Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the third quarter 2023 ended September 30, 2023.

Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Codispoti, CFO of NV5; Alex Hockman, President and COO of NV5; Ben Heraud, COO of NV5; Kurt Allen, Senior Vice President, Geospatial at 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 Third Quarter 2023 Earnings Call. Before we proceed, I would like to notify all participants that today's presentation can be found on ir.nbf.com and remind everyone that today's discussion contains forward-looking statements about the company's future business and financial performance.

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

A reconciliation between the 2 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 third quarter 2023 comparisons are being made against the third quarter of 2022.

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

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 third quarter 2023 results. Dickerson Wright will then provide closing comments before we open the call for all your questions. Dickerson, please go ahead..

Thank you, Richard, and thanks to everyone for joining us for today's call. The third quarter results exceeded analyst consensus. Due to the timing of acquisitions and project delays, our full year forecast may vary from original guidance.

The results consisted of organic growth from our existing business despite headwinds caused by interest rates to our construction and transaction real estate service lines. These 2 service lines delivered negative growth in revenue and EBITDA for the market although we have begun to see improvement in these factors.

Last quarter, I spoke concerning 2 initiatives to promote further organic growth in our core business markets, particularly transportation and water resources. Perhaps an update from then to now. We have strengthened our recruiting organization to fill project needs and to train our people on all service lines of NV5.

Let's now turn to Slide 5, where we will discuss our accomplishments for the third quarter of 2023 and to discuss our growth momentum for 2024. NV5 grew 17% in quarter #3 of '23 over quarter 3 of 2022. This growth was comprised by a combination of organic growth and growth from earlier acquisitions.

These specific areas of growth include geospatial despite some federal project delays in 2024, and also our Buildings and Technology sector growth was driven by clean energy, data centers and audio visual support for international and domestic projects.

Infrastructure overpaying degradation and interest rate-sensitive businesses and has driven our recent growth with contributions of our growth initiatives through project wins. Let's now turn to Slide 6, where we will highlight our Building and Technology accomplishments and opportunities.

International mission-critical opportunities continue to grow, and we had a total growth of 44% and 12% organic growth in the service line in Q3 this year over Q3 of '22. This continues to be driven by increased demand for our cloud access for smartphones. We anticipate the acquisition of Red Technologies will further extend our growth.

We are seeing Clean Energy and Technology services as well as international design projects. [indiscernible] is responsible for our buildings and technology growth in our international businesses. I would now like to ask them a few questions. And the international group has really been growing organically. What is growth.

As we will mention in a moment, we recently did an acquisition in Singapore of Red Technologies and tell us what they are doing?.

Thanks, Dickerson. There's a number of factors which are driving our international growth. Firstly, we're a premier service provider in the mission-critical data center space, which is seeing huge growth right now. We work with an impressive portfolio of well-known companies in this sector and as they grow, so do we.

This includes expansion into new geographies, most recently, Japan and South Korea. It's also worth noting our domestic mission-critical team continues to gain good traction with several large project wins. This team works closely with our international group to leverage technical expertise and client relationships.

We also have a very strong reputation in the casino and hospitality sector, reopening of the tourism sector post COVID is driving a lot of spending in this area, which we're well poised to capitalize on.

For example, earlier this year, Macau renewed the gaming licenses for major casino operators, and we are now being awarded new design projects as they ramp up investment in their properties. Red Technologies have integrated very well with our existing operations.

They bring on an entirely new client base being upstream and downstream of our current services positions us well for cross-selling. We were recently awarded a project with a major insurance provider in Singapore, which incorporates all of our services.

The IT support services are a source of reoccurring revenue, and we're actively bringing this to our existing client base..

Thanks, Ben. That's very helpful. Another question here in the States and internationally, the Acoustics and Audiovisual group has had a very good year for organic growth and profitability. Can you tell us about their client base and focus..

