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spk13: Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the first quarter of 2023, ended April 1, 2023. Joining us today are Dickerson Wright, Chairman and CEO of NV5, Edward Cospotti, CFO of NV5, and Richard Tong, Executive Vice President and General Counsel at NV5. I would now like to turn the call over to Richard Tong.
spk09: Thank you, operator. Welcome everyone to NB5's first quarter 2023 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 2023 comparisons are being made against the first quarter of 2022. In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities and Exchange Act of 1934 as amended. These non-GAAP financial measures included in this presentation are adjusted earnings per share, adjusted EBITDA, and revenues generated by employees. 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 and on the Investors section of the company's website. You may also find today's presentation, which will be referenced during this call, 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 Kodispody, Chief Financial Officer, for a review of the first quarter 2023 results. Dickerson-Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead.
spk08: Thank you, Richard, and thank you to everyone joining us for this call. The first quarter positioned NB5 to focus on increasing our technology innovation and subscription-based revenue services. We did this through acquisitions, integration of these new acquisitions, capital investments, and expanding our data center commissioning services. Let's begin by going to page five. You will see we required Axum Geospatial, a 340 employee firm specializing in geospatial data analytics. The synergy with our current NV5 geospatial platform was immediate. Axum will use our existing data acquisition assets and services involving aerial mapping. Prior to the acquisition, Axiom was using subcontractors for data acquisition. Axiom was just awarded their largest contract to date, which will involve data acquisition through our existing geospatial business. We also increased our subscription-based revenue with the acquisition of the U.S. Commercial Geospatial Division of L3Harris, known as PHIS. This is a software-based service business that includes 16 patents and involves analytics for satellite geospatial mapping acquisition. All of these acquisitions require a focus on integration. Our time and investments, although not recognized in the quarter one results, will be rewarded through synergy, continuity, and growth in the subsequent months to come. In fact, 36% of NV5 revenue is now technology-based, and 11% of these technology services are subscription-based. Our capital expenditures involving geospatial mapping include a deepwater mapping vessel built to our specifications to support offshore wind farm energy expansion. This is a capability that we had not yet previously possessed. We have also positioned NV5 to capitalize on the ever-expanding data center commissioning design and maintenance service business. Southeast Asia has put a tremendous demand on data centers to support increased cell phone capabilities and use. Please turn to page six, where we discuss our accomplishments in the first quarter. We also are looking forward to future growth and maintain our guidance for 2023. In comparing Q123 to Q122, it is important to understand some key components. We had one less workday in Q123 versus Q122, resulting in approximately $2.8 million less in revenues. We were also plagued with significant weather-related events that delayed projects to later in this year. Our real estate transaction business was negatively impacted by the increase in interest rates. Equipment and procurement revenue for large LNG projects were also recognized in Q1-22. However, overall, we realized profitability above consensus estimates. If we go to page seven, I would like to discuss our recent acquisitions that either took place or were recognized partially in Q1. We previously discussed Axum and L3-Harris, which positions us for higher margins and expands our service offering. However, full revenue for these acquisitions will be recognized in Q2. As you know, our owner representative business is a service that represents a facility owner for expansion or improvements, mostly to existing facilities. We strengthened this service with the acquisitions of DCS and Gaudet Associates in Colorado and Florida. The acquisition of Bromley Cook Engineering further strengthens our construction litigation business. Bromley Cook specializes in restoration litigation of buildings damaged by hurricanes. We will fully recognizing all of the revenue for these acquisitions in quarter two. On page eight, our backlog is healthy entering into the second quarter of 2023. Backlog grew to 802 million, bolstered by key wins in geospatial technology, totaling 26 million, and infrastructure, totaling 22 million. These projects support a stable backlog of non-discretionary services. We will now transition the presentation to our CFO, Ed Kodespody, to provide an overview of our first quarter performance. Ed? Thank you, Dickerson.
