Good afternoon, everyone, and thank you for participating in today's Conference Call to Discuss NV5's Financial Results for the First Quarter 2023 Ended April 1, 2023. Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Kodispoti, CFO of NV5; and Richard Tong, Executive Vice President and General Counsel at NV5.

I would now like to turn the call over to Richard Tong..

Thank you, operator. Welcome, everyone, to NV5's first quarter 2023 earnings call. Before we proceed, I would like to remind everyone that today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties.

Factors that could cause actual results to differ materially from these statements are included in today's presentation slides in our reports on file with the SEC. During this call, GAAP and non-GAAP financial measures will be discussed.

A reconciliation between the two is available in today's earnings release and on the company's website at www.nv5.com. Please note that unless otherwise stated, all references to first quarter 2023 comparisons are being made against the first quarter of 2022.

In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities and Exchange Act of 1934 as amended. These non-GAAP financial measures included in this presentation are adjusted earnings per share, adjusted EBITDA and revenues generated by employees.

NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5's financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP.

In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies.

A webcast replay of this call and its accompanying presentation are also available via the link provided in today's news release and on the Investors section of the company's website. You may also find today's presentation, which will be referenced during this call on the Investors section of the company's website.

We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Edward Codispoti, Chief Financial Officer, for a review of the first quarter 2020 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead..

Thank you, Richard, and thank you to everyone joining us for this call. The first quarter positioned NV5 to focus on increasing our technology innovation and subscription-based revenue services. We did this through acquisitions, integration of these new acquisitions, capital investments and expanding our data center commissioning services.

Let's begin by going to Page 5. You will see we acquired Axim Geospatial, a 340-employee firm specializing in geospatial data analytics. The synergy with our current NV5 geospatial platform was immediate. Axim will use our existing data acquisition assets and services involving aerial mapping.

Prior to the acquisition, Axim was using subcontractors for data acquisition. Axim was just awarded their largest contract to date, which will involve that acquisition through our existing geospatial business. We also increased our subscription-based revenue with the acquisition of the U.S. Commercial Geospatial division of L3Harris known as FVIS.

This is a software-based service business that includes 16 patents and involves analytics for satellite geospatial mapping acquisition. All of these acquisitions require a focus on integration.

Our time and investments, although not recognized in the quarter one results will be rewarded through synergy, continuity and growth in the subsequent months to come. In fact, 36% of NV5 revenue is now technology-based and 11% of these technology services are subscription based.

Our capital expenditures involving geospatial mapping include a deepwater mapping vessel built to our specifications to support offshore wind farm energy expansion. This is a capability that we had not yet previously possessed.

We have also positioned NV5 to capitalize on the ever-expanding data center commissioning design and maintenance service business. Southeast Asia has put a tremendous demand on datacenters to support increased cell phone capabilities and use. Please turn to Page 6, where we discuss our accomplishments in the first quarter.

We also are looking forward to future growth and maintain our guidance for 2023. In comparing Q1 '23 to Q1 '22, it is important to understand some key components. We had one less workday in Q1 '23 versus Q1 '22, resulting in approximately $2.8 million less in revenues.

We were also plagued with significant weather-related events that delayed projects to later in this year. Our real estate transaction business was negatively impacted by the increase in interest rates. Equipment and procurement revenue for large LNG projects were also recognized in Q1 '22. However, overall, we realized profitability above estimates.

If we go to Page 7, I would like to discuss our recent acquisitions that either took place or recognized partially in Q1. We previously discussed Axim and L3Harris, which positions us for higher margins and expands our service offering. However, full relevance for these acquisitions will be recognized in Q2.

As you know, our owner representative business is a service that represents a facility owner for expansion or improvements, mostly to existing facilities. We strengthened this service with the acquisitions of DC S and Gaudet Associates in Colorado and Florida.

The acquisition of Bromley Cook Engineering further strengthens our construction litigation business. Bromley Cook specializes in restoration litigation of buildings damaged by hurricanes. We were fully recognizing all of the revenue for these acquisitions in quarter two. On Page 8, our backlog is healthy entering into the second quarter of 2023.

Backlog grew to $802 million, bolstered by key wins in Geospatial technology totaling $26 million and infrastructure totaling $22 million. These projects support a stable backlog of nondiscretionary services. We will now transition the presentation to our CFO, Ed Codispoti, to provide an overview of our first quarter performance.

