NV5 Global Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 13 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the Q2 2023 ended July 1, 2023. Joining us today are Dickerson Wright, Chairman and CEO of NV5 Edward Codispotti, CFO of NV5 Alex Hochman, President and COO of NV5 Ben Herrod, COO of NV5 and Richard Tong, Executive Vice President and General Counsel at NV5. I would like now to turn the call over to Richard Tong.

Speaker 1

Thank you, operator. Welcome everyone to NV5's Q2 2023 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 results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC.

Speaker 1

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 Q2 2023 comparisons are being made against the Q2 of 2022. In this presentation, NV5 has included certain non GAAP financial measures as defined in Regulation G promulgated by the Securities and Exchange Act of 1934 as amended. Non GAAP financial measures included in this presentation are adjusted earnings per share and adjusted EBITDA.

Speaker 1

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. 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.

Speaker 1

We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5 and turning the call over to Ben Harad, CEO of NV5 and hearing from Alex Hoffman, President and COO of NV5. Before turning the call over to Ed Codespodi, Chief Financial Officer, Q2 2023 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Christian, please go ahead.

Speaker 2

Thank you, Richard,

Speaker 3

and thanks to everyone for joining us today for this call. The 2nd quarter results exceeded our planned budget. We are on track to meet the guidance previously given for 2023. As you see turning to Page 5, not only was an improvement over quarter 1, but we finished the quarter above consensus. Results consisted of organic growth from our existing business, but also revenue and organic growth of acquisitions made prior to and during quarter number 1.

Speaker 3

In particular, the acquisitions of software and analytical services strengthens a stable foundation for growth and subscription based and reoccurring revenue. We also announced some recent project wins that support and enhance a sustainable infrastructure and assist the existing utility power grid. We have begun to see the federal infrastructure bill materialize. We have recently begun to see green shoes for our real estate transactional business with revenue increasing, results not at prior rates. We have established organic growth initiatives that can provide additional resources for our clients.

Speaker 3

We have structured the organization to have our most senior people spend additional time with our clients. We feel that this will increase organic growth. Perhaps we can now go to Slide 6, which highlights our technology expansion with the acquisition of which was announced yesterday of RED Technology in Singapore. This increases our resources in the areas, strengthening our mission critical data center support activity and promoting further organic growth in the Asia Pacific region. In fact, the acquisition will be a catalyst for further growth and add to our existing employee base.

Speaker 3

The employee base now numbers over 250 full time equivalents in the region. I will now turn the presentation over to Ben Horad and Alex Hochman to provide an update on the Buildings and Infrastructure businesses.

Speaker 4

Please turn to Slide 7. In 2020, we formed a highly focused division within our international team called NV5 Mission Critical. The idea was to provide a one stop shop for blue chip clients that was highly outcome driven. Our clients needed a consultant that could rapidly bring international standards unskilled markets while adopting the local regulations and culture. Our mission critical business has grown close to 400% since its founding and in the first half of the year has delivered 14% organic growth.

Speaker 4

The acquisition of RED Technologies expands both our client base and service offerings in the mission critical space. Reed Technologies provides IT and fiber optic consulting, which It is both upstream and downstream of our systems design and commissioning services. Having already worked together on a number of projects, In the domestic market, we're also seeing areas of very strong growth. The acquisition of Sage Energy in 2021 bolstered our Clean Energy Group expertise in renewables and the electric vehicle market, services that are in very high demand right now. As an owner's representative, we engage at the early phase of a project, which often leads to downstream engineering work in other NV5 verticals.

Speaker 4

At the beginning of this year, we formed a building digitization group, drawing from our expertise in geospatial, building analytics and information modeling bringing more value to our clients, allowing us to deliver projects more efficiently while growing our subscription based revenue. Our technology and acoustics group is on track for a record year. We continue to be market leaders in higher education, market which is currently seeing a strong rebound since the pandemic. We continue to diversify into other markets with recent master services agreements awarded with a large software and government entity. Alex Hochman will now give an update on the infrastructure and utilities businesses.

Speaker 2

Thank you, Ben, and good afternoon to everyone. Please turn to Slide 8. NV5 has been at the forefront sustainable planning, design and construction to meet the demands of the population functionality and protecting our environment. We have participated in the Institute For Sustainable Infrastructure and have been active in the development of Envision. Envision is a holistic sustainability framework and rating system that enables through a thorough examination of sustainability and resiliency of all types of civil infrastructure.