Absolutely. Audiovisual is the primary service of the Technology and EcoSys Group. In addition to AV, we also provide services in IT, Building Security, Lighting and Acoustics. For these services, we're a market leader in higher education and have done over 1,400 projects for 400 different campuses in North America.

12 months ago, we acquired KMK [indiscernible] in hospitality and gaming. This aligns nicely with our design and commissioning groups and our revenue in this sector has grown significantly since. We've also broadened our core services within the group to include site lighting design and we were recently awarded our largest lighting project ever.

We have a focus on diversifying the sectors we work in and have landed some large federal government projects, including new headquarter buildings for the Cybersecurity and Infrastructure Security Agency and the Immigration and Customs Enforcement both under the Department of Homeland Security..

Thanks, Ben. Why don't we now go to Slide 7 in our presentation deck and we can see a little more graphic highlights of Red Technologies acquisition at Penwest speaking of.

So of those 3 attractive features that position us for cellular commercial expansion in Southeast Asia, reoccurring revenue due to ongoing maintenance of existing data centers and also the expanded footprint as part of NV5 and the adoption of technology in the region. Let's now give an update on our infrastructure and utility service lines.

Please turn to Slide 8. Overall, our Infrastructure Group had a very good third quarter in key geographic areas of North America. New York, a very important part of our infrastructure growth grew 14% organically in quarter 3, first quarter of '22. We had a 7% organic growth in California, Oregon, Washington, Idaho and New Mexico.

Turning to our utility businesses, which you'll see on the right side of the page, 21% organic growth in our utility services including substation and grid optimization. Our LNG business grew 33% organically over Q3 '22 as well. We have also continued to replace subcontract work with our personnel based in North America as well as India and Malaysia.

We continue to face headwinds in our construction quality assurance group, but we have recent improvement in this sector. Alex Hockman leads our infrastructure and utility services group. I would like to ask him a few questions to provide an update for all of us. Alex, has the interest rate increase had a detrimental effect on infrastructure work..

Thank you, Dick. Our infrastructure end markets, including design, project management and inspection have not been impacted by interest rates. However, we have seen some regional impacts in services that are primarily focused on our private sector development.

We have previously discussed the downturn state transaction services and the impact to some of our municipal outsourcing services. For example, comparing real estate transaction services, our 2022 revenue for the 9 months through September was approximately $57 million, while in 2023 the revenue was $37.7 million.

Corresponding EBITDA was 10.6% versus $5.6 million. Also noteworthy is how the division adapted to the reality of higher interest rates since the Q1 EBITDA margin was 10.2%, and we have expanded margins almost 15% on a year-to-date basis..

Thanks, Alex. Very helpful. I know in this market, you need to be creative and adaptive. So what are some of the new opportunities and growth areas that you see in infrastructure? ..

The transportation and utility end markets are very well positioned for growth. We are seeing an increase in proposal requests and awards for roadway and bridge design and inspections throughout our infrastructure offices.

We are also seeing significant proposal opportunities in water, resiliency, [indiscernible] Harbor Group is poised to grow organically with opportunities in all aspects of power delivery. One project of interest is an approximately 40-month alignment of high-voltage overhead transmission lines in the Pacific Northwest.

This type of project is an example of what is required to strengthen our grid and avoid power disruption and expand the infrastructure for green energy initiatives. The design involves multiple NV5 disciplines, including geotechnical, environmental, geospatial, survey and our civil and electrical engineering divisions..

Let's now move to our geospatial service line for an update. So we'll start by going to Slide 9. We're expecting a very good year from geospatials. As you can see, year-to-date total growth has been 69% over last year. Organic growth was 7%.

Our recent acquisition of Axim gives us greater access to federal projects and L3Harris Geospatial acquisition provides a reoccurring revenue base for geospatial software. Both acquisitions grew 8% over the previous quarter and bookings and backlog are growing. Kurt Allen is responsible for sales for all of our geospatial services.

