NV5 Global Inc (NVEE) 2015 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the first quarter, ended March 31, 2015. Joining us today are Mr. Dickinson Wright, Chairman and CEO of NV5 Holdings; Mr. Michael Rama, CFO of NV5 Holdings; and Dr. Loren Wright, Director of Investor Relations for NV5 holdings. I would now like to turn the call over to Lauren Wright.

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 our 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 changes in demand from the local and state government 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 thereof and the Company assumes no obligation to update such statements except as required by law.

I would like to remind everyone that this call will be available for replay through May 19, 2015, starting at 7:30 PM Eastern tonight. A webcast replay will also be available via the link provided in today's press release and 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 the first-quarter 2015 financial results and [2015] outlook. We will then open the call for your questions. Dickerson, please go ahead.

Thank you, Lauren, and good afternoon, everyone. Welcome to NV5's first-quarter 2015 conference call. 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, 2015. We reported very strong first-quarter results with revenues increasing 54%, EBITDA increasing 56% and net income increasing 53% year over year. The first-quarter results were excellent because the first quarter is historically our weakest performing quarter, due to seasonal swings in utilization rates and fewer working days. The uninterrupted increase in revenues and net income we have experienced since our inception is attributable to our commitment to organic growth, to performance excellence, operating efficiencies and synergy among our verticals, and to strategic growth through accretive acquisitions.

At NV5, our greatest asset is our people. And the most central component of our business model is empowering those people -- the most talented engineers, surveyors, architects, geologists and project managers in the country -- to become entrepreneurial leaders of the service lines in which they are experts and in which they have strong client followings.

Our professionals are the face of our Company in the field, not administrators. This approach has resulted in larger contracts with longer periods of engagement from legacy clients as well as new clients.

Our model is working. And that is evidenced by our expanded backlog and solid financial performance.

I would like to highlight several topics in my prepared remarks today, including contract wins, a recent acquisition and an enhancement to our management team.

Here are just a few contracts we've won in the first quarter and more recently. We announced a $23 million, three-year contract win with the California Department of Transportation, District 10, in March. The quality of services we provide continues to be recognized by local, state and federal transportation industries. And in fact, our roadway extension project we are completing in the city of Oceanside just came the first non-comp trans project in history to receive an award for value engineering from the Federal Highway Administration.

We were also awarded over $7 million in contracts this quarter by natural gas distribution utilities, including a $2.5 million professional service agreement with Excel Energy that was a result of incisive collaboration between our environmental, services and infrastructure verticals.

We also completed work on projects this quarter that garnered national media attention. Jocelyn Lester & Associates, the program management firm we acquired in January, served its owner's project manager for the $78 million state-of-the-art Edward M. Kennedy Institute for the United States Senate on the UMS Boston campus. JLA is a Boston-based firm with 30 professionals and annualized revenues approaching $10 million. JLA has a prestigious client base and its founder was previously appointed Chief of the Commonwealth of Massachusetts Capital Planning and Operations Division by the governor of Massachusetts.

Our CQA team in South Florida participated in the largest concrete placement in Florida history. Nearly 14,000 square yards of concrete over three days for the 100,000-square-foot Panorama Tower project in downtown Miami.

Recently, in April, we made an acquisition that significantly expanded our program management vertical and greatly strengthened our position with transportation clients in California. Mendoza & Associates is a profitable and well-known construction program management firm with seven offices throughout California and annualized revenues from $12 million to $15 million. The acquisition was made through a combination of cash and notes and will be immediately accretive to NV5's earnings.

The acquisition of Mendoza & Associates was a natural fit because our infrastructure group in northern California and the Central Valley has been working with Mendoza team for many years, and they share NV5's client-centered and performance-driven culture.

We expect to complete additional acquisitions throughout the year and our M&A pipeline is as full as it's ever been. When we acquire companies such as JLA and Mendoza & Associates, we seek to grow earnings through operational synergies and cross-selling between our existing organization and the newly acquired organization. And we also scale the acquisitions' administration structure into our corporate shared services model, which will contribute and contribute to the Company's bottom line.

