Yahoo Finance NV5 Global, Inc. (NASDAQ:NVEE) Q1 2024 Earnings Call Transcript
NV5 Global, Inc. (NASDAQ:NVEE) Q1 2024 Earnings Call Transcript May 9, 2024
NV5 Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good afternoon, and thank you for participating in today’s conference call to discuss NV5’s Financial Results for the First Quarter 2024 ended March 30, 2024. Joining us today are Dickerson Wright, Executive Chairman of NV5; Edward Codispoti, CFO of NV5; Alex Hockman, CEO of NV5, Infrastructure; Ben Heraud, CEO of NV5 Buildings and Technology; Dan Levine, President Geospatial at NV5; and Richard Tong, Executive Vice President and General Counsel at NV5. I would now like to turn the call over to Richard Tong.
Richard Tong: Thank you, operator. Welcome everyone to NV5’s first quarter 2024 earnings call. Before we proceed, I would like to notify all participants that today’s presentation can be found on ir.nv5.com, and 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 in our reports on file with the SEC. During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the two is available in today’s earnings release and on the company’s website at www.nv5.com.
Please note that unless otherwise stated, all references to first quarter 2024 comparisons are being made against the first quarter of 2023. 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. The non-GAAP financial measures included in this presentation are adjusted earnings per share and adjusted EBITDA. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5’s 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 will also be 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, Executive Chairman of NV5, before turning the call over to Edward Codispoti, Chief Financial Officer, for a review of the first quarter 2024 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead.
Dickerson Wright: Thank you, Richard, and thank you to everyone for joining our call today. We are off to a great start in 2024. We are pleased to report that the first quarter results reflected strong organic growth, profitability and increased cash flow. Our Infrastructure group, the largest segment of NV5, delivered strong growth in the quarter. This was a result of expansion into new geographies and service lines and the adoption of technology to provide accuracy, efficiency and services over wider geographies. The second largest segment of NV5 is our Geospatial Services. Once again, they produced double-digit organic growth and EBITDA of over 20%. We have expanded their services to departments of transportation and utilities to not only increase Geospatial growth, but allow NV5 to have complementary technical additions to the traditional services provided.
Our Buildings & Technology Group has become the leading provider of engineering services for data centers. We have teamed with computing chip and software providers to support the tremendous growth of data centers, particularly international operations for Western clients. The clients have committed to investing an average of $300 billion in each year over the next 5 years to address the AI and data center demands. The growing demand for energy has pressured the existing utility delivery grid and NV5 has been asked to provide engineering service and tenant support to provide greater efficiency in the energy delivery model. NV5 is well known in this space. In fact, we know of no other firm doing as much work in this area. We will speak later of acquisitions completed in quarter one of 2024 that will densify our international footprint and technology, that’s by our infrastructure group and create a greater nexus of synergy of our Geospatial group for our traditional Department of Transportation services.
Let’s turn to Page 5 in the presentation deck that you have been furnished that will document the quarter one ‘24 achievements of NV5. You will see that we have experienced organic growth of 8% for quarter one ‘24. Our total growth exceeded quarter one ‘23 by 16% and our gross profits were 18% greater than Q1 ‘23. Another important metric is cash flow. Our cash flow from operations improved 73% in the quarter versus quarter one ‘23. Our growth was a result of the expansion of our data center services and our DOT and infrastructure growth initiatives, all of which have created a bridge for our geospatial offerings. We entered new high-growth areas in all verticals and we densified our existing platform through acquisitions of 3 key segments of our business.
Please turn to Slide 6. As you can see, our very conservative backlog which represents a rolling going forward for the next 12 months increased from $802 million in Q1 ‘23 to $838 million in Q1 ‘24. This backlog includes awards of note, including $65 million in the Department of Transportation Services, $13 million in data center wins, $23 million in infrastructure awards and $13 million in utility service wins. Please turn to Slide 7, where we can speak of actual accomplishments as we create the nexus of technology and engineering to deliver faster and more comprehensive services to our clients. We have highlighted on this page, five areas where this technology can be increasingly applied. I spoke earlier of data center and mission-critical services that we are currently providing to all the major technology clients.