Let's ask him for an update. Kurt, we recently made 2 acquisitions in the geospatial space Axim Geospatial and L3Harris Geospatial businesses. You have been very involved in the integration of the entire geospatial sales organization, particularly with our recent acquisitions. How have you combined our federal and commercial sales organizations? ..

Yes. In fact, the sales integration of both Axim and L3Harris Visual Information Systems Group or VIS for short, with NV5 geospatial core group is now almost complete, and it will be finalized by year-end.

Organizationally, we are operating as one unit with the sales teams working together to cross-sell when possible and leverage our combined client base to upsell software or services. I say almost complete because integrating our CRM does take some time. But even with that, we expect that capability to go live during Q1 of next year.

From a sales reporting perspective, the geospatial vertical is divided into 4 sub verticals. Those sub verticals are defense and intelligence, federal and civilian, state and regional and commercial. We also have 2 cross-functional disciplines that sell into each of those 4 sub verticals that are tracked separately. They are hydrospatial and software.

Additionally, with regards to all geospatial, we'll be branding as one NV5 starting on January 1. So we're moving into the new year in good shape, one team, one brand. I thought I'd also take a minute to discuss Axim and how they fit into the core NV5 Geospatial group.

Axim brings us a hugely expanded capability within the defense and intelligence market. This means access to clients we have been unable to sell to because of the classified nature of the business. In addition, Axim is recognized as a premier enterprise GIS provider adds to our capabilities within this final portion of the life cycle.

With these 2 acquisitions, NV5 probably now has the broadest and deepest geospatial life cycle capabilities in the world..

Thanks, Kurt. Perhaps you can also tell us how the acquisition of L3Harris component has helped introduce a new client base and revenue stream for geospatial services..

Sure. The addition of VIS has greatly expanded our ability to provide a wide range of solutions to our existing client base. It also allows us to tap in the NV software ecosystem that VIS has been known for, for the last 46 years.

In a nutshell, the MV ecosystem includes more than 500,000 software users worldwide, and the acquisition has now made NV5 the world's leader in providing advanced imaging software, particularly with respect to imaging spectroscopy and synthetic aperture radar, which is also known as SAR.

From a growth perspective, this acquisition has geographically opened up the world for our geospatial vertical by adding 4 offices in Europe and 2 offices in the Asia Pacific region. It has also allowed us to open doors within the geospatial project life cycle, where the core Geospatial group was not as strong.

While Quantum Spatial was a leader in the collection and processing of geospatial data and the development of derived analytics, this enhances our ability to provide proven, developed software and modeling capabilities within the geospatial life cycle.

Already, we are seeing the integration of our professional services sales team with our software team bear fruit. For example, we just recently closed an NV informed software booking with a publicly traded mining company. This company wanted to utilize NV to analyze [indiscernible] data for mineral exploration.

For VIS this would probably have just been a software sale. Instead, NV5 introduced our services capability to the client and are now also providing a complete solution to optimize their workflow with hyperspectral data. The revenue to be generated by our professional services group for that transaction is more than 5x [indiscernible].

While this is just one example, it speaks to our growth possibilities within Geospatial with the acquisition of this..

On Slide 10, we get insights into how the overall NV5 business is doing. Our backlog has grown to $833 million, which represents work we plan to do in the coming 12 months of any new awards. The results represent growth year-over-year and quarter-over-quarter.

On the right-hand side of the page, you can reference key infrastructure utility services and Geospatial. I would now like to turn the call over to our Chief Financial Officer, Ed Codispoti, to provide an overview. Ed? ..

Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 12 of the presentation, I'll review our third quarter 2023 financial results. Our gross revenues were $239.3 million, compared to $204.1 million in the third quarter of last year.

This percent increase in growth was fueled by organic growth and acquisitions, primarily Axim and VIS. Gross profit was $115.4 million compared to $99.9 million in the third quarter of last year, an increase of $15.5 million or 15.5%.

The Net income was $13.3 million in the quarter compared to $16.1 million in the third quarter of last year, a decrease of $2.7 million. The decrease in net income was impacted by amortization expense from acquisitions, which increased $3.5 million when compared to the third quarter of last year and interest expense, which increased $2.9 million.

