BWMN - NASDAQ

Good morning. My name is Becky, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group Ltd. Fourth Quarter and Full Year 2024 Conference Call. All lines will be placed on mute for the presentation portion of the call, with the opportunity for questions and answers at the end. Please note that many of the comments made today are considered forward-looking statements under federal security laws. As described in the company's filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed. The company is not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information, such as adjusted EBITDA, adjusted net income, and net service billing. You can find this information together with the reconciliations of the most directly comparable GAAP information in the company's earnings press release filed with the SEC and on the company's Investor Relations website at investors.bowman.com. Management will deliver prepared remarks, after which they will take questions from research analysts. Replays of the call will be available on the company's Investor Relations website. Mr. Gary Bowman, you may begin your prepared remarks.

Okay. Thank you, Becky. Good morning, everyone. Thanks for joining our fourth quarter and full year 2024 earnings call. Bruce Labovitz, our CFO, is with me this morning. Welcome to all our employees who are listening to the call today, especially to the newest Bowman Consulting Group Ltd. employees. I am going to start today's call with some introductory remarks, and then Bruce will cover our financial performance. I will wrap up the call with closing statements about 2025 before opening it up to Q&A. 2024 was a very successful year for Bowman Consulting Group Ltd. on multiple fronts. We posted record net service billings, net income, adjusted EBITDA, and adjusted EBITDA margin. We had the strongest fourth quarter in our history. We generated as much operating cash flow as we did for all of 2023 and nearly doubled what we generated in the first nine months of 2024. Bookings were especially strong in the second half of the year with our book-to-burn ratio once again exceeding 1.0. We enter 2025 with a record backlog of $399 million, which provides great visibility to our continued revenue growth. During the year, we made eight strategic acquisitions that enabled us to enter new geographies and expand service offerings across all our markets. We augmented these acquisitions with new leadership, systems, and capital to accelerate their growth potential. Throughout the company, these acquisitions added depth and expertise in practice areas such as bridge design, water and wastewater, utilities, fire protection, and sustainability. The addition of CERDEX earlier in the year greatly enhanced our technical services with advanced and high-altitude geospatial solutions. Geospatial is a source of substantial new business in 2024 from both new and returning customers. This practice area enables us to achieve incumbency with clients early on in projects, and it is a significant generator of cross-selling opportunities. With that, let me turn the call over to Bruce to discuss financial results, after which I will give a little more color on our markets and our positive outlook for 2025. Bruce?