Ed?.

Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 10 of the presentation. I'll review our first quarter 2023 financial results. Our gross revenues were $184.3 million compared to $190.2 million in the first quarter of last year.

The $5.9 million decrease in gross revenue was primarily due to decreases in our real estate transactional services business of $9.6 million and our LNG business of $6.2 million. The decrease in real estate transaction services business revenue was driven by changes in interest rates that affected the market.

The decrease in LNG revenue was primarily a result of project cycles, which typically fluctuate during the year depending on the stage of the procurement cycle. In addition to these factors, weather and one less business day this quarter also impacted our revenue.

These decreases were partially offset by revenue from acquisitions and organic growth in our Geospatial business. The first quarter included about five weeks of Axim revenue since we closed that acquisition in late February. During the quarter, we were successful in reducing the amount of outsourced labor.

Our gross revenues generated by employees, which is a metric that subtracts from gross revenue, revenue that is generated from subconsultants and direct costs generated approximately $135.1 million in the first quarter compared to $127.1 million in the first quarter of last year, an increase of $8 million.

Gross profit was $96 million compared to $93.8 million in the first quarter of last year, an increase of $2.2 million. Net income was $5.9 million in the quarter compared to $8.6 million in the first quarter of last year, a decrease of $2.7 million.

Our adjusted EBITDA was $27.7 million, which was a $1.2 million decrease compared to the first quarter of last year. Our GAAP diluted earnings per share was $0.39 per share in the first quarter of this year compared to $0.57 per share in the first quarter of last year.

Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related costs, was $0.88 per share in the first quarter of this year compared to $0.99 per share during the first quarter of last year. On Slide 11, you can see that our cash flows from operations during the quarter were $11.3 million.

This is not a typical run rate for us, but we were impacted by working capital timing as our unbilled receivables, excluding acquisition balances, increased $14 million, and our accounts payable balances decreased by $15.9 million due to accounts payable payment cycles.

As of April 1, 2023, we had $31.3 million of cash on hand, and our net leverage was one times, which increased as a result of our funding of the Axim acquisition in February. We also had availability of $248.3 million under our credit facility at the end of the first quarter.

We feel confident about the strength of our balance sheet and are excited about the expected growth in our business throughout the rest of the year, in particular, the second half of the year. I'll now turn it back over to Dickerson for some closing comments..

Thank you, Ed. Let's turn to Page 13 on the deck, which documents NV5's strategic growth position. The drivers for this anticipated growth include expanded geospatial and software technology.

It also includes the two acquisitions to support our owner's representation business, the expansion of our utility services with power delivery and underground engineering to support the increased demand for safe and reliable delivery of energy services.

There are three key pillars for our increased performance, organic growth, mergers and acquisition growth and margin growth provided by higher-margin service offerings. Thank you..

Thank you, sir [Operator Instructions] Our first question comes from Chris Moore from CJS Company..

Hi. Good afternoon, guys. Good afternoon. You guys can hear me. Hey, thanks for taking a couple of questions. So maybe just start with the subconsultant services as a percentage of gross revenue, obviously, a very impressive number.

I'm assuming that level is not sustainable, but maybe you can talk about a little bit more about what drove that this quarter and kind of the reasonable target moving forward there?.

Okay. Well, I'll give you a macro response. And then maybe if there's any specifics, Ed will our CFO, feel free to join in. Actually, the amount of work we're doing in the real estate business, transactional business, both are two companies that do that rely on subconsultants quite a bit.

As there -- and unfortunately, because interest rates has impacted their business as that as their total volume is reduced, therefore, the percentage of the -- or a lack of -- use as opposed if the business was doing more revenue..

I would agree with that, Dick. And I think over -- it's also a result of the initiatives that we have within the firm to in-source more of the work rather than outsourcing. So there's a lot of emphasis on that, in particular through our cross-selling. And so we're seeing results of that work..

Got it. That makes sense, very helpful.

When we look at the backlog, roughly what percentage of that is Geospatial?.

It's about. It's about roughly 15% of that is geospatial. They tend to have lower percentage of backlog as it relates to the full year in some cases, but it is about 15%..

And this subquestion, that includes Axim and L3Harris. Okay..

Got it.