Speaker 2

Examples of infrastructure investments that protect our environment include the recently announced $16,000,000 New York City DEP Greenwater stormwater project. This project will include the design of an interceptor sewer system to address the concerns with combined sewage outflow systems also known as CSOs. When treatment plants are over capacity, untreated sewage is discharged directly into our waterways. The design and construction of interceptor systems reduces the demand on treatment centers and drastically improves the water quality of our rivers and oceans. We are also starting to see projects resulting from the Infrastructure Investment and Jobs Act, IIJA, Which is also known as the Bipartisan Infrastructure Law or BIL.

Speaker 2

The BIL will make available more than $1,000,000,000,000 in funding Our Philadelphia office authored a successful RAISE grant application for Camden County, New Jersey, announcement in June 2023. Through this grant, Camden County won $19,000,000 for segments of the Camden County Trail, structure with sustainability and equity. And our Long Island office has performed grant writing services for counties and towns and are awaiting results of the application for federal funds for pedestrian safety and non motorized greenway programs. We are in the early stages, but are well positioned to assist our public and private sector clients with grant writing, design and project management services for these important infrastructure projects. The multi disciplined approach of our utility services group has us well positioned to assist throughout the lifecycle of Energy Companies' assets and capital improvement projects.

Speaker 2

We are seeing increased activity across all of our areas of expertise, including transmission and distribution lines, substations, gas, LNG and the rapidly growing demand for EV charging stations. Recently, a major West Coast utility reported That undergrounding lines was by far more effective in reducing outages and preventing fires than attempting to mitigate fires through forest management. NV5 has extensive expertise in all aspects and disciplines required to design and project manage these improvements and are projecting significant growth in the future. At this time, I will turn it back to Dickerson.

Speaker 3

Thank you, Alex. By turning to Slide 9, we will provide an update of our geospatial platform and we'll speak about our continued success as well as our strategy for future growth. The Geospatial platform provides 3 key solutions. 1, it mitigates risk 2, it plans for growth and three, manages our existing resources. As Ed Codespodi will mention later, we are increasing our investments provide the most updated technology and to better address new markets.

Speaker 3

Data acquisition requires updated aerial measurement equipment. Software solutions provide a competitive edge and embeds our relationship with clients with patented software solutions. NV5 is by far the leader in analytical solutions for our clients. These solutions tailor the acquired data to user friendly solutions. Going to Slide 10, you'll see that we depict our backlog and key wins for the Q2.

Speaker 3

You'll readily see that our backlog grew 17% over Q222 or Q2 last year all the way to $803,000,000 over a rolling 12 month period. Our key wins touched most of our service offerings. Our geospatial wins provide data for our government agencies, including the Department of Defense. Our infrastructure wins enhances our delivery and energy efficiency for an existing utility grid. Our geospatial technology investments will support our geospatial wins.

Speaker 3

We will now transition the presentation to our CFO, Ed Kotis Mody to provide an overview of our Q2 performance. Go ahead, Ed.

Speaker 5

Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 12 of the presentation, I'll review our Q2 2023 financial results. Our gross revenues were $222,600,000 was primarily fueled by our Axsome and VIZ acquisitions as well as organic growth in our Geospatial business, which combined represented about $31,400,000 Our top line growth was partially offset by decreases in our real estate transactional business revenue of $8,300,000 driven by market reactions to interest rates and decreases in our LNG business revenue of $3,000,000 driven by timing of project cycles. Gross profit was $110,300,000 compared to $99,200,000 in the Q2 of last year, an increase of $11,100,000 or 11%. Gross margin also expanded by 50 basis points during this period.

Speaker 4

Net income was $15,400,000

Speaker 5

in the quarter compared to $17,300,000 in the Q2 of last year, decrease of $1,900,000 Net income was impacted by amortization expense from acquisitions, which increased $3,200,000 when compared to the Q2 of last year and interest expense, which increased $2,800,000 Additionally, our net income this quarter was affected by profit margins in our real estate transactional business due to market reactions to interest rates and profit margins in our LNG business due to the timing of project cycles as well as the reduction of acquisition earn out accruals. I'll note that we did see resiliency in our real estate business revenue as it increased 26% over the Q1 of this year. Our adjusted EBITDA was $35,000,000 compared to $37,800,000 in the Q2 of last year. Our GAAP diluted earnings per share were $1 per share in the Q2 of 2023 compared to $1.13 per share Q2 of 2022. Our adjusted earnings per share, which exclude the impact of intangible amortization and acquisition related costs, were $1.29 per share in the Q2 of this year compared to $1.49 per share in the Q2 of last year.