Additionally, our margins this quarter were impacted by the preintegration period of our VIS acquisition and LNG project cycles. Our net income during the quarter also reflects a benefit from income taxes of $2.1 million, which was driven by a larger R&D tax credits and deductions related to stock compensation.

As a result, our GAAP diluted earnings per share were $0.86 per share in the third quarter of 2023 compared to $1.05 per share in the third quarter of 2022. This EPS is based on [Technical Difficulty] shares outstanding compared to 15.3 million shares outstanding in the third quarter of last year.

Our adjusted EBITDA was $37.8 million compared to $36 million in the third quarter of last year. The increase was impacted by project cycles in our LNG business and by the preintegration period of our VIS acquisition.

Our adjusted earnings per share which exclude the impact of intangible amortization and the acquisition-related costs were $1.51 per share in the third quarter compared to $1.50 per share in the third quarter of last year.

On Slide 13, you can see that our cash flows from operations during the third quarter were $19.9 million, seeing a sequential increase in our cash flows during each quarter this year, as we generated $11.3 million of cash from operations in the first quarter, followed by $14.2 million in the second quarter and $19.9 million in the third quarter keeping in mind that we generated $19.9 million of cash from operations in the third quarter despite higher interest rates when compared to the first and second quarters of this year.

As of September 30, 2023, we had $46.4 million of cash on hand, and our net leverage was 1.3x, down slightly from 1.4x last quarter. This net leverage includes the impact of the Axim and VIS acquisitions. We feel confident in the strength of our balance sheet and believe it positions us well for future growth.

I'll now turn it back over to Dickerson for some closing comments..

Thank you, Ed. Let's go now to Slide 16, and we have updated this slide from last quarter presentation, and you will see some of the initiatives that we're doing to grow the company even further. Please note along with our 7 previous drivers, we will expand our focus on software revenues will serve as driver #8.

We have also expanded our international footprint to capitalize on the growing technology market. Thank you. I would like to now turn the call over to the operator..

[Operator Instructions]. Our first question will come from Chris Moore with CJS Securities..

All right. So maybe we could start with the fiscal '23 guide. Obviously, down a bit from Q2. You talked a little bit about it. Can you maybe talk some more about the drivers there? And was it work that you thought you might get in Q4 that's not happening or just kind of any further insight there? ..

Sure, Chris. One thing I can say, it's not -- was not based on our lack of organic growth, which is actually improving, but lot of our growth is based on acquisitions as well. And so we've had some acquisitions that we were anticipating to come to fruition much sooner or earlier than the year that have not come.

And we're anticipating that maybe some of those acquisitions could extend over to 2024. The other thing is that we haven't really lost any backlog or any work. But we've had some project delays in our geospatial group, which have federal delays, specifically that were pushed over to the fourth quarter.

But so we've been very conservative in the guidance. A lot of that was really based on just the timing of project delays and acquisitions that have not come to fruition, but the company has been growing organically..

Maybe just in terms of what you're seeing from utility spending. It looks like I think it slowed down a little bit in Q2. Did that slower pace continue in Q3? Is it picking up? I know typically, it had been low single digits. It was much higher than that for a while. I'm just trying to get a sense as to what you're seeing..

Well, I'll let Ed maybe answer that specifically more. But generally, we've been -- we've seen a real growth in our Geospatial business. And the Geospatial is much more capital intensive. So if it's -- I know your question was on utilities, and I wasn't quite sure if you meant the capital expenditure of our clients or our capital expenditure..

Of your clients, yes..

Well, we've had some delays, and we've seen some recent things, delay in wind farm work. So we have seen the lack of capital there, but there's been significant improvement in capital on improving the grid, optimizing the grid, modernizing the grid and not so much in capital actually in energy generation. It's mostly energy delivery.

But maybe Ed or Alex may have a specific comment to you on that..