I'm just trying to understand kind of as Geospatial is becoming a more significant piece of revenue, trying to understand the sales cycle for Geospatial versus kind of the overall NV5 sales cycle and see what that would mean to backlog over time? Is it just kind of understand the dynamics there a little bit better?.

Well, in a linear way of looking at it, the backlog for the Geospatial Group will grow because the backlog that we reported was through the first quarter of '23. And both of those companies who have not fully joined us in the quarter. But you would expect to see an increase as the next, the second quarter begins and they're fully incorporated..

Right. It included the backlog for Axim, but not VIS because that was an April close..

And we were very conservative in the inclusion of backlog of we went off of Axim's original budget for backlog, but it looks like their revenue is going to exceed their revision budget..

Got it. That's helpful. And Dick, you kind of touched on this in terms of for maximum. It sounded like there were some synergies right away. I'm just trying to understand the cross-selling opportunities from the recent geospatial acquisitions.

Is there a significant overlap with your existing customers?.

Well, yeah, I think a couple of things. First, let me say the integration of Axim is going very well. It's our geospatial Group and Axim have worked together in the past, and we are really seeing the benefits. As far as immediate, I can only say some of the things that we can see immediately.

Axim, most of their service was the preview of the geospatial data, not the acquisition. They were using subconsultants and subcontractors for this work and now they'll be using the NV5 geospatial platform for the acquisition for the data that they're rather than use subcontractors. So we feel we're going to benefit there.

Sales organizations, they have a very robust sales organization and our geospatial sales organization is also very good. They seem there seems to be some overlap there. So what we've done is we've consolidated the sales organization into one organization, and that seems to be going very well.

And they have been very active recently in getting work that some work we would not normally have got and they tend to specialize and work more with and this overlaps with the L3Harris acquisition, and that's in the aerospace and satellite analytics and the partner of defense work, which we weren't doing as much with the geospatial group.

So we're looking for immediate synergies, and we're getting them. And if you were going to measure them, it would be through lack of subcontractors for their acquisition work, which we'll be using us. And it would be the consolidation of the sales organization, which will certainly help things on the expense side.

And then it's maybe a new client base that we're getting with Axim joining us..

Perfect. That's really helpful. I'll jump back in line. Thanks guys..

Our next caller comes from -- our next question comes from Jeff Martin from MKM. Please go ahead..

Thanks, good afternoon..

Hi Jeff..

Hi Dick, I wondered if, maybe it's a question for Ed.

If it's possible to quantify or at least take a shot at the weather-related impact on revenue in the quarter? And then secondly, is that pushed out to Q2? Is it going to be accelerated during Q2? How should we think about the catch-up on that?.

Well, let me give you from my perspective. If you look at losing a full day of revenue, which we did for having one less business day, that was $2.8 million. But our work in the West represents about third of our business.

So we would take a third, and this is certainly back of the envelope, but we would take third of the revenue and by the amount of days which we've lost, which was somewhere between five and eight days.

And so you take third of the total revenue for the quarter, which was 180-something, so that's -- it would be third of what of $60 million of $60 million, say. And then we would divide that by the amount of working days for the $60 million, so $5 million in the $60 million is roughly $1.2 million, roughly $1.2 million.

So if we were going to quantify that and believe me, this is certainly not on it. This is how I looked at it, Jeff. And so it's about $6 million in revenue from just all those unbelievable rains that we had that we just couldn't get to the site and then very conservatively losing the one business day 2.8.

So it's about $8 million or $10 million off of the $184 million that you see on the information deck on Page 6..

Yeah. Okay. And then I was wondering if you could comment with respect to where consensus is for revenue for Q2, currently at $225 million based on the consensus that I'm looking at. Given that VIS closed earlier than midyear. I think we were all expecting about probably close somewhere around midyear.

So that's probably incremental to analyst assumptions for Q2. But I don't know to what extent you can comment your level of comfort with a $225 million revenue level for Q2. I think that's when we're looking at that with the consensus..

And what I'd like to say, and you're going to see that in some concluding comments, I really look at the annual, I wish our business was linear, but I really look at the annual rate. So Ed is sitting here with me. I think we are comfortable with the total amount given by consensus and our guidance was $878 to $915.

And how that falls in the quarters is it's a little less predictable. We could probably be over the $225 million and therefore, under maybe on the third and fourth quarter.