spk05: And good afternoon, everyone. If you would please turn to slide 10 of the presentation. I'll review our first quarter 2023 financial results. Our gross revenues were $184.3 million compared to $190.2 million in the first quarter of last year. The $5.9 million decrease in gross revenue was primarily due to decreases in our real estate transactional services business of $9.6 million and our LNG business of $6.2 million. The decrease in real estate transaction services business revenue was driven by changes in interest rates that affected the market. The decrease in LNG revenue was primarily a result of project cycles, which typically fluctuate during the year depending on the stage of the procurement cycle. In addition to these factors, weather and one less business day this quarter also impacted our revenue. These decreases were partially offset by revenue from acquisitions and organic growth in our geospatial business. The first quarter included about five weeks of Axum revenue since we closed that acquisition in late February. During the quarter, we were successful in reducing the amount of outsourced labor. Our gross revenues generated by employees, which is a metric that subtracts from gross revenues, revenue that is generated from subconsultants and direct costs, generated approximately $135.1 million in the first quarter compared to $127.1 million in the first quarter of last year, an increase of $8 million. Gross profit was $96 million compared to $93.8 million in the first quarter of last year, an increase of $2.2 million. Net income was $5.9 million in the quarter compared to $8.6 million in the first quarter of last year, a decrease of $2.7 million. Our adjusted EBITDA was $27.7 million, which was a $1.2 million decrease compared to the first quarter of last year. Our GAAP diluted earnings per share was $0.39 per share in the first quarter, of this year compared to 57 cents per share in the first quarter of last year. Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related costs, was 88 cents per share in the first quarter of this year compared to 99 cents per share during the first quarter of last year. On slide 11, you can see that our cash flows from operations during the quarter were $11.3 million. This is not a typical run rate for us, but we were impacted by working capital timing as our unbilled receivables, excluding acquisition balances, increased $14 million, and our accounts payable balances decreased by $15.9 million due to accounts payable payment cycles. As of April 1st, 2023, we had $31.3 million of cash on hand, and our net leverage was one times which increased as a result of our funding of the Axum acquisition in February. We also had availability of $248.3 million under our credit facility at the end of the first quarter. We feel confident about the strength of our balance sheet and are excited about the expected growth in our business throughout the rest of the year, in particular the second half of the year. I'll now turn it back over to Dickerson for some closing comments.
spk08: Thank you, Ed. Let's turn to page 13 on the deck, which documents NV5's strategic growth position. The drivers for this anticipated growth include expanded geospatial and software technology. It also includes the two acquisitions to support our owner's representation business, the expansion of our utility services with power delivery and underground engineering to support the increased demand for safe and reliable delivery of energy services. There are three key pillars for our increased performance. Organic growth, mergers and acquisition growth, and margin growth provided by higher margin service offerings.
spk02: Thank you.
spk14: Thank you, sir.
spk13: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause just for a moment to compile the Q&A roster.
spk14: Thank you.
spk13: Our first question comes from Chris Moore from CJS Company.
spk07: Hey, good afternoon, guys. Good afternoon. Hey, thanks for taking a couple questions. So maybe just start with the sub-consultant services as a percentage of gross revenue. Obviously, a very impressive number. I'm assuming that level is not sustainable, but maybe you can talk a little bit more about what drove that this quarter and kind of the reasonable target moving forward there.
spk08: Okay. Well, I'll give you a macro response, and then maybe if there's any specifics, Ed, our CFO, feel free to join in. Actually, the amount of work we're doing in the real estate business, transactional business, both are two companies that do that. rely on sub-consultants quite a bit. And unfortunately, because interest rates has impacted their business, as their total volume is reduced, therefore the percentage or lack of sub-consultants that are used as opposed to if a business was doing more revenue.
spk05: I would agree with that, Dick. And I think it's also a result of the the initiatives that we have within the firm to insource more of the work rather than outsource. And so there's a lot of emphasis on that, particularly through our cross-selling. And so we're seeing results of that work.
spk07: Got it. That makes sense. Very helpful. When we look at the backlog, roughly what percentage of that is geospatial work?
spk05: It's about roughly 15% of that is geospatial. They tend to have lower percentage backlog as it relates to the full year in some cases, but it is about 15%.
spk08: This is a question, and that includes Axum and L3 Harris? Okay.
spk07: Got it. Yeah, I'm just trying to understand kind of as geospatial is becoming a more significant piece of revenue, you know, trying to understand the sales cycle for geospatial versus kind of the overall MB5 sales cycle and see what that would mean to, you know, to backlog over time? Is it, you know, just kind of understanding the dynamics there a little bit better?
spk08: Well, in a linear way of looking at it, the backlog for the geospatial group will grow because The backlog that we recorded was through the first quarter of 23, and both of those companies had not fully joined us in the quarter, but you would expect to see an increase as the second quarter begins and they're fully incorporated.
spk05: Right. It included the backlog for Axum, but not Aviz because that was an April close.