We have teamed with suppliers of chips and software, of which many are familiar names as we provide engineering commissioning, IT and MEP energy delivery services to this market. NV5 has been the leader in improving the sustainable infrastructure delivery. We have been a major contributor in developing the Envision standard, along with the Digital Twin and BIM services to provide a better delivery of infrastructure needs. The demand for more electrical power delivery has increased dramatically worldwide. NV5 has addressed this need through tech-enabled and engineering services referenced on this page. Dan Levine will speak more specifically later in the presentation on geospatial data and software to improve delivery of our services. There continues to be increased demand for clean energy and decarbonization and NV5 has addressed this on this page.
We will make specific presentations in each of these segments. So let’s begin with infrastructure, Alex Hockman, our CEO of infrastructure will speak of our accomplishments in the Infrastructure segment. Alex, please go ahead.
Alex Hockman: Thank you, Dickerson. Please turn to Slide 8. Our 2023 investments to accelerate organic growth and the key leadership changes in our Southeast and Pacific Northwest businesses are resulting in industry-leading metrics. According to the 2023 census, Florida is home before of the nation’s top five fastest growing metropolitan areas. The CHW acquisition that we completed in January has us well positioned to take advantage of these growth opportunities to meet the demands of our urban, suburban and rural communities by offering a full array of civil engineering design, surveying, transportation consulting, landscape architecture and recently added geotechnical capabilities in North Central Florida. We expect to increase our organic growth and profitability through the region.
The acquisition of Fluhrer Reed expands our structural engineering services throughout North Carolina and the Southeast, located in Raleigh, North Carolina, they are well situated to take advantage of the unprecedented growth in the Research Triangle Park area and the cities of Raleigh, Durman and Cary, which have the tenth fastest growth rate in the U.S. Our California Infrastructure Group was awarded more than $80 million and new contracts in Q1, of which over $65 million was related to transportation projects. These awards were directly related to the national DOT growth initiative launched in 2023. We are seeing a similar trend throughout the U.S. as federal, state and local agencies are responding to the demand for infrastructure improvements.
As we have in Florida, we anticipate strong growth and profitability for our infrastructure group. Our real estate transaction services has also rebounded well with significant organic growth quarter-over-quarter, which is due to stabilizing interest rates and pent-up demand for real estate transactions. Our utility services continue to expand because of the electrical grid hardening investments by utilities, and we are also seeing a significant increase in our natural gas services, which provides engineering design to improve the existing distribution infrastructure. On Slide 9, we’ve highlighted some of the technologies that we employ to provide specialized value to our clients. Of particular significance is our integrated and technological solutions that allow us to combine several modalities that ultimately offer our clients and project stakeholders useful and understandable information through visualization.
These technologies facilitate the development and ultimately the understanding of proposed solutions to address asset management designed to mitigate rising sea levels, a large-scale grid hardening projects are in remote and urban locations as we combine aerial at grade and subsurface information into actionable data, resulting in sustainable infrastructure for future generations. Electrical grid hardening continues to be a driver of growth to mitigate fires in the West and protect against storm damage in the East. Electrification initiatives are also driving the demand for additional electrical power delivery to support the conversion from petroleum energy to electricity. From specialized undergrounding design methodologies and reduced underground electrical distribution construction cost and time, the Geospatial Asset Management and Remote Inspection, NV5’s implementation of specialized design and technology for transmission and distribution assets contribute to NV5’s leadership position and the hardening of the nation’s electrical grid.
Dickerson Wright: Thank you, Alex. Dan Levine, the President of our Geospatial segment will now speak of our accomplishments in this regard.
Dan Levine: Thank you, Dickerson. Please turn to Slide 10. For the Geospatial sector, we had a great quarter and an organic growth and EBITDA, driven largely, but not exclusively by the activity in our commercial sector, which nearly doubled in Q1 ‘24 over Q1 ‘23. This growth is a result of our focus on diversification, service expansion within our existing client base to expand beyond our traditional transmission line vegetation management work into more asset management-related work. We have also experienced growth in our bookings in the commercial sector in Q1, signaling strong future performance in this market. Another positive result in Q1 is that our airborne data collection activities were up 6% over prior year, and we have experienced record-setting aircraft utilization each month this year without additional CapEx expenditures.
We have achieved a significant milestone this quarter by completing a statewide oblique imagery collection for the state of Kentucky to date, the largest of its kind. We will be continuing to work on the data processing throughout the remainder of the year for the state of Kentucky. During the last earnings call, I spoke about the challenges of the Federal government continuing resolution on our Federal business. As anticipated, budgets were resolved and federal dollars are now flowing. Finally, we acquired GIS solutions out of Illinois in April. GIS Solutions specializes in supporting state DOT GIS needs, including asset management and analysis. This is a key addition to the Geospatial business, but more importantly, to the overall NV5 transportation sector strategy.