But I say if you look at everything in total, I don't know if it's going to be 192million $220 million, I mean, $188, $225, $239 or $227, but we feel comfortable with the guidance of $878 to $915 million. Ed, you may have a thought..

I think that's in line. I think I agree with the business not being linear and focusing more on the full year numbers. I can say that from -- we tried to emphasize that the results we expect would be more weighted towards the second half of the year.

And so although those revenues seem reasonable from an expense perspective Q2, is going to require integration time on some of these acquisitions since they are on the larger side. And so maybe on the earnings for Q2 will relative to the rest of the year, we'll feel more pressure there.

But overall, for the year, like Dick said, I think the overall numbers are still reasonable..

Historically, we're running -- we're coming, the Q2 and Q3 are our busiest times of the year. So it would go on just historical precedent that we the consensus would show a higher revenue amount for those quarters. And that's typically, that's as if this was doing now. But Jeff, you brought up a good point.

Some of these projects that we couldn't get to were delayed, they may spill over into the second quarter. And they may be -- they may give us a little bit more comfort on the revenue. And as Ed said, we're very involved with the integration of these acquisitions we've made, and that sometimes tends to internalize it.

So it's kind of a push on either way. And so that's what we can see it now. We think consensus we feel comfortable, as I said, with the overall annual amount and how that falls into the quarters will, it looks reasonable and what the consensus has..

And then one more, if I could, on Geospatial. Last quarter, there was some push out in terms of funding of projects on Geospatial. And then going back over the last couple of years, there's been some delay in contract renewals from government agencies. Just curious if you could provide us an update on what that trend has been so far during 2023..

Well, this is my perspective and Ed will comment more specifically perhaps on the organic growth. But we had a very good quarter with our geospatial group, and some of that was a result on working on some of the delayed projects. I think the organic growth was, it was 15% organic growth in the quarter alone.

And that probably was due to, of course, new wins, new work, but actually maybe some of that delayed projects that we're spilling over that we were not able to do in the fourth quarter of last year that we mentioned were delayed..

Great. Thank you..

Okay..

Our next question comes from Rob Brown from Lake Street Capital Markets. Please go ahead..

Hi Dick and Ed..

Hi Rob..

Just wanted to get a little bit more color on the -- I think you talked a little bit of stabilization in the real estate transaction business now. How is that market stabilizing? Or what's the visibility there? And maybe what give you some comments there..

Yeah. I mean, I may sound a lot more knowledgeable because I just finished the conversation with both of our real estate group. And what was very surprising for me to see was measuring the amount of new business they were getting on a weekly basis. And if you remember, there were five weeks in the quarter and for them and they're reporting.

But on a weekly basis, they're looking more like they're showing an increase of about 10% to 25% on new orders. And so we're starting to see that to come back and come around. I think they will not recover everything they had in their original budget, either units.

But the nice thing is that they're profitable, they continue to be profitable, and they're really taking advantage of the scalability of their business. But we do, we are seeing both an increase in in the real estate transaction business over where it was in the quarter. So we're certainly keeping an eye on that, but we do see some positive signs..

And just to clarify, I think the 5 weeks that we mentioned earlier were the amount of weeks that we owned Axim during the first quarter, just the credit plan..

Okay. Okay. Good.

And then maybe on the sort of the second half weighting of your business, what drives that? I know there's a seasonality piece to it, but is there some of these geospatial contracts? Do you have some visibility on them that gives you this sort of the second half weighing?.

Well, we see a couple of things. We're seeing a significant increase in our international business, and I'm going to mention that on what's happening with the datacenters and use for the cloud and support. And that we're expecting to see much more of that in the second half.

We also have -- we're also bolstered by some recent significant wins in the Geospatial business. And our commercial side of the geospatial business is how they structure it. They both commercial and federal, but more so commercial are indicating a significant increase in their business, and it's just two things.

It's some projects that were delayed and still spilling over and it also comes about with additional people that they're going to hire that are billable people, 100% utilized. And so we're expecting to see an increase on both of that for that. They have a good workload.

They have some good contracts that they're working on, and it looks like they're staffing adequately. And we're being assisted by Axim in that staffing too, the Axim acquisition. So those are the things that we're expecting to show better results for Geospatial.

Even though they did have a good first quarter, we expect to see some additional work from them..

