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Edited Transcript of NVEE earnings conference call or presentation 8-May-19 8:30pm GMT

Q1 2019 NV5 Global Inc Earnings Call

HOLLYWOOD May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of NV5 Global Inc earnings conference call or presentation Wednesday, May 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander A. Hockman

NV5 Global, Inc. - President, COO & Director

* Dickerson Wright

NV5 Global, Inc. - Chairman & CEO

* Michael P. Rama

NV5 Global, Inc. - VP & CFO

* Richard Tong

NV5 Global, Inc. - Executive VP & General Counsel

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Conference Call Participants

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* Jeffrey Michael Martin

Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst

* Lisa Springer

Singular Research, LLC - Research Analyst

* Robert Duncan Brown

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5 financial results for the first quarter ended March 30, 2019.

Joining us today are Dickerson Wright, Chairman and CEO of NV5; Michael Rama, CFO of NV5; Alex Hockman, President and COO of NV5; and Richard Tong, Executive Vice President and General Counsel at NV5.

I'd now like turn the call over to Richard Tong.

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Richard Tong, NV5 Global, Inc. - Executive VP & General Counsel [2]

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Thank you, operator. Before we proceed, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 including statements concerning future events and future financial performance. The company cautions that these statements are qualified by important factors including those discussed in the Risk Factors section of NV5's annual report on Form 10-K for the year-end December 29, 2018, which is on file with the Securities and Exchange Commission as well as in other documents that the company files with the commission from time to time. These factors could cause actual results to differ materially from those reflected by the forward-looking statements contained herein.

While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so even if estimates change, and therefore you should not only -- not rely on these forward-looking statements as representing views of any date subsequent to today.

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 2019 comparisons are being made against the first quarter of 2018.

I would like to remind everyone that a webcast replay of this call will also be available via the link provided in today's news release and the Investors section of the company's website.

Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of NV5 is strictly prohibited.

We'll begin the call with comments from Dickerson Wright, Chairman and CEO of NV5; and Alex Hockman, President and COO of NV5 before turning the call over to Michael Rama, Chief Financial Officer, for a review of the first quarter 2019 results and outlook for 2019.

We will then open the call for your questions. Dickerson, Please go ahead.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [3]

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Thank you, Richard, and thank you to everyone joining us for NV5's First Quarter 2019 Conference Call.

We are pleased to announce record first quarter results for 2019. This is noteworthy because the first quarter has historically been our slowest quarter.

As always, our success is measured by specific accomplishments. I will therefore briefly mention our year-over-year comparison to the first quarter of 2018. I will also give an update concerning the progress of our company-wide initiatives for 2019.

First, our overall financial accomplishments for the first quarter of 2019. Total revenue increased 24% from $95 million in the first quarter of 2018 to $118 million in the first quarter of 2019.

Our organic revenue growth was 5% for the quarter. EBITDA, that is earnings before interest, taxes, depreciation and amortization, was $13.5 million or 15% of net revenues compared to $10.1 million or 13% of net revenues for Q1 2018.

Adjusted earnings per share for Q1 2019 was $0.76 per share on 12.5 million diluted shares compared to $0.59 per share on 10.9 million diluted shares in 2018.

Cash flow increased 351% to $16.3 million compared to $3.6 million for Q1 2018.

Long-term debt decreased from $59 million in Q1 2018 to $31 million in Q1 2019.

I would also like to comment on the successful cross-selling between our offices. We have set specific financial goals for cross-selling. Our year-to-date goal was $7.2 million and our actual results were $7.4 million in revenue between the offices.

I would now like to comment on our growth initiatives. As a result of our continued profitability and increase in cash flow, we are in a position to support 3 specific growth initiatives for 2019.

Our energy 2021 initiative is a 3-year initiative that capitalizes on NV5's core competencies in electrical distribution, gas transmission and the conversion of natural gas to LNG. This specific initiative has grown 20% from our 2019 original plan.

The other company-wide initiative is focused on energy optimization and technology consulting services.

First, our energy optimization, which continues to grow. The acquisition of Celtic Energy generated a multiyear, multimillion-dollar award from the Department of Defense for contract advisory services for energy optimization.

Our technology initiative has also seen positive growth led by the recent acquisition of The Sextant Group. The Sextant Group is a well-recognized national firm for audiovisual services, information technology and facility security services. Sextant will benefit and also capitalize on NV5's national platform that provides mechanical and electrical design services.

Our mergers and acquisition pipeline is full with opportunities.

You may have read our recent news releases regarding the acquisitions of The Sextant Group and JV Surveying. As discussed, Sextant Group greatly enhances our mechanical, electrical design services and NV5 gives Sextant a national platform for its service offerings.

JV Surveying, our most recent acquisition provides a geographical presence in the Southwest for ALTA surveying.