The in-house financial, IT, HR, M&A and legal suite we have in place saves the acquisitions from duplicating these costly services and promotes efficiency through scalability. We have ample financial resources to execute additional acquisitions including an unused $8 million line of credit and approximately $8 million in cash, and additional capital that can become available under a shelf reservation we filed in August 2014.

In conjunction with the organic and strategic growth we experienced in the first quarter, we also made important appointments with our management team for future growth. Todd George was named COO of our civil program management vertical, the service line that we formalized with the acquisition of Mendoza & Associates. Over the past year alone, Todd and his team have won more than $40 million of transportation infrastructure contracts in California. And I know, with added support and expertise the staff at Mendoza will provide to us, the civil program and management vertical will continue to grow.

We also named Amy Gonzales Business Development Director of Environmental Services, a role which will allow her to fully leverage the close client relationships she cultivated as Cofounder of AK Environmental on behalf of NV5's entire organization. Under Amy's leadership we have already brought about $5 million in revenue to NV5 by self-performing environmental work that we had outsourced to subcontractors in previous years and exploiting synergies between our environmental and infrastructure verticals.

We measure synergy closely at NV5 and we have tasked our Business Development team, along with our Chief Synergy Officer, Marc Baron, to generate additional revenues through cross-selling efforts among our verticals.

Finally, we appointed Mary Jo O'Brien Chief Administrative Officer, a role that will completely encompasses the many critical leadership positions she has held at NV5 as Executive Vice President and Corporate Secretary since 2010, including management of human resources, benefits and [ID] departments and overseeing the integration process of 12 acquisitions since NV5's inception.

I would now like to turn the call over to Chief Financial Officer Michael Rama, for a more detailed overview of the first-quarter financials and 2015 outlook. Michael?

Thanks, Dickerson. And good afternoon, everyone. First I will review the Company's first-quarter 2015 results and, then, I will provide an outlook for the remainder of 2015.

Total gross revenues in the first quarter of 2015 were $29.2 million, a 54% increase compared to gross revenues of $19 million in the first quarter of 2014. Net revenues for the first quarter of 2015 was $22.8 million, an increase of 52% from the first quarter of 2014. The increase was due to organic growth of 11% from our existing platform as well as the contribution from acquisitions closed during the first quarter of 2015.

EBITDA for the first quarter of 2015 was $2.4 million, an increase of 56% from the first quarter of last year. Total operating expenses were $11.1 million in the first quarter of 2015 compared to $8.2 million in the same period last year. The increase in operating expenses was due to integration costs for businesses acquired after March 31, 2014.

As a percentage of gross revenues, operating expenses were 38.1% in the first quarter compared to 43.1% for the first quarter of 2014. This decrease was the result of the increase in utilization compared to the same period last year and internal focus on performance optimization and the scalability of operations as we integrate new acquisitions.

Net income in the first quarter of 2015 was $1.1 million, an increase of 53% compared to net income of $707,000 in the first quarter of 2014. First-quarter 2015 diluted earnings per share was $0.18 versus $0.13 in the first quarter of 2014. Our first-quarter 2015 earnings per share reflects the weighted average shares outstanding of approximately 6 million shares for the three months ended March 31, 2015, compared to the weighted average shares outstanding of approximately 5.4 million shares for the three months ended March 31, 2014.

Our cash flow from operating activities was $1.9 million for the first quarter, ended March 31, 2015, compared to $428,000 for the first quarter of 2014. As of March 31, 2015, our cash and cash equivalents were $7.8 million.

At March 31, 2015 we reported backlog of $95.7 million compared to $82 million at December 31, 2014, an increase of 17%. Our backlog is an estimate of revenues to be recognized over the rolling 12-month period.

