NV5 Global Inc (NVEE) 2016 Q2 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 second quarter and six months ended June 30, 2016. Joining us today are Dickerson Wright, Chairman and CEO of NV5; Michael Rama, CFO of NV5; and Lauren Wright, Director of Investor Relations for NV5. 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 conference call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995, including statements concerning future events and future financial performance. 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. 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 through August 11, 2016, starting tonight at 7:30 PM Eastern. A webcast replay will also be available via the link provided in today's news release and 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 Global, Incorporated is strictly prohibited.

We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Michael Rama, our Chief Financial Officer, for a review of the second-quarter 2016 and year-to-date financial results and outlook for the rest of the year. We will then open the call for your questions. Dickerson, please go ahead.

Thank you, Lauren and thank you to everyone joining us for NV5's second-quarter 2016 conference call. After the close of market today, we issued a news release announcing our financial results for the second quarter and six months ended June 30, 2016. We are very pleased with our second-quarter and year-to-date results. Total revenues increased 66%; EBITDA increased to 14% and net income increased 65% year-over-year. Our adjusted earnings per share for the quarter increased 23% to $0.38 per share over 9.2 million shares compared to $0.31 a share over 6.8 million shares in the second quarter of 2015. We increased gross profit margins among all of our service lines in the second quarter, increased our backlog and once again decreased sub-consultant-dependent.

NV5 has experienced uninterrupted growth since our IPO in March of 2013. We are on track to accomplish our published goal to exit year 2016 with $300 million in run rate revenue and a 12% to 15% EBITDA on net fees, and we have succeeded so far by maintaining a flat organization and focusing on our organic growth and acquisitions within the five key service lines.

As we mentioned in our news release earlier today, we are currently at 14% EBITDA on net fees. In addition, our professionals in those business lines have been able to cross sell their services keeping more revenue in-house and allowing us to expand the range of services we can offer our existing clients. We recently announced that, since August 2015, NV5 has contracted almost $11 million in fees as a result of our synergy initiative, work that would have been outsourced to other firms in the past.

We also recently announced an $8 million contract with the City of New York for a landscape architecture project and a $5.4 million contract for ongoing improvements to the Fort Lauderdale Hollywood International Airport. More and more of our projects are starting to involve the interdisciplinary efforts of our engineers and experts across the country. This is exactly the kind of collaboration we want to enable because it allows us to grow organically. We, therefore, have also increased revenue and earnings guidance for the balance of the year.

NV5 is also poised for future growth beyond 2016. We've made recent enhancements in our organization to accommodate the growth we are anticipating while also maintaining a flat vertical organization that we know works. First, we have restructured the Company so that Alex Hockman, who has been President and Chief Operating Officer of NV5, now manages our infrastructure, civil program management and construction quality assurance practices as President of Infrastructure. Alex has been part of our management team since 2003 and is the Founder of NV5. As head of our CQA group and eventually all NV5 operations, Alex expanded operating margin and fostered a culture of growth and efficiency.

Rob Costello, previously CEO of Sebesta, is an experienced chief executive who has served in the CEO and CFO roles at large public and private companies in our space. He is serving as President of Building, Engineering and Sciences in our new organization. Known as the BES division, it includes NV5's environmental, energy and building program management groups. No public financial reporting will change as a result of these new divisions. However, the new structure will internally allow the Company to prepare itself for expansion on a much larger scale and open NV5 to new, bigger opportunities.

NV5 continues to constantly evaluate newer acquisition opportunities of all sizes. You may have noticed we completed a $51.3 million underwritten public offering in May. The net proceeds will primarily be used to fund new acquisition opportunities. One of these acquisitions was Dade Moeller & Associates, which we acquired on May 18. Dade Moeller is an environmental health and safety firm with 150 employees and approximately $28 million in annual revenues. Dade Moeller is based in Richland, Washington near the Hanford nuclear facility where they have been working since 1994 and where NV5 has an existing CQA project. We now have offices in Maryland, Tennessee and Nevada.

Beyond Dade & Moeller's work with the Department of Energy, Dade & Moeller has been involved in high profile projects like the Deepwater Horizon Gulf oil spill where its professionals continue to assess damage and has provided radiation exposure protection services at some of the largest entertainment venues in the United States.

We know that Dade Moeller employees will continue to team with NV5's existing environmental services groups to create a strong platform for our new building, engineering and science division. We also acquired the assets of X8e Vineyard, an Albuquerque-based construction quality assurance firm on June 1. X8e will support our nuclear environmental service operations in the Southwest with added expertise and an established client base, which will include the New Mexico Department of Transportation and the US Air Force Base in Kirkland. Both acquisitions were made almost entirely in cash and are immediately accretive to NV5's earnings.