spk08: And we were very conservative in the inclusion of backlog of Axum. We went off of Axiom's original budget for backlog, but it looks like their revenue is going to succeed their original budget.
spk07: Got it. That's helpful. And Dick, you kind of touched on this in terms of from Axiom. It sounded like there was some synergies right away. I'm just trying to understand the cross-selling opportunities from the recent geospatial acquisitions. Is there significant overlap with your existing customers?
spk08: Well, yeah, I think on a couple of things there. First, let me say the integration of Axum is going very well. Our quantum spatial group and Axum have worked together in the past, and we are really seeing the benefits. As far as immediate, I can only say some of the things that we can see immediately. Most of their service was the analytic review of the geospatial data, but not the acquisition. They were using sub-consultants and sub-contractors for this work, and now they'll be using our NV5 geospatial platform for the acquisition for the data that they're using, rather than using some sub-contractors. So we feel we're going to benefit there. Sales organizations, they have a very robust sales organization and are geospatial sales organization is also very good. There seems to be some overlap there. So what we've done is we've consolidated the sales organization into one organization, and that seems to be going very well. And they have been very active recently in getting work that some work we would not normally have gotten. They tend to specialize and work more with, and this overlaps with our with the L3 Harris acquisition, and that's in the aerospace and satellite analytics and the Department of Defense work, which we weren't doing as much with the geospatial group. So, you know, we're looking for immediate synergies, and we're getting them. And if you were going to measure them, it would be through lack of subcontractors for their acquisition work, which they'll be using us. And it would be the consolidation of the sales organization, which will certainly help things on the expense side. And then it's maybe a new client base that we're getting with Axum joining us. Perfect. That's really helpful.
spk02: I'll jump back in line.
spk13: Thanks, guys. Our next question comes from Jeff Martin from MGM. Please go ahead.
spk00: Thanks. Good afternoon. Hi, Jeff. Hi, Dick. Wondered if, maybe it's a question for Ed, if it's possible to quantify or at least take a shot at the weather-related impact on revenue in the quarter, and then secondly, is that pushed out to Q2? Is it going to be accelerated during Q2? How should we think about the catch-up on that?
spk08: Well, let me give you, from my perspective, if you looked at losing a full day of revenue, which we did for having one less business day. That was 2.8 million. But our work in the West represents about a third of our business. So we would take a third, and this is certainly back of the envelope, but we would take a third of the revenue, and by the amount of days which we've lost, which was somewhere between five and eight days, And so you would take a third of the total revenue for the quarter, which was 180 something. So that's, it would be a third of what, of 50, of 60 million, of 60 million say. And then we would divide that by the amount of working days for the 60 million. So five into 60 million is roughly 1.2 million, right? roughly 1.2 million. So if we were going to quantify that, and believe me, this is certainly not an audit. This is how I looked at it, Jeff. And so it's about 6 million in revenue from just all those unbelievable rains that we had that we just couldn't get to the And then very conservatively losing the one business day 2.8. So, you know, it's about 8 million, 8 to 10 million off of the 184 that you see on the information deck on page six.
spk00: Yep. Okay. And then I was wondering if you could comment with respect to where consensus is for revenue for Q2. Currently at 225, 225 million, you know, based on the consensus that I'm looking at. Given that VIS closed earlier than mid-year, I think, you know, we were all expecting that that probably closed somewhere around mid-year. So that's probably incremental to analyst assumptions for Q2. But I don't know to what extent you can comment your level of comfort with a 225 million revenue level for Q2.
spk08: Well, I think, you know, I think that's what we're looking at that with the consensus. And what I'd like to say, and you're going to see that in some concluding comments, You know, I really look at the annual. I wish our business was linear, but I really look at the annual rate. So, you know, Ed is sitting here with me. I think we are comfortable with the total amount given by consensus, and our guidance was 878 to 915. And how that falls in the quarters is a little bit less – it's a little less predictable. We could probably be over – the 225 and therefore under maybe on the third and fourth quarters. I say if you look at everything in total, I don't know if it's going to be 188, 225, 239, or 227, but we feel comfortable with the guidance of 878 to 915. Ed, you may have a thought.
spk05: I think that's in line. I think I agree with the business not being linear and focusing more on the full year numbers. I can say that we tried to emphasize that the results we expect would be more weighted towards the second half of the year. Although those revenues seem reasonable, from an expense perspective, Q2 is going to going to require integration time on some of these acquisitions since they're on the larger side. And so maybe on the earnings for Q2, relative to the rest of the year, we'll feel more pressure there. But overall for the year, like Dick said, I think the overall numbers are still reasonable.