I would also like to add that we are being recognized in the engineering and consulting industry as a firm that is opportunistic in strategic acquisitions and has a successful process for synergistic integrations.

We are very optimistic and look forward to continued growth from acquisition for 2019.

I would now like to introduce to the discussion, Alex Hockman, the President of NV5. Alex will comment specifically concerning our national operations and projects. Thank you. And Alex?

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Alexander A. Hockman, NV5 Global, Inc. - President, COO & Director [4]

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Thank you, Dickerson and good afternoon, everyone. Our power delivery group exceeded their Q4 sales results by $8 million for a Q1 total in excess of $33 million in new contracts or amendments. The wide array of services provided by our power delivery group include engineering and design for natural gas transmission, electrical overhead and underground transmission, distribution, substation projects and fire mitigation services.

Of particular interest is our continued expansion of these services outside of California, and on over 80% of the awarded contracts, our power group, has a cross-sell component of survey, geotechnical and environmental services.

Building and technology Q1 awards exceeded $19 million including over $1 million in commissioning contracts and almost $3 million in casino and hospitality contracts.

At the end of Q1, NV5 acquired The Sextant Group, which greatly enhances our technology service offerings. With approximately 80 employees across United States, Sextant is positioned to provide consulting services nationwide. Their practice is traditionally focused on higher education and they have the deepest portfolio of college and university work in their field.

Now as part of the NV5 team, they are positioned to expand their current offerings in health care, government, corporate, aviation and hospitality market sectors.

Further, by combining technology expertise with traditional engineering services, NV5 will further develop its sustainability practice with increased offerings in intelligent buildings, roads, bridges and water systems.

The East and West regions of NV5's infrastructure vertical continues to grow organically with large contract awards and expansion of our expertise and services.

A notable win of particular significance is our first contract award for an approximate $1 billion rail program focused on improving commuter rail traffic between San Jose and California Central Valley as well as the route to Central Valley.

Initially, our Civil PM group was recognized with a reputation in highway projects, but as they have grown, they have developed and expanded their expertise to include multiple facets of infrastructure projects.

This award is a testament to the skill set of our team as NV5 was selected as one of the parameters to provide services on this entire program and receive the first construction management work order for this landmark program.

Our infrastructure East team exceeded $14 million in new sales for the quarter for a wide array of transportation, planning, engineering, landscape architecture and environmental services.

One of the projects is for an iconic facility and included teaming of our New York-based civil engineering team and our mechanical and electrical engineers from Boston. Another great example of cross-selling and leveraging our full service offering to provide clients with ability to have the entire project design with one contract and by one company.

NV5's international team, which specializes in mechanical, electrical, fire protection, technology and energy analytics continues to win contracts for several landmark and interesting projects, including the Dream Tower in Jeju Island South Korea.

This will be the largest and tallest integrated resort on the island.

In Hong Kong, we won the ASP Framework, which is a government project to improve public areas.

Also in Hong Kong, the [Cheung Hing] Road Project, which is a large-scale luxury residential development consisting of 2 30 level towers.

We also are providing our technology services on a 60,000 person multipurpose sports stadium in Hong Kong, which will be their largest once completed.

Another facet of our technology service is security and we were awarded the surveillance system for the luxury Grand Lisboa Palace in Macau.

I would now like to turn the call over to our Chief Financial Officer, Michael Rama, for a more detailed overview of the financial results for the first quarter of 2019 and he will provide an outlook for the full year of 2019. Michael?

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Michael P. Rama, NV5 Global, Inc. - VP & CFO [5]

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Thank you Alex, and good afternoon, everyone. First, I will review the results for the company's first quarter 2019, and then I will provide our outlook for full year 2019.

Gross revenues in the first quarter of 2019 were $117.3 million, a 24% increase compared to gross revenues of $94.5 million in the first quarter of 2018.

Net revenues for the first quarter of 2019 were $90.7 million, an increase of 18% compared to net revenues of $77.2 million in the first quarter of 2018.

Organic growth for the quarter was 5%. Gross margin for the first quarter of 2019 was 47% compared to gross margin of 49% in the first quarter of 2018.

Q1 2019 gross margin reflects the recent acquisition of CHI. Excluding CHI, gross margin for the first quarter of 2019 would have been 50%.

EBITDA for the first quarter of 2019 was $13.5 million or 15% of net revenues, an increase of 34% from $10.1 million or 13% of net revenues in the first quarter of last year.

Net income in the first quarter of 2019 was $5.5 million, an increase of 29% compared to $4.3 million in the first quarter of 2018.

First quarter 2019 adjusted earnings per shares was $0.76, an increase of 28% from $0.59 in the first quarter of 2018.

First quarter 2019 GAAP earnings per share was $0.44, an increase of 13% from $0.39 in the first quarter of 2018.