Not only do they bring unique transportation specific IP to NV5, but the domain expertise and support they provide within DOTs strengthens the connection between our engineering work and our geospatial work. Todd George, who leads NV5 DOT growth initiatives says the knowledge, skills and position within state DOTs that GIS Solution brings completes the digital delivery cycle from planning, engineering design and construction management all the way through Geospatial Asset Management. With this addition of GIS Solutions, we offer full life cycle management of state DOT infrastructure assets. We’ll now move to Slide 11. I want to take a few minutes to highlight some of the technologies that we have invested in and the deep expertise we have developed in the industries we serve.
Each of these are differentiators in the market we serve and are applied across NV5 not just within the Geospatial market. First, we have developed and deployed artificial intelligence, machine learning and deep learning solutions, both internally and externally. Utilizing our AI/ML routines to automatically detect and extract features from our sensor data has allowed us to streamline our data delivery process significantly at volume, with speed and accuracy. Combining our technology prowess with engineering domain expertise, we see the opportunity to connect our asset management data collection in transmission and power delivery as a direct connection to our engineering design as we help modernize the nation’s electric grid, as Alex spoke to.
Furthermore, we can deliver these AI/ML capabilities directly as a SaaS model, Software-as-a-Service model through our software platform, ENVI and the ENVI Ecosystem. Now speaking of ENVI and our ENVI Ecosystem, this software platform has been a cornerstone of image processing clients for over 30 years. We have recently modernized this technology as a hosted solution and as a software-as-a-service licensing model. Furthermore, our addition of workflow automation with ENVI Connect and simplification of the image processing science with ENVI Inform has expanded our offerings and our client base. Next, as a recognized premier enterprise developer of GIS solutions with cloud-based on-premise and hybrid solutions, we were able to tie together many of NV5’s capabilities using Geospatial IT as the connected tissue.
This allows us to create the connections of our digital spatial deliveries with other corporate enterprise systems such as asset management and permitting elegantly so that they can streamline their processes and systems to operate more effectively. Finally, our extensive library of sensors and acquisition platforms has positioned NV5 as a leader in delivering Digital Twins. These Digital Twins are manifested in the smart energy solutions that our Buildings and Technology Group deploys and as part of our digital delivery platform for DOTs.
Dickerson Wright: Thank you, Dan. We will now hear from our CEO buildings and technology, Ben Heraud, who will speak of our accomplishments in our Buildings and Technology segment as well as the recent initiatives to expand our technology in this area.
Ben Heraud: Thank you, Dickerson. Let’s now turn to Slide 12. NV5 has always had a strong focus on leveraging technology to deliver our work more efficiently and remain engaged with our clients for the long term. Our innovative approach to delivering more traditional services in this way sets us apart from the typical engineering firm. Working closely with our geospatial group, we have been actively embedding 3D reality capture and digital twins into our design and existing building services, positioning us to work with our clients along the entire asset life cycle and drive more subscription-based revenue. Looking to the work we are doing in the data center and AI compute space, our mission-critical team continues to grow at a rapid pace.
In Q1, we saw organic growth of 27%. Our data center services include specialized MEP and technology design, installation consulting, energy efficiency and power delivery engineering. Our international operation is working with almost all of the major hyperscalers on their data centers. We’re actively building our teams in existing locations and new geographies to meet the demand of our clients. In the area of clean energy and decarbonization, we’re also seeing significant growth. Our Clean Energy Group achieved organic growth of 21% in Q1. We expect this trajectory to continue as governments and businesses invest heavily in decarbonizing the global economy, working with our clients at the early stage of net zero planning often drives downstream work for our design and program management groups and, in turn, driving the growth also.
Though relatively small in comparison to NV5’s overall revenue, these are some key growth areas that are accelerating. In early April, we acquired ASG Engineering, who provides structural engineering, permitting and compliance services in Dubai. This region is seeing massive growth right now. Our existing operation, which provides MEP and technology services grew organically by 39% in Q1. ASG brings a new service line to our international operation and our intent is to bring these services to our other offices in Asia, including our data center clients. Let’s now turn to Slide 13 to discuss tech-enabled engineering solutions that we are deploying for our clients. As I mentioned previously, our work in data centers has been expanding rapidly.
