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Edited Transcript of NVEE earnings conference call or presentation 7-Nov-19 9:30pm GMT

Q3 2019 NV5 Global Inc Earnings Call

HOLLYWOOD Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of NV5 Global Inc earnings conference call or presentation Thursday, November 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dickerson Wright

NV5 Global, Inc. - Chairman & CEO

* Edward H. Codispoti

NV5 Global, Inc. - CFO

* Richard Tong

NV5 Global, Inc. - Executive VP & General Counsel

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Conference Call Participants

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* Christopher Paul Moore

CJS Securities, Inc. - Senior Research Analyst

* Jeffrey Michael Martin

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

* Keith Michael Rosenbloom

Cruiser Capital - Chief Compliance Officer

* Lisa Springer

Singular Research, LLC - Research Analyst

* Rob Hellauer

Casey Capital, LLC - Portfolio Manager

* Robert Duncan Brown

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

* Tate H. Sullivan

Maxim Group LLC, Research Division - Senior VP & Senior Industrials 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's financial results for the third quarter ended September 28, 2019. Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Codispoti, CFO of NV5; and Richard Tong, Executive Vice President and General Counsel of NV5.

I would now like to 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 rely on these forward-looking statements as representing views as of any date subsequent to today.

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

I would like to remind everyone that a webcast replay of this call and the company presentation 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 express written consent of NV5 Global, Inc. is strictly prohibited.

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 2019 results and outlook for 2019. We will then open the call for your questions. Finally, I would like to remind you that the presentation we will be reviewing during this call can be found at our Investor website at ir.nv5.com. Dickerson, please go ahead.

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

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Thank you, Richard, and thanks to everyone who is joining us today for NV5's Third Quarter 2019 Conference Call. We are pleased to announce results for our quarter 3 and some exciting news from NV5 in addition to that. I will start with the performance of the organization in the third quarter and provide a year-over-year analysis against the third quarter of 2018. I will then review some of our operational accomplishments for the quarter. Ed Codispoti, our CFO, will then speak in detail about our financial results. I will then finish the call with an overview of exciting developments in mergers and acquisitions that have occurred since the beginning of the third quarter.

So first, our overall financial accomplishments for the third quarter. If I could ask you to please turn to Slide 4 in the presentation. In that, you will see gross revenues increased 26% year-over-year to $131 million for quarter 3. Net revenues, or revenues performed in-house, increased to $103.9 million in quarter 3, an increase of 23% year-over-year. EBITDA, that is earnings before interest, taxes, depreciation and amortization, increased 3% year-over-year to $14.4 million. Adjusted EPS was $0.78 per share on 12.6 million shares compared to $0.82 on a lesser share count of 11.7 million in Q3 2018. Backlog was $463 million as of September 28, 2019, a 35% increase from $342 million as of September 29, 2018.

I will now move on to Slide 5 to discuss our guidance for 2019. We have decreased the 2019 guidance for gross revenues. We expect full year 2019 gross revenues to range from $511 million to $527 million, which is an increase of 22% to 26% from 2018 gross revenues of $418 million. Net revenues are expected to range from $401 million to $415 million, which did not see a major change from our Q2 2019 guidance but represents an increase of 20% to 24% from 2000 (sic) [2018] net revenues of $334 million. We expect full year 2019 adjusted earnings per share will range from $3.18 to $3.42 per share, and we now expect full year 2019 GAAP earnings per share to range from $1.91 per share to $2.15 per share.

If you'll please turn to Slide 6, we will discuss some challenges that we faced in Q3 and walk through the resolutions to each of those. First, we had an increase in overhead. We acquired 4 acquisitions in late second quarter and early third quarter, which resulted in additional G&A costs because support service costs are typically highest in the first few months of an acquisition. However, we expect support services costs to be reduced in the fourth quarter, and we'll begin to realize the synergy with these acquisitions in Q1 2020.

In addition, we had erosion of utilization rates related to the new acquisitions, along with project timing delays that we will cover in just a moment. As these projects are ramping up in Q4 and the integration of these acquisitions are past the initial stage, we will begin to realize a positive impact for 2020.

One of the project delays I mentioned is an LNG conversion project that we expected to begin in Q3. This project experienced a delay but work is expected to begin in Q4, which we anticipate will have a positive impact for some of the fourth quarter. In our infrastructure southeast group, the North Carolina DOT experienced a funding stoppage for its road construction project. The time frame for the DOT funding is uncertain, but we expect the project to begin coming back online in the first quarter of 2020 with our projects fully funded in 2020.