Our first quarter 2019 adjusted and GAAP earnings per share reflects the weighted shares outstanding of 12.5 million shares for the 3 months ended March 30, 2019, compared to the weighted average shares outstanding of 10.9 million shares in the first quarter of 2018.

The increase in weighted shares outstanding reflects the issuance of 1.27 million shares of common stock from our secondary offering in August 2018.

As of March 30, 2019, our cash and cash equivalents were $45.8 million compared to $40.7 million as of December 29, 2018.

Long-term debt decreased $28 million or 47% to $31 million for the quarter compared to $59 million in the first quarter of 2018.

Cash flow from operating activities for the first quarter of 2019 were $16.3 million compared to cash flows of $3.6 million in the first quarter of 2018.

At March 30, 2019, we reported backlog of $441 million, an increase of 43% from $309 million as of March 31, 2018.

Now moving onto our outlook for 2019. We are raising our 2019 guidance for revenues and earnings per share.

We expect full year 2019 revenues to range from $520 million to $542 million, which represents an increase of 24% to 30% from 2018 gross revenues of $418 million.

Net revenues is expected to range from $410 million to $428 million, which represents an increase of 23% to 28% from 2018 net revenues of $334 million.

We expect full year 2019 adjusted earnings per share will range from $3.81 to $4.08 per share, an increase of 18% to 26%.

We expect full year 2019 GAAP earnings per share will range from $2.64 per share to $2.91 per share.

This guidance excludes anticipated acquisitions for the remainder of 2019.

This completes our prepared remarks, and now we'd like to open the call up for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Rob Brown from Lake Street Capital.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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Congratulations on the strong quarter. You talked a little bit about the acquisition pipeline being strong. Can you give us an area of -- or a sense on areas of focus that you're looking at and how the pipeline is coming together?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [3]

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Great. Yes. I think obviously, and it's becoming more apparent as we're known more and more in the marketplace, we have so many opportunities coming to us. Right now, we're focusing on acquisitions that will really strengthen our existing pipeline, vertical pipeline, I should say. And those offices that we look at, we're very encouraged about opportunities in our transportation group, we're very encouraged by our opportunities we have in our environmental services group and we continue to look for opportunities that have high bar of entree that adds high technology to our group. So we are very active right now. I don't want to be too specific, but, Rob, as I've said to you before, we normally have 10 to 12 deals going on at all times. And right now, we are very active. And I would look for us to make more acquisitions as the year continues. And last year, we made 5 and I don't see us making anything less than that this year.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4]

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Okay. Great. And then I think you talked a little bit about the Celtic acquisition having a DoD contract award, a fairly decent size, multimillion. But can you give us a sense of what that is? How long -- how many years that is?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [5]

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Yes. It's 5 years and I've been corrected. I fight this all the time because I think as a boss in Celtic. But they'd like to be called Celtic, so it's -- I'll say Celtic, Celtic. They are -- was an acquisition that really enhances our energy initiative, our energy efficiency initiative and that contract is with the DoD for 5 years. It's a 5-year long contract and I don't like to be too forward thinking in revenue. But we're anticipating about $500,000 a year in revenue from that contract. And it is for energy efficiency for existing DoD buildings in the -- in North America.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6]

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Okay. Great. And then last question just on the visibility. Your backlogs is in a good position here. But how would you characterize your visibility for the rest of the year? And with that, how do you see the market kind of trending?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [7]

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Well I think our backlog continues to be strong. Our backlog now is -- it's -- we recognize that -- roughly that we're doing in 12 months, but as you know we've made an acquisition of CHI, which is LNG conversion company from natural gas to LNG. And so their backlog, it's also recorded, but maybe a little differently, more lumpy. So I think that we will still see the same trend. Backlog is running about 70% to 80% of budgeted revenue. And I see that continuing. And I think our growth internally still is going to remain the same organically between 5% to 9%.

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Operator [8]

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Our next question comes from Jeff Martin from Roth Capital Partners.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [9]

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Dick, could you elaborate on your energy 2021 initiative? My understanding is you get some revenue goals tied to that? And you announced Kevin Wedman's appointment to run -- lead the initiative. I'm just curious if you kind of give us a high-level synopsis of exactly what that initiative is and what it entails and if there are specific goals tied to it?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [10]

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Yes. The energy initiative is a aggregator of energy work that we can look at our clients on a national basis. So it's energy work that is being done in each of our offices and the main goal of Kevin Wedman and others is to lead that initiative to give higher visibility to the utilities on one side, and you mentioned Kevin Wedman is very focused on what we're doing in California on the initiatives to -- for green energy and that initiative. So Jeff, I look it at two ways. We are really focusing on our power generation or energy 2021 by utilities and the generation of energy and energy projects and that is, as I said in my narrative remarks, it's for electrical distribution, it's for gas transmission and it's for opportunities to grow our existing utilities and power base. The efficiency side comes from the building efficiency and that is for capitalizing on some of the initiatives that have been supported or promoted by California. The size of it, we are anticipating and I don't want to be forward thinking, but our goal and -- our goal is to have that to be a -- I think it's $200 million and outlook is over 5 years?

