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Operator
Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the third quarter ended September 30, 2015.
Joining us today are Mr. Dickerson Wright, Chairman and CEO of NV5 Holdings; Mr. Michael Rama, CFO of NV5 Holdings, and Dr. Lauren Wright, Director of Investor Relations for NV5 Holdings.
I would now like to turn the call over to Lauren Wright.
- Director of IR
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: 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, or 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 that this call will be available for replay to November 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, Incorporated 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 third-quarter 2015 financial results and outlook for the rest of the year.
We will then open the call for your questions.
Dickerson, please go ahead.
- Chairman & CEO
Thank you, Lauren, and hello, everyone.
Thank you for joining us for the NV5 third-quarter 2015 conference call.
As you saw after the close of the market today, we issued a press release announcing our financial results for the third quarter ended September 30, 2015.
We reported very strong third-quarter results with revenues increasing 55%, EBITDA increasing 78%, and net income increasing 74%.
We saw growth among all of our business lines in the third quarter, as well as some significant wins, a ramp up in requests for our services, and our backlog again expanded substantially.
We see the uninterrupted organic growth we have realized since our inception as evidence that NV5's operating philosophy is working.
What is that philosophy?
First, we maintain a very flat vertically structured organization that empowers recognized experts in a particular field who head the service line they know best regardless of the geographic area.
This has resulted in increased organic growth and performance excellence.
Second, we have built a shared services center that provides scalable back office support to all of our business lines.
The shared service center has also created an efficient platform for integration of acquisitions.
Third, we have stimulated even more operational growth rate dedicated organization to promote cross selling among our service lines.
And through our differentiated service platform, we furnish a stability through all economic cycles.
We are on track to reach our published goal of $300 million in revenues by the end of 2016, and we are looking forward to setting new challenging thresholds for growth after that.
I would like to speak in more detail now about the acquisitions we recently completed, including an update on the RBA Group and Allwyn Environmental and discuss some notable contract wins before I turn the call over to Mike Rama to discuss financial details.
As you may know, we acquired the RBA Group in July, a northeastern infrastructure engineering firm with 250 employees.
The integration of RBA is progressing very well, and we see a great cultural fit and a great skill fit between our existing infrastructure operations on the West coast and the RBA team.
They have already begun to collaborate on some major transportation projects, and there have already been some synergies recognized between our facilities program management team and the architects and planners at RBA.
We are looking forward to announcing the fruits of all of these integrated efforts in the upcoming months.
Since our last earnings call alone, RBA has been winning work with their existing client base at a sensational rate.
Here are just a few of the most recent contracts RBA's engineering, construction services, and urban planning groups have won: more than $10 million for green infrastructure design services from the City of New York for various sites in the borough of Queens; more than $1.6 million for the first phase of a two-phase contract with the City of New York to rehabilitate the Bronx River Greenway; $1.4 million to repair and replace a major roadway in Suffolk County for the New York State DOT; $3 million from the New Jersey State DOT for general engineering services.
RBA also continues to be instrumental in the structural engineering and landscape architecture efforts to fully rebuild and strengthen the coastal infrastructure in the neighborhoods most devastated by Hurricane Sandy.
They are also the New York Port Authority's go-to firm for many of the most prestigious building projects in Manhattan.
We also acquired Allwyn Environmental, which is being effectively integrated into the existing NV5 organization as a new, highly profitable business line, nuclear and environmental services.
Just last month, NV5 was awarded the construction quality control contract from Bechtel, a client NV5 has been working with for 20 years, and one of the primary subcontractors for the Department of Energy's $12.3 billion waste treatment plant in Hanford, Washington.
NV5 is now one of only a few engineering companies in the country with NQ-1 certification.
We believe our talented nuclear and environmental safety team in the Southwest will be very successful in this market going forward because the barrier of entry is so high and the need for construction quality assurance services is growing as nuclear plants around the United States are closing and look for safe ways to store and treat waste.
Concerning acquisitions, our pipeline remains very full and very promising.
Although we continue to be aggressive looking for deals in the ranging from $3 million to $50 million in revenue, we are now also being approached with much larger deals that our reputation as integrators focused growth has allowed us to consider.