Okay. Great. Thank you, I'll turn over..

Our next question comes from Andy Wittmann from Baird. Please go ahead..

Okay. Thanks for taking my question guys. I guess just to understand a little better.

Do you have what the interest rate sensitive business, the real estate transaction as well as your residential business that you do basically the property assessment or whatever? Do you have -- how much that was down year-over-year just so that we can kind of understand that impact to the quarter?.

Well, there's three segments of it. The only residential portion of the work we do is when we act as the building departments for the municipalities. But the transactional phases, which we're really working for large portfolios and Fannie Mae and Ginnie Mae, they're significantly down from the original budget.

The one side of it is that with Fannie Mae, I think the original budget was for the year was $38 million. They're projecting $31 million now. I don't know what the other side is and is looking at, but their original budget.

I would -- if you total them both together and just on that piece of the business, I think we've lost close to $10 million in revenue from the original budget. The municipal services, so they just won a very nice award in Southern California.

So I am not as there has been some degradation of their budget, but I'm not as focused on that as we are in the real estate transactional business..

Okay. That's good context. That's helpful. Yeah, go ahead, Ed..

No, I was just going to say it was that $9.6 million decrease as compared to last year's first quarter. And as a percentage, that's roughly 48% or so, Andy, versus last year.

What we saw early last year was also because of the real estate, we anticipate, we believe, because of the anticipated increase in the rates, we had a pretty robust Q1, the first quarter and second quarter last year for real estate..

Yeah. And that was actually kind of the reason why I asked the question. I'm just trying to understand what, good to hear that things are kind of perking up and definitely hear the comment, but there are some still lingering challenges that are going to, it sounds like persistent at 2Q regardless. And so that context is helpful.

The -- where do we want to go next? I guess, could we talk about I guess, previously, you guys kind of talked about what an EBITDA range that's associated with your EPS guidance was. I guess the EPS guidance hasn't changed.

So presumably, the EBITDA guidance that's underneath that hasn't changed either because I don't think your interest rate exposure has changed that much.

Is that a fair assumption?.

Yeah, it is. I think we had previously said, although it is not guidance, but that we can see having adjusted EBITDA in the $150 million range this year is what our forecast looks like. But that's not guidance..

Yeah. Not total. I just want to understand that a little better. And then I guess just as it relates to the guidance. Some of these deals, I think the L3Harris one in particular, closed maybe a little bit earlier than we were thinking maybe than you were thinking.

How do the deal closure timing affect the guidance? Did you pick up a little bit there? And were all these acquisitions that you've announced subsequent to the last quarter, and I think they're relatively smaller.

Do those affect the guidance at all? Or should they?.

The smaller acquisitions don't -- I mean, they really are more strategic and not, they're just not material. The timing of L3 of the VIS entity, we had assumed was going to, it was in our guidance when we issued guidance last quarter, but we thought it would come in a little bit later in the year. So we picked some of that up.

And so we that helped offset some other fluctuations in real estate and other. But at the end of the day, we ended up in the same place in terms of our overall guidance..

Okay. That makes sense. And then, I guess, maybe my last question, Dick, just the custom vessel is something that we know that the geospatial and all of the related subsea things in that business are more capital intensive than your legacy, traditional, consulting, engineering business. So that's a known fact.

But I guess when it comes to owning custom vessels, it's a little bit out of the ordinary. So I thought I'd just give you an opportunity to talk about really trying to understand what the CapEx budget is for this year with things like that in there.

And maybe is there a change on the CapEx budget overall for the company as you think of it as a percentage of revenue because you have loaded up on some of this more capital-intensive geospatial work in the business?.

Well, Andy, yeah, thanks for the question. Our capital expenditures because of our positioning and capitalize on the growth of Geospatial, our overall capital has increased.

I know, for example, it could be more than that, but I know that we've authorized $4.2 million alone for the vessel, and it was built to the specific client specifications to do deep water mapping, in particular, the work that was being done in offshore wind.

And so I know no other vessel that can do the deep water measurements that we can do now through our Geodynamics group. So we had specific specifications. The client has specific specifications for that vessel, and it was built to our specification.

I'm going to defer to Ed on the overall capital expenditure, but I know it has increased because of our focus on opportunities in our geospatial platform..