Speaker 5

On Slide 13, you can see that our cash flows from operations during the Q2 were $14,200,000 cash flows from operations for the Q2 were impacted by working capital timing during the quarter, which to a certain extent was driven by bringing on board of the Axsome and VIZ acquisitions. As of July 1, 2023, We had $28,800,000 of cash on hand and our net leverage was 1.4 times. This net leverage includes the impact of the Exum and VIZ acquisitions. Turning now to Slide 14, we can see how we have invested CapEx in our future growth investments in the first half of this year. When you look at the $10,200,000 of CapEx investments we made in the first half of this year, capacity of our fleet and which has already been engaged in active projects.

Speaker 5

Another $1,500,000 went towards offshore wind equipment for Rivers and Nearshore Geospatial Contracts. We believe these investments along with the strength of our balance sheet position us well for future growth. I'll now turn it back over to Dickerson for some closing comments.

Speaker 3

Thank you, Ed. What is our strategy and drivers for future growth? Let's now turn to Slide 15, and you will see mentioned 7 focus points to position NV5 for future growth. Number 1, we'll expand our geospatial leadership, which approaches $300,000,000 and makes us the leader at least in North America offshore and the geospatial activity. As Sven mentioned, international data center expansion from new markets and M and A activity will also be a driver.

Speaker 3

We're going to capitalize on the federal infrastructure activity, which we're starting to see begin now in its infancy. There will always be utility improvements for power distribution and natural gas conversion to LNG and NV5 is positioned very well to capitalize on these opportunities. We will continue our public sector focus, which requires mandated essential services and is not dependent on economic conditions. Clean energy and building efficiency will always be something that we focus on to grow. And last but not least Is the sustainable infrastructure that Alex mentioned not only in the civil area, but in every aspect infrastructure support services we will look for sustainability.

Speaker 3

So we remain optimistic and will continue to implement our strategy and stay nimble in our approach based upon market conditions. We maintain our 2023 guidance of $878,000,000 to $950,000,000 revenues and our GAAP and adjustment EPS guidance will remain the same. Thank you.

Operator

We will pause for just a moment to compile the Q and A roster. CGS Securities. Chris, please go ahead.

Speaker 6

Hey, good afternoon guys. Thanks for taking a couple of questions. So revenue growth guide stays at roughly 14%. Just give me a sense how much

Speaker 5

Yes. We expect the organic to be in the high single digits, Chris, so around 7% or so is what we're planning for.

Speaker 6

Got it. Very helpful. Backlog $803,000,000 Just Roughly what percentage of that is geospatial? Has that changed significantly year over year?

Speaker 3

This is Dick. Thanks, Chris, for the question. Geospatial has been running about 50% of their turnover. And I think their turnover will be about $200,000,000 this year. So not All of that $803,000,000 of course is based on the geospatial activity.

Speaker 3

So I would say it's about 25%.

Speaker 6

Got it. Very helpful. And last one for me. Maybe I know LNG project cycle impacted the first half. Can you talk a little bit more about where you are in those project cycles and what the impact would be in the second half of the year?

Speaker 3

Well, yes, LNG, of course, is billed as what we call a percentage of completion. So it's their estimate Of the completion of projects that they're working on will vastly impact the revenue That they choose to generate. So we always try to match up labor and revenue at the same time. So they are being more conservative or in their growing and we think towards the second half of the year, the LNG business because of the percentage completion Will be stronger or higher. But it doesn't depict any slowdown in the LNG process.

Speaker 3

It's just that it's how they're recognizing Revenue on a percent of completion basis.

Speaker 6

Got it. So the accounting related to that should be a little bit of a tailwind for the second half?

Speaker 5

Correct.

Speaker 2

Got it. All right. I appreciate it.

Speaker 6

I will leave it there then guys.

Speaker 3

Thanks, Chris.

Operator

Next question comes from Andy Wittmann from Baird. Andy, please go ahead.