We also continue to win great work through our existing program management, construction management, and infrastructure design operations with local agencies and municipalities.
And since the second quarter ended, we have announced approximately $12 million in work on university, airport, and bridge contracts in the Southwest.
I would now like to turn the call over to our Chief Financial Officer, Michael Rama, for a more detailed overview of the financial results for the third quarter.
Michael?
- CFO
Thank you, Dickerson, and thank you for joining us, everyone.
First, I will review the results for the Company's third quarter and nine months ended September 30, 2015, and then I will provide an outlook for the remainder of 2015.
Total gross revenues in the third quarter of 2015 were $48.7 million, an increase of 55% compared to gross revenues of $31.4 million in the third quarter of 2014.
Net revenues for the third quarter of 2015 were $38.4 million compared to $28.4 million, an increase of 74% from the third quarter of 2014.
The increases in gross and net revenues were due primarily to organic growth from our existing platform, as well as the contribution from the Company's acquisitions in 2014 and 2015.
Net income in the third quarter of 2015 was $3 million, an increase of 74% compared to net income of $1.7 million in the third quarter of 2014.
Third-quarter 2015 diluted earnings per share was $0.38 versus $0.31 in the third quarter of 2014.
Our third-quarter 2015 earnings per share reflects the weighted average shares outstanding on 7.9 million shares for the three months ended September 30, 2015, compared to the weighted average shares outstanding of 5.6 million shares for the three months ended September 30, 2014.
EBITDA for the third quarter of 2015 was $6 million or 15.6% of net revenues, an increase of 78% up from $3.4 million, or 13.9% of net revenues for the third quarter of last year.
On a per share basis, EBITDA was $0.75 per diluted share for the third quarter of 2015, compared to $0.60 per diluted share for the third quarter of 2014.
Now, we will review the year-to-date results for the nine months ended September 30, 2015.
Gross revenues for the nine months ended September 30, 2015 were $112.3 million, an increase of 40% from $79.6 million for the nine months ended September 30, 2014.
Net revenues for the nine months ended September 30, 2015, was $88.9 million, compared to $61 million, an increase of 46% for the nine months ended September 30, 2014.
Our organic growth for the nine months ended September 30, 2015 was 11%.
The increases in gross and net revenues were primarily due to organic growth from our existing platform, as well as the contributions from the Company's acquisitions in 2015 and 2014.
Net income for the nine months ended September 30, 2015, was $5.8 million, or $0.84 per diluted share, up from net income of $3.5 million, or $0.63 per diluted share for the nine months ended September 30, 2014.
Diluted earnings per share reflect weighted average shares outstanding of 6.9 million shares for the nine months ended September 30, 2015, compared to weighted average shares outstanding of 5.5 million shares for the nine months ended September 30, 2014.
Included in the weighted average shares outstanding for the nine months ended September 30, 30, 2015, is the impact of 1.6 million shares issued from our secondary offering on May 28, 2015.
EBITDA for the nine months ended September 30, 2015, was $11.9 million, or 13.4% of net revenues, up from $7.2 million, or 11.8% of net revenues for nine months ended September 30, 2014.
On a per share basis, EBITDA was $1.72 per diluted share for the nine months ended September 30, 2015, compared to $1.30 per diluted share for the nine months ended September 30, 2014.
As of September 30, 2015, our cash and cash equivalents were $20.4 million compared to $6.9 million as of December 31, 2014.
As of September 30, 2015, we reported backlog of $151 million compared to $116.8 million at June 30, 2015, and $82.1 million as of December 31, 2014.
Our backlog is an estimate of revenues to be recognized over a rolling 12-month period.
Now moving on to our outlook for 2015.
During our last earnings call, we raised 2015 guidance for full-year gross revenues to the range of $155 million to $160 million and diluted earnings per share to the range of $1.07 to $1.17 per share.
We are once again raising our guidance for the full-year 2015 gross revenues recognizing the impact of acquisitions closed through October 31, 2015.
We now expect full-year 2015 gross revenues to range from $155 million to $162 million, which represents an increase of 43% to 50% from 2014 gross revenues of 108.4 million.
We further expect that full-year 2015 diluted earnings per share will range from $1.09 per share to $1.19 per share representing an increase of 25% to 37% 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 we'd like to open the call up for your questions.