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 second quarter and six months ended June 30, 2016 and our outlook for the remainder of 2016. Michael.

Thank you, Dickerson and good afternoon, everyone. First, I will review the results for the Company's second quarter and six months ended June 30, 2016, and then I will provide an updated outlook for the remainder of 2016. Gross revenues in the second quarter of 2016 were $55.9 million, a 62% increase compared to gross revenues of $34.5 million in the second quarter of 2015. Net revenues for the second quarter of 2016 were $44.4 million, an increase of 60% over the second quarter of 2015. These increases were due to organic growth of 9% from our existing platform, as well as the contribution from acquisitions closed during 2016.

Gross margin for the second quarter of 2016 was 47% compared to 45% for the second quarter of 2015, which is the result of increased use of our billable professional employees. EBITDA for the second quarter of 2016 was $6 million or 14% of net revenues, an increase of 71%, up from $3.5 million or 13% of net revenues in the second quarter of last year.

Net income in the second quarter of 2016 was $2.9 million, an increase of 65% compared to net income of $1.7 million in the second quarter of 2015. Second-quarter 2016 adjusted EPS, that is excluding the impact of amortization of intangible assets from acquisitions, was $0.38 versus $0.31 in the second quarter of 2015. Second-quarter 2016 GAAP EPS was $0.31 versus $0.25 in the second quarter of 2015. Our second-quarter 2016 adjusted earnings per share and GAAP earnings per share reflects the weighted average shares outstanding of 9.2 million shares for the three months ended June 30, 2016 compared to the weighted average shares outstanding of 6.8 million shares for the three months ended June 30, 2015. Included in the weighted average shares outstanding for the second quarter of 2016 is the impact of 1.9 million shares issued from our secondary offering during May 2016.

Our cash flow from operating activities was $4.7 million for the second quarter ended June 30, 2016 compared to cash flow used in operating activities of $900,000 for the second quarter of 2015. As of June 30, 2016, our cash and cash equivalents were $51.1 million.

Now we will review the year-to-date results for the six months ended June 30, 2016. Gross revenues in the six months ended June 30, 2016, were $100.8 million, increasing 58% when compared to the same period in 2015. Net revenues year to date in 2016 were $82.5 million, an increase of 63% from the same period in 2015. These increases were due to organic growth of 9% from our existing platform, as well as the contribution from acquisitions closed during 2016.

Gross margin for the six months ended June 30, 2016 was 49% compared to 44% for the six months ended June 30, 2015 which is the result of increased use of our billable professional employees, as well as decreased use of sub-consultants. EBITDA for the six months ended June 30, 2016 was $10.6 million or 13% of net revenues, an increase of 80% from the six months ended June 30, 2015.

Net income for the six months ended June 30, 2016 was $4.9 million, an increase of 74% compared to net income of $2.8 million for the six months ended June 30, 2015. Adjusted earnings per share for the six months ended June 30, 2016 was $0.71 versus $0.54 for the same period in 2015. GAAP EPS for the six months ended June 30, 2016 was $0.57 compared to $0.44 for the six months ended June 30, 2015. Our year-to-date 2016 adjusted EPS and GAAP EPS reflects the weighted average shares outstanding of 8.6 million shares for the six months ended June 30, 2016 compared to the weighted average shares outstanding of 6.4 million shares for the six months ended June 30, 2015. Included in the weighted average shares outstanding for the six months ended 2016 is the impact of 1.9 million shares issued from our secondary offering during May 2016.

Cash flow from operating activities increased to $6.7 million in the six months ended June 30, 2016 compared to cash flow from operating activities of $1 million in the six months ended June 30, 2015. At June 30, 2016, the Company reported backlog of $195.5 million, an increase of 12% from $174.4 million as of March 31, 2016 and 26% from $155.3 million as of December 31, 2015. Our backlog is an estimate of revenues to be recognized over a rolling 12-month period.

Now we will move on to our outlook for the remainder of 2016. The Company is raising the guidance previously issued for full-year 2016 total revenues and earnings, which, including the impact of acquisitions closed through June 30, 2016, is anticipated to range from $230 million to $250 million and represents an increase of 48% to 60% from total revenues in 2015 of $155.9 million. The Company further expects that full-year 2016 adjusted earnings per share will range from $1.57 to $1.70 per diluted share. Furthermore, the Company expects that full-year 2016 GAAP EPS will range from $1.29 to $1.40 per diluted share. Both adjusted earnings per share and GAAP earnings per share reflect the issuance of 1.9 million shares of our common stock during May 2016. Furthermore, this guidance excludes anticipated acquisitions for the remainder of 2016. This completes our prepared remarks and now we'd like to open up the call for your questions.