Speaker 7

Great. Thanks for taking my questions guys. Good afternoon. I guess I wanted to start just trying to understand the margin profile in the quarter. Your G and A line was down pretty substantially in the quarter to $11,500,000 That number had been reliably running in the $17,000,000 to, oh gosh, just over $18,000,000 per quarter run rate.

Speaker 7

So I was wondering, what the difference was this quarter? Perhaps it was maybe accruals for incentive compensation or maybe did you take your, I guess you'd call it a contra expense on the earn out liability that you reversed and got a benefit from. Was that does that show up in G and A? And I was just hoping you can help us understand that item on the income statement.

Speaker 5

Absolutely, Andy. It's the latter of those that you just mentioned. It's the it's a reversal of Earn out accrual. And so if you refer to the reconciliation of GAAP to non GAAP in the back of the earnings release, you'll see that our acquisition related costs had a reversal of $5,300,000 on a net basis during the quarter. So that's part of it.

Speaker 5

We have, as you know, earn outs built into some of our acquisitions and that was just an earn out that was not met that was reversed during the quarter.

Speaker 3

And it's a milestone based And this is a milestone based. There's segments of the earn out that depends on the acquisition and I'm not specific to what Ed is mentioning, but The earn out does not indicate necessarily that they are not operating correctly revenue wise, but it's that segment of time they were supposed to meet a certain and the acquisitions may have met a certain revenue base on a certain timeframe according to the contract and they may not have met it. Sometimes they'll catch up, sometimes they won't.

Speaker 7

Got it. Ed, you mentioned those 5.3 net. I was wondering, sometimes you do actually have positive expenses on that and

Speaker 5

you did some acquisitions in the quarter. So What was the gross number for the burnout? 6.25 was the reversal and on it like you said, we had positive expense going the other way. So $6,250,000 was a reversal and $5,300,000 was the net

Speaker 2

$1,000,000 Got it.

Speaker 7

Yes. Okay, that's helpful. And then I was just wondering just in terms of the cash flow because you did have some working capital build here. You talked about timing. I guess, What are you guys now thinking for the year and some of the things that got you in the quarter for working capital usage?

Speaker 7

Have you collected those items here as it stands here in early August in Q3?

Speaker 5

Yes. I would expect from working capital to the impact of working capital in terms of the cash flows in the second half to improve. What happens oftentimes when you have an acquisition the size of Axsome is that the weeks following And the 1st few months following the acquisition, your the AR collections and certain working capital components May not fall into place during that immediate post acquisition post closing period. And so I think that will recover during the second half and we

Speaker 7

I guess, I just want to try to understand, the level of confidence you have here in the second half because for the first half of the year, earnings are down slightly. You guys just talked about a 7% organic growth rate, which would suggest that your back half organic growth rate to make 7% for the year would Have to be into the double digits given that you're you started out a little down on the first half of the year. So what are the business lines that you're seeing accelerate to the degree needed to hit these levels for the second half?

Speaker 3

Well, this is Dick. Thanks, Andy. I think if you're just sure you're not just we're not just relying purely on organic growth but total growth. So there'll be some acquisitions also that will be part. And it looks like it was going to be just pure organic, it would have to be A growth rate of 13%, but we're not expecting that.

Speaker 3

It does not show any revenue or input from a recent acquisition we just did at Bread. And so it'll look for our look for us to depend both on organic the organic growth of the company and growth that we may do through acquisitions. As far as the specific areas that we're looking at, I don't want to get too specific, but we are still looking at we have phenomenal opportunities in technology for acquisitions and the geospatial area, technology areas such as RED. And also, we are looking for some very good opportunities in our core business. So those we all anticipate, Not knowing if all of those will come in, but we certainly anticipate some of those to help the second half of the year.

Speaker 7

Okay. I just want to make sure that I'm clear on that then. So just as it relates to the guidance, did I hear you say that RED is not in the guidance and are there And if that's right or wrong, but then comment on that. But did you also are you also suggesting that there are acquisitions in guidance that are not announced publicly? Is that what you're saying?

Speaker 3

I'm not saying neither. But what I so let me say what I did say. RED, of course, is included in our guidance because we have it. It was not included in the revenue that was reported because we didn't own it But it's certainly the revenue we're expecting within the guidance for the second half of the year. And we're assuming I'm just saying, If you look at the model and look at what we've done and look at the guidance, then you're assuming that all of collectively, not you personally, but collectively, One would assume that it's just going to be organic growth.