Operator
(Operator Instructions)
Mike Shlisky, Seaport Global.
- Analyst
Can we just first get a quick small question out of the way?
Can you give us an estimate as to what the actual organic growth was in the quarter with an actual number?
- Chairman & CEO
It's very difficult doing that because of the run rate of acquisitions we are doing.
We were pleased with it.
I can't give you the exact number because we didn't differentiate out the acquisitions that were rolling in for that period.
But we thought nine months and we'll continue to do that, will be much more representative than the weight of an acquisition and trying to figure that organic growth for that quarter if they came in.
I can say this.
We are very pleased with what it was but, to be definitive, I think it's best to go with the nine months where you saw 11% organic growth.
- Analyst
Okay, nine months, got it.
That's fine.
Maybe can we also get your thoughts on -- it sounds like you still have some growth here to come for the rest of the year.
Give us a sense as to where the labor markets are right now.
Do you have enough people to get all this kind of work done?
And are there any pressures on hourly rates and is any of that passed along to the customer?
- Chairman & CEO
We are very thankful that we have a robust construction environment with the tailwinds behind us.
A recent survey said that public construction was up 14.1% over the same period last year.
So, Michael, so you understand our organization, our product is our billing of our people and the services.
We have a organization that does nothing but assure its staffing.
We have three full-time people working in the recruiting groups.
We know our operating officers in each of the verticals identifying lead times for people.
So we are very careful because if we can't fill an unbilled slot, you lose that revenue.
So far we think we are addressing it.
We think that most of the contracts that have labor rates that may increase, our fees are based on a net multiplier basis.
If the rate is increased, we get the multiple on the higher rate.
We don't have too many unit price contracts that are affected by a labor increase.
Our construction quality assurance vertical has many contracts like that but in those contracts, we are allowed an increase in -- an annual increase to the unit price.
If there is an increase in labor, hopefully it's followed by the contract increase.
I hope that answers your question, Mike.
- Analyst
Yes, absolutely.
And can you give me kind of your thoughts on a particular closing in on a longer-term federal highway bill here?
Do you get a sense that there's some tailwinds beyond just 2016 for some of the public construction markets?
And are there any areas that you are particularly excited about?
Are there areas of the country or your own services that might benefit from a six-year long-term general highway bill?
- Chairman & CEO
Sure, that was very helpful to hear that $366 million.
I guess the Senate and House are going to rectify what that amount is going to be.
Where we are in position, we are very pleased with this.
Where we -- our strategy of course is in the west where we have a large infrastructure organization.
Now also in the northeast, where we have RBA with a very significant infrastructure engineering organization.
We like the northeast because there has been a tremendous pressure on infrastructure.
If you happen to go into Manhattan, you will see nothing but high-rises but you see little horizontal road improvement to support this.
So we think we are in a very good spot in those areas that's in the west, the northwest, and in the Rocky Mountain region.
We have gone through a very soft time years ago with transportation.
So now we are looking forward to some opportunities.
- Analyst
Is there any sense on the timing of some of those?
Will any of that come in 2016 or is it more of a 2017 story right now?
- Chairman & CEO
I can speak to the contracts that we have.
Not knowing what's going to be under that bill or not, but with our transportation organizations and contracts, we are anticipating a strong 2016.
- Analyst
Great.
Perfect.
Thanks, guys.
Appreciate it.
I appreciate it.
Operator
Jeff Martin, ROTH.
- Analyst
Could you touch on the movement in the subcontractor line in the quarter?
I would assume that's tied to RBA and you anticipate that to start to creep down like the rest of the business had been trending.
- Chairman & CEO
Jeff, you are right on.
I think RBA had a significant impact.
We've had an initiative to reduce the amount of subconsultants and we are just starting to utilize that initiative with RBA and will Allwyn and both of them came in without that.
You started in a very good catch.
You started to see the subconsultants go up from what we normally had.
I was pleased though that the EBITDA and the EBIT actually reflected an increase over the revenue.
I didn't see a real erosion there.
Maybe Mike, you may have a comment on that.
- CFO
Yes, I think we are also seeing the benefit with RBA Group.