Thanks, Gary. Welcome, everybody. Today, I am going to touch on the highlights of the fourth quarter and the fiscal year. Okay. Let's turn to slide four. Gross revenue for the fourth quarter was $113 million. This represents a 22% increase over last year's fourth quarter. Net revenue, a non-GAAP result, was similarly up 23% over last year at $98.6 million. These results both exceeded consensus estimates. We continue to operate in the high 80s range. Net income for the quarter increased $13.6 million to $5.9 million or $0.34 per share basic and $0.33 diluted. This compares to a net loss of $7.7 million or negative $0.59 per share both basic and diluted last year. During the quarter, our tax benefit was $5.4 million resulting from increases in our R&D tax credits, windfall tax gains on stock vesting, and other UTP-related accrual reversals. Adjusted EBITDA, another non-GAAP metric, was $17 million for the quarter, which represents a 17.2% margin on net revenue. This is a big improvement from earlier in the year and reflects in part our labor realignment efforts in the third quarter. Adjusted earnings per share for the quarter, also a non-GAAP metric, more than doubled to $0.72 basic and $0.71 diluted as compared to $0.33 and $0.31 respectively last year. Turning to slide five, Gross revenue for the full year ended at $426.6 million, our first year over $400 million, represents a 23% increase over last year, and sets us up to meet our five-year goal of a $500 million run rate. Net revenue was up 25% over last year at $379.7 million. These results also exceeded consensus estimates. Net income for the year increased by $9.6 million to a profit of $3 million or $0.18 per share basic and $0.17 per share diluted. This compares to a loss of $6.6 million or negative $0.53 per share. Last year, we committed to restoring GAAP profitability, and we are pleased to be here today reporting a year that was profitable on a GAAP basis. Adjusted EBITDA was $59.5 million for the year, representing a 15.7% margin on net revenue and a 26.6% year-over-year increase. While we are not at our annual goal of high teens margins yet, this does represent our fourth consecutive year of margin improvement. Adjusted earnings per share for the year was $1.23 basic and $1.20 diluted, an increase from $1.12 and $1.03 respectively. As we look to 2025, I would once again expect GAAP expense associated with non-cash stock compensation to be reduced in the absolute and as a percentage of revenue. Turning to slide six, Here we show the breakdown of gross revenue by market. Building infrastructure continued to be our largest market at 51% of gross revenue, with commercial, residential, and municipal representing 23%, 18%, and 10% of gross revenue respectively. Additional submarket breakdowns for building infrastructure can be seen on this chart on this slide. Transportation represented 21% of gross revenue, with about two-thirds being from public client engagements. Power, utilities, and energy represented 18% with around 75% being from traditional energy and grid-related assignments. The balance is emerging markets including mining, water, environmental, this year, aerial imaging and mapping. Beginning in 2025, we will break aerial imaging and mapping out based on end market application. This may cause year-over-year comparisons with emerging markets to be a bit challenging. Let's turn to slide seven. Organic growth of net revenue was 8.5% in the quarter. Looking at organic growth by market, emerging markets led the pack, followed by transportation, power utilities and energy, and then building infrastructure. Again, a reminder that we would expect to see the growth rate for emerging markets moderate as we shift aerial mapping and inventory in 2025. Let's now turn to slide eight to review cash flow, liquidity, and capitalization. At year-end, we had approximately $7 million of cash on hand under our $100 million revolver and sufficient access to CapEx lease financing. We are currently in the final stages of increasing our revolver limit to $140 million. At year-end, we had approximately $95 million of net debt and a leverage ratio of 1.6 on trailing twelve months adjusted EBITDA. I can say with confidence that we have plenty of capacity to borrow in what we believe will be a market of opportunity to fund strategic growth initiatives, technology investments, and M&A. During the fourth quarter, we turned the corner on cash conversion, generating nearly $12 million in cash flows from operating activities in the quarter, at over $24 million for the year, more than double last year. Our cash flow improvement was derived in large part from reductions in unbilled revenue and in our working capital. During 2024, we repurchased $34 million of stock with around $11 million purchased from employees to cover taxes associated with vesting and $23 million from open market repurchases under a repurchase authorization. Since year-end, we have purchased an additional $4 million of stock under repurchase authorization. We now have $11 million remaining under our current authorization. Given what we know to be the quality of our earnings, it is our belief that our equity is highly undervalued. As such, we intend to continue to allocate a portion of our available capital to the repurchase of our common stock until such time as we feel value has been rebalanced. Turning to slide nine, backlog grew more than 30% during 2024 to just under $400 million at year-end. This is a $20 million increase from Q3, with around 70% of the increase being organically generated as opposed to acquired. New orders have started the year stronger than usual at over $100 million so far this quarter, giving us reason to expect continued backlog growth throughout 2025. Now I am going to turn the call back over to Gary.

