NV5 Global Inc (NVEE) 2013 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the NV5 Holdings, Inc.

fourth-quarter and full-year 2013 financial results conference call.

During today's presentation, all participants will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions) This conference is being recorded today.

And at this time, I'd like to turn the conference over to Kathy Price, Investor Relations.

Please go ahead.

Thank you, operator.

Before we proceed, I would like to remind everyone that this call contains forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Such forward-looking statements include, but are not limited to, statements regarding the Company's outlook, projected revenues, or other financial items and growth position and strategies; ability to establish a leading national engineering platform around its five business lines; and guidance relating to financial projections for fiscal year 2014, including gross revenues.

The Company cautions that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements contained herein.

Such factors include, but are not limited to, changes in demand from the local and state governments and private clients that we serve; general economic conditions, nationally and globally, and their effect on the market for our services; competitive pressures and trends in our industry, and our ability to successfully compete with our competitors; changes in laws, regulations, or policies; our ability to successfully execute our mergers and acquisition strategy, including the integration of new companies into the Company's business; backlog, cancellations, and adjustments; and the risk factors set forth in the Company's most recent SEC filings.

All forward-looking statements are based on information available to the Company on the date hereof, and the Company assumes no obligation to update such statements.

I would like to remind everyone that this call will be available for replay through April 3, 2014, starting at 7:30 p.m.

this evening.

A webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website -- www.NV5.com.

Any redistribution, retransmission, or rebroadcast of this call in any way without the express written consent of NV5 Holdings, Inc.

is strictly prohibited.

We will begin the call with commentary from Dickerson Wright, President and CEO of NV5, before turning the call over to Michael Rama, Chief Financial Officer, for a review of the financial results and outlook.

We will then open the call for your questions.

I would now like to turn the call over to Mr. Wright.

Dickerson, please go ahead.

Thank you, Kathy, and good afternoon to everyone.

As we look back, 2013 was a transformational year for NV5.

We completed our initial public offering, closed on several acquisitions, and drove strong organic growth across our five core service verticals.

As Michael will discuss in more detail shortly, we ended the year on a high note, again generating double-digit revenue growth in the fourth quarter while expanding our backlogs.

Our balance sheet is strong, and our acquisition pipeline remains robust.

We are optimistic about our future, and we continue towards our goal of $300 million in revenue by year 2016, doing this with solid EBITDA margins and performance.

So we are very pleased with the state of our business today, and we believe we are in a much stronger company than just one year ago.

2013 was very active from a new business perspective also.

We continue to build on our reputation for successful project execution as we do our work.

During the year, we received a number of significant multiyear project awards and contract extensions.

I'll mention a few of them.

We had the $6 million from the County of Merced in California to provide construction management services for the Atwater-Merced Expressway Project.

Our San Diego gas and electric contract continues to grow where they will continue to add to our expanded service and the service they want from us.

We also had contract extensions at the Hollywood-Fort Lauderdale International Airport Project.

We continue to grow our education and our healthcare and our travel leisure service offerings, so it was a good year for organic growth.

Acquisitions will also continue to play a significant role in our growth plan.

We have an established track record of introducing efficiencies and operational best practices to our acquisitions, and as a result, have been able to recognize top and bottom line contributions soon after integrating these companies into NV5.

As you may know, we operate in a highly fragmented market that is ripe with potential acquisition candidates, and we are presented with many opportunities.

Having said that, though, we remain very disciplined and absolutely will not consummate a transaction where we and the seller both do not believe we can add significant value.

In recognition of the Company's strong M&A capabilities, NV5 recently received the Environmental Business Journal's 2013 Business Achievement award in the category of Mergers and Acquisitions.

We were recognized in this category because of the successful completion of our acquisitions we made last year.

And in receiving this award, we stand alongside larger multinational award winners in being recognized by this prestigious industry publication.

We are honored by this recognition of our M&A discipline.

In 2014, we have already made two acquisitions that strengthen and extend our target verticals.

First, Air Quality Consulting.

AQC provides professional and technical engineering and consulting solutions, particularly in the areas of occupational health safety and environmental services.