Now moving on to our 2015 outlook, during our last earnings call we initiated 2015 guidance for full-year gross revenues in the range of $124 million to $132 million and diluted earnings per share in the range of $1.01 to $1.09 per share. We are raising our guidance for the full-year 2015 gross revenues, recognizing the impact of acquisitions closed through April 30, 2015, which includes Mendoza. We now expect full-year 2015 gross revenues to range from $127 million to $137 million, which represents an increase of 17% to 26% from 2014 gross revenues of $108.4 million.

We further expect that for full-year 2015 diluted earnings per share will range from $1.05 per share to $1.15 per share, representing an increase of 21% to 32% over diluted earnings per share of $0.87 for the full-year 2014. We note that this guidance does not include any anticipated acquisitions for the remainder of 2015.

This completes our prepared remarks and now we would like to open the call for your questions.

(Operator Instructions) Mike Shilsky with Global Hunter Securities.

I wanted to confirm with you about your organic growth outlook for the current year. Has it changed at all since your last conference call? Given what we saw in the first quarter, not that far off from what you had guided to, I just wanted to make sure that it has not changed at this point.

We don't see any change other than perhaps a positive change for the organic growth. Not certain if we can give an exact percentage now. Will note, though, that 11% for us was very encouraging in the first quarter. And as you know, this organic growth is not linear, Mike. So our first quarter we have less working days. We had bad weather. And to see that 11% organic growth was very encouraging. So I think we are comfortable with the guidance we have given for the organic growth. If not, we are a little bit more positive in the guidance, than what we've given.

Got you. Second, I just wanted to touch on your M&A activity. I guess I just wanted an update on how you feel about your longer term M&A and EBITDA goals coming out of 2015. Just want to make sure you are still on track to meet those goals.

Yes. The guidance we gave -- I think we have challenged our team to be $300 million at the end of 2016 with a margin of 12% to 15% EBITDA. We feel enthusiastic about that.

Our pipeline is continuing to be full. And if anything, we are more encouraged with the acquisition opportunities we have in front of us. So we feel comfortable and what we've said as far as the future will go. We don't have the gift of divine prophecy, but we certainly feel comfortable with what we see in front of us.

Great. And as a follow-up there, can you maybe up date us on the valuation levels in the current M&A environment? There has been some lower valuations we've seen over the last week or so in some other companies that do project management and claims. I wanted to see how you think the markets have been right now as far as EBITDA multiples.

Well, we have historically seen -- and I don't think I can remember any more than a 6 times trailing EBITDA. And we certainly haven't seen anything significantly above that. And on the smaller acquisitions, we tend to pay a lesser multiple than the 6 times EBITDA. So depending on what the size of the acquisitions that we've seen reported, it has been our experience, Mike, that the lower revenue acquisitions that tend to have, and especially in project management and those that tend to be more smaller, they tend to have a higher percentage of profitability and therefore we tend to pay a lower EBITDA than the 6 times. And maybe that's what you have been seeing.

Yes, sure, super. If I could just squeeze in one more last one here, you had mentioned in the release that there was some adverse weather in the quarter. Can you maybe tell us whether -- if you had any kind of way you can quantify that impact, one, and then secondly -- I guess that might have in every first quarter, in a lot of years. Was this year any worse than other years, given the harsh weather we often see in the colder months of the year?

Mike, I know that you live in New York. And also you may know that we have an acquisition that we made in Boston, and people have -- in history there hasn't been as much snow. I can tell you that we are encouraged with what we had seen with JLA. But certainly, they were impacted by the weather. And our New Jersey office -- because you asked me to be specific, our New Jersey business unit was certainly impacted by the snow and the weather that we've had. And we were encouraged to see that, throughout the rest of the country, we had -- and that's why I said I was very pleased with the quarter, because I know in the Northeast we did lose some work days and we had shorter billing periods. And historically, the first quarter is our slowest quarter of the year.

Great. Super, guys. I will pass it along. Thank you.

(Operator Instructions) Jeff Martin with ROTH Capital Partners.