spk08: Historically, we're coming the Q2 and Q3 are our busiest Times of the year, so it, it would go on just historical precedent that we, the consensus would show a higher revenue amount for those for those quarters. And that's typically. You know, that that's as if business was doing now, but Jeff, you brought up a good point. Some of these projects that we couldn't get to were delayed. They may spill over into the into the 2nd quarter and. And they may give us a little bit more comfort on the revenue. And as Ed said, we're very involved with the integration of these acquisitions we've made. And that sometimes tends to internalize us. So, you know, it's kind of a push on either way. And so, if that's how we can see it now, we think that's, you know, we feel comfortable, as I said, with the overall annual amount and how that falls into the quarters.
spk00: will you know it looks reasonable and what the consensus has yep and then one more if i could on geospatial um you know last quarter there was some push out in terms of funding of projects on geospatial and then going back over you know last couple of years there's been some delayed in contract renewals from government agencies just curious if you could provide us an update on what that trend has been so far during 2023
spk08: Well, this is my perspective, and Ed will comment more specifically perhaps on the organic growth. But we had a very good quarter with our geospatial group, and some of that was a result on working on some of the delayed projects. I think the organic growth was 15% organic growth in the quarter alone, and that probably was due to, of course, new wins, new work, but actually maybe some of that delayed projects that were spilling over that we were not able to do in the fourth quarter of last year that we mentioned were delayed.
spk02: Great. Thank you. OK.
spk14: All right, next question comes from Rob Brown from Lake Street Capital Markets.
spk13: Please go ahead.
spk04: Good afternoon, Dick and Annette. Hi, Rob. Hi, hi. Just wanted to get a little bit more color on the – I think you talked a little bit of stabilization in the real estate transaction business now. How is that market stabilizing, or what's the visibility there, and maybe what gives you some confidence there?
spk08: Yeah, I mean – I may sound a lot more knowledgeable because I just finished a conversation with both of our real estate group. And what was very surprising for me to see was measuring the amount of new business they were getting on a weekly basis. And if you remember, there were five weeks in the quarter for them and their reporting. But on a weekly basis, they're looking more like, they're showing an increase of about 10 to 25% on new orders. And so we're starting to see that come back and come around. I think they will not recover everything they had in their original budget, either units. But the nice thing is that they're profitable, they continue to be profitable, and they're really taking advantage of the of the scalability of their business. But we do, we are seeing both an increase in the real estate transaction business over where it was in the quarter. So, you know, we're certainly keeping an eye on that, but we do see some positive signs.
spk05: And just to clarify, I think the five weeks that we mentioned earlier were the amount of weeks that we owned Axum during the first quarter, just to clarify.
spk04: Okay, good. And then maybe on sort of the second half weighting of your business, what drives it? I know there's a seasonality piece to it, but is there some of these geospatial contracts, do you have some visibility on them that gives you sort of the second half weighting?
spk08: Well, we see a couple of things. We're seeing a significant increase in our international business, and I'm going to mention that on what's happening with the data centers and use for the cloud and support. And we're expecting to see much more of that in the second half. We're also bolstered by some recent significant wins in the geospatial business and our commercial side of the geospatial business, how they've structured it. They, both commercial and federal, but more so commercial, are indicating a significant increase in their business. And it's just two things. It's some projects that were delayed and still spilling over. And it also comes about with additional people that they're going to hire that are billable people, 100% utilized. And so we're expecting to see an increase on both for that. They have a good workload. They have some good contracts that they're working on. And it looks like they're staffing adequately. And we're being assisted by Axum in that staffing too, the Axum acquisition. So those are the things that we're expecting to show better results for geospatial. Even though they did have a good first quarter, we expect to see some additional work from them.
spk02: Okay, great. Thank you. I'll turn it over.
spk13: Our next question comes from Andy Whitman from Bird. Please go ahead.
spk01: Okay. Excuse me. Thanks for taking my question, guys. I guess just to understand a little better, do you have what the interest rate sensitive business, the real estate transaction, as well as your residential business that you do basically the property assessment or whatever, do you have how much that was down year over year just so that we can kind of understand that impact to the quarter?