Thank you, Bruce. Since we went public in 2021, we have increased net revenue at a compound annual growth rate of over 41%. We have built our backlog up to nearly $400 million, and we have more than tripled our adjusted EBITDA while expanding margin by 350 basis points from 12.2% to 15.5%. We have accomplished this through a disciplined growth strategy that fundamentally focuses on customers, markets, services, and people. I am confident that as we continue to develop the culture of leadership throughout the organization, further successes and improved operational excellence will inevitably follow. Okay. Turning to slide eleven. In 2024, we saw solid growth across all end markets. While 2025 is in its early innings, bookings are strong and pacing ahead of plan at this time. As we look to 2025, we anticipate the timing of revenue throughout the year to be proportionately similar to what we experienced last year. As we have grown, we have settled into a pattern wherein momentum builds through the second and third quarters with growth accelerating mid-year before leveling out in the fourth quarter. As I mentioned, bookings and new work thus far in 2025 are strong, and they are well distributed across all our markets. Transportation, power and utilities, and data center demand continue to be robust. We expect strong contributions from those markets throughout the year and beyond. In those interest rate-sensitive areas of our business, we see strong anecdotal evidence that customers are revamping projects to adjust to the current environment, and consequently, we are seeing a meaningful uptick in new work in those markets. In response to current market trends, we have made significant additions to our oil and gas expertise, resulting in a critical mass of capacity in that area. This positions us well for the strong near-term growth we are experiencing in that market. We anticipate that both oil and gas and mining will see significant positive momentum in 2025 and beyond. In the renewable sector, we have successfully redeployed labor away from weakening submarkets such as wind, which historically has not represented a meaningful part of our business, to areas that continue to exhibit growing demand. For example, we have increased our capacity with EV charging installations and other high-potential energy infrastructure practice areas. Grid capacity and resilience continue to be top of mind with our customers. Events such as recent back-to-back hurricanes in the Gulf and wildfires in California serve as constant reminders of the extreme fragility of our power infrastructure. We expect our power, utilities, and energy practice to continue to expand independent of the status of the Inflation Reduction Act. Now turning to slide twelve. Going forward, our objective is to make strategic investments in M&A, product line expansions, and technology tools that will expand our reach, increase wallet share with our customers, improve the delivery of services, and accelerate long-term organic growth. Our M&A strategy is focused on acquisition candidates that facilitate our pursuit of larger and more impactful customer assignments and provide synergies helping us propel long-term organic growth. The M&A market remains as dynamic and viable as it has ever been, and the opportunities there are plentiful. Our capacity to acquire and integrate positions us to maintain a positive growth profile through varying macroeconomic environments. In terms of our position relative to what is happening on the federal front, we have experienced minimal disruptions to our business. Most of our public sector assignments are state and local in nature with funding that is independent of current federal cuts. The size of our operation, coupled with the diversification of our markets, submarkets, and customers we serve, creates a defensive business model that helps us navigate economic unpredictability and uncertainty. It is important to remember that no single customer represents more than 4% of our revenue. Now turning to slide thirteen, given the strong start to the year so far, we are increasing our 2025 guidance modestly, recognizing it is still early in the year. There is plenty of time to build on current momentum. For the year, we are forecasting net revenues to be in the range of $428 to $440 million with adjusted EBITDA between $70 and $76 million. This would put us in the top tier of peer performance on a margin basis and continue us on our journey to sustained high teens margins. I want to close by saying thank you to all our employees for their capacity to drown out the noise and remain steadfast in their focus on delivering for customers, for shareholders, and for each other. With that, I am going to turn the call back to Becky for questions.

Thank you. If you wish to ask a question, please press. When preparing to ask a question, please ensure your devices are muted locally. Our first question is from Aaron Spychalla from Craig Hallum. Your line is now open. Please go ahead.

Yeah. Good morning, Gary and Bruce. Thanks for taking the question. First, on the transportation vertical, any impact from the IIJA there as we move forward either in that segment or across the business? And then just maybe talk a little bit more about the trends you see there in transportation over the next year or two?

Thanks, Aaron. Good morning. We are seeing IIJA spending seems to be kicking in. It has been a long while for those projects to get started in earnest. We are seeing no adverse impacts in IIJA. The experts that we talked to in the federal government are predicting that spending should stay sustained. So between IIJA and other state and local funding mechanisms, we are seeing very strong trends in transportation.

Yep. Thank you for that. And then maybe second on, you know, just the backlog and the visibility. Can you just talk a little bit about how that compares to past years and just how you kind of see the underlying pipeline trending? You talked about minimal impact at the federal level, just curious if you are seeing any kind of lengthening of timelines, and you also talked about some opportunities for outsourcing coming out of that as well.

Yeah. I will start with the first part of that, Aaron. It is Bruce. The backlog is generally characteristically similar to where it has been in prior years. At any given time, there are different distributions within the backlog just based on the timing of orders. But generally speaking, it still has the same kind of 80% turn profile in a twelve-month period. We are not seeing a lot of delay, and what is in the backlog is work that is contracted and authorized to proceed. We are feeling pretty steady in terms of the characteristic of that backlog.

And Aaron, you asked about outsourcing opportunities. That is kind of looking over the horizon, but we certainly do a substantial amount of outsourcing in our business now, government agencies into private utilities. But when staffs get cut back, the mission still has to continue. So we typically see in those environments, government sectors look to companies like ours to outsource some of what has traditionally been performed by in-house staff.

Understood. Thanks for that. And then maybe last for me, you called out some investment in service line expansions and technology tools to just further help the business. Can you give a little bit more detail on what that might entail and just how much those investments might be, some of the benefits that you see from that?