I think you said it very well. We've seen a whole slowdown with respect to the win. But in terms of our power distribution and delivery, we're not seeing any slowdown right now..

Maybe just last one [indiscernible] backlog $833 million, roughly what percentage of that is geospatial?.

Geospatial is around $156 million or so of that portion..

Has that changed much over the last year, year-over-year? Is that number much different? ..

Well, of course, we had the acquisition [indiscernible]-- but I think the proportion that you're seeing now should be representative going forward absent any larger acquisitions that would kind of cause a change in the mix, but I think it's an expected mix right now as of end of Q3..

Our next question will come from Rob Brown with Lake Street Capital Markets..

Just wanted to first talk about gross margins a little bit. I think you talked about some onetime things, but maybe just clarify the dynamics in gross margins. Should those kind of snap back here as those pull through Q3..

Yes. I'll just give a general comment, but I'd like to add this maybe speak specifically on that. The interesting thing to me on gross margins is if you look at our second quarter, we had a higher gross margin, but a lower net -- a lower adjusted EBITDA.

And it really depends on the one, the mix of the client and then on our percent of completion projects, what we think is completed. One of -- we are a very labor-intensive business. And so sometimes our increase in labor or salary increases that people may not match up to the exact timing of our contract acceleration increasing.

And so you'll have some variance in gross margin from month-to-month and quarter-to-quarter.

Ed?.

Yes. I think with respect to Q3, Rob, the outlier there, as we mentioned in the release is the LNG business, and that's just timing of contracts. So as we cycle through different contracts, I would expect that those margins would get back to normal over time. But I think Q3 was lower-than-average quarter with respect to margin because of that reason..

And I know you talked a little bit about Q4, but how do you sort of think about next year in terms of the trends in the business for organic growth.

Are some of these headwinds kind of meeting that a little bit in the next year? Or do you feel like this sort of [indiscernible] of next year looks sort of normalized?.

Well, we are certainly optimistic about the business, and I'll speak a little bit more of that in the concluding comments. But you'll notice we have a very strong backlog and we really use our backlog in the budgeting processes, but we're anticipating a solid, strong, good year in 2024.

And I was going to comment on this, and I'll maybe mention it again in the concluding comments. But I think we all need to look at the credibility of the company. And I'll just kind of say in general on credibility, we can speak to specifics, but we have never had a losing year in business.

We have never had since our inception, we have never had anything that would indicate any kind of a loss. So we want to base that on that credibility.

And for what I see in the backlog and all the indicators that we have used in the past from 2013 when we went public, where we were doing $100 million in revenue to today, year-to-date or year-end, we're anticipating $864 million in revenue. So all of that growth has come from very limited leverage, always profitability.

And so going into 2024, I have to use those same indicators and I'll speak specifically of those things in our concluding comments, but we have a very strong backlog and we have a switch in stability and revenue because we're getting more and more portion of our business, reoccurring in revenue, subscription-based revenue, and that tends to be a little more solid.

So I'm very encouraged, Rob, about 2024, and we're entering it with a -- entering the year with a really optimistic viewpoint and we expect that 2024 to be a stronger year..

Our next question comes from Tim Mulrooney with William Blair..

Well, welcome, and thank you for following us. We appreciate it..

I wanted to ask build on an earlier question on the utility business. We've seen some favorable regulatory changes lately in T&D, whether that's in Texas with the ERCOT reforms or the recent FERC quarter 2023 that will hopefully streamline the interconnection queue.

I was just curious, is that helping drive that strong organic growth that you saw in the utility services business in the quarter? Do those dynamics not really impact what you're doing in utility services?.

Well, I'll give a general thing, and then I'll really leave it to Alex to perhaps answer, but we are really focused on the utility business, and we've hired additional people and we're entering into new markets. So we are very positive.

And I wouldn't -- for our piece, I wouldn't say it's so much of an increase in the overall general utility business, but it's the specific client bases that we're going after. So we're really focused on the utility business from areas that we want to identify and we want to focus on.