Speaker 3

I'm saying that we are both active in acquisitions and organic growth. So you'd have to look at a combination of that. That's why we have a little bit more of a comfort level with our guidance given for the rest of the year. Okay.

Speaker 7

That makes sense. Okay. Thank you very much. Have a good night. Thank

Operator

you.

Speaker 8

Hi, guys. Thanks for taking the questions. Yes, just to follow-up a little bit on That last question, especially in regards to your top line guidance being maintained and how we think about business and potential seasonality. Would there still be an expectation that the 4th quarter would be a little bit lighter than the 3rd quarter from a revenue perspective?

Speaker 3

Well, if we were looking at things in the rearview mirror, And it's always been that our Q4 is not as strong as the Q3. However, the Q4 can be is really is affected by many things. It's affected by weather. It's affected by what accruals we may have in place and what We've left. But the Q4 can be it's not as weak as the Q1, but it's certainly not usually as strong.

Speaker 3

We just but we can't make any assumptions.

Speaker 5

In this case, the growth that this particular year, as Dick mentioned, the 4th quarter is always It could go either way, right? But in this particular year, the way we see the backlog rolling out, We see Q3 revenue and Q4 revenue very, very similar in terms of their run rates.

Speaker 3

And it's also dependent on weather.

Speaker 8

So I mean to meet that top line number, as was alluded to by some of the previous callers, I mean you're going to have to put up Some pretty sizable numbers here in the second half. And I guess I'd just like to understand Where you get the confidence in terms of just in terms of the pipeline and the backlog that it's going to come through kind of this quickly in order to be able to help you meet those numbers. Just really don't want to see you guys have to be used here in the

Speaker 3

Well, obviously, we have more confidence than you seem to have. We work here, so we get to see things a little bit clearer than you may have seen things. But we expect we've had a history of meeting our guidance and we feel comfortable with what can be expected. We certainly see things that perhaps you have You don't have the ability to see right now and we may have an advantage there.

Speaker 8

Sure, Sure. Absolutely. And then just kind of turning to the balance sheet a little bit, obviously, you guys have used a little bit of leverage here to make some of these acquisition, particularly some of the bigger ones. Would the expectation be that as you generate positive free cash flow, You'll pay down that debt and what's kind of what would you say is your kind of ideal debt profile for the company?

Speaker 5

Yes, I mean, as I mentioned earlier, our leverage right now is 1.4 times, which is relatively low versus Some of our competitors and so we feel very comfortable with that. As we add acquisitions to the balance sheet, 2 things. First of all, some of those purchases may be funded through our cash from operations. And then just going forward, any excess cash that we've got coming in Through our cash flows, we would try to pay down as much of that leverage as possible.

Speaker 8

Okay. Yes, I just noticed pretty obviously a pretty sizable bump up sequentially in interest expense. And so I'm sure that Just in the current rate environment, there would probably be some desire to chisel that down a little bit and get that back down to a lower number.

Speaker 5

And by the way, we did pay down during the quarter, I mean, if you don't consider the acquisitions, we actually paid down around $13,000,000 or so, so far this during this first half of the year. So we have been on that track of paying down the debt. And then when an acquisition comes along, we if there's a need to fund some of that through the facility, then we add to that debt as needed, but our focus is on good acquisitions in terms of return on capital, While at the same time, deleveraging as much as possible throughout that period.

Speaker 8

All right. Thanks guys. Well, good luck for the second half and appreciate you taking the questions.

Speaker 5

Thank you.

Operator

Next question comes from Rob Brown, Lake Street Capital Markets. Rob, please go ahead.

Speaker 7

Good afternoon, Dick and Ed.

Speaker 2

Hi, Rob.

Speaker 7

I just wanted to follow back up on the real estate transaction business. So it's some pretty good stabilization in

Speaker 9

the quarter. How is that looking for the back half of the year? And I guess what's sort of some of the dynamics there that's allowing it to stabilize?

Speaker 3

Well, it improved in this last reporting quarter. We're seeing some buildup in their backlog and where we've seen some improvement is more in the government areas. That's where we have 2 groups in our transactional real estate. One of them is primarily works with Fannie Mae and Ginnie Mae. And so we've seen some improvement in that area.

Speaker 3

And overall, we're just we're starting to see improvement. They continue to remain profitable. They're certainly under where they were last year by about $15,000,000 but we're starting to see some improvement in revenue, dollars 50,000,000 in revenue.