Sure, Aaron. We are building out a team now to help us map out and implement technology investments that will cause our customers to do more with us, get us greater share of the wallet. Some examples are we recently acquired some new generation remote sensors with our fixed aerial group that we acquired last year. It broadens that reach, enabling us to service, as an example, large utility transmission corridors. We have developed and are deploying a product in our Ports and Harbors Group that has been well received in the market. We combine lidar and sonar for some asset management. In our utilities water and sewer utilities group, we have developed and are deploying some augmented reality and digital twinning tools that help those entities with their asset management.

Aaron, to the extent of the size of it, it depends on what becomes rational relative to revenue generation. We are in a position to make the kinds of investments that are opportunistic to the extent that we see them having direct, either revenue correlation or cost savings synergy in the way we produce work. One of the ways in the world today to enhance margin long-term and to accelerate organic growth, in addition to the capital investment we make in M&A, is making it internally into systems technologies, products, and services that capitalize on the direction the world is going. We have the balance sheet to be able to do it to the extent that it is revenue justified.

Right. Okay. That makes sense. Thanks for the color. I will turn it over.

Thanks, Aaron.

Thank you. Our next question is from Brent Thielman from DA Davidson and Co. Your line is now open. Please go ahead.

Yes. Let's finish the year. Couple of Mortise Brands. Here, Bruce. You made the comment. Yeah. Morning. Hundred million, I think, in new orders this quarter sounds like a stronger than usual start. Maybe you could just talk about what verticals are driving that. And I guess just on the building infrastructure, backlog, it looks like it is somewhat at the end of the year. Just want to understand the crosscurrents you are experiencing in that vertical and how that is sort of embedded in your 2025 outlook.

Yeah. I will take them one at a time there. I think just in terms of order flow, it is over $100 million so far in the first quarter. It is ratably across all of our different markets. In connection with the second part of your question, in terms of building infrastructure, that does have a quicker turn order to delivery characteristics. So sometimes you may see periods of time where there are dips in, at a given day in the year, that there is a lower backlog in, let's say, building infrastructure. But I do not think it is a characteristically different dynamic to order flow and expectation. Building infrastructure. But, I would say that there have been across the board positive sales in all of the markets so far this year.

Okay. Alright. Sounds like underlying demand in that business group is pretty healthy, notwithstanding that comparison on backlog.

Yeah. I mean, there is not one darling that is overshadowing the others. Weeks in, weeks out, you have different contracts, different authorities, different clients making decisions. But across the board, strength in new orders coming up from the field.

Yeah. I will just echo that as he knows what he has. We look and prepare. So, you know, what area is stronger in there? It is across the board. So it is nice to see. Well diversified. Market sectors.

Yep. And also remembering that is by design. And I guess, Hector, we are becoming concentrated in any one leg of the stool.

Yeah. Understood. My second question just in terms of sort of capital allocation going forward and I mean, you have taken a little bit of a step back on the M&A front. I guess, more recently. Obviously, you got a few transactions done. I guess, part one of the question is do you feel like you have got everything integrated? I know you did with some kind of internal work refocusing internally here in the last year. Do you feel like you are through that phase? And I guess the second part of the question is are buybacks more attractive than the M&A here going forward given where your stock is trading?

So let's say on the integration front, we are in a really good, continuous effort with integration. There are multiple prongs for every integration, but from a systems point of view, all but a couple are all integrated from an operations perspective. Everybody is integrated. From a branding perspective, most of them are integrated. So I would say that we are right where we want to be with integration. We continue to be 100% committed to 100% integration of everything we completed. The CERDEX integration at the end of the year, so we feel good about all the big heavy rocks getting lifted and put in place where they should be. In terms of capital allocation, that is a decision we assess every day. We are increasing our capacity to invest by increasing the line of credit with our bank syndicated BofA and TD Bank. We appreciate their support for the company, and certainly, at where equity values closed, we believe that is a good place to allocate capital. We are fortunate enough to be in a position where it is not an either-or decision. It is an and decision. While we look at M&A opportunities, we do not look at them from the perspective of, well, if we do a buyback, we cannot do that M&A deal. We are balancing it all and adding to that mix. Gary talked about a bigger focus on tech investment and product line expansion, which is, in our mind, akin to acquisition. Investing in something that generates substantial revenue is similar to buying revenue. So it is really a mix of those three parts of the triangle there, and we do this regularly.