So I think we're just giving more emphasis towards it and so we feel very optimistic in 2024 about the utility business. But Alex, you may have a comment on that..

No, I would agree with what you said, Dickerson. The only thing that I would add is that we're seeing tremendous opportunities with our strategic underground, both transmission and distribution as well as in general, increase in CapEx on distribution lines..

Got it. And I also wanted to ask on your infrastructure business, and apologies if you already addressed this, but I just wanted to get your 10,000-foot view on where we are in fiscal stimulus with a particular focus on IIJA.

I ask because we've been hearing some more dollars that finally flowing into actual projects and new contract vehicles being announced. So I was just curious how you'd expect this particular piece of stimulus to unfold over the next several years? And when you really think it might really start to impact your numbers, if at all? ..

I'll just speak from our provincial look at things. We've always wanted to be in a mandated business. So anything in infrastructure is not so much based on the economy as it is based on need. People need to drink clean water, people need to use the facilities, people need to go over bridges.

And those things have to be done whether the economy -- whether the economy is good or bad. And so we think that we wanted to have something that is much more stable than something that is just some business that are based on the economy.

So in infrastructure, we are starting to see some new projects that have been had some support from federal funding. And so the overall general view is we do -- we are seeing some tailwinds. And so we think the federal mandated projects, they are giving some assistance to that, and we seem to be benefiting from that..

And if I might sneak one more, just modeling question. For Ed. At apologies, but I'm still new to the story. So I was just curious, within COGS, it looks like that other direct cost line jumped up about $6 million sequentially here in the third quarter. I'm just curious what drove that increase.

And if $21 million to $22 million is a good run rate for how to think about that particular line item in our models moving forward..

Right? So that particular line of COGS has a few things flowing through the way. One is your traditional pass-throughs for expenses of employees that are working on their projects.

But the items that move the needle more, which are the ones that you're alluding to are in the case of the LNG business, when they assemble and manufacture the equipment, the equipment itself passes through that line. And so sometimes it's a little bit noisy, right? because a lot of it has to do with the timing of the project cycles.

And that's what's driving that particular spike that you're referring to..

Okay. So maybe not something we should be using as a run rate moving forward, it sounds like? ..

You got to look at them at a larger, longer window, right, and look at averages, but it's hard to say it's going to stay static at that current run rate of $21 million..

Our next question is Jeff Martin with ROTH MKM..

I was wondering if you could give us a frame of reference on the LNG projects. I mean, I don't recall a whole lot of discussion on previous calls regarding LNG. So maybe give us a high-level view and maybe now it down on specific projects.

How -- collectively, how large is LNG this year versus last year? Are there large projects that are tailing off? I think would be helpful for us to know and have a point of reference as we model out the balance of this year and into next year..

I'll start to comment and you're right, from me, it is going to be very high level. So I think this is one of the -- one of our business units that is really focused on percent of completion. So we anticipate having a very much stronger, very strong year, quarter in the fourth quarter LNG where they will be recognizing a revenue better.

I don't think there isn't anything that they're doing now that would indicate that there would be a slowdown in the fourth quarter. A lot of the work they're doing now is transferred over to unit price basis rather than they're very risk-averse. So they're not so much based on outcome as they are on billing for the progress that they're making.

And they tend to be a little bit conservative in recognizing revenue. But that -- the LNG group reports an Infrastructure Group to Alex, and he's here today, and Ed may have some comments on how they see the LNG business..

So the one thing that's unique about the LNG business, Jeff, is that it's an EPC model. So they're providing engineering procurement as well as overseeing the construction. So as you look at the types of projects you could consider it in these 3 phases.

So while the engineering phase is actually very steady in terms of its revenue the issue that you have with the cost of goods or relative to the procurement of various pieces of equipment, that's where we start to get the lumpiness.

But overall, we're seeing still very, very high demand for these peak shaping facilities, and we're very bullish on the future of our LNG business..