Well, I think that was about $4 million or roughly $4 million last in last year's CapEx, that vessel that you're talking about. And we're not at the moment, we're not contemplating adding any vessels that would be of a material cost.

And so when we think about this year's CapEx, I do expect it to be a little bit higher than last year, but nothing too impactful. Last year, it was around $16 million or so, so and maybe a little bit higher than that.

But again, we're not planning on continuing to add to the fleet necessarily, I think, with this current arrangement of vessels for these wind farm initiatives, et cetera, and the Geospatial offshore work, we've got the assets that we need to come..

Yeah. I was speaking from a historic basis, I think before we were involved as much in gestational. I think our total amount, if you look at run rate revenue is going to be about $260 million to $280 million on just our geospatial work alone.

But prior to that, we were capital light in our consulting services, in the core business, probably more like $3 million to $4 million in capital expense expenditure. So that was good that you pointed out, Andy. That is correct. The capital expenditures have gone up.

And what has happened, though, I just expand a little bit more on that in the -- and it's all the predominant amount about it is for acquisition expenses and so airplanes and LiDAR equipment and things like that. What is good, though, is we happen to be able to offset the sale of some of the equipment to get more modern and new equipment.

And I know right now, there is in that budget, we're assuming an acquisition of fixed aircraft. But and where Ed said, we don't think we're going to have any real significant changes in the capital expenditure because we will probably just use that -- that will be used to replace another aircraft that we have..

It's going to be somewhere in the neighborhood of $20 million, most likely, Andy, the CapEx for this year..

Okay. Good. That's all of my questions. Thank you so much..

Great. Thank you..

Next question comes from Michael Feniger from Bank of America. Please go ahead..

Hey guys. Thanks for having me on. .

Hi, Mike. .

Hi Dickerson, how are you. That was really helpful on the CapEx.

I'm just curious on the free cash flow, what we should kind of be thinking for the year? And does the lighter start to the year, does that kind of push out maybe some what you thought on the free cash flow maybe into 2024?.

Hey, Mike, it's hard to, the working capital is going to fluctuate throughout the year, right? So if you think about it without the impact of working capital, and just consider an adjusted EBITDA in the mid-$150 million range and the CapEx numbers that I just gave you, that free cash flow, we would expect to be higher than last year.

And so that I believe, is the best way to look at it. I understand your point about there being a Q1 having a low cash number. So you kind of take the run rate and divide by 3, the working capital is going to fluctuate.

But overall, without the calendarization of working capital fluctuations, we would expect to be higher this year commensurate with our increase in earnings per share..

Just a comment. We're used to seeing cash flow conversion from EBITDA to the cash flow of about 85% to 95%. My thought..

No, not at all. I think from a free cash flow perspective, it would be again, without any working capital fluctuations, it's closer to 60% or so, but it's going to fluctuate..

And then also with that working capital. It also means a work in process as part of the working capital. So that simply means if we'll recognize the revenue and some of the offices will be billing at a later date. So obviously, we have the expense, but we don't have the cash coming in. And so that will have an impact on the cash flow..

Perfect. And there's a lot of, as you know, a lot of headlines around the debt ceiling, potential government shutdown. It seems like Geospatial is doing really well right now.

I'm just curious how you kind of, are you hearing anything from the field about these growing headlines, we're seeing rising headlines, what it could potentially mean in terms of just orders in the pipeline as we try to navigate some of these headlines..

No. We haven't seen anything. Usually, the government budgeting process, which is the federal funding, which would be maybe be affected by this debt is the budgeting process for federal governments, whether it be military, which we're involved with or if it's in any of the national programs, those budgets really come about in September.

So hopefully, we'd have some resolution to the stat issued by the time they go to the budget process. And so that is the impact we're seeing.

And hopefully, this thing will get resolved before the end of September or so when the federal budgets that fund these things that are going for geospatial and going for some of our other work would be something that we'd be concerned with..

Perfect. And just speaking of headlines, obviously, we're seeing a regional banking crisis, some credit tightening. There's a lot of concerns around I know we talked about real estate, but also just commercial real estate.

I'm just wondering like from your vantage point, are you seeing any impact from customers' ability to payment, hearing from the field in terms of pipeline in some of those areas, just like curious as we see these headlines and concerns how it's -- if it is at all trickling down to the business in the field..