Finally, the unrest in Hong Kong has resulted in the slowdown of our MEP projects. Though we've had this temporary issue in Hong Kong, the rest of our international business is performing well, including our expansion of Malaysia and Dubai offices for MEP work and the growth of our Energenz energy efficiency consulting business in both Asia and the U.S. We have also identified opportunities in Saudi Arabia and Philippines, which should have a positive impact on our international business in 2020.

Though we've experienced these temporary issues in Q3, other parts of our business have been performing very well, and we continue to secure high-profile projects across our entire portfolio. If you would please turn to Slide 7, I will be reviewing some of our operational key accomplishments for the quarter. The infrastructure vertical enjoyed some exciting wins in the third quarter, including a contract for owner's representation, oversight and design review services with a municipality in Northern California. This contract has a $20 million potential, and we have already begun work on this significant contract. And the $20 million will be recognized over a 3- to 4-year period. Also in California, we secured a $5 million land surveying contract with the Public Works Department of another municipality in Southern California.

In the northeast, we secured some large contracts with municipalities and institutions of higher education. In New York, Nassau Community College awarded us a $6 million contract for design and engineering services. A public works authority of a municipality also in the New York area selected NV5 to provide civil and site engineering, traffic engineering and construction management services, and the total fee was $5.5 million. And another public works authority of a municipality in New Jersey awarded NV5 a $5 million design and permitting contract for a 22-mile section of their greenway.

NV5's building technologies group signed over $20 million in new contracts in Q3, including some large contracts providing MEP design and commissioning of airport expansion projects. In Southern California, NV5 will perform a full mechanical design for heating, ventilation and air conditioning systems, HVAC systems, which also includes smoke control and/or air quality and energy efficiency for the modernization of an international terminal. At the same airport in Southern California, NV5's environmental vertical secured a 3-year environmental consulting assignment to provide air and water quality site assessments, noise mitigation, resource management and permitting.

Also, in addition, Salt Lake City International Airport and Kansas City International Airport selected NV5 for commissioning of building envelope work, MEP systems and life safety work. NV5 was selected for a cumulative total of $12 million in airport contracts, and we continue to see opportunities in this sector as the country works to modernize airports and its infrastructure.

The energy vertical also continued to secure contracts in Q3 and expanded geographically with new contracts in the Rocky Mountain region, the Southwest and Texas. Fire mitigation is of utmost importance in the power generation and electrical distribution market. In this regard, NV5 secured $10 million in new contracts that were all related to fire risk mitigation. Another area that is seeing significant investment is the infrastructure for vehicle charging stations. We have won significant contracts in this specialized area, including a $4 million contract in Southern California in Q3.

In our energy compliance business, we have recently secured 2 exciting contracts. The first is through the California Energy Commission for chief building official services on the Geysers geothermal power plant, and the second is the TC Energy for environmental compliance for new infrastructure.

Let me also provide an update of our international business, which has secured some excellent contracts in Q3, including a 3-year contract for MEP and fire protection with the Hong Kong Architectural Services Department. In Malaysia, we secured contracts for full floor and partial floor fit-outs for the Citibank's Kuala Lumpur office; and MEP and fire protection, localization and design reviews for Safran's aircraft disc brake manufacturing facility. Finally, in Riyadh, NV5 is providing commissioning services of MEP, IT and security systems at the Riyadh Mall.

Now if you'd please turn to Slide 8, I will discuss backlog, which is at a new high. Our backlog of $463 million refers to work that we have in our backlog which we expect to perform within the next 12 months. In fact, our current backlog exceeds our full year revenue for 2018, which is an indicator that the business is growing at a healthy pace. This solid backlog positions us well for strong performance in 2020.

Now if you please go to turn -- and turn to Slide 9 in the presentation, I will comment on the successful cross-selling between our offices. We have set specific financial goals for cross-selling between our offices, which includes an annual target of $20.8 million. We diligently report cross-selling on a weekly basis. At the end of Q3, we have completed $15.1 million in cross-sells, so we are performing very well. Cross-selling is important for NV5 because it means that work which would have been performed by subcontract is not -- is now being performed by NV5 employees. Work that is performed in-house provides an approximately 10% higher margin on average than subcontracted work. So our $15.1 million in cross-sells has contributed approximately $1.5 million in additional EBITDA for NV5.