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Michael P. Rama, NV5 Global, Inc. - VP & CFO [11]

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Yes.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [12]

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5-year period. And I think they've grown organically so far this year at 20%. So it's been quite successful.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [13]

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And what kind of run rate is that on today?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [14]

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What was the question? I'm sorry.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [15]

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What revenue run rate is that group running today? My understanding was about $70 million or $80 million a couple of quarters ago?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [16]

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Yes. On existing, that $70 million or $80 million has an organic capacity, a growth of about 20%. But I think we're anticipating hopefully just under $100 million this year in that initiative. So they're a little bit ahead of schedule.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [17]

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Okay. And then you haven't talked about this in a while, but your goal is to get to $600 million run rate by the end of 2020. Is that -- is there an updated goal there? Is that still the goal? Have you set a further extended timeline target goal? Just curious what your thoughts are?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [18]

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Yes. Well from what we see and I certainly don't have prophetic capabilities, but we are well ahead of the pace on the $600 million by 2020. I don't know and I think we have our annual meeting coming up in June and a lot of that is generated by our managers. But I would think that the $600 million 2020 is a very conservative goal the way things look right now.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [19]

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Okay. And then could you talk about utilization in the quarter based on the direct cost percentages and salaries and wages percentages of revenue? It looks like that was pretty consistent year-over-year. I know there's been some acquisitions that probably cloud that number up, but I was just curious if you could talk about utilization in the quarter?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [20]

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I'll defer to Alex and Mike on this, Jeff.

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Alexander A. Hockman, NV5 Global, Inc. - President, COO & Director [21]

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So utilization in the first quarter tends to be impacted slightly by weather delays, so as we start to have issues that we may have a construction delay or weather delay on a project, we're not able to fully apply those employees to the project, however, this particular Q1, while we had some issues with weather, we certainly only had it in some isolated areas. So we were running at a relatively high utilization compared to our budgeted objectives.

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Operator [22]

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(Operator Instructions) Our next question comes from Lisa Springer from Singular Research.

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Lisa Springer, Singular Research, LLC - Research Analyst [23]

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I wanted to ask you about -- you mentioned in your comments that cross-selling revenues came in at $7.4 million versus your target of $7.2 million. How should we think about cross-selling for the balance of the year? Do you expect the mix is going to allow that to improve sequentially?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [24]

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Well, it generally will follow the flow. Our stronger financial quarters are coming up, revenue-based. Historically, the summer quarters, this year maybe a little bit more flat, but the -- historically, our second and third quarters are stronger. And then cross-selling between the offices tend to be more. There is a weekly goal that they have of $400,000 per week. So they seem to be ahead of that goal for the year. That was a year-to-date number by the way that I gave you in the cross-selling. So I think that will track -- that will certainly -- the cross-selling will track as our revenue grows in the coming quarters.

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Operator [25]

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At this time, I show no further questions. This concludes our Q&A session. I would now like to turn the call back over to Mr. Dickerson Wright, NV5 Global, Inc. Chairman and CEO for closing remarks. Please go ahead.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [26]

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Well, thank you, once again, everybody, for your interest in NV5 and listening to the call today. I'm very encouraged. We had a very good quarter and I'm also very encouraged for the outlook for the rest of 2019. I think that we want to not lose focus on the type of company we are and what we do. We want to be an -- a valued consultant that add value to our clients. So when we report revenues, please notice that there is not a tremendous difference between our total revenues and our net revenue. And that is because we do not do much work at all. We don't do any contracting work. We don't do work that is highly equipment installation intensive. We want to be approached as a true consultant. So when you see our growth and when you see the things that we are doing, we want to be that valued consultant to our client and a tremendous amount of our business, over 90% is repeat business because we become that valued consultant. So -- and looking on our results, I think it's important to understand for us that utilization, we had a question that it's very important, our direct gross profit is very important because we -- our product is our people and our results that you see has really been driven by the over 2,500 of our people that are truly added value to our clients. We will stay focused. I'd like to say in civil engineering terms, we at NV5 have a narrow trench of knowledge, but it's very deep. We really feel strongly about those 5 verticals that we have a competitive advantage because we have great people and we really stay focused with a vertical, flat organization, not only with our people, but with our clients. So I want to thank everyone for listening today. We are encouraged about the balance of 2019 and we appreciate your continued support as we move forward. So I want to thank everyone for listening in today and thank you for your questions and comments, and we'll talk to you next quarter.

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Operator [27]

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Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.