is more for Ed, how should we think about the EBITDA range with your guidance and also the cash flow conversion, like what the cash flow could potentially look like for the year, given a good start to the year and your guidance on the revenue and earnings? Thank you, guys.
spk02: Sure, Mike. This is, you know, from the perspective of adjusted EBITDA, of course, we don't have a a crystal ball, but given the guidance on the revenue side, the adjusted EBITDA we feel would come in somewhere in the range of $110 to $120 million. Our conversion rates are between 85% and 90%. Obviously, Q1 was a strong quarter because some of that cash flows within the $48 million stemmed from the collections of receivables. There's been a lot of focus on that, as I mentioned earlier. But throughout the remainder of the year, we'll have some volatility in working capital, so we wouldn't expect to maintain that same level of cash flow generation. But we still do feel strong about the overall year being at a conversion rate of, say, 85% to 90%. Thank you. You're welcome.
spk09: And at this time, this concludes our question and answer session. I would now like to turn the call over back to Mr. Wright for closing remarks.
spk05: Thank you. Well, as you can see in our presentations today, We are very optimistic about the year. We're optimistic about what will the economy opening opportunities that we have. But I thought we should be more specific. So you'll notice there was a erosion trend in our geospatial business. And so it'd be very good to hear from Mark. on what he sees the second half of the year to look like as far as the geospatial services. And then we'll probably ask Alex Hoffman the same question in the core business. So, Mark, maybe you can comment on how you see things going forward.
spk03: Sure. Happy to, Dickerson. On the geospatial side, we expect to see an improvement in the second half of the year for several reasons. First and most importantly, the demand drivers for advanced geospatial solutions continue to accelerate with respect to infrastructure investment, electrical grid resiliency, renewable energy development, along with environmental impact studies and environmental monitoring and planning. The second reason for optimism is our solutions are essential to the design, the execution, the monitoring, and the ongoing analytics of significant regulatory compliance and safety programs across both the government and the private sectors. And we believe that the pent-up demand for these required programs that have been delayed could be very, very significant. Now the timing of those taskings will determine how much we're able to convert to revenue this year and how much will be added to backlog entering 2022. And then finally, despite the delays in tasking that Dickerson mentioned, the contract vehicles through which these taskings are awarded remain in place today with MD5. And we are positioned very well for those that are renewing this year. So those are just three of the key themes that we look to relative to the outlook for the remainder of 2021.
spk05: Thank you, Mark. Very helpful. I may ask Alex Hottman, who is the president of what we call our core business, which is a significant amount of the operations that are traditional services that we would have. And Alex, maybe you can comment on how you see the remainder of the year.
spk01: I think with what we call the reopening of the economy, it has been Very optimistic in terms of how the year will finish up. I think we're also seeing synergies that we're developing with the geospatial group and the core business that now allow a full suite of service offerings to clients. that, frankly, we didn't have before. And while the acquisition of Quantum took place at the end of 2019, it has taken time for this relationship to mature, and we're seeing new opportunities that are presenting themselves. As you mentioned previously, we don't actually look at opportunities. Many of our Contracting vehicles come through requests for qualifications through which we'll ultimately receive a professional services agreement or master service agreement. So we don't actually have that churning of responding to bids. There are more opportunities that then avail themselves. And once we have defined the qualifications and have the categories, we're then able to have the contracting mechanism in place. And that is seeing a lot of opportunities as well for the core business.
spk05: Thank you, Alex. I think there's a couple of things that I would like to have us think of and apply them to us as we see the balance of 2021. I think what this COVID has brought to all of us is allowing us or requiring us to have the ability to adapt. adapt to the circumstances. Yes, we all can't go into one fixed office now. Yes, we need to keep our distance. Yes, we need to support our people remotely. So these are adapted that we had to do. We're now getting used to doing many Zoom calls where we would do a lot of our road shows in dealing with our clients. And so The ability to adapt is something that I am very proud of that we've been able to do, and these are adjustments that we have made as a company and our people, and I wanted to congratulate them on their ability to operate under changing circumstances and changing requirements. There are questions about our leverage and where we are in stock price markets, We can now be much more selective in the M&A front because our verticals or our platforms are much more mature, and each year they become more mature, and our people can be very selective to an acquisition or a growth area or a service area that they can improve the margin, get more embedded with the client. And so I think this is something that we are pursuing. We mentioned also arbitrage. As our stock has increased, you know, I can remember the days we went public at $6 a share. And now as our stock continues to increase, we can use this to be much more strategic in our acquisitions. We're becoming very selective in the acquisitions we want, and yes, Even though there is a real increase in infrastructure by the market and those entering and those paying prices that they may feel historically are much higher than they have before, our ability with the growth in our stock and our ability to utilize stock continues to give us a competitive advantage. We've been at the acquisition process for quite some time. the phone rings, people, we can be much more selective. And we always, you've heard me say this before, but we have a number of acquisitions right now on the plate, and we're looking now in strategic areas that we can strengthen our platform. So I want to thank everyone for your continued interest in NV5. I think that we're looking forward to a very good year, and that's why we've been restored the guidance with increases, and we feel comfortable with us meeting the projections and guidance that we've given. And I thank everyone for your support, and we look forward to working together to have a good balance of the year 2021. So thank you everyone for your time, and we'll speak to you once again at the end of the second quarter results.
spk09: And this concludes today's conference call. Thank you for participating. You may now disconnect your lines.
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