I would like to discuss our projected organic growth for net revenues. As we have discussed before, gross revenues include the work that is being performed by subcontractors, but we are more focused on growing our -- not in growing our subcontractors' business but our business. We're interested in growing NV5 services and creating shareholder value. Therefore, it is important to view our growth based on net revenues, which is the work that is performed by NV5 employees. Although Q3 was flat for organic growth, we have historically achieved high single-digit organic growth, and we anticipate this to continue in 2020.

In a few moments, I will discuss our acquisitions since the beginning of the third quarter. But before doing so, I would ask -- like to ask our Chief Financial Officer, Edward Codispoti, for a more detailed overview of our financial results for the third quarter of 2019 and our outlook for the full year 2019. So Ed, please go ahead.

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Edward H. Codispoti, NV5 Global, Inc. - CFO [4]

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Thank you, Dick, and good afternoon, everyone. I'll be reviewing -- I'll be providing a review of the company's results for the 9 months ended September 28, 2019. If you would please turn to Slide 10.

Net revenues for the third quarter of 2019 were $294 million, an increase of 20% compared to net revenues of $246 million in the third quarter of 2018. EBITDA for the third quarter of 2019 was $43.7 million or 15% of net revenues, an increase of 17% from $37.3 million in the third quarter of last year.

Net income in the third quarter of 2019 was $20.2 million, an increase of 5% compared to $19.2 million in the third quarter of 2018. Third quarter 2019 adjusted EPS was $2.56, an increase of 10% from $2.33 in the third quarter of 2018. And as we typically define it, adjusted EPS excludes the impact of amortization of intangible assets from acquisitions.

Our third quarter 2019 adjusted and GAAP EPS reflect weighted average shares outstanding of 12.6 million shares compared to the weighted average shares outstanding of 11.7 million shares in the third quarter of 2018. The increase in weighted shares outstanding reflects the issuance of shares of common stock from our secondary offering in 2018 as well as restricted stock granted to employees.

Cash flows from operating activities during the 9 months ended September 28, 2019, were $21.6 million compared to cash flows of $17.6 million during the 9 months ended September 29, 2018. At this point, I would like to turn the call back to Dickerson Wright to provide details about our acquisitions since the beginning of the third quarter. Dick?

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

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Thank you, Ed. I would like to walk you through the current state of our mergers and acquisition pipeline, but before giving you some highlights about the 3 acquisitions that we have completed since the beginning of quarter 3, those acquisitions were GeoDesign, WHPacific and the new acquisition that was announced in our release today, Quantum Spatial.

If you'll turn to Slide 11, I'll provide some details about the trends to -- in our merger and acquisition activity. Our mergers and acquisition pipeline remains full of opportunities. 2019 has been our busiest year for acquisitions, and we will continue to identify areas that provide a competitive advantage for us, also will have to provide additional value for our clients and support our verticals and strategic geographic areas of expansion.

Pricing. The multiples have been pretty consistent in the pipeline, but we have seen some higher legal and accounting fees due to seller representation. As I mentioned, the pipeline is full, and we see opportunities in all 5 verticals and we continue to be the preferred buyer for acquisitions due to our flat organization.

I'll now discuss the newest members of the NV5 organization, beginning with GeoDesign. GeoDesign was a strategic fit for NV5 because it provides us with strong geotechnical expertise and a presence throughout the Pacific Northwest and in California. The addition of our next acquisition, WHPacific, gave us excellent engineering design capabilities in key markets in the Pacific Northwest along with Idaho, Arizona and New Mexico and also access to key client relationships. Both of these acquisitions have made a positive contribution towards reaching our ENERGY 2021 Initiative goal of $250 million in gross revenue by 2021.

Okay. Please turn to Slide 12 so we can discuss our latest acquisition for which we executed a definitive agreement with Quantum Spatial. As I've mentioned before, our acquisition strategy is based on strengthening our verticals and adding offers that provide unique value and create strong client relationships. The acquisition of Quantum Spatial, Inc. is very exciting for us because we are now the nation's leading provider of geospatial solutions. This is a specialization that is growing rapidly, and the applications for this type of technology and data analysis are limitless. From power lines to forests, to pipelines, to national security support, geospatial solutions has revolutionized asset management and risk mitigation.

This acquisition expands the value we can provide to energy clients, departments of transportation, federal clients and many other industries, and QSI is a nationally recognized leader in technology and the analytics of geospatial solutions. Finally, QSI's client list is made up of over 70% public clients, including federal clients, major utilities and state and local governments, and is therefore more resistant to economic cycles.