spk08: Well, I... There's three segments of it. The only residential portion of the work we do is when we act as the building departments for the municipalities. But the transactional basis, which we're really working for, large portfolios and Fannie Mae and Ginnie Mac, they're significantly down from the original budget. The one side of it that does with Fannie Mae, I think their original budget was... for the year was $38 million. They're projecting $31 million now. I don't know what the other side is that Ed is looking at, but their original budget, if you total them both together and just on that piece of the business, I think we've lost close to $10 million in revenue from the original budget. The municipal services, though, they just won a very nice award in Southern California. So I am not as – there has been some degradation to their budget, but I'm not as focused on that as we are in the real estate transactional business. Okay.
spk01: That's good to contact. That's helpful. Yeah, go ahead, Ed.
spk05: No, I was just going to say it was that $9.6 million decrease as compared to last year's first quarter. And as a percentage – that's roughly 48% or so, Andy, versus last year. What we saw early last year was also, you know, because of the real estate, the anticipate, we believe, because of the anticipated increase in the rates, you know, we had pretty robust Q1, the first quarter and second quarter last year for real estate.
spk01: Yeah, and that was actually kind of the reason why I asked the question, is trying to understand what... to hear that things are kind of perking up and definitely hear the comment but there are some still lingering challenges that that are gonna it sounds like persistent at 2q regardless and anyway so that that context was helpful um the um where do i want to go next i guess um could we talk about um I guess previously you guys kind of talked about what an EBITDA range that's associated with your EPS guidance was. I guess the EPS guidance hasn't changed, so presumably the EBITDA guidance that's underneath that hasn't changed either because I don't think your interest rate exposure has changed that much. Is that a fair assumption?
spk05: Yes, it is. Got it. Yes, it is. I think we had previously said – although it is not guidance, but that we can, you know, we can see having adjusted EBITDA in the $150 million range this year is what our forecast looks like. But it's, you know, that's not guidance.
spk01: Yep. No, totally. Exactly. I just want to understand that a little better. And then I guess just as it relates to the guidance, you know, some of these, I think the L3 Harris one in particular closed maybe a little bit earlier than we were thinking, maybe than you were thinking. How did the deal closure timing affect the guidance? Did you pick up a little bit there? And were all these acquisitions that you've announced subsequent to the last quarter, and I think they're relatively smaller, do those affect the guidance at all or should they?
spk05: The smaller acquisitions don't. I mean, they really are more strategic and they're just not material. The timing of L3 of the VIZ entity we had assumed was going to, you know, it was in our guidance when we issued guidance last quarter, but we thought it would come in a little bit later in the year. So we picked some of that up. And so, you know, that that helped offset some other fluctuations in real estate and other, but at the end of the day, we ended up in the same place in terms of our overall guidance.
spk01: Okay, that makes sense. And then I guess maybe my last question, Dick, just the custom vessel is something that we know that the geospatial and all of the related subsea vessels things in that business are more capital intensive than your legacy traditional consulting engineering business. So that's a known fact. But I guess when it comes to owning custom vessels, it's a little bit out of the ordinary. So I thought I'd just give you an opportunity to talk about, really try to understand what the CapEx budget is for this year with things like that in there. And maybe is there a change on the CapEx budget overall for the company as you think of it as a percentage of revenue because you have loaded up some of this more capital-intensive geospatial work in the business?
spk08: Well, Andy, yes, thanks for the question. Our capital expenditures, because of our positioning and it capitalized on the growth of geospatial, our overall capital has increased. I know, for example, It could be more than that, but I know that we've authorized for we've authorized four point two million dollars alone for the vessel and it was built to the specific client specifications to do deep water mapping in particular the work that was being done in offshore wind. And so I know no other vessel that can do the deep water measurements that we can do now through our geodynamics group. So we had specific specifications, the client had specific specifications for that vessel, and it was built to our specification. I'm going to defer to Ed on the overall capital expenditure, but I know it has increased because of our our focus on opportunities in our geospatial platform.
spk05: Well, I think that was about 4 million or roughly 4 million in last year's CAPEX, that vessel you're talking about. And at the moment, we're not contemplating adding any vessels that would be of a material cost. And so when we think about this year's CAPEX, I do expect it to be a little bit higher than last year, but nothing too impactful. Last year was around 16 million or so, so it may be a little bit higher than that. But again, we're not planning on continuing to add to the fleet necessarily. I think with this current arrangement of vessels for these wind farm initiatives, et cetera, and the geospatial offshore work, we've got the... the assets that we need right now.