(Operator Instructions). Jeff Martin, ROTH Capital Partners.

This is Nicholas Meyers on for Jeff. First, can you please update us on the progress you are having with the AK environmental group with respect to gas pipelines, and how much does the June signing of the Pipes Act by the President influence this part of the business?

Thanks, Nicholas. Good question. We are making steady progress. As you know, there's been quite a downturn previously overall in the natural gas pipeline transmission business, but we are slowly seeing a steady increase and coming back from the lows. It still has represented a portion of our budget that we have needed to address and what we are doing is transforming -- and this will get into the second part of your question -- but we are transforming the staffing pipeline business that AK was into a more safety-related compliance pipeline safety business. And this is really what the Pipes Act is. The new Pipe Act is really dealing with pipeline integrity, pipeline safety and compliance of all of the pipeline that is in place. For example, one of our largest clients has 60,000 miles of pipeline already in the ground and we know of recent things with pipeline integrity, so we are transforming that business to more of a compliance business, consulting business than rather just a staffing business. So the Pipes Act can only help us because there's a greater emphasis now on pipeline safety and that's really the thrust of the new act.

Okay, perfect. Thank you. That's good color. Next, about Dade & Moeller, how does Dade & Moeller fit into your intermediate and long-term strategy with the environmental vertical and are there any early indications of how well this will sync with the team at Sebesta?

Also a very good question. They are in our immediate plans and they are certainly in our long-term plans. What we wanted to do and we were very selective in the acquisition of an environmental business and that was to acquire a high entree, highly recognized skill business and the reputation that Dade Moeller has in the industry for radiation safety, health physics, certified indoor hygienists, indoor air quality and many of the things that I mentioned in my narrative created a very high barrier of entree business that really feeds into -- and you know the secret of our business is the synergy between the offices, or the strategy -- and so Dade Moeller fits very, very nicely into this niche.

It has been immediately accretive. We are looking for the wonderful contribution that they continue to make in the business, and we are already seeing cross-selling opportunities not only with our Sebesta opportunity, which is really dealing in indoor air quality, and they've always looked for someone to address the environmental issues that they find in the energy transformation business inside the building envelope. So Dade Moeller has made a significant contribution, but also in our infrastructure space, we are seeing a lot of opportunities.

So very pleased so far. I know it's early with Dade Moeller, but it's what we were looking for and we really think it enhances our synergy and our ability to cross-sell within the verticals.

Perfect, perfect. All right, one last one and then I will step back. Water scarcity and quality seems to be an increasingly hot topic on both the West Coast and the East Coast, actually. Is this an area of focus for NV5 and what is your strategy to target this?

We are looking now -- as we selectively look into the environmental business, we are looking at phenomenal opportunities that we like in the water, high-end consulting business, water where we can really be embedded with a client and address that shortage. And as you know, in the overall infrastructure business as a whole, the extreme population growth, the scarcity of water and scarcity of clean water and deliverable water is something that's going to go on no matter what the economic cycle is. People need to drink clean water. People need to treat waste and they need to have clean delivery systems. So we think this is a great opportunity.

As you know, we did work on the desalinization plant. We were the civil engineers for the desalination plant called Poseidon in San Diego and now we are looking at other opportunities where we are going to be teaming with the same team to increase the ability to deliver clean, drinkable, potable water to the populace.

So, yes, water is going to be something that look for NV5 to emphasize in the coming months, and we are also right now looking for some opportunities that we could bolt in or bring into our organization. Good question though. Thank you, Nicholas.

You are very welcome. Thank you guys for taking my questions and good luck going forward.

(Operator Instructions). Ryan Cassil, Seaport Global.

On the guidance, so it's an apples-to-apples comparison, is there a way to think about the EPS adjustment you guys have made here, whether it's operating income assumption or net income assumption? Just trying to be clear on exactly what's changed, or what you guys have adjusted there in terms of profitability.

No change. Improvement if that's a change, but we are very transparent and I'm going to defer to Mike, our CFO, on this question. But we are very transparent on what we release. We not only release adjusted earnings per share, but we also release GAAP earnings per share, so obviously the guidance we are giving [isn't] more earnings, more earnings in total and then also to account for the increased earnings per share. But the only difference that we account for in adjusted earnings per share is due to our acquisitions, but I will let Mike answer it more definitively.

Also, in this guidance update, we are also reflecting in the earnings per share the increased number of shares outstanding. During May, we had the 1.9 million shares that was in the secondary offering, so that's now reflected in the earnings-per-share guidance update. And as Dick mentioned, our overall profitability, with the increased revenue, as well as the increase in -- projected increased revenues, it also translates in increased profitability, but it doesn't reflect linearly to the earnings per share because of the increased shares outstanding.

Yes, it's a non-cash item when we do acquisitions. There's always a price you are paying over the absolute book value and so that's something that we have to carry as an expense, but not a cash item on the books. So if you had looked at our news release, we reported $0.31 for the quarter in GAAP earnings per share, and I believe, Mike, was it $0.38 in the adjusted earnings per share. But the real earnings to look forward to, we like to report both. We know a lot of other news releases are talking about adjusted earnings per share, but we really want our investors to know that we are improving both on a GAAP basis and on the adjusted earnings per share.

Okay. Sure. No, I can appreciate that. I was just, I guess, trying to get to what the previous profitability assumptions were maybe above the share count, so at a net income level what that range was and what that range is today stripping out the share count adjustment, if you had any sense there, but if not I can follow up offline.

We do. You are referring to net income and maybe EBITDA and I would let Mike maybe --.

Yes, we are still trending in the -- ranging between 12% to 15% on EBITDA earnings, so just using the same metrics, if you will, on the revenue guidance, if you will and we are still again tracking on the 12% to 15% on EBITDA margins, which will translate into our net income to the bottom line.

Okay, great. That's helpful. Thanks, guys.

And we exceeded on net income the consensus of both of the analysts covering us.

I can appreciate that. Always a good thing. And then perhaps just on the way you are thinking about the business going forward and some of the changes you are making to the corporate structure, is there going to be segment reporting now? Is that going to flow through to the financial reporting or will it just continue to be consolidated revenues? Any clarity there would be great.

Yes, our 10-Q will reflect segment reporting, which we started doing that at the end of last year with our 10-K, our annual report in our 10-K, so we are reporting on our SEC reporting -- segment reporting.

There will be no change to that I guess is the clarification with this new structure?

That's correct. The new structure, Ryan, is really operational and the key thing is always in our mind as we grow to keep a very flat organization. So we feel by having the two leaders in the Company as we approach and we are going to grow past the $300 million, in order to keep a very flat organization with our key people in front of a client, it's important that we give more attention to each of these organizations so that they can best put their feet -- put their best foot forward with the client and in front of the client. So therefore, we have Alex Hockman in the infrastructure group and we have now Rob Costello in what we call building, energy and sciences group. And that is more of an operational thing so that we can deliver the services to our clients better and not so much in the segment reporting.

Okay, great. Happy to hear it. Then last one from me and I apologize if you guys covered it already, but in the $196 million of backlog, how much is from acquisitions in there and then what's organic?

Yes, from the beginning of the year, we actually had about $30 million between Dade Moeller and Sebesta acquisitions in our backlog, and rolling that forward for the first six months, we increased backlog about 7% organically. Our organic growth was 9%, as you saw, Ryan, for the year for the overall Company, and then just using a rule of thumb, if you use a standard of a good backlog is 70%, so if you take 70% or 75% of the 9%, you'd get the 7% that you saw that was the contribution in the backlog. So we feel that the 9% organic growth is a true organic growth and it's the growth from those acquisitions that we've made organically, just an organic measurement, and the organic growth of the existing business that we have.

Okay. All right, great, guys. Thanks and nice quarter.

(Operator Instructions). 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.

Well, once again, we are pleased to report very strong results and it really is because of our people and the way that we want to engage our people, continuing to drive equity deep within the organization and bring on an acquisition's true partners and shareholders with us. So we've had a very good quarter, very pleased. Look for us to continue to grow, and it's because of our keeping that strategy of a flat organization, making acquisitions that fit our culture -- and our culture is shareholder value and organic growth -- we will continue to hopefully report solid earnings to you, our investors and shareholders.

So I thank everyone for listening in. I thank you for your interest that you've had in NV5. I want to thank our people for the great job that they've done. We wouldn't be able to report these results without great employees and partners, and I want to thank everyone for supporting our stock with our investors. So once again, we look forward to speaking to you the next quarter and hopefully to bring more positive results once again. Thank you, everyone, for listening in.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.