And then just from a number standpoint, to give you a sense, it's around an $80 million business right now on the top line..

$80 million this year? And what was it last year? And what do you think it could be next year? ..

Last year was also in the $80 million range roughly..

And then do you foresee any project completions that would create growth headwind?.

So it's not about growth headwinds. But as the project completes, the engineering phase is still very strong. But in terms of the pass-through revenue, that is very dependent upon where you are in the construction cycle..

And then in terms of project delays, I believe you mentioned at the start of the call, there were some construction-related project delays.

I was wondering if you could elaborate on that?.

Some of the delays that we're seeing relative to construction is with interest rates increasing, some of the private development have just put projects on hold. They've already acquired land but the actual initiation of breaking ground and going through with the projects are the types of projects where we're typically seeing some headwinds..

And then as we head into next year, I would assume with the strong bookings and strong backlog in Geospatial, you would expect some organic growth acceleration for the business next year in Geospatial? ..

That's certainly been the trend. We really are seeing an increase in our organic growth. And in the infrastructure business, we are optimistic about the future organic growth ..

And then just one last question, if I could. On the real estate transaction side.

What has been the trend over the course of this year? I think in Q2, we thought it may have bottomed out, did an uptick in Q3?.

There's been a slight uptick in both segments of that business. But as Alex mentioned, the interest rates are really driving projects.

We've had project delays recently, we were awarded a large project, and I can't name the specific -- I won't name the specific name, but they have delayed it until they see they're sure that interest rates are going to stabilize. So you can imagine that if everyone is working on a more so the not unborrowed money.

So when the increase of interest rates, it really has slowed down that business, which is really portfolio acquisition and things that are very dependent on investments, and the investments are dependent on what the interest rates were..

And I'll just add to that, that sequentially over the last 3 quarters this year, so real estate has improved each quarter through Q3..

[Operator Instructions]. Our next question comes from Andy Wittmann with Baird..

I just wanted to ask a couple of questions here first to stand the quarter a little bit better. Can you hear me? I just want to make sure I've had clinical difficulties. I've had too many calls recently where I have been coming to..

Well, we all have difficulty hearing hard questions. But if you have an easy question..

Yes, we'll see. I don't think -- so I guess maybe for Ed, how much of the revenue in the quarter was derived from companies owned less than 12 months, I guess this number is going to show up in your -- in your 10-Q anyway, but I just thought to understand that one to calculate the organic growth rate for the quarter..

Quarter three had around $33 million or so, $32.9 million of revenue from acquisitions..

And then just on the tax rate here, it looks like you actually had like kind of a refund or something that was recognized. You've got positive or negative tax, positive income on that.

I was wondering if you could describe what happened in the quarter and what -- when these things happen, it's always somewhat difficult to understand what the underlying effective tax rate was for the quarter because I imagine there's some kind of onetime or special item in there..

Understood. So with respect to the third quarter, as you alluded to, there is a benefit this quarter. And that was primarily driven by both R&D tax credits and deductions for stock compensation.

But the larger piece of that our R&D tax credits, and that's just -- in the business that we operate in, those come around just as a result of the R&D work that we do, frankly, with across our businesses. So our statutory rate, Andy, is 25.5%. That's the statutory rate.

But on top of that, you're going to get, call it, discounts for R&D tax credits, stock comp deductions, et cetera. In this particular quarter, that statutory rate, it's always going to be in that 25.5% range, 30% of the -- 30% represented R&D tax related.

And then you've got about another 7% that to comp deductions that got you to that 19% benefit if that makes sense..

Yes. I think it's 19% rate, that's a benefit. If you start with your effective rate of 25.5% or so, deduct 30% for stock for R&D tax credits and another 7% for stock comp and then you have some other items mixed in there. But the bigger story is that it's related to R&D tax credits..

And then I guess kind of curious, the cancellations that Orsted has made or announced a couple of days ago for 2 therefore, offshore wind projects. I didn't know if you had direct exposure to Orsted or not.