spk08: Yeah, I was speaking from a historic basis. I think before we were involved as much in geospatial, I think our total amount, if you looked at run rate and revenue, it's going to be about $260 to $280 million on just our geospatial work alone. But prior to that, we were capital light in our consulting and services in the core business, probably more like... $3 to $4 million in capital expenditures. So that was a good that you pointed out, Andy. That is correct. The capital expenditures have gone up. And what has happened, though, I can just expand a little bit more on that. And it's all the predominant amount of it is for acquisition expenses. And so airplanes and LIDAR equipment and things like that. What is good, though, is we happen to be able to offset the sale of some of the equipment to get more modern and new equipment. And I know right now there is, in that budget, we're assuming acquisition of a King Air fixed aircraft. And where Ed said, we don't think we're going to have any real significant changes in the capital expenditure because we will probably just use that. That will be used to replace another aircraft that we have.
spk05: It's going to be somewhere in the neighborhood of $20 million most likely, Andy, the capital expenditure this year.
spk01: Yep. Okay, good. That's all of my questions. Thank you, gentlemen. Okay, thank you.
spk13: Next question comes from Michael Finiger from America. Please go ahead.
spk12: Hey, guys. Thanks for having me on. Hi, Mike. Hey, Dixon. How are you? It was really helpful on the CapEx. I'm just curious on the free cash flow, what we should kind of be thinking for the year, and does the lighter start to the year, does that kind of push out? maybe some of what you thought of the cash flow maybe into 2024?
spk05: You know, Mike, it's hard to, you know, the working capital is going to fluctuate throughout the year, right? So if you think about it without the impact of working capital and just, you know, consider an adjusted EBITDA in the mid $150 million range and the CapEx numbers that I just gave you, you know, that, that free cash flow we would expect to be higher than last year. And so, you know, that I believe is the best way to look at it. I understand your point about it there being a, you know, Q1 having a low cash flow number, so do you kind of take the run rate and divide it by three? The working capital is going to fluctuate, but overall, without the calendarization of working capital fluctuations, we would expect to be higher this year commensurate with our increase in earnings per share.
spk08: Just a comment. We're used to seeing a cash flow conversion from EBITDA to the cash flow of about 85% to 95%. I just got kicked under the table here.
spk05: No, not at all. I think from a free cash flow perspective, it would be, again, without any working capital fluctuations, it's closer to 60% or so, but it's going to fluctuate.
spk08: And then also WIP. Correct. He also means work in process as part of the working capital. So that simply means if we recognize the revenue and some of the offices will be billing at a later date. So obviously we have the expense, but we don't have the cash coming in. And so that'll have an impact on the cash flow.
spk12: Perfect. And there's a lot of As you know, a lot of headlines around, you know, the debt ceiling, potential government shutdown. It seems like geospatial is doing really well right now. I'm just curious how you kind of, are you hearing anything from the field about this, you know, these growing headlines, we're seeing rising headlines, what it could potentially mean in terms of just orders in the pipeline as we try to navigate some of these headlines?
spk08: No, we haven't seen anything. Usually the government budgeting process, which is the federal funding, which would be, you know, maybe be affected by this debt, is the budgeting process for federal governments, whether it be military, which we're involved with, or if it's in any of the national programs, those budgets really come about in September. So hopefully we would have some resolution to this debt issue by the time they go to the budget process. So that is the impact we're seeing, and hopefully this thing will get resolved before the end of September or so when the federal budgets that fund these things that are going for geospatial and going for some of our other work would be something that we'd be concerned with.
spk12: Perfect. And just speaking of headlines, obviously, you know, we're seeing, you know, a regional banking crisis and credit tightening. There's a lot of concerns around them. I know we talked about real estate, but also just commercial real estate. I'm just wondering, like, Dixon, from your vantage point, are you seeing any impact from, you know, customers' ability to payment, hearing from the field in terms of pipeline in some of those areas? Just like curious as we see these headlines and concerns, if it is at all trickling down to the business or to the field.