Artificial intelligence computing puts even greater demand on the data center electrical usage and heat transfer. NV5’s expertise in air flow and cooling design is helping data centers create the ideal environment for the demands created by AI computing, hardware and software. In addition, getting enough power to build these data centers is an issue all of our clients are facing right now, and this puts NV5 in a very unique position. Our expertise in energy efficiency and clean energy enables us to unlock captured power load from the data center, allowing for additional rack space. Our expertise in power delivery means we can assist our clients with getting the necessary power to the site. On the clean energy and decarbonization front, our subscription-based energy efficiency monitoring continues to grow, allowing facilities to identify inefficiencies and power spikes in real time, rather than waiting for a commissioning event that may be years down the road.
Our renewable energy design and program management allows public entities, electric vehicle charging companies and private sector clients to turn to a single source for permitting, design and owner representation during the construction and our predictive energy auditing and decarbonization consulting is helping clients achieve net zero regulations that have been imposed by the public and private sectors.
Dickerson Wright: Thank you, Ben. Ed Codispoti, the Chief Financial Officer of NV5, who will now speak of our consolidated financial accomplishments for Q1 ‘24 and the strong financial health of NV5 going forward. Ed?
Edward Codispoti: Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 15 of the presentation, I’ll review our 2024 first quarter financial results. Our gross revenues in the first quarter grew 16% to $213.3 million compared to $184.3 million in the first quarter of the prior year. Our gross profit was $112.8 million compared to $96 million in the prior year, an increase of 18%. We had a busy year of acquisitions last year, and as a result, our intangible asset amortization increased by $3.1 million to $12.1 million for the quarter. Our interest expense also increased $2.6 million quarter-over-quarter to $4.2 million due to our higher rates and the financing of a portion of our acquisitions.
Our operating margins were also temporarily weighed down by the federal continuing resolution, which was resolved at the end of the first quarter and by the ongoing integration of Axim and VIS. Please keep these factors in mind when looking at our net income, which was $408,000 in the first quarter of 2024 compared to $5.9 million in the first quarter of prior year. With the federal continuing resolution now behind us, we anticipate that revenues will increase and operating margins will improve as we move through 2024. Our GAAP diluted earnings per share were $0.03 per share in the first quarter of 2024 compared to $0.39 in the prior year first quarter. EPS was based on 15.6 million shares outstanding this quarter compared to 15.4 million shares outstanding in the previous year quarter.
Our adjusted EBITDA was $28.7 million compared to $27.7 million in the first quarter of the prior year, a 4% increase. And our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related costs, was $0.66 in the first quarter of 2024 compared to $0.88 per share during the first quarter of last year. Turning now to Slide 16. As you can see, we significantly increased our cash flows to 73% over last year’s first quarter as we generated $19.6 million of cash from operations. This was despite an increase in interest rates. We ended the quarter with $44.8 million in cash and the low net leverage of 1.4x. Accordingly, we feel confident in the strength of our balance sheet and believe it positions us well for future growth.
I’ll now turn it back over to Dickerson for some closing comments.
Dickerson Wright: Thank you, Ed. As you can see in the presentation, NV5 had a very strong first quarter ‘24. Let’s now turn to Slide 18. And I think what we’re doing deserves a closer look. So we want you to ask these questions as you look at anyone in our space doing the work? Do they have a history of profitability? Do they have 40 years of success as against consolidator of engineering firms? Are they generating a strong free cash flow? Is there a strategy for acquisitions? Is there an integration that results in improvement of both the target and the consolidated company? And is there organic growth? The sixth thing to really measure a company by and a closer look is what is the leverage? Are the acquisitions being done out of the profitability of the acquirer or are they taking on more debt or leverage?
And then finally, is there a scalable support services that furnishes the things that helps the company provide additional services. So if we ask these questions of every company we look at, we feel that NV5 is going to fare very well. Therefore, the guidance that we are increasing the guidance for 2024 and as you look on the right of the page, we will increase the guidance to $937 million to $942 million for gross revenues and the earnings per share on a GAAP basis from $2.87 to $2.93 per share and then adjusted earnings per share will have a guidance of $5.05 to $5.11 per share.
Operator: [Operator Instructions] And your first question comes from the line of Chris Moore with CJS Securities. Your line is open.
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