Yeah. From my perspective and what I've seen only particularly I just had my calls with our real estate transactional group. And they, if anyone would be are more on one side of the business is affected by the interest rates. And that is the side of the business that handles the large portfolio acquisitions and things like that.

And if it's not so much the interest rate itself, it's the movement of the rate. And if they're going to be a constant steady rate. So that has had some impact on our business, and that is the funding of the non-governmental projects.

On the other side of our transactional business, they have received funding on for Freddie Mae and Ginnie Mac, but they have not seen -- they have not -- they have seen a slowdown in the actual use of those funds. So those are the two areas that we are seeing it. And I think we're all concerned.

I don't think as far as the other vast majority of our business, we're not tremendously dependent on the commercial sector. And I think we're split with about 60-40, 65, 45 government agencies and 35% for commercial. But to the extent we will be impacted in the commercial side to the extent that there is this interest rate issue..

Very helpful.

And just lastly, can you just remind us out of the $878 million to $915 of gross revenue guide this year, how much we should be expecting from acquisitions?.

Well, in the guidance, it only includes acquisitions that have been performed, I cannot say, but I would look forward to some additional acquisitions being done. But I think the guidance has assumed the acquisitions that we performed today..

Yeah, Axim. And we used even though we hadn't closed but we have signed the deal for VIS, we included them as well..

And then the smaller acquisitions that we've done. So but that does not include any new acquisitions and some that were in due diligence right now in. But so that is immediately considered in the guidance..

Thank you..

Our next question comes from David Marsh from Singular Research. Please go ahead..

Hey guys, thanks for taking my question.

In the '23 guidance, could you talk about what percentage of your projected revenue is expected to come from the real estate business specifically?.

I cannot specifically. I can tell you the impact that we've had from the budget, which we had on an earlier question that we showed a degradation of $10 million, how that is affecting our municipal permitting and outsourcing business that also depends on interest rates. I don't have a specific number..

It's definitely less than 10%..

Yeah, that is less than 10%..

Got it. And then. Yeah, no, understood. And then just -- I just want to affirm that the guidance with the reoperation of guidance really is implying a pretty substantial growth rate year-over-year in the balance of the year.

You guys in light of the macro environment, still feel pretty confident in that?.

Well, it's total growth, right? So a portion of it is will be what our business units, our existing business units are generating and then a portion of it has been acquisition. And that normally has been over the years, about 50% of the growth has been coming from acquisitions. And so I wouldn't assume that, that would change at all.

So the total growth rate that you see in the guidance over 2022 is just that its total growth rate. It includes both organic and acquisition growth..

Understood. Thanks so much guys. Appreciate taking my questions..

Our next question comes from Marc Riddick from S-i-d-o-t-i. Please go ahead..

It's Sidoti, will help you with that, Sidoti..

Hi, good evening, everyone. I know there's been a lot of questions already that have been answered. But I did want to touch a little bit on owner's representation opportunities. I was wondering if you could sort of just give us some thoughts there.

It certainly seems like a really interesting space, but maybe you could talk a little bit about maybe sort of big picture opportunities and the type of growth potential that's there. Thank you..

Okay. Marc, great. We're getting a little in front of my concluding comments, but I can tell you the growth areas that we see in data center support, what we see in software, we're just touching the basis of that with those -- making use of the 16 patents that are L3Harris or our VIS group has and the trademark work. We're just touching that.

And that's a world of opportunity because that right now represents only about maybe 6%, 5% of our budget. And so we think there's a phenomenal opportunity in software.

We think it's -- and because of that, we're looking at a real opportunity in subscription-based revenue, revenue that's kind of like what you pay for cable, you're going to pay for that anyway. We're seeing some real growth in that area in our energy efficiency space and in the software space.

And we also see some phenomenal opportunities in geospatial work that we haven't done as much before, and that's with the Department of Defense and with satellite analytics. So those are the kind of the growth areas that we're looking at specifically for the group. And I'll comment more on that in the conclusion of our discussion today..

Okay. I appreciate it. Didn't mean to steal any future--.

You just kind of -- you had me. I was being a little more extemporaneous there, but that's fine..

Thank you..

Our last and final question comes from Tate Sullivan from Maxim Group. Please go ahead..

Hi Tate..

Hi, how are you. Tate frim Maxim. Just a follow-up, quick follow-up. Did I hear you say 36% of revenue is tech-based roughly? And is that before L3 and just including a partial quarter of Axim..