spk08: Yeah, from my perspective and what I've seen only particularly, I just had my calls with our real estate transactional group. And they, if anyone would be, are more on one side of the business is affected by the interest rates. And that is, and that is the side of the business that handles the large portfolio acquisitions and things like that. And if it's not so much the interest rate itself, it's the movement of the rate. And, and if they, if they're going to be a constant steady rate, you know, so that has had some impact on, on our business. And that is a, is the funding of the non-governmental projects. On the other side of our transactional business, they have received funding for Freddie May and Ginnie Mac, but they have seen a slowdown in the actual use of those funds. So those are the two areas that we are seeing it. And I think we're all concerned. I don't think as far as the other vast majority of our business, you know, we're not tremendously dependent on the commercial sector. And I think, you know, we're split with about, you know, 60, 40, 65, 45 from government agencies and 35% for commercial. But to the extent we will be impacted in the commercial side, to the extent that there is this interest rate issue.
spk12: Very helpful. And just lastly, can you just remind us out of the 878 to 915 of gross revenue guide this year, how much we should be expecting from acquisitions?
spk08: Well, in the guidance, it only includes acquisitions that have been performed. I cannot say, but I would look forward to some additional acquisitions being done. But I think the guidance has assumed the acquisitions that we performed today.
spk05: Yes, AXIM, and we used, even though we hadn't closed, but we had signed the deal for VIZ, we included them as well.
spk08: And then the smaller acquisitions that we've done. So, but that does not include any new acquisitions and some that we're in due diligence right now in, but you know, so that is immediately considered in the guidance.
spk02: Thank you.
spk14: Our next question comes from David Mars from Singular Research.
spk13: Please go ahead.
spk11: Hey, guys. Thanks for taking the question. In the 23 guidance, can you talk about what percentage of your projected revenue is expected to come from the real estate business specifically?
spk08: No, I can't. Not specifically. I can tell you the impact that we've had from the budget, which we had on an earlier question, and that we've shown that degradation of $10 million, how that is affecting are municipal permitting and outsourcing business that also depends on interest rates. I don't have a specific number.
spk05: But it's definitely less than 10%.
spk08: Yeah, that is less than 10%. Got it.
spk11: And then, yeah, no, understood. And then just, you know, I just want to affirm that the guidance, with the reaffirmation of the guidance, really it's implying a pretty substantial growth rate year over year, the balance of the year. You guys, in light of the macro environment, still feel pretty confident in that?
spk08: Well, it's total growth, right? So a portion of it will be what our business unit's Our existing business units are generating and then a portion of it has been acquisition and that normally normally has been over the years about 50% of the growth has has been coming from acquisitions. And so I wouldn't assume that that would. That would change that would change at all. So. The total growth rate that you see. in the guidance over 2022. It's just that it's total growth rate. It includes both organic and acquisition growth.
spk11: Understood. Thanks so much, guys. Appreciate taking the questions.
spk13: Our next question comes from Mark Riddick from SIDOTI. Please go ahead.
spk08: SIDOTI. We'll help you with that. SIDOTI. All right. Good evening, everyone.
spk03: I know there's been a lot of questions already that have been answered, but I did want to touch a little bit on owner's representation opportunities. I was wondering if you could sort of just give us some thoughts there. It certainly seems like a really interesting space, but maybe you could talk a little bit about maybe sort of big picture opportunities and the type of growth potential that's there.
spk04: Thank you.
spk08: Okay, Mark, great. We're getting a little in front of my concluding comments, but I can tell you that both areas that we see in data center support, what we see in software, we're just touching the basis of that with those making use of the 16 patents that our L3 Harris or our biz group has and the trademark work. We're just touching that, and it's a world of opportunity because that right now represents only about six or maybe six percent, five percent of our budget. And so we think there's phenomenal opportunity in software. We think it's – and because of that, we're looking at a real opportunity in subscription-based revenue, revenue that's kind of like – You know, what you pay for cable, you're going to pay for that anyway. We're seeing some real growth in that area in our energy efficiency space and in the software space. And we also see some phenomenal opportunities in geospatial work that we haven't done as much before, and that's with the Department of Defense and with satellite analytics. So those are the kind of the growth areas that we're looking at. specifically for the group. And, you know, I'll comment more on that in the conclusion of our discussion today.
spk03: Okay, I appreciate it. Didn't mean to steal any future's hunter there.
spk08: Oh, no, you didn't. You just kind of had me, you know, I was being a little more extemporaneous there, but that's fine.
spk02: Thank you.
spk14: Our last and final question comes from Tats Sullivan from Maxon Group.
spk13: Please go ahead.
spk10: Hi, Tate. Hi, how are you? Hey, thanks, Tats from Maxon. Just a quick follow-up. Did I hear you say 36% of revenue is tech-based, roughly, and is that before L3 and just including a partial quarter of Maxon?
spk08: That includes a partial, that includes, well, Ed's finance team validated this number, so I'm going to prisby that question right over to Ed right now.
spk05: No, the 36% includes both Axum and Viz.
spk02: Okay. Viz being the L3 Harrison.
spk05: Viz being the L3 Harrison.
spk02: All right, thank you very much. Okay, thank you. Any other questions?
spk13: We have no further questions at this time. I would now like to turn the call back over to Mr. Wright.
spk08: Okay. I was wanting to say a few thoughts here, maybe a little bit more in the concluding comments than we normally do. So I'd just kind of like to introduce where we've been and where we're going. And as you know, our business is not linear. We're going to have some quarters that are higher in revenue than we expected. We'll have some that are less. But overall, I really want us to concentrate on the overall look. I know if we're a public company, and I know if we are analysts that are looking at us, there's a good tendency to live quarter by quarter. But we really want you to focus on what our annual revenue performance is going to be. So we, please, we should all understand we are maintaining our full-year guidance. We want to measure that guidance in revenue growth, growth in our earnings per share, and growth in our adjusted earnings per share. You know, we've been a public reporting company for over 10 years, and we've always, always said that and this is through history, quarters like the first and the last quarter are slower quarters, and we really accelerate more in our second and third quarters. This year, and we've also said why is the first quarter somewhat in the fourth quarter a little slower? Well, in businesses in the Northeast, in businesses where we are doing things, it's certainly winter-related by weather. We have never had, though, up to this quarter, such amount of stoppage in work and rain and degradation of weather and flooding that we've had on the West. So we were hit with both. We were hit with a slowdown that was anticipated in the Northeast, but losing a tremendous amount of work opportunities that were delayed because of weather in the West. I don't like to use that as an excuse. It's not meant to be an excuse, but I just want us to be aware that we just didn't have the opportunity. It's not because there was a slowdown in business. We did not have the opportunity to address these projects. I would like to talk about the positioning of the company now. We have a saying that says beyond engineering, and what the heck does that mean? It means We, as NV5, want to be diversified. We want to be not just a standard engineering company. And so we want to focus on things that are, through innovation, technology, will really have an important piece in the overall growth. So we have grown the geospatial business. You know, we first entered it at a very small piece. We were doing maybe 3 million. Then we made the acquisition of Quantum Spatial, and we added another 120 million or so. But now we're showing a run rate in that whole geospatial business of 280 million, roughly. But we think that makes us one of the larger, if not the largest, geospatial provider. Why is this important? Because this is really part of our stability of revenue and earnings. It comes at a much, it's growing much faster than our typical businesses has been. And it's at a very, it's at a much higher profit rate. You know, that comes, of course, with capital expenditures that are needed. However, the combined growth, and you see this on slide five, that 36, look for that to grow and look for the technology piece at 11%. of that to grow even more in the coming days. So we're really positioning our company for that. The other thing, and it's the last thing I want to talk about in positioning is I've recently visited our operations in Southeast Asia, and it should have dawned on us sooner, but what is being discovered now is we have a growing, growing business in the commissioning of data centers. But there's been such an explosion of cell phone usage and applications of cell phone. There's at least a third of the world that's living there, and they're finding out that there's many other things that they can do on that cell phone rather than just calling. So all of that information the pictures and the things, the photographs and many of the things that are doing goes up to the cloud. And right now, our key clients, which are all of the blue chip FANG clients that are familiar to you, we cannot in Asia, they cannot build data centers fast enough to support this growth. And so we look at a phenomenal opportunity. We're looking at positioning ourselves even more in that area to grow that market. I just want to recap on the things that we are looking for. We want to position the company to be beyond engineering, take advantage of many of those things that are growing, growing organically, growing profitably, and we want to make sure that we are limber enough and we're focused enough to either enter the market, and we have chosen many times to enter those markets by acquisition, or by advancing the people that are currently working for us to take on this bigger responsibility. So, we are very, very optimistic about the balance of the year. We feel that a key part of the future growth of NV5 is going to be in how we reposition the company. We had a good quarter. We're going to have a good year. And I just want to thank everyone today for listening and allowing us to collaborate and answer questions that you may have. And so we look forward to speaking to you shortly. And for all of you who've had an interest in NV5, we thank you for your interest. And our job is to work for you. And our job is to continue the performance, the author performance of the company. So thank you.
spk14: Ladies and gentlemen, that concludes today's call.
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