Last year we had a big -- the mix was AK dominant a little bit and then now we are normalizing more of the margins because of RBA and program management group over with JLA acquisition.
We are seeing more rounding out of our overall gross margins as well, back to normal, back to more of a normal mid-40%s to 50%
- Analyst
Okay.
I was going to comment on what I thought EBITDA margins would have ticked down sequentially because of RBA.
I didn't anticipate it to be as strong as it was and it's nice to see a sequential uptick there.
- Chairman & CEO
We're starting to realize the scalability of the -- you've heard me many times, Jeff, speak of the scalability about the back office.
We are starting to manage many of those back-office functions with not a great increase in staff over a larger revenue.
- Analyst
Right.
You've had quite a bit of new contract announcements.
Do you have any thoughts on a range for organic growth in 2016?
- Chairman & CEO
What organic growth will be in 2015?
- Analyst
2016.
- Chairman & CEO
2016, we continue to see wonderful backlog and wins.
I just don't have a number to give you.
I'm not seeing a decrease in organic growth, and I think 11% over a much higher number in the quarter, in the nine months ended September 30, was very significant to me.
Hopefully, we'll be able to maintain that same organic growth in 2016.
- Analyst
Okay.
You and I have had numerous conversations about the industry's running at about a 5% or 6% rate of growth when projects are there to be funded.
It would make sense that, with the enhancement both from a geographic standpoint and across your five verticals, that you increase your revenue capture, probably capture some large contracts that you may have not been able to handle in the past, and that would justify a growth rate that's 300, 400, 500 basis points higher than the industry.
Is that a fair statement?
- Chairman & CEO
I think, obviously, we're seeing much more opportunities.
But also, Jeff, we really want to focus -- our strategy is the flat organization and verticals that can respond.
We are looking in areas that seem to be growing higher than the overall engineering industry.
I think many times that people are measuring organic growth in a pure engineering design industry.
Our organic growth includes our program management group.
It includes now that we are very happy with our energy group, and we're very happy with our nuclear services group.
And also our CQA and forensics.
There's more to it than just the standard design infrastructure engineering companies, which their organic growth is -- it is 6% to 7%.
- Analyst
Okay.
Mike, could you comment or could you give some insight into the accounts receivable increase in the quarter?
And if you've got the DSO number for the quarter, last quarter, and the year-ago quarter, that would be helpful?
- CFO
Our DSO for this quarter was 80 days.
Last quarter, second quarter was 82 days.
And actually the year end was around 85 days.
What's happening on our AR -- the third quarter is our busiest quarter of the year.
So we are really billing and collecting at a rate that's actually billing probably more than we're collecting, but we are going to see that cash flow starting to come in in the fourth quarter just because of the cyclical nature of our business.
We billed just in the month of September $16 million.
That was our work in process just for that month.
It's very common we saw in the last year through September 30 the same what looks to be a decline in cash flow but it's really just a timing with our -- the way our business is running, the third quarter being our busiest quarter.
- Analyst
Right.
Okay.
And then cash tax rate, if we want to back into a free cash flow number off of EBITDA, what's your cash tax rate running?
- CFO
Cash tax rate?
We are running around the 37%, the tax rate.
- Analyst
That's helpful.
Excellent, guys.
Thank you so much.
Operator
(Operator Instructions)
Gregg Hillman, First Wilshire.
- Analyst
Could you talk about I guess the balance sheet for a little bit?
First of all, just a review, what did you pay for RBA again?
- CFO
$13 million.
- Analyst
In cash?
Was there any stock or owner's notes?
- Chairman & CEO
I think the cash component was $6.5 million, limited amount of stock, and then there were sell or carry back for the balance.
- Analyst
Okay.
I think your debt is around $13 million, $14 million right now.
What are your current lines and do you think you can expand your lines in the next couple of months or get better terms?
- CFO
We are currently at -- we are at our current line of credit at $8 million based upon our receivable balance and the business we think -- we're anticipating getting to $20 million to $25 million type of facility.
- Analyst
When will you close that?
- CFO
Our current facility goes through May 2016.
So we're looking over -- the beginning part of the year, we'll look to start talking to our bank and other lenders to see what other options are out there.
