NV5 Global Inc (NVEE) 2014 Q4 法說會逐字稿

Greetings and welcome to the NV5 Holdings Incorporated fourth-quarter 2014 financial results conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, [Don Markley] with Investor Relations.

Thank you, Don.

You may now begin.

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 including, among others, statements with respect to our abilities related to driving business development, achieving operational efficiencies, completing strategic acquisitions, expanding our backlog, and achieving 2015 guidance related to gross revenues and diluted 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 A, changes in demand from the local and state government and private clients that we serve; B, general economic conditions nationally and globally and their effect on the market for our services; C, competitive pressures and trends in our industry and our ability to successfully compete with our competitors; D, changes in laws, regulations, and core policies; E, our ability to successfully execute our mergers and acquisition strategy, including the integration of new companies into the Company's business; F, backlog, cancellations, and adjustments; and G, 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 except as required by law.

I would like to remind everyone this call will be available for replay through April 2, 2015, starting at 8 PM Eastern time tonight.

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 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, Chairman and CEO of NV5, before turning the call over to Michael Rama, Chief Financial Officer, for a review of 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 fourth quarter and also our full year ended December 31, 2014.

We reported record fourth-quarter results with revenues increasing 70% and net income increasing 163% year-over-year.

Our increase in revenues and net income has continued uninterrupted since our inception.

This is the result of our focus on successful driving, organic business development, achieving operating efficiencies, and making the right strategic acquisitions, as well as an improving industry environment.

A key aspect of our business model is that we empower our professionals to be a continual resource to our clients while expanding our business opportunities.

This has resulted in larger proposals and subsequent contract awards.

The success of this model is evident in our increased backlog and performance.

There are several areas that I would like to highlight in my prepared remarks today, including contract wins, a significant acquisition, and additions to our management and executive teams.

Here are just a few of the notable contract wins from the fourth quarter and more recently.

A contract from San Diego County Regional Airport Authority [defined] as they did surveying services at San Diego international Airport.

The $2 million contract is for an initial term of three years with a possible two-year extension.

We have provided engineering services in San Diego County Regional Airport Authority since 2003 and this latest contract award demonstrates that NV5 continues to be viewed as a value-added partner.

We were also awarded over $1 million for three program management contracts in Colorado, including safety upgrades in several school buildings in Garfield County, and the renovation of the town of Vail's golf clubhouse.

And earlier this month, we were very pleased to announce a contract totaling more than $23 million with the California Department of Transportation.

This is District 10 or known as Caltrans District 10 where we are providing on-call construction engineering, inspection, and material sampling and testing services for three years.

NV5 originally began working with Caltrans District 10 in 2007.

Caltrans District 10 encompasses eight counties and more than 3,500 miles of state roads stretching from Alpine to Merced as far east as Mariposa.

In January 2015, we made a significant addition to NV5 in terms of both size and location with the acquisition of Joslin Lesser and Associates, a program management and owners representative consulting firm that primarily services government-owned facilities, private education, and also public K-12 school districts in Massachusetts and around Boston.

JLA's staff includes 30 professionals with annualized revenues approaching $2 million.

The acquisition of JLA is an exciting opportunity for NV5 to expand our presence in a major metropolitan area in the Northeast, and further add to our private education, public, and governmental client base.

JLA has a distinguished history of managing public capital improvement projects and will make a great addition to our program management vertical.

This acquisition was made with a combination of cash, notes, and stock and is immediately accretive to NV5's earnings.

Our acquisition opportunity pipeline remains full and we expect to complete additional acquisitions throughout the year.

As we acquire companies, we achieve leverage in a number of ways.

First, we can scale their administrative needs into our existing structure.

This has an almost immediate benefit to their and our operating margins.

Longer term, as we expand our capabilities from both a geographic and new services standpoint, we create new opportunities across our verticals within the existing customer base.

In our light of continued growth, we also made key management appointments that strengthen our team and ensure we are positioned to address it as wide a range of opportunities as possible.

I would like to first mention Alex Hochman, who was named President and Chief Operating Officer and was appointed to the Board of -- public Board of Directors of NV5.

I have personally worked closely with Alex since 2003 after acquiring his firm and he has a long history of delivering operating results.

Alex will assume the daily operational responsibilities of NV5's core industry verticals, allowing me more time to focus on strategic planning and further acquisition.

We also named Francois Tardan to the Board of Directors of NV5.

Francois served as Executive Vice President and Chief Financial Officer of Bureau Veritas from 1998 to 2011.

During his tenure, revenue grew from EUR650 million to EUR3.4 billion and the Company completed over 100 acquisitions.

I know firsthand that Francois will bring a wealth of experience and knowledge to our Board.

I would now like to turn the call over to our Chief Financial Officer, Michael Rama, for an overview of 2014 financials and the 2015 outlook.

Michael?

Thanks, Dickerson, and good afternoon, everyone.

I will first provide a review the Company's fourth-quarter 2014 results, review the full-year 2014 results, and finally our 2015 outlook.