Speaker 7

Yes. Okay. Okay, great. Thank you.

Speaker 9

And then on the RED acquisition, It seems like a good fit in the building area.

Speaker 7

How does that sort of

Speaker 9

fit in terms of cross selling and getting synergies in the building area, maybe just elaborate on how that

Speaker 7

fits with what you've been doing?

Speaker 3

Well, the cross selling from any of our international operations has really been an offshoring work that They do work for our offices in the U. S. So we would hope that some of our increased capability with RED

Operator

next question comes from Jeff Martin from ROTH MKM. Jeff, go ahead.

Speaker 10

Thanks. Good afternoon, everyone. Dick, I apologize if some of these questions are redundant and I hopped on the call a bit late. What is the what was the impact from the LNG business? It sounds like it was more of a timing issue than an end of project situation.

Speaker 10

If you already covered that, if you could repeat it, that would be helpful. If not, then look forward to hearing more about it.

Speaker 3

Well, the LNG business is a percent of completion business. So they build on an estimate of where they think Things are complete. And so the project, although the projects are working on, we felt a steady buildup as it gets into the 3rd Q4, They were recognizing their percentage of completion lower than they have done traditionally.

Speaker 5

It's also Jeff, it's also think about it as these are large larger contracts, lower volume. And so when you compare one year to the other, just any little timing differences in terms of when things get started, just kind of push things to the right and which is what happens. So there's a lot of demand and a strong backlog for the business. It's really more just a timing issue and it really relates more to the first half of last year versus the first half of this year. I think the second half will be slightly up from what it was last year.

Speaker 5

So just a timing issue.

Speaker 10

Okay. And then on the real estate transaction side, my understanding was that the comparisons In the second half of this year, it got much easier relative to last year. Are you expecting that business to be above last year? Or are we still in that period of recovery mode where it may take a couple more quarters before it before the comps become sufficiently easy to post real estate transactions growth.

Speaker 3

Yes, we're not anticipating the real estate transaction business to be what it was last year, and it's slowly coming back. But it just it depends on interest rates and the appetite that The one side is a very large portfolio business and so they're very dependent on interest rates and the other piece of the business that I said was Fannie Mae or are also very dependent on mortgage rates that they can get. So we see a slow coming back. It's a profitable business. It's quite scalable, but we don't anticipate it anticipate this year to be what it was last year.

Speaker 10

Okay, great. And then one more if I could. With the new geospatial ocean vessel Being delivered. What is the offshore wind opportunity look like in terms of start to see some revenue generation and some growth in geospatial related to the offshore wind opportunity. Is that a 2024 event or even further out?

Speaker 3

Yes. We just spoke to the people running the Geodynamics Group, which has the vessel. That project has been delayed, but they're very enthusiastic about the growth of the wind farm. And so We're seeing much more of the revenue that'd be generated in 2024 than 2023.

Speaker 10

Excellent. Thank you.

Operator

Next question comes from Tate Sullivan, Maxim Group. Tate, go ahead.

Speaker 2

Thank you. I think you mentioned for 2023 Initiatives Rare Earth Minerals Geospatial Work. Is that already a meaningful portion of what you do in geospatial or is it mostly U. S. Geological survey?

Speaker 2

Can you give some more background on that?

Speaker 3

Well, It's an additive to our geospatial platform. We are just positioning ourselves now to take advantage of that market. So It's really and it's a very the genesis and beginning stage of that and the contribution to revenue. But we see an increase in our defense work through Axsome and we see a defense in the geospatial work from and Alex mentioned the Envision from software. And so we think that they will be more of a contributor than the rare earth for this year.

Speaker 3

But we will see some revenue From that piece of the business.

Speaker 2

Okay. And then the opportunity with EIM and Digital Twin, what is that? Did you

Speaker 3

Well, I think I'm going to if Ben is on the call, I'm going to defer to Ben What we see as the opportunities with them and that Ben and Alex have been working much closer to that than I have been.

Speaker 11

Yes, it's Ben Herault here. Basically with that side of the business where we have much more traditional services, for example, our MEP group, When we go in and do a tenant improvement job, we'll now scan the space using one of the geospatial scanners and create a digital twin from that, Whereas more traditionally, we would do that with manual measurements. So that enables us to present a more comprehensive solution to the client and actually set us up for An ongoing contract off the back of what was more traditionally a one off project.