- Chairman & CEO
Gregg, we are approached by them.
They have been asking us if we would like to increase the line.
- Analyst
Okay.
Who is your current lender?
- Chairman & CEO
For the senior debt is Torrey Pines, which is a regional bank in southern California.
We don't have any other lines of credit with any other financial institutions.
- Analyst
Okay.
And what did you pay for Allwyn Environmental?
- CFO
$1.3 million.
- Analyst
Okay.
I take it that takes you into a new vertical within environmental.
You weren't in nuclear before.
What kind of nuclear work do they do?
- Chairman & CEO
The majority of their work is supporting the closures of nuclear facility and treatment of nuclear waste.
We have five people, I believe, up at Hanford facility, and that is for the quality inspection in accordance with a definitive protocol for the treatment of the nuclear waste from the closure.
So that's the major thing they're doing, it's inspection.
And that work, though, is under prescribed standards.
They are following the standard in doing that.
- Analyst
Okay.
Although I think Bechtel could use some creativity in terms of getting their [gas ventilation] unit to work.
Maybe you can help them along those lines.
- Chairman & CEO
We say -- we are very thankful for the work that Bechtel is giving us, that's for sure.
That is a lot of things coming up.
As you know, San Onofre looks like they're going to have to address that with a closure.
- Analyst
Okay.
You are just staying within those five verticals you are in right now, I take it.
Clear the backlog, for the companies you're looking at right now, what verticals are they in?
Are they just across the board?
- Chairman & CEO
Yes, I don't want to -- Gregg, I can't be specific, but we have -- we are excited about some engineering in the mechanical space that is doing energy efficiency for federal facilities.
We kind of like that space.
We really love the program management space and forensic space.
We always have -- and right now, I have never seen as many opportunities.
This is the most that I have seen that I can remember.
But it's easy to say we have 10 deals going on at any one time.
But now I think we even have more than that.
We're always active.
It seems like the spaces that we are in now are those niche spaces that their profitability is higher than the industry standard and it gives us the opportunity to be more embedded with our clients.
- Analyst
Okay.
I take it this is the first time that probably some of these firms have had to press earnings until recently and then finally they've gotten earnings up a little bit to the sense they could get decent price for their engineering firm where they, heretofore, they hadn't been able to -- they haven't been there for the past like five years.
Do you think that's a true statement?
- Chairman & CEO
I think the market overall in the engineering service space is much stronger.
There always seems to be buyers to sellers out there.
We've been able -- we haven't gone -- had to -- believe me, I am knocking on serious hardwood right now, which is my head, we have not had to go beyond that trailing multiple that we have experienced.
And so we still get that good arbitrage.
But to say a macro thing about the space right now, the sellers are getting much more educated and we're finding them to be represented much more than they were in just representing themselves in the sale.
And I think there are usually more than just one or two buyers that are looking at the firms.
It's kind of a robust market on both sides.
- Analyst
Okay.
It hasn't gotten overheated in terms of multiple at this point.
- Chairman & CEO
We're selective and we have a nice little something that we say.
We want partners.
We want our stock, knock on wood, has been doing fairly well.
We put stock in the deal, so we're creating partners and that seems to be very attractive to those firms that we're talking to.
- Analyst
Great, thanks for your comments.
Operator
At this time, this concludes our question-and-answer session.
I would now like to turn the call back over to Mr. Wright for closing remarks.
- Chairman & CEO
Operator, there's no other questions out there, I assume.
Operator
Correct, sir.
- Chairman & CEO
Okay.
First thing, I continue to thank you and thank our shareholders and thank those that have the interest in our Company each quarter.
We appreciate your support.
We appreciate the belief you've had in our Company.
I say this and you've heard me say this many times, although our approach is strategic, our team has been doing this for a long time.
It's one foot in front of the other.
We know how to acquire firms.
We know how to integrate, and more than that, we think that we can grow these companies organically.
And I hope you've seen by those results, I'm very pleased with our progress so far.
We always have things to do and things to improve on, but with your continued support, we will continue to move forward and reach our goals.
So I want to thank everyone for listening, and we look forward to speaking to you again at the next quarter.
Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today's conference.
This concludes your program.
You may now disconnect.
Everyone have a great day.