I think you've talked in the past about doing some things related to offshore wind, I think some of the investments that you've made in subsea Geospace [indiscernible] I think you've done some onshore stuff for the grid. I just don't know if you're connected to do these projects at all.

So I was wondering if you could comment on if this has any impact on NV5 and what that impact could be, if so?.

A very good question. We do -- Orsted is a client of ours, and we have done some things for their specific needs. The cancellation of the project that was in the news today in New Jersey, we were [Technical Difficulty] doing much there. So I'm knocking on serious hardwood, which is my head right now. We are doing a lot of work in North Carolina.

As you know, we had one of our capital expenditures was that deepwater measurement ocean vessel and that was really for foundations for wind farms. That has not -- that portion of Orsted's project has not been delayed as much, but we -- or it is a client, and we will be affected if they [indiscernible].

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..

Thank you, operator. I just had a few thoughts, and actually, I am often asked or we, our companies often asked, what is our vision, what do we see for the company? How do we -- what areas are we going to grow and what are we going to do to mitigate any downturns in certain sectors of the business. First is diversification.

I'm thankful that we have a very diversified and NV5 was built on segments. And so when some segments are down, other segments seem to improve, but we're not so dependent on any one specific area. So we want to grow, but not grow for the sake of growth. So we are growing with -- we're looking for stable revenue with minimal leverage.

And you can see that in our base. So we want to grow by debt by taking on more debt. We have and we have many ways of independently doing this, but we really are looking for continuity of earnings. We want to make sure that the earnings are stable, what revenue that we have that translates to earnings is going to be stabilized.

So you'll notice, and you'll notice on our Geospatial and other formats, we are really moving to subscription-based revenue, revenue that's reoccurring, revenue that we can continually count on. And so that is another way that we are positioning NV5. Technology.

You've noticed a lot in the presentation today, we think the competitive edge will be given by technology. And so we want to be on the forefront of that and we're positioning our company to be very -- to be very dependent and have that advantage of technology. So look for that in the growth of the company.

I would say if there's a good outcome of the increase in interest rates, it allows for more opportunities for NV5 in our -- to move in our vision and to be -- to capitalize on companies that are leveraged but may have good earnings. So it really has grown our M&A field. We have a lot of opportunities that the valuations are becoming more realistic.

And we've moved competitors that are basing on debt. This increase in interest rates is something that if they have to utilize more debt, it becomes more expensive for us. So we think there's some good opportunities there. I think I often ask -- or we often -- the company often asks that to companies, what separates you from the competitors.

And they can use many things that are not objective. We believe an objective measurement. So I said this earlier, I would like to mention to you and just something that we really need to improve. We constantly need to grow.

But if you look from when we -- the inception of the company with zero, but when we went public, and I said this earlier, in 2013, our revenue was 100 -- was a little over $100 million. In 2023, we think our revenue is going to be close to $900 million, $865 million, and we're looking at a very strong year in 2024.

And we have positioned with everybody our goal of being $1 billion in revenue by the end of '24. We still are focused on that. And so what I'm trying to mention or to convey is if we are anticipating a good year, every indicator that we've used that we've grown from 2013 to 2023 from $100 million to $800 million.

Those indicators that we use really are showing us or giving us some clarity on having a stronger year in 2024. So we look for a good prospects in 2024, and some of those dashboard indicators, of course, are backlog. We take that very seriously.

We'll learn much more in the budget process and hopefully, we'll have some of those acquisitions that enhance our growth will be dialed in sooner in the year than later. So I want to thank everybody for listening in.

And we like to be very conservative on our outlook on things, and we want to base it on one, where is the company going? What is the vision? How are we going to get there and then what are we forecasting? So I thank everyone for their continued interest in the company, and we look forward to having to speaking to you again in the fourth quarter and entering into 2024.

So thank you, everyone..

Thank you, ladies and gentlemen. That concludes today's call. You may now disconnect..