Speaker 2

Great. Okay. Thank you for that. Okay. Have a great day.

Operator

Next question comes from Marc Riddick, Sidoti. Marc, please go ahead.

Speaker 3

Hi, good evening.

Speaker 12

So a lot of my questions have been answered. I did start though, wonder if you could talk a little bit about IIJA and sort of how that was initially sort of beginning to show up. Maybe you can talk a little bit about What you're seeing relative to maybe what expectations may have been as to the types of what types of projects you're seeing or the types of visibility that might be coming from that? And then I have just one other follow-up.

Speaker 2

So I think the expectation that we had is pretty much what we're saying. I think the public expectation may have been We have a waterfall of projects as a result of the bill. In fact, what we're seeing is the initial start is coming through some of the grant writing opportunities and as those go into the design phase, we'll be in a position to perform design when it goes to construction. We'll be there for the project management. So from our expectation, it's basically meeting our expectation.

Speaker 12

Okay. And then just as a quick reminder, so earlier in the year, there was the weather impacts on construction certainly and That certainly wasn't just something that affected yourselves, but many others, particularly in Northern California. I was wondering if you could talk a little bit about how that is Is there expectation for some of that to have been delayed and flow through later? Or maybe you can sort of bring us up to date on maybe What's taken place specifically with that market? Thank you.

Speaker 2

So many of our projects were clearly impacted We felt that very strongly in Q1. And what it does is essentially just move the revenue to the right. The projects aren't Terminated. They're not stopped, but they're delayed. And sometimes the delay carried on a little further.

Speaker 2

And even when the weather is clear, there would still be some areas where excavations, for example, had already been dug, but they are now filled with water. So there's a number of ripple effects that happen as a result You're welcome.

Operator

All right. At this time, this concludes our question and answer session. And I would like now to turn the call back over to Mr. Wright for closing remarks.

Speaker 3

Thank you, operator. I think if you see the tagline Of NV5, there's a quote after it beyond engineering. What do we mean by that? Or what does it mean to be that we want to be beyond engineering. Let me mention a few examples and the reason for that strategy.

Speaker 3

As the earth's population increases, we must deliver infrastructure and services in a more efficient manner. That is just understood. So our strategy is to have a natural intersection between technology and our traditional engineering services so that we can deliver the infrastructure services that we can help deliver that in a more efficient basis And improve that delivery. So let's mention a few specific technology and improvements that we make to go beyond the traditional engineering. We use geospatial services and software and all forms of artificial intelligence improved infrastructure support.

Speaker 3

Examples of our geospatial mapping of transition lines improves the delivery of utility services. We use the latest geospatial technology to monitor coastline erosion and the delivery of clean water sources. Our mission critical business delivers IT and fiber optics to improve system design for our commercial services. We formed a building digital group, which marries our building analytics, information modeling to deliver our BIM and digital twin platforms that we've mentioned previously. This all becomes an integrated part of our transition to the MEP design and to all forms of infrastructure delivery.

Speaker 3

Our software technology develops a product named Envision, you've heard Alex mention that, which enables us to measure sustainable infrastructure delivery. All of these this technology helps us to strengthen our core platform and gives us a competitive edge. For this reason, We feel very optimistic about the future growth of NV5, and we feel it gives us a competitive advantage in the marketplace. So we look forward this will complete our call for the quarter and what we've done, and we look forward to being with you in the second half of the year, and we're very optimistic about the future of NV5. Thank you.

Operator

Thank you all for joining. You may now

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Key Takeaways

  • NV5 delivered Q2 2023 revenue of $222.6 million, driven by ~7% organic growth and acquisitions, while growing its backlog 17% to $803 million.
  • The acquisition of RED Technology in Singapore bolsters NV5’s mission-critical data center and fiber-optic consulting, enhancing its subscription and recurring revenue base.
  • NV5 is leveraging the Bipartisan Infrastructure Law with wins in greenwater stormwater, trail grants and utility grid upgrades, plus rising demand for EV charging and LNG projects.
  • Strategic investments in geospatial analytics, digital twins and BIM reinforce NV5’s North American leadership in data-driven infrastructure solutions.
  • Management reconfirms 2023 guidance of $878–950 million in revenue, maintains a 1.4× net leverage ratio and expects free cash flow to support debt reduction and further growth investments.
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Earnings Conference Call
NV5 Global Q2 2023
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