That includes well, Ed's finance team validated this number. So I'm going to hand that question right over to Ed right now..

The 36% includes both Axim and VIS. VIS being the open..

All right then. Thank you very much..

Okay. Thank you.

Any other questions?.

We have no further questions at this time. I would now like to turn the call back over to Mr. Wright.

Okay. I was wanted to say a few thoughts here. Maybe a little bit more in the concluding comments than we normally do. So I just kind of like to introduce where we've been and where we're going. And as you know, our business is not linear. We're going to have some quarters that are higher in revenue than we expected. We'll have some that are less.

But overall, I really want us to concentrate on the overall look. I know we're a public company and I know if we are analysts that are looking at us, there's a good tendency to live quarter-by-quarter. But we really want you to focus on what our annual performance is going to be.

So we please, we should all understand, we are maintaining our full year guidance. We want to measure those guidance, that guidance and revenue growth, growth in our earnings per share and growth in our adjusted earnings per share. We've been a public reporting company for over 10 years.

And we've always, always said that, and this is through history, quarters like the first and the last quarter are slower quarters and we really accelerate more in our second and third quarters. This year, and we've also said why is the first quarter somewhat in the fourth quarter a little slower.

Well, in businesses in the Northeast and businesses where we are doing things is certainly winter-related by weather. We have never had though this quarter such amount of stoppage and work in rain and degradation of weather and flooding that we've got in the West.

So we were hit with both, we were hit with a slowdown that was anticipated in the Northeast, but losing a tremendous amount of work opportunities that were delayed because of weather in the West. I don't like to use that as an excuse. I don't want -- it's not meant to be excuse, but I just want us to be aware that we just didn't have the opportunity.

It's not because there was a slowdown in business we did not have the opportunity to address these projects. I would like to talk about the positioning of the company now. We have a saying that says, beyond engineering, and what the heck does that mean? It means we at NV5 want to be diversified. We want to be not just a standard engineering company.

And so we want to focus on things that are through innovation, technology will really have an important piece in the overall growth. So we have grown the geospatial business. We first entered it at a very small piece. We were doing maybe $3 million. And we made the acquisition of Quanta Spatial, and we added another $120 million or so.

But now we're showing a run rate in that whole geospatial business of $280 million, roughly. But we think that makes us one of the larger, if not the largest geospatial provider. Why is this important? Because this is really part of our stability of revenue and earnings.

It comes at a much -- it's growing much faster than our typical businesses has been, and it's at a very, it's at a much higher profit rate. That comes, of course, with capital expenditures that are needed.

However, the combined growth, and you see this on Slide 5, that 36, look for that to grow and look for the technology piece at 11% of that to grow even more in the coming days. So we're really positioning our company for that.

The other thing, and that's the last thing I want to talk about in positioning is I've recently visited our operations in Southeast Asia. And it should have dawned on us sooner, but what is being discovered now is we've been -- we have a growing, growing business in the commissioning of datacenters.

But there's been such an explosion of cell phone usage and applications of cell phone. There's at least third of the world is living there, and they're finding out that there's many other things that they can do on that cell phone rather than just calling.

So all of that information, the pictures and the things, the photographs and many of the things that are doing goes up to the cloud. And right now, our key clients, which are all of the blue-chip clients that are familiar to you, we cannot in Asia, they cannot build data centers fast enough to support this growth.

And so we look at a phenomenal opportunity. We're looking at positioning ourselves even more in that area to grow that market. So I just want to recap on the things that we are looking for.

We want to position the company to take to be beyond engineering, take advantage of many of those things that are growing, growing organically, growing profitably, and we want to make sure that we are lumber enough and we're focused enough to either enter the market, and we have chosen many times to enter those markets by acquisition or by advancing the people that are currently working for us to take on this bigger responsibility.

So we are very, very optimistic about the balance of the year. We feel that a key part of the future growth of NV5 is going to be in how we've repositioned the company. We had a good quarter. We're going to have a good year. And I just want to thank everyone today for listening and allowing us to collaborate and answer questions that you may have.

And so we look forward to speaking to you shortly. And for those, for all of you who've had an interest in NV5, we thank you for your interest, and our job is to work for you, and our job is to continue the performance of the company. So thank you..

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect..