NV5 Global Inc (NVEE) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the NV5 Holdings, Inc., first-quarter 2014 financial results conference call.

(Operator Instructions)

I would now like to turn the conference over to our host, Don Markley of TPG 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 positions and strategies; ability to establish a leading national engineering platform around its five business lines; and guidance relating to financial projections for the fiscal-year 2014 including gross revenues and earnings per share.

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 markets 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 system; 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 May 21, 2014, starting at 7:30 PM Eastern Time tonight.

The webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website at 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.

Dickerson, please go ahead.

Thank you, Don, 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 first quarter ended March 31, 2014.

We reported another strong quarter with double-digit increases in both revenue and net income.

During this quarter, we have been awarded or expanded or renewed several key contracts in both the public and private sectors, and we also showed significant growth in our backlog.

First-quarter results demonstrated the success of our model, which emphasizes focused organic growth, continuing process improvement, scalability, and efficiency.

By executing our process for operational improvement, we hope to continue to improve our profit margin, in this regard become an industry leader in our profit objectives.

Although our M&A growth strategy in part focuses on adding value and process improvement to our acquisitions, we do not target non-accretive turnaround situations.

This strategy is proven in our successful acquisitions to date.

As previously announced, during our first quarter we acquired Air Quality Consulting and AK Environmental.

AQC, Air Quality Consulting, provides consulting solutions in the areas of occupational health safety and environmental consulting.

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

Now with regard to our recent acquisition of AK Environmental, which provides inspection, construction management, and environmental consulting to the national gas industry, we believe the growth in the US oil and natural gas industry and the services NV5 now provides is very attractive, with favorable long-term growth prospects for NV5.

NV5 will also be able to leverage its other verticals to provide services including engineering, specialized surveying and CQA to the oil and gas industry as AK leads us.

Both first-quarter acquisitions are significant to NV5 for four reasons.

First, these first-quarter acquisitions expand our service offerings around our existing five verticals.

Second, they provide geographic diversification.

Third, they continue to build our national footprint.

And last, they are immediately accretive.

At this point I would like to take a moment to describe our M&A process and why acquisitions are accretive to NV5 in the short order.

Our industry, as you know, is highly fragmented.

There are over 140,000 engineering and technical construction consulting firms in the US.

These range from one- and two-person mom-and-pops with a specific area of expertise working out of a single location, to very large, multinational corporations.

We are presented with many acquisition opportunities, and our internal M&A team is charged with weeding out those with poor growth prospectives or those who do not represent a good fit with NV5 culturally.

At any given time, we are at various stages of due diligence with public -- with multiple potential acquisition targets.

When we completed an acquisition, the financial accretion (technical difficulty) from two places.

First, on the revenue line, acquisitions can fortify our five core verticals and drive cross-selling of incremental services to existing customers, some of which we've been working with for as long as 30 years.

Second, NV5 can provide many support services at the corporate level such as finance, legal, and HR at a lower cost than the acquired company could do before they were acquired, which gives us scalability.

So while we pay a multiple based upon trailing earnings, there are efficiencies that we can capture on day one; thus, immediately accretive.

Largely as a result of our first-quarter acquisitions, our environmental and energy service verticals continue to gain momentum and each has contributed notably to our consolidated backlog in the first quarter.

As it relates to AK, we are encouraged to see opportunities in large gas transmission pipeline projects in the Northeast, the Southeast; we see opportunities developing for us in the Midwest; and we look forward to expanding AK to our existing dense network in California.

Concerning occupational health and safety, which is AK's primary business, we have expanded our opportunity for national clients in the Southeast and the Northeast United States.

These are well-known, blue-chip clients not so focused on having to do capital expenditures or construction.

From a new business perspective we continue to build our reputation for successful, large-scale projects.

During the first quarter, we received a number of significant multiyear project awards and contract extensions across all five of our core verticals.

These new project awards include, on the public sector: in California, San Diego Water Authority; the city of Modesto, bridge design work in Southern California.

In Florida, large counties such as Broward, Pascoe, Miami-Dade continue to use our services and expand our contractual relationships.

We have also included well-known national company Spectra Energy in Florida; and in Colorado we have included Xcel Energy.

Our diversified multiservice business model is a key differentiator for NV5 in the marketplace, and our balanced growth across verticals is a testament to the success of this model.

As we progress through 2014, we are encouraged by our growth prospects.

We see our backlog expanding, and we anticipate a continued high-single-digit organic revenue growth.

Our opportunity pipeline remains full.

And while we will continue to be disciplined in our approach to mergers and acquisitions, we see acquisitions complementing our strong organic growth trends going forward.

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

Mike?

Thanks, Dickerson, and good afternoon, everyone.

Our press release issued today announced our financial results for the first quarter ended March 31, 2014.

I will first provide a review of the Company's financial results for the first quarter and then our 2014 outlook.

Total gross revenues in first quarter of 2014 were $19 million, an increase of 22% compared with gross revenues of $15.6 million in the first quarter of 2013.

The increase was due primarily to organic growth from our existing platform as well as the contribution from acquisitions made in 2013 and during the first quarter of 2014.

Gross profits in the first quarter of 2014 increased 12% to $9.4 million, compared to $8.3 million in the first quarter of 2013.

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

Total operating expenses were $8.2 million in the first quarter of 2014, compared with $7.5 million in the same period last year.

The increase in operating expenses was due to the additional expenses associated with becoming a public company in late March 2013, as well as operating expenses from businesses acquired subsequent to March 31, 2013.

As a percentage of gross revenues, our operating expenses were 43.1% for the three months ended March 31, 2014, compared to 48.2% for the three months ended March 31, 2013.

This decrease was the result of the increase in utilization compared to the same period last year and an internal focus on performance optimization and the scalability of operations as we integrate new acquisitions.

Net income in the first quarter of 2014 was $707,000, an increase of 27% compared to net income of $556,000 in the first quarter of 2013.

First-quarter 2014 fully diluted earnings per share was $0.13 a share, versus $0.23 a share in the first quarter of 2013.

Our first-quarter earnings per share reflects shares outstanding of approximately 5.7 million as of March 31, 2014, compared to shares outstanding of 2.6 million as of March 31, 2013.

The operating results and earnings per share for the first quarter of 2014 include an effective income tax rate of 36.6% compared to an effective income tax rate of 24.5% in the first quarter of 2013.

Now looking at our balance sheet, we had cash and cash equivalents of $9.7 million at March 31, 2014, compared to $13.9 million as of December 31, 2013.

Our total debt was $9.4 million as of March 31, 2014, compared with $6.8 million as of December 31, 2013.

The AK acquisition in March was the primary cause for the decrease in cash and increase in total debt.

Our current borrowing capacity under our line of credit remains unused at $8 million.

Accretive acquisitions remain a key source of growth for the Company, and the capital we raised last year continues to provide us with the capital necessary to execute on our near-term growth plans.

At March 31, 2014, we reported backlog of approximately $74.3 million, compared to approximately $60.2 million at December 31, 2013.

Our backlog is an estimate of revenues to be recognized over a rolling 12-month period.

Now looking out to our outlook, for 2014 we are reiterating our 2014 guidance for gross revenues.

Our guidance for full-year 2014 gross revenue, including the impact of acquisitions closed during the first quarter of 2014, ranges between $94 million to $104 million, representing an increase of approximately 38% to 52% from 2013 gross revenues of $68.2 million.

We expect full-year 2014 diluted earnings per share will range between $0.80 a share and $0.90 per share.

We note that this guidance includes contributions from acquisitions closed during the first quarter as of the closing date.

However, this guidance does not include any anticipated acquisitions for the remainder of 2014.

This completes our prepared remarks, and at this point we would like to open the call up for your questions.

(Operator Instructions) Jeff Martin, ROTH Capital Partners.

Thanks.

Hi, Dick; Hi, Mike.

Wanted to -- Dick, could you, at a high level characterize the infrastructure and CQA side of the business, how they're trending?

Sure.

Let's start with infrastructure.

We are really focused on process improvement there.

And as you know, that we announced earlier, we have brought in an interesting, well-known operating person, Ernesto Aguilar, who has public company experience and was the COO of Infrastructure for WS Atkins.

He is really focused on infrastructure.

Although our backlog is strong there -- we are winning work -- but the key thing and the low-hanging fruit in infrastructure is the process optimization, and scalability, and efficiencies, and improvement in utilization rate.

So we're encouraged with what I've seen; I would stay tuned, everyone, for further guidance on what we will be doing with infrastructure.

So on that side of it, we have some great process improvement work that we will continue to do.

So we're hoping to see the bottom-line profit improve.

Concerning CQA, very, very encouraged.

We are looking for acquisitions to augment the forensics side of this; and those tend to be smaller tuck-in ones.

But the CQA work continues to be strong in more of the standard side of it, the actual construction quality assurance and testing side.

We are starting to see really strength in Southern California again, very strong results in our Southern California San Diego office and Ventura, where we're starting to see turnaround in the California market.

So we are encouraged there and we continue to see new win work.

Our Miami office and through the KACO acquisition is just doing tremendous amount of work in the geotechnical, which has led to other work.

And the forensics side, which is the other piece of CQA, continues to be strong, and we are representing many, many clients and work going forward there.

So those are -- we're very encouraged with what is taking place in those areas, Jeff.

Okay, great.

Then, Mike, could you give us a number for contribution to revenue from acquisitions in the quarter?

Yes, during the quarter, we had -- hold on a second -- revenues from acquisitions during the quarter were $700,000 and earnings was about $50,000 from acquisitions in 2014.

Okay, great.

Then on the backlog side, I would assume that the acquisitions have added to that backlog number.

I was looking for a book-to-bill number, if you have that handy, in the quarter.

The backlog that we brought in was $13 million for the two acquisitions.

Okay.

I can back into the sales then.

Okay.

And then on the tax rate, Mike, 36.6% in the quarter is higher than you have historically had.

Should we look at that as a rate to use going forward for modeling?

Well, let me give a little color on that.

There's really two reasons for the disparity between the Q1 2014 and Q1 2013 rate.

First of all, in the first quarter of 2013 we actually had a one-time benefit from retroactive legislative reinstatement in January 2013; that affected 2012.

So we were able to book a benefit in our first-quarter 2013 provision that lowered our effective tax rate.

Now on the flip to that, we also had -- in the first-quarter 2014 there was federal tax credits that expired at the end of last year that we could not book in the first quarter of 2014 because of the legislation has not been enacted yet.

So the House has passed something to reinstate these credits -- research and development credits -- that just still had to go through the Senate as well as the President.

But whenever it does come back on the -- enacted, we will be able to effect it in the quarter that it gets enacted.

Okay.

Then do you have an operating cash flow number handy?

$428,000 for the quarter.

And just to do a little more color on the effective tax rate, we see going forward that we'll be at a -- once, with the reenactment if you will of the federal tax credits, we will see ourselves being in the 30% range.

Okay.

Thanks, guys.

That's helpful.

Then, Dickerson, you had a lot of contract signings in the quarter.

I was hoping to get an idea from you if there is some seasonality to contract signings.

Is Q1 typically among your strongest, or is that fairly spread throughout the year evenly?

There is seasonality certainly in the CQA side of it.

So some of that work that you sell in the Florida counties and operations were for work that we anticipate to start immediately; and that piece is usually a shorter term.

The INF is really -- there is really no real seasonality to that.

But we have had some really good strong wins in both areas and we expect more.

Also, mentioned there -- and we haven't given specific names because we haven't given releases -- but we have some specific wins that contribute from the other verticals, in program management and in the environmental vertical.

So seasonality is really not too much in infrastructure, but it may be a little bit more weighted in the CQA side.

Okay.

Then one final question.

Do you have a number for acquisition-related costs for the quarter?

For the first quarter, we spend about $50,000 in acquisition-related expenses.

Okay.

Okay, thanks, Mike.

Nice quarter, guys.

Keep up the good work.

Thank you, Jeff.

(Operator Instructions) I am showing no further questions.

I would like to turn the call back over to management for any closing remarks.

Thanks, everyone, for listening in and we appreciate your support of NV5.

As we progress through 2014, we certainly are encouraged; we remain encouraged.

We see the development of the Company, seeing our backlog grow, and we are excited about the organic growth.

Many acquisition opportunities, and we are starting to see a real scalability as we reach critical mass.

So we are encouraged with the business.

We hope that the presentation provided more insight into the progress of us and our Company in the recent quarter, and we look forward positively going forward.

So once again, I look forward to speaking to you in the next quarter and thank you for your interest in NV5.

Thank you.

Ladies and gentlemen, this concludes our conference call for today.

We would like to thank you for your participation and you may now disconnect.