Total gross revenues in the fourth quarter of 2014 were $28.7 million, a 70% increase compared with gross revenues of $16.9 million in the fourth quarter of 2014.

The increase was due to organic growth of 14% from our existing platform as well as the contribution from acquisitions made in 2014.

Income from operations in the fourth quarter of 2014 was $2.5 million, a 215% increase from $792,000 in the fourth quarter of 2013.

Our operating margins increased 85% from 4.7% in the fourth quarter of 2013 to 8.7% in the fourth quarter of 2014.

Total operating expenses were $8.7 million in the fourth quarter of 2014 compared with $8 million in the same period last year.

The increase in operating expenses was due to integration cost from acquired businesses in 2014.

As a percentage of gross revenues, operating expenses were 30.2% in the fourth quarter of 2014 compared to 47.1% for the fourth quarter of 2013.

This decrease was the result of the increase in our employee utilization compared to the same period in 2013 and internal focus on performance optimization and the scalability of operations as we integrate new acquisitions.

Net income in the fourth quarter of 2014 was $1.4 million, an increase of 163% compared to net income of $535,000 in the fourth quarter of 2013.

Fourth-quarter 2014 diluted earnings per share was $0.25 versus $0.10 in the fourth quarter of 2013.

Our fourth-quarter 2014 earnings-per-share reflects the weighted average shares outstanding of 5.7 million shares for the three months ended December 31, 2014, compared to weighted average shares outstanding of 5.2 million shares for the three months ended December 31, 2013.

Net income and diluted earnings per share for the fourth-quarter 2014 reflect a higher income tax rate of 42.3% compared with an income tax rate of 22.6% in the fourth quarter of 2013.

The effective tax rate for the fourth quarter of 2014 reflects an additional tax provision of $400,000 generated from a legacy acquisition.

Turning now to our full-year 2014 results, we reported gross revenues of $108.4 million in 2014, an increase of 59% over $68.2 million in 2013, which included organic growth of 14%.

Our income from operations in 2014 more than doubled to $8.2 million compared to $3.9 million in 2013.

Our operating margins increased 33% from 5.7% for the full-year 2013 to 7.6% for the full-year 2014.

Total operating expenses were $36.9 million in 2014 compared with $30.9 million in 2013.

As a percentage of gross revenues, operating expenses were 34.1% in 2014 compared with 45.3% for 2013.

Finally, net income for 2014 was $4.9 million, an increase of 77% compared to net income of $2.8 million in 2013.

2014 full-year diluted earnings per share was $0.87, up from $0.70 in 2013.

Our 2014 earnings-per-share reflects the weighted average shares outstanding of 5.6 million shares compared with weighted average shares outstanding of 4 million shares in 2013.

The net income and diluted earnings per share for 2014 reflect a higher income tax rate of 38.6% compared with an income tax rate of 24.1% for 2013.

The results of 2013 include certain tax credits from 2012.

The effective income tax rate for the full-year 2014 reflects an additional tax provision of $550,000 generated from a legacy acquisition.

At December 31, we reported backlog of $82.1 million compared to $60.2 million at December 31, 2013.

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

As of December 31, 2014, our cash and cash equivalents were $6.9 million.

Subsequent to the close of fiscal year 2014, we redeemed all of our remaining outstanding public warrants, of which there was just over 400,000 at $7.80 per share.

This added $3.2 million of cash to our balance sheet.

Now, moving on to our outlook for 2015.

We are initiating full-year 2015 guidance for gross revenues and diluted earnings per share.

Our guidance for full-year 2015 gross revenues, including the impact of closed acquisitions during the first quarter of 2015, ranges from $124 million to $132 million, representing an increase of 14% to 22% from gross revenues in 2014 of $108.4 million.

Our guidance for 2015 diluted earnings per share ranges from $1.01 per share to $1.09 per share.

We note that this guidance includes contributions from acquisitions closed thus far in 2015 as of their respective closing dates.

However, this guidance does not include any anticipated acquisitions for the remainder of 2015.

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.

Congratulations on a great year.

Could you shed some insight into some of the specific drivers' organic growth either by territory, by service offering or by type of business?

Okay, sure, I'll try that.

As far as -- we got organic growth a number of ways.

First, of course, we were very pleased with the organic growth that we received from our acquisition of AK and we looked at what we had planned for the revenue acquisition and a significant increase of them.

So that was in the geographical region of the South and East, and particularly from our Sables Trails project that is a pipeline from Orlando through the southeast.

But second, I think that we really experienced significant organic growth in our program management group which we are very pleased with because of the -- their higher margins and EBIT.

And so we were very pleased with the growth of that in that vertical.

And third, of course, and you'll notice, which is really not -- we haven't seen the effect yet is the growth in our California market which reflected our transportation business with CALTRANS and we saw significant organic growth in those.

And those were from existing contracts and with some synergy between the offices.

That's great.

And then could you characterize the pipeline that may not be included in the backlog yet but will be added hopefully over the course of year?

Yes, we feel the pipeline was very conservative.

I believe you see that the pipeline showed up an increase.

However, as Mike alluded to in his remarks, we have a rolling 12 months for backlog.

So what we would do is we are replacing now -- we are replacing the backlog of December with the backlog rolling until next January.

And as you know in our business, the first quarter is usually our lowest revenue quarter.

So the backlog that we would be increased had to take that in consideration.

We also would not include in the backlog anything that we are not expecting or we have expected to be announced in the second quarter.

So the backlog we know is very conservative that was reported.

And I believe that was $82 million?

$82.1 million.

$82.1 million.

So that is a conservative because it is reflecting the adding of the weaker quarter in revenue.

Okay.

And then can you give us a sense of what type of organic growth or organic growth range you are assuming in your 2015 guidance?

We estimate in our budgets for 2015 a 12% organic growth.

Okay.

And is that mostly based on current work in the backlog?

Yes, absolutely.

Okay.

And then if we want to look at tax rate for this year, do we just back out that $550,000 additional provision 2014 and that gives us a normalized tax rate and that's a good rate to use going forward?

Yes, recall also that the R&D tax credits have not been enacted for 2015 yet so -- although if you back that out for 2014, you'll get a lower tax rate of say 34%, 33%.

But right now, the tax -- the R&Ds are not enacted yet for 2015; so we are -- in our guidance, we reflected a higher tax rate of about 37%.

Okay, that's helpful.

And then was there any change in contingent consideration during the quarter?

No, we paid out during the year $333,000 of contingent consideration from a previous acquisition and just -- we had one target that -- we had two acquisitions that met their goals and one that did not meet their metric.

But it was less than $100,000.

Okay, great.

And then Mike, can you give me the DNA and stock comp number for the quarter?

Yes, for the quarter, the depreciation and amortization was $546,000 and the stock-based compensation for the quarter was $218,000 expense.

Okay.

And then cash from operations and CapEx for the quarter would be great.

Our free cash flow for the quarter was $2.2 million.

We spent about $100,000 in CapEx.

Great, thanks, guys.

Appreciate your time.

(Operator Instructions) Steve Emerson, Emerson Investment Group.

Congratulations on another great quarter.

Thanks, Steve.

Can you give us some flavor so we can see the year-over-year proposal flow increase or some way to give us an idea of the growth?

Have you come up with some metric you're going to be able to give us?

Well, we don't -- at a group level which I'm speaking now on a consolidated level, we don't aggregate total proposals.

I can maybe say this.

That what we are seeing by the vertical and by the region, we're seeing a significant increase in the size of the proposals that we are having the opportunity to go after.

And particularly, we are seeing a stronger increase in the public sector on overall nationally.

I think we are seeing -- in Southern California, we are seeing a significant increase in private sector proposal activity and we are probably seen less of a private sector proposal activity in the Southeast and we had such a booming Florida market.

But that is being offset by a significant increase in public proposal activity.

And this is particularly in our Tampa Bay area.

I didn't quite follow that.

Which one is declining and which one is increasing in Tampa?

No, Tampa is -- we have a dual operation.

As you know, we made an acquisition in Tampa about two years ago, but we've expanded that with key hires and with wins in both the wastewater and transportation areas.

So that's expanding in Tampa.

In the Florida market, we had a very very strong Miami and Broward and Dade County market where we saw, in the private sector, tremendous buildup in the condominium basis work in going and we think maybe with a stronger dollar, there may not be as many international buyers.

But that's just a macro answer.

However, in our Broward County in South Florida, we're seeing a tremendous opportunities growing and ongoing proposals under review for expansion activity at the Fort Lauderdale Airport and other Broward County public works.

So it's kind of -- Steve, we've always tried to balance -- be opportunistic in the private market but make sure that we have a foundation for our public core business.

Okay, and perhaps you can give us the approximate breakdown in your expected revenues between public sector and private sector?

Sure.

I think a good number is, we generally -- we always look for somewhere in the low 60s of public work in the balance being private sector work for -- in our public, we also used quasi-sector work, so it's about 70% in public and we count public as public schools, we count them also as higher education, we count public as hospitals that would have state funding.

That, we continue to be looked at in our public area.

So that's -- is looking now like it's more about 70% public, 30% private work.

Excellent, thank you very much.

(Operator Instructions) Thank you.

There are no other questions in queue at this time.

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

Well, thank you.

Thanks, everyone, for taking the time to listen to our earnings call and our year-end results.

As you can see, we are very excited and we're very pleased about the results in our growth -- both organic growth, opportunities through acquisition, and really our process improvement for bottom-line performance.

We're going to continue to stay focused, we're going to continue with our strategy, which we believe we are executing and is working well, and I would like to say to all of those that have supported the stock, that we will continue moving forward with our strategy and we're looking forward to -- we are very positive results in 2015 and we are excited about the opportunities ahead of us.

So, thank you, everyone, for listening and we look forward to speaking to you again next quarter.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time and we thank all of you for your participation.