The AQC acquisition adds growth in our environmental vertical, and also allows us to offer these services on a broader scale with our existing network and geography.

Additionally on Monday, we announced the acquisition of AK Environmental, an inspection construction management and environmental consulting company that primarily provides their services to natural gas pipeline companies.

This is a significant acquisition for NV5 for three reasons.

First, the acquisition contributes approximately $25 million of annual revenue, and therefore, represents one of the largest acquisitions we have completed to date.

Second, just as importantly, it strengthens NV5's presence on the East Coast as we continue to strive for greater geographic diversification.

And third, it continues to build our national footprint.

We welcome AK Environmental's 120 professionals to the NV5 team, and we look forward to working together with them to advance the Company's growth objectives.

To ensure that we are well-positioned to manage our growth, we continue to enhance our senior management team with seasoned industry executives.

To that end, earlier this month, we announced the hiring of Ernesto Aguilar as Chief Operating Officer of our Infrastructure division.

Ernesto brings nearly 25 years of success and experience to the NV5 team in the areas of operations management, business development, client management, project management, and M&A support.

We see substantial growth opportunities on the horizon.

And the addition of experienced executives like Ernesto to our management team will ensure that we have the personnel and infrastructure in place to support this growth.

In summary, we are optimistic about the year ahead for NV5.

As we progress through 2014, we plan to maintain our focus on organic growth while also continuing to execute our acquisition strategy.

NV5 is known in the marketplace as an acquirer that embraces a culture of entrepreneurship, and we all share the vision to establish a leading national engineering platform around our five business lines.

I would now like to turn the call over to our Chief Financial Officer, Michael Rama, for an overview of the financials and 2014 outlook.

Thanks, Dickerson, and good afternoon, everyone.

As you saw at the close of the market today, we issued a press release announcing our financial results for the fourth-quarter and full-year ended December 31, 2013.

I will first provide a review of the Company's fourth-quarter results before turning to the full-year 2013 results, and finally, our 2014 outlook.

Total gross revenues in the fourth quarter of 2013 were $16.9 million, an increase of 12% compared with gross revenues of $15.1 million in the fourth quarter of 2012.

The increase was due to organic growth from our existing platform as well as the contribution from acquisitions made in 2013.

Gross profit in the fourth quarter of 2013 increased 11.4% to $8.8 million or 52.1% of gross revenues compared to $7.9 million or 52.3% of gross revenues in the fourth quarter of 2012.

We note that our reported gross profit margin in any given reporting period can fluctuate based on a number of factors, including utilization levels of professional staff, as well as subconsulting costs.

Net income in the fourth quarter of 2013 was $500,000, which increased approximately 4.5% compared to 2012.

As noted in our earnings release, public company and acquisition-related expenses weighed on our year-over-year net income comparison in the fourth quarter of 2013.

Fourth-quarter fully diluted earnings per share was $0.10 versus $0.21 in the fourth quarter of 2012.

As a result of our financing activities in 2013, our fourth-quarter earnings per share reflect the impact of increased shares outstanding of 5.5 million as of December 31, 2013, compared to shares outstanding of 2.6 million as of December 31, 2012.

Turning now to our full-year results.

We reported gross revenues of $68.2 million in 2013, an increase of 13% over $60.6 million in 2012.

Our gross profit was $34.8 million, an increase of nearly 10% from 2012.

Our gross profit margin was 51% in 2013, down slightly from 52.3% in 2012, due primarily to higher subconsultant costs during the period.

Total operating expenses were $30.9 million in 2013 compared with $29.3 million in 2012.

The increase in operating expenses year-over-year was due to the additional expenses associated with being a public company as well as acquisition-related expenses.

We generated net income of $2.8 million in 2013, representing a substantial increase from $1.3 million in 2012.

Finally, we reported fully diluted earnings per share of $0.70 for the year, an increase of 35% over 2012.

It is worth noting that we were able to drive significant growth in our earnings per share, notwithstanding a significant increase in our share count.

As a result of last year's IPO in April, which contributed 1.6 million shares, and the early exercise of warrants in October, which contributed an additional 1.2 million shares, our 2013 fully diluted earnings per share was based on an average 3.96 million fully diluted outstanding shares versus an average 2.49 million fully diluted shares outstanding in 2012.