Understood. Thanks, guys. I will pass it on.

Thanks, Brent.

Thank you, Brent.

Thank you. Our next question is from Jeff Martin from Roth Capital Markets. Your line is now open. Please go ahead.

Thank you. Good morning, Gary and Bruce. Good to see a strong close to the year here. I was wondering if you could touch on the progress on gaining wallet share on contract sizes and getting involved in contracts earlier in the process and perhaps providing more services throughout the life cycle of a project. And what strategically you are doing to continue to improve that position.

Well, we see the Surdex acquisition being a good example of increasing our geospatial capacity. As we mentioned in the remarks, it gets us incumbency early on in the project. I mentioned in our technology investments, some of these areas that get us involved in asset management, to stay involved with the customer throughout the life of the project, not just the development of the project. Not just the design and construction of the project. Those are areas looking to be able to get in earlier and stay in for a longer duration. Our acquisition of SCS with financial analysis and rate studying gets us into new areas of project life cycle. Those are examples of what we are doing to grab more wallet share.

One thing we Jeff, like every good movie series, every project has a sequel. Incumbency also is not just about the first iteration of a project, it is the second iteration of a project as well. A lot of these end-of-project services that we can provide that bridge between the life of projects, puts you in a position the next time that project needs an improvement and upgrade. You are already engaged in the work with that client on that effort.

Right. And then with everything that is going on in the data center market, just curious if that is an area you are looking to pursue more aggressively going forward.

We continue to pursue it. It is still a super dynamic market. We have a great presence in that part of the data center, at site preparation. We are taking some proactive moves to do more of the life cycle work of the design of the data center. More inside the data centers, so it is certainly an area of focus for us to continue to grow in and expand our service capabilities.

As the requirements for data centers expand, meaning that the available land for data centers is evolving, because certain latencies in certain types of data centers are more allowable, it has become more of a land planning and land development effort. More broadly for us. There is a lot more opportunity to look at land use for data centers. We are looking for some areas to broaden our capabilities. I mentioned getting inside the data center, but outside the data center, some of the power delivery areas that we are taking some proactive moves to beef up our capabilities there.

And then last one for me. Just curious if you could provide an update on the natural gas pipeline replacement opportunity. I think that is something you have been investing pretty significantly for.

That market is still as active as it has ever been. It is a legacy skill of ours and one of our largest clients, a source of great recurring revenue for us. We are expanding with that client and looking to add to that client base.

That is it for me. Thank you.

Thanks, Jeff.

Thanks, Jeff.

Thank you. Our next question is from Justin Holkey from Robert W. Baird. Your line is now open. Please go ahead.

Oh, great. Good morning. I jumped on a little bit late, but I think I got the gist of what most of the questions have been asked. One question we have gotten from a couple of people just on your land development business, our impression is that you have a fair amount in the DC area. I guess just curious, given the local real estate recession that is emerging there, if you had any comments on that or quantifying the size of that and maybe that is not as big as we thought. I would appreciate any perspective on that.

Going way back in time, that is where the business was built on. Looking back here thirty years later, I am very thankful we have diversified the business. Yes, it is not insignificant. We have grown so much and diversified so much. It is nowhere nearly as substantial a part of our business as it has been in the past. Clearly, if there is an area of real estate where sensitivities are acute, it is around this area. But federal adjustments are occurring throughout the country. In the time I have been in business, and I have been in business here my whole life, we have seen tremendous diversification of this economy.

This market has spent twenty years with days on market in the fractions of days. I would not over-characterize it too bad. There is a moment now where supply is increasing in this market, but it is a temporary phenomenon here. Land developers who are thinking about a ten-year horizon of home building are relatively unfazed by a moment in time when the housing market here is getting a little softer. Long term, the DC market has a very diverse economy. I think we will be just fine.

Okay. Do you have any perspective on just, I mean, of the residential and commercial markets that you have? Maybe the legacy was that was really where you were concentrated, but is it 5% of your total portfolio in the DC area? Is it 20%? Just something to put perspective on what that is. How big it is.

I would say, ten or fifteen percent of our residential building infrastructure portfolio, our commercial portfolio spread out through ads. Very little of our commercial portfolio. Fortunately, we are not involved too much in office around here. As far as our overall portfolio, low single digits.

Okay. That is helpful. Appreciate it. Thank you.

Thanks, Justin.