Could you comment on RFP activity that you are seeing across your verticals, please?

Requests for proposals -- yes, we have been very active. I think, Jeff, you know that we are a seller-doer organization. So we don't have, and put into our overhead we don't have really full-time, many full-time dedicated marketing people. But I can tell you, in every vertical -- and I knock on wood, which is my head right now. But we see a significant increase in the amount of proposals that we are going after. And in fact, we are tending to be a little bit more selective because on the bigger proposals we have a go/no go decision where we decide what our chances of winning and going after, and usually we have to have a -- if we want to quantify that with the percentage, we have to have a significant surety that we have a very good chance of winning the proposal.

But we are seeing much more activity in the public arena. We've seen some switch in the Southeast. In Miami, where we had a tremendous amount of condominium and residential construction we are now seeing some increases in the public sector. And I think we haven't announced anything publicly about some wins, so I will reserve comment on what we see in the Southeast as far as the public activity.

But, overall, throughout the country we have seen an increase in the amount of RFPs.

Okay, that sounds great. Could you help us break down the backlog increase you had? The Joslin, Lesser came in in the quarter. I assume the backlog is as of March 31, so Mendoza is not included in that. If you could maybe just give us what the contribution to the backlog increase out of Joslin, Lesser was, that would be helpful.

I will defer to Mike on that, Mike, if we distilled it down that closely. But you can (multiple speakers).

The backlog as of March 31 included a backlog from JLA of about $6 million. So the rest was wins and organic growth.

Okay. Great. And then, could you help -- I think it would be helpful to remind everybody what seasonality for the balance of the year is. Obviously, the first quarter is your most impacted. I think the second and third are the least impacted and the fourth is impacted, as well. If you could maybe (multiple speakers) how people should think about that.

Yes, I would look at -- our busiest months are the second and third quarter, where we anticipate increases in revenue, and hopefully we budget for that and are prepared for it. And then, the fourth quarter is impacted again by significant holidays and starting to have some -- in our northern areas -- some weather impact.

So if I was to look at each quarter, the first quarter has historically been our weakest, second and third quarter our strongest as far as revenue generation. And then our fourth quarter is our second weakest or third strongest, however you would like to (multiple speakers). And a lot of that is holidays and things where we don't bill.

And then, Mike, could you help understand some of shift going on in the model, in terms of operating expense and net revenue as a percentage of gross revenue? Because that is moving around quite a bit on a quarterly basis. It's obviously impacted by acquisitions. But is there anything other than acquisitions affecting those?

For example, your operating expense was only 30.2% in Q4. It was up to 38.1% and some of that is probably seasonality but and it is trending down year-over-year. But does JLA affected quite a bit? Does that affect your margin profile, it looks like, favorably for net revenue?

Yes, Jeff. JLA definitely contributed that because they were in our numbers for the first quarter this year for two months. So, we have some of their operating expenses and their cost of doing business as well as -- I don't know if you remember last year we acquired AK at the end of the quarter, Q1. So we really are seeing a big comparison with AK being in the first-quarter 2015 for the full quarter as opposed to a very small portion of 2014's first quarter.

Okay. And then any consideration in providing EBITDA guidance as well in the future?

Sure, we will look at -- I think it's a meaningful metric because that's why we started introducing it this quarter. We thought it was meaningful on the comparability basis.

Great. Thanks for your time, guys, and good luck.

(Operator Instructions) Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to management for closing remarks.

Well, thank you, operator. Thanks again to everyone for participating in the NV5's first-quarter conference call. As you can tell by our comments, we are very enthusiastic and optimistic about the growth opportunities that we have in front of us and we are also very proud of our team, our people and what we have achieved so far this year for our clients and our shareholders.

So I look forward to speaking to everyone, Mike and I and the whole NV5 team looks forward to speaking to everyone again. And we will speak to, of course, the next quarter. So thank you, everyone, for participating in today's call.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Take you for your participation and have a wonderful day.