Accretive acquisitions remain a key source of growth for the Company, and the financings undertaken in 2013 provide us with the capital necessary to execute our growth plan.

Looking now at our balance sheet, we ended the year with cash and cash equivalents of $13.9 million at December 31, 2013, compared with $2.3 million at the end of 2012.

Our total debt declined to $6.8 million at December 31, 2013 from $9.8 million at the end of 2012.

Our current borrowing capacity under our line of credit is $8 million.

At December 31, 2013, we reported backlog of approximately $60.2 million compared to approximately $45 million at December 31, 2012.

Our backlog is an estimate of revenues to be recognized over a rolling 12-month period, and includes projects only for which funding has been appropriated and work orders received.

Now, moving on to our outlook.

For 2014, we are anticipating gross revenues in the range of $94 million to $104 million, which would represent an increase of approximately 38% to 52% of 2013 gross revenues of $68.2 million.

We note that this outlook includes contribution from acquisitions closed during the first quarter as of their closing dates.

Specific to AK, the large acquisition we announced this past Monday, our 2014 gross revenue outlook includes contribution of $18 million to $21 million.

On a pro forma basis, assuming the full-year impact of acquisitions completed during the first quarter, our gross revenue outlook would be $100 million to $110 million, representing an increase of 46% to 51% over 2013.

This outlook includes pro forma revenue attributable to the AK acquisition of $24 million to $27 million.

This completes are prepared remarks.

And at this point, we'd like to open the call for your questions.

(Operator Instructions).

Jeff Martin, ROTH Capital Partners.

Good to see a good quarter go up here.

Dick, could you go into a little bit more about AK Environmental in terms of the margin profile of the business?

And specifically gross margins, what the operating cost structure is, for the purpose of helping investors and myself model out the business for 2014?

Sure.

I'll try my best, and I may defer to Mike, also, on some of the specifics on the operating margin.

But the first thing, it's very important to say it's going to be a very accretive acquisition.

We are -- to be immediately accretive.

And we were able to put, of course, stock in the deal, so that that would be accretive.

Second, on the gross margins, their profile is a very, very scalable business with very low fixed facility costs.

In fact, the facility costs, where we average about 4.5% of total revenue, their facility costs runs about 1.5% of revenue.

Their utilization rate is very high in their business to be scalable.

The total gross margin as a percentage is lower than our historical margin in our infrastructure business; but the utilization rate being very high, and the higher fee and higher paid employees, make the total gross dollars significant.

So, this speaks specifically of the gross and operating margins.

Maybe, Mike, you may want to have a comment.

Yes.

As Dick mentioned, they are consistent with our infrastructure margins.

And we see that they are definitely going to be accretive to our bottom-line earnings from a margin standpoint.

Okay.

And then could you talk a little bit about the integration process and kind of the general timeline for that?

When you think it will be completed, if there's much integration to do there?

Well, yes, there is always integration.

As you know, Mike -- Jeff, we insist on five things in our integration process, all in support and to make sure that our best practices are in each of these acquisition opportunities.

I said in my remarks earlier that we have to see that we add value and they have to understand that we add value.

So to the integration process, as you know, we insist on five things -- our Human Resources; our Financing group; our IT group, so that we can really get our production platform so that we are measuring things exactly -- exactly -- the same way; our risk management is very important to us; and the fourth, of course, is the opportunities through M&A from -- we want to control from a central opportunity.

The integration is that they will become our energy vertical beginning -- so let's really enhance this.

And we will look for the synergies between what we're doing in infrastructure, what we're doing in our Program Management group, and what we're doing in our Construction Quality Assurance group, where they really add to a business that we are not in.

They will be reporting into a senior executive of our company, and integrating that would be Richard Tong; but the actual management of an integration would be done along those five drivers that we insist on.

And I can tell you this -- we really understand, like the culture; culture was very important in our due diligence.

We met with their management team; the process is ongoing; and we really feel a smooth transition into that integration into NV5.

Okay great.

And then, Mike, are you able to give contribution from acquisitions on a revenue basis, either from Q4 or the full-year?

Yes, full-year revenues from acquisitions was $3.6 million.

And for the quarter, $1.6 million.

Okay.

And then in your guidance for 2014, what is the implied organic growth rate in that?

We budgeted 13% organic growth in our guidance for 2014.

Wow.

Could you give -- that's a good number.

Could you give some insight into what's driving that 13% number?

Because I think you've historically talked about kind of mid-single-digit organic growth.

Well, this is Dick, Jeff.

Our budgeted guidance that we gave prior to the acquisitions of AK indicated about a 12% to 13% organic growth.

And this is driven by budget.

It's coming from our operations, it's coming from our backlog.

As you'll notice, there was a significant increase in backlog.

Our backlog continues to climb.

And we recorded very conservatively.

We recorded in a absolute run rate 12 months, the deduction of a quarter and adding in a quarter.

So through the budget process, through the contracts that we had, through the recent wins that we had, we felt comfortable with an organic growth in the range of 12% to 13%.

And that was driven in the budget that we prepared ground-up to us.

And that did not include the acquisition.

So, I would say if you were going to blend everything, and blend the contribution of acquisitions and separate from acquisitions alone, we are looking at about a 7% organic growth from what we are anticipating in the companies that we've acquired to date.

Okay.

Okay, that's great.

And then, Mike, what was the cash flow from operations for the year?

For the year?

$3.4 million.

Okay.

And then depreciation and amortization?

For the year, it was $1.5 million.

Okay.

And then what kind of intangibles and amortization should we assume on a full-year basis tied to AK Environmental?

I would think a good estimate is $750,000 for the year.

Okay, great.

Well, great to see you guys doing well.

Good luck.

Thanks, Jeff.

(Operator Instructions).

Matthew Dodson, JWest LLC.

Congratulations on a great quarter.

Thank you.

Can you help us understand the incremental margins now?

You did about 20% incremental margin over the years.

Can we still expect about a 20% margin with this acquisition going forward?

Yes, I would, yes.

And then for modeling purposes, 2014, what is the share count?

5.5 million?

Yes, at the end of the year, it was 5.5 million, correct.

And then how about a good interest expense run rate?

$400,000 for the year.

And right around that 30% tax rate?

That's correct.

Perfect.

thank you very much.

Sure.

Thank you very much.

Alex Silverman, Special Situations Fund.

Most of my questions were asked and answered, but could you help us with what was spent in the quarter on deal and merger-related expenses?

Okay.

Well, we can -- our budget for M&A activity, which includes our -- the beginnings, of course, of our due diligence includes our legal and accounting associated specifically with that acquisition.

We have budgeted, for the year, between 1% and 2% of total revenue.

Okay.

I'm trying to get a sense of what operating earnings were in the quarter, excluding the one-time expenses.

Michael Rama will address that question.

Well, our operating earnings for the quarter was $800,000, and about $100,000 was spent in M&A activities.

Okay, that's helpful.

And that includes, just to expand, all expenses on acquisitions, whether we do it or not, are completely expensed at the time they occur.

Right.

And then, D&A in the quarter?

I'm sorry, I'm not sure if you said that.

It was -- $400,000 was our depreciation and amortization for the quarter.

Great.

Thank you very much.

Thank you, Alex.

Thank you.

(Operator Instructions) And gentlemen, I'm showing no additional questions at this time.

I'll turn the conference back over to you for closing remarks.

Well, thank you, everyone, for listening in.

And we are very excited about 2014 at NV5.

And we appreciate your interest, and we appreciate that you are a part of this.

We see and are encouraged by our growing backlog.

We are encouraged by the continued organic growth and the robust organic growth.

And it really speaks well to our model and our template of process improvement and optimization, and growing a real business.

Our activity for M&A remains very strong.

We would love for you to continue to follow us as the Company grows, and we appreciate your interest.

And so I would like to thank everybody for listening in and joining us.

And I look forward to speaking with you again next quarter.

Thank you.

Thank you, sir.

Ladies and gentlemen, that concludes our conference for today.

Thank you very much for your participation.

You may now disconnect.