On Slide 13, we'll continue our discussion of QSI. One of the details that I would like to point out is that this greatly solidifies and strengthens the geospatial service offerings of NV5. We are not concerned that the acquisition of QSI will result in interference with our existing organization or verticals.

QSI brings new clients, new services and technologies to our company. It is the largest acquisition that we have made, but it follows the same principles of adding value to our clients along with bringing high margins, has difficult [barriers to entry] and is a good recurring revenue stream. And of course, very important to us is that it's not disruptive to our current organization.

QSI brings NV5 to the forefront of technological innovation in both service and delivery and data analytics. As technology has grown as a service offering in the engineering sector, we at NV5 are capitalizing on this by launching a new technology service line, and Quantum Spatial will serve as the platform for this new profit center.

Of course, there will be questions about the purchase details, so I will share some of the key figures. The purchase price for QSI was $303 million, and QSI generates approximately $30 million of adjusted pro forma EBITDA on $120 million in pro forma 2019 revenue. I would like to point out that this is an all-cash transaction with no share dilution or equity raise required for the purchase. The market for geospatial solutions is growing rapidly, and we're excited to continue the rapid growth of QSI and experience immediate synergies with our existing business.

Finally, on Slide 15, I would like to provide a look ahead to our vision for 2020. We have made quite a few additions to NV5 in 2019, with the largest acquisition being QSI announced today. We have expanded our MEP platform to include lighting, technology and security, strengthened our environmental presence in California and RCQA capabilities in Florida and the Pacific Northwest. We have also secured a strong design presence in the Pacific Northwest and now become the leader in North America geospatial market. Finally, we've had strong performance in many of our existing businesses and geographies. So we were very excited about 2019, but we're not looking back.

So for 2020, looking forward, our preliminary outlook includes gross revenue guidance between $655 million and $710 million. We're expecting full year 2020 adjusted EPS to range between $3.42 and $3.98 (sic) [$4.32 and $4.78].

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Tate Sullivan of Maxim Group.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [2]

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Thank you for that detail on the acquisition, and if I may start there. I mean, Dickerson, how long were you aware of Quantum Spatial? And I saw a sentence in the press release that they appear that they worked with you before in some capacity. Can you give more context to that as well, too, please?

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

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Sure. Thanks, Tate, and thanks for the question and joining us today. We have had over the last 3 years, and you probably have noticed, we announced a number of years ago a small acquisition called Skyscene, and they do a LiDAR and visual and some geospatial work. So we had developed quite a relationship and a working relationship with Quantum Spatial because of the link that we had with our Skyscene. And so we knew the space a little bit from -- and our clients were always mentioning to us the name Quantum Spatial. So we knew of them from that.

However, we participated in a process to acquire Quantum Spatial and that's probably began in the summer, but they were owned by a private equity group. And so we had to go through a process in the acquisition. So first, a relationship through our existing service line in geospatial, which was Skyscene and working with Quantum Spatial. And then second, we participated in the process that began sometime, I think, in the summer or early fall.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [4]

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Okay. And you mentioned no equity issue to complete the deal. But I mean -- and then, I mean, I assume you exercised the accordion on your current revolver. Are there details pending on the financing for the acquisition? Or any details there, please, that you can...

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

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Well, obviously -- I think that's also a good question. Maybe in more detail, I can turn that question over to our CFO, Ed, because he was very involved in financing, and obviously we had to expand our relationship with Bank of America. But Ed, maybe you could just mention some of the details briefly.

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Edward H. Codispoti, NV5 Global, Inc. - CFO [6]

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Sure. Just at a high level, we -- the facility as it stood before this deal was for $125 million, of which we had drawn $10 million. So we had plenty of capacity under that line. What we did as a way to structure this deal was, through a commitment of Bank of America and PNC, we added a term loan of $150 million and increased the revolver by $90 million. So that brings our debt capacity to something that is adequate for this deal.

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Operator [7]

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Our next question comes from Rob Brown of Lake Street Capital.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [8]

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Could you give us a little more detail on the growth rates of Quantum and the industry -- the geospatial industry?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [9]

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Yes. Obviously, a private company. We're measuring that closely in GAAP. But it looks like the growth rate is pretty aggressive, and we were given a -- in their pro forma, we were given a pro forma budget from them in 2020 that they would go to about $150 million in revenue. So that's certainly a double-digit organic growth rate. They had not anticipated any acquisitions. And their EBITDA performance is well above the industry standard and is at or above our core business EBITDA. So it will be accretive, and it will be more accretive from an EPS...

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Edward H. Codispoti, NV5 Global, Inc. - CFO [10]

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From adjusted -- accretive from an adjusted EPS standpoint.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [11]

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Yes. Yes. Ed will weigh in here, too, any time on that. So I think we received the pro forma of $150 million from them...

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Edward H. Codispoti, NV5 Global, Inc. - CFO [12]

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For 2020, yes.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [13]

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2020, yes. So that shows probably a double-digit organic growth rate.

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Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [14]

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Okay. Great. And then maybe on kind of the project activity and the business itself. You had some delays in the quarter. Does that -- do those continue into Q4 and into 2020? Or maybe some -- do you feel like that gets worked through by 2020?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [15]

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Well, yes. Thank you, Robert. It will work through, but I've always said I wish this business was more linear. But certain things require funding and just very unique circumstances. So 2 of the acquisitions and -- that we -- and doing so well and we've worked so closely with them as [part of us] as NV5. One was in North Carolina and a very robust business, very good reputation and as experts also in supporting North Carolina DOT. And if you look at that, you would see the tremendous growth in North Carolina, and so we see some robust opportunities there.

We were just said -- we were said that -- or notified, and this happens to engineering firms there, that the funding for their Department of Transportation work, they would -- they wanted to stop that funding and stop the projects until the beginning of the first quarter. And we've been told by the managers there that, that will be funded. But -- so we're looking for that to be a temporary thing.

The second one that impacted the project growth was our LNG business, and that is a very -- and it's very profitable and we're very excited about that. And we're expanding into other markets with -- and that company is called CHI, but it's our LNG space. They had a significant project that was due to start in the third quarter, and now it looks like it's going to spill over or begin in the fourth quarter or mid-fourth quarter. So that was -- those were the 2 things that really impacted -- not only did they impact the bottom line performance, but they impacted our organic growth opportunity that we're expecting.

And I just came back from Asia, and I'm very pleased with our offices. And we have very good, established offices in Hong Kong, Malaysia, Dubai, Macau. And I was very pleased how we're -- the utilization that they're using of their people, particularly with the political unrest in Hong Kong. So Hong Kong is now being used to support some of our other offices. But those were 3 things that were just not anticipated. So those were the things that we recognized in the third quarter.

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Operator [16]

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Our next question comes from Chris Moore of CJS Securities.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [17]

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Can you -- in terms of 2020 guidance, how much of QSI is embedded in there? When do you assume it closes?

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Edward H. Codispoti, NV5 Global, Inc. - CFO [18]

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Yes, so we're assuming that there's a likelihood that it will close in -- before the end of the fourth quarter. And in terms of what we're assuming for 2020, it's in the neighborhood of what Dick was referring to earlier, which is that their 2020 projections are expected to be around $150 million of gross revenue.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [19]

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With the same EBITDA margins?

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

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With their historic...

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Edward H. Codispoti, NV5 Global, Inc. - CFO [21]

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With QSI's historic...

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [22]

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Yes, with QSI's historic...

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [23]

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Exactly. Exactly. If you look at the kind of the preliminary 2020 EPS guidance versus where we had been at the end of Q2, it's kind of a little bit lower range on a much higher base of revenue. Can you talk to that a little bit in terms of kind of that adjusted net income margin, what's happening there and how we should look at it?

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Edward H. Codispoti, NV5 Global, Inc. - CFO [24]

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Sure. I think the -- what you're seeing there, Chris, is the impact of the debt and -- associated with the acquisition. And so if you were to add back that interest expense, the EPS would be higher.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [25]

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Got you. If we could just -- yes, go ahead.

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Edward H. Codispoti, NV5 Global, Inc. - CFO [26]

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And to give you an idea, so it's $300 million of debt, and the interest is about 6 1/4% or so before fees. And so that's what we're factoring in there. Without that interest expense, the EPS would be higher.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [27]

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So you've got a $150 million term loan. What's the projected interest rate there?

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Edward H. Codispoti, NV5 Global, Inc. - CFO [28]

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Again, it's about 6 1/4% on the new debt that we're taking out, roughly.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [29]

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Got it. Okay. All right. And just in terms of -- just back to that Slide 6 for a second, just in terms of kind of the impact on EPS for this year. So the LNG, I think you've always said that that's kind of a high-margin business. Any sense in terms of how significant that project is?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [30]

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Well, I was anticipating and I looked back. I think -- I'd like to include both that project and I would like to include also the North Carolina DOT, which you'll see is the next thing down. But that for the quarter alone represented about 2.5% to 3% of our organic growth. And so if you can look at the magnitude -- it's a little bit more uncertain, the total revenue that's derived from North Carolina DOT funding. But that specific project, the size of that project -- and of course, it's going to [ascend] for a period of time. But Ed, you were speaking directly to the size of that project. I think it's...

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Edward H. Codispoti, NV5 Global, Inc. - CFO [31]

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North Carolina?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [32]

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No, no. The LNG.

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Edward H. Codispoti, NV5 Global, Inc. - CFO [33]

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The LNG was a $32 million project or so over 18 months, and so the impact would be 6 months' worth of that.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [34]

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Okay. And how big was...

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [35]

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So that's a little different than our normal engineering services because they -- that's a turnkey service that they provide. So their fees are not as linear as we would in the engineering -- in the pure service engineering business.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [36]

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Got it. Got it. And how big was the -- so it sounds like the North Carolina is basically delayed until Q1 is what you're hoping for, the DOT funding (inaudible)...

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [37]

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Well, we're -- yes, we're conservative. We're not baking anything into Q4 to speak of there. The annual revenue roughly of an entire office and [stuff] there is about $40 million. And a significant portion of that is -- at least 50% of that was related to the DOT funding.

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Christopher Paul Moore, CJS Securities, Inc. - Senior Research Analyst [38]

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Got it. And so from an organic growth standpoint, what is the assumption for Q4? Is it flat as Q3? Or is it down a little bit? Or...

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [39]

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Yes, we can't really speak to that right now. That's kind of what -- that's kind of a forward-looking statement, and that's something we really just can't comment on at this time. But I think you've seen what we've said, and I think you know that we are conservative and we will just have to see how that plays out.

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Operator [40]

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

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [41]

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Wanted to dig in on Quantum a little more. Is there room for growth either through geographic expansion and cross-selling initiatives given your verticals are fairly robust at this stage across the U.S.?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [42]

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Yes, no -- Jeff, we've known each other for a while, and you know me to be optimistic. So I'm going to tamper this down. I don't want to use the word tremendous growth, but we -- the opportunities that they have and what we see and what they can -- we can introduce them to is phenomenal because they have 8 offices around the country in -- just in the U.S., and we have 100 offices. And of those 100 offices, our core business is the very infrastructure work that they can assist us with. On top of that, we see phenomenal opportunities that -- where we are much more embedded in the infrastructure than they are. So right now, right now, the awards that we're getting with them and what we're doing is -- our challenge is the ability to staff. And so tremendous opportunities for growth with them.

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Jeffrey Michael Martin, Roth Capital Partners, LLC, Research Division - Director of Research & Senior Research Analyst [43]

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Okay. And then I believe from last quarter there were some West Coast project delays. Could you give us an update on those?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [44]

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Yes. Well, there -- the West Coast now is pretty much up to speed. Those projects that I spoke of with Caltrans have been [fun]. And in fact, we think we've added -- well, we know we've added to the backlog based on that activity. So that is progressing. And so I think we don't see that as a -- California growth and those projects as an issue at this time.

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Operator [45]

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Our next question comes from Lisa Springer of Singular Research.

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Lisa Springer, Singular Research, LLC - Research Analyst [46]

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One of the intriguing things about QSI is the services they bring in power transmission line fire mitigation. Could you talk about opportunities in that space and what the competitive positioning might be like?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [47]

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Well, 2 things. We don't see any competition in access areas and things that Quantum Spatial can do because the utilities continue to ask us for this. And the biggest issue that smaller LiDAR-based or geospatial firms is the processing of data, and QSI is at the forefront of that. As far as the actual power conversion work, we are so busy in our traditional work in that area in California because of the fires in the Northwest. And that is mainly the conversion of the transmission lines to underground utilities. It's not the big, big, but it's all those local communities' transmission lines and high-access area. And now with -- and we -- I can't be too much forward speaking here, but that's -- we are very excited about that area. And now the access and things that we can do because of Quantum Spatial really enhances the service offering we can give to our clients.

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Operator [48]

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Our next question comes from Tate Sullivan of Maxim.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [49]

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Dickerson, just considering this is a larger deal than you, I mean, than you have completed, is it -- I mean, what made -- was it the opportunity of QSI and what made you comfortable on completing this scale of a deal compared to the size of your previous deals, please?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [50]

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Great question, Tate. And you've known me for a while and you know what I -- we, NV5, we're very cautious about transformational acquisitions, acquisitions that are large in the same service or geography or the same service lines that we're doing because we believe that, that tends to internalize organizations, and merging people are much more concerned with reorganization and support services and really lose focus on the client and the outward-facing work that we want our people and our organization to do.

So what was so attractive about geospatial to us was it did not -- it was not and will not be merged into any of our existing spaces, very little overlap and really no overlap in service offering, but more of an enhancement in the service offering. They will help us and strengthen us in our fledgling geospatial practice. And so they would really make us a leader, and we're not looking at anything that is going to internalize the organization with that acquisition. And if you will, that would be just a key platform vertical for us entering into that market.

So that was the attraction. The attraction was I wasn't -- we weren't looking at buying a large company that was in our current service space. This is a large company, but now enhancing a service space and giving us something that will strengthen us rather than internalize our organization.

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Edward H. Codispoti, NV5 Global, Inc. - CFO [51]

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And if I could just add one thing, just going back to the rate on the term loan. It's -- the rate is LIBOR plus 225 basis points. So LIBOR right now is close to 2%, so it's approximately 4% on the term loan.

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Operator [52]

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Our next question comes from Rob Hellauer of Casey Capital.

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Rob Hellauer, Casey Capital, LLC - Portfolio Manager [53]

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Just going to the 2020 number, just wanted to follow up on an earlier question. I guess can you help us bridge -- give us a little more detail on the bridge in terms of kind of where we were thinking at the end of the last quarter versus the $3.70 number here because I know you mentioned that the debt, the interest payment obviously is going to affect that. But it seems like there's more of a delta here. And so I'm wondering how much of these 4 various pushouts that you mentioned in Q3 is going to affect Q4 and Q1 of 2020 versus once those come back up, what the run rate will look like is one question. The second question is will Quantum -- will the new acquisition be accretive in 2020 to EPS?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [54]

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Okay. First question, which I want to be sure I understand. I don't know what pushout means, so maybe you can tell me that. Are you talking about the things that we experienced that affected our guidance? I don't quite know what you mean about pushout, so if you could repeat that question.

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Rob Hellauer, Casey Capital, LLC - Portfolio Manager [55]

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Sure. So like the -- yes, the LNG -- sure. The LNG conversion was expected to begin in Q3. It's going to begin in Q4. The North Carolina funding was paused and will resume in Q1 2020. There's some unrest in Hong Kong. And so I'm just curious, from an EPS perspective, hopefully, LNG will get back online and be online in Q1 '20 and the North Carolina will be resolved. So I'm just trying to bridge kind of as we go from where we are today to 2020, will any of those challenges that you're seeing in Q3 affect the beginning of 2020? And is that maybe why the EPS number is lower than some of us thought going into the call?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [56]

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The guidance EPS number?

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Rob Hellauer, Casey Capital, LLC - Portfolio Manager [57]

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Yes.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [58]

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Yes. Well, I think we want to -- obviously, I think we want the guidance to match our results as best as possible. And certainly, if we have the opportunity to exceed those results, we want to do that. We think this is -- I'm not the financial person. Ed here is. I think the acquisition of QSI is something very attractive. So we were looking at our core business, mostly stable. We do feel that -- the biggest indicator to me as far as what we are projecting is if you look at our core business, which did not include any of geospatial, the backlog of that core business is growing. So I think we have a pretty solid backlog, and it certainly is an indicator of what we're going to do in a rolling 12-month period.

So conservatively, I think that we, in guidance for 2020, we feel good because of the backlog. And then we're just bolting on or adding the additional amount of Quantum Spatial. However, we have to be -- we have to understand that we're very late into this quarter. And we have to understand that in 2019, we are using that baseline of results to be conservative in our projection for 2020. So I don't know -- that's exactly how we look at the end of 2019 and 2020 going forward. So I'm not certain. I hope that helps you with the bridge.

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Rob Hellauer, Casey Capital, LLC - Portfolio Manager [59]

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Okay. No, it does. I mean maybe let me simplify the question a little bit. So the 2019 EPS guidance midpoint is $3.30. The 2020 EPS midpoint is $3.70. And so I'm just wondering, if my back of the envelope math is right, it seems like between the 2 acquisitions in Q3 and then the Quantum acquisition in Q4, it just -- it feels like there should be more than just $0.40 accretion in 2020 from those acquisitions. And so I'm just trying to figure out, is this just a level of conservatism? Or are there other headwinds in the business that will abate sometime in 2020? And so that's the bridge I'm trying to get to.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [60]

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Okay. Well, I am certainly with you that I would hope it'd be more. We are a bit conservative. I don't -- I can't see any and I don't see any specific headwinds in the business other than what was presented today, and this is as we see it now. So I think our -- we want to be -- I don't even want to use the word conservative or I don't want to be -- use the word optimistic. We just want -- we want our guidance to be accurate or close to what we report. So you may term it as conservative, and we would like to use the word more accurate.

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Rob Hellauer, Casey Capital, LLC - Portfolio Manager [61]

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Okay. No, that's helpful. And maybe we can take it offline and get a little more granular -- [granularity].

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Operator [62]

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Our next question comes from Keith Rose (sic) [Keith Rosenbloom] of Cruiser.

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Keith Michael Rosenbloom, Cruiser Capital - Chief Compliance Officer [63]

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I wanted to review the math on the QSI because I think I may be missing something. You said that it's going to do...

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [64]

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Keith, you never miss anything. You never miss anything. So go ahead. I'm shuddering now, but go right ahead.

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Keith Michael Rosenbloom, Cruiser Capital - Chief Compliance Officer [65]

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You said it's going to do $150 million in revenue, you think, in 2020 at basically the same margin as that you bought it at, right? And so that would equate to $34 million or $34.5 million of adjusted EBITDA. You say there's $21 million of interest expense. So that would equate to, just math, over $1 a share contribution to 2020 EPS.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [66]

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Okay. Yes, I think -- and I can -- certainly, I'll defer to Ed on some of this, but we -- I think you're right. We see...

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Keith Michael Rosenbloom, Cruiser Capital - Chief Compliance Officer [67]

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I'm just saying a $1 increase -- I'm saying that the acquisition would give you a $1 increase pretax, with a $1 increase to 2020 adjusted EPS, which would be [shield]. So a $1 increase in adjusted EPS in 2020 from the acquisition alone. So are we missing something?

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [68]

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No, I mean, there's certainly a weighted average shares going in. But where I think -- and I agree, I think roughly $30 million to $34 million in EBITDA is what our expectations are. So that's correct. I think that -- and I just don't know what -- I'll let Ed speak to this because there's tax rates involved and there's interest involved and...

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Edward H. Codispoti, NV5 Global, Inc. - CFO [69]

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I'll say this because we did -- this is preliminary guidance and we -- and the acquisition is just recently done. And so we were trying to be conservative, and we were conservative in a few ways. Number one, going into -- or wrapping up '19, the EBITDA was about $30 million on $128 million of revenue. And for conservatism purposes, in our future outlook, we assume about the same EBITDA on $150 million. And that's just, again, to build in conservatism because we want to make sure that we approach our guidance that way. And we were also conservative, I believe, in how we approached their tax rates, again, to prepare for incorporating them into our organization and to, again, be conservative in terms of where we think we're going to land. And there's some uncertainty around that, so we were definitely on the conservative side with respect to that.

So I -- and they've been doing very well in terms of growth rates. And when you look at their trailing 12 months, et cetera, so they're tracking very, very well. But again, I -- we wanted to be in a position where we look back next year at this and we're happy in the sense that we -- or the guidance that we gave would be on the conservative side.

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Keith Michael Rosenbloom, Cruiser Capital - Chief Compliance Officer [70]

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Yes, I'm not trying to say conservative or aggressive, just with the assumptions that you just gave, the exact same margin on $150 million of revenue equates to $35 million of adjusted EBITDA. You said that the cost of debt is about 6.5%. So I just used 7%. That gets you to $21 million. $35 million minus $21 million is $14 million. You have 13 million shares outstanding. That's over $1 pretax. So I think that the disconnect here is just trying to understand, this seems like it's highly accretive and then what's the rest of the business doing. And perhaps that's why in the aftermarket, the algos are taking your stock down so much. But this seems like it's a highly accretive acquisition.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [71]

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Yes, well, we certainly feel that way. Thank you, Keith. But I can tell you this, please, I would certainly appreciate your questions, and what I've said to the last caller, look at our backlog of our core business. The backlog of the core business does not include Quantum Spatial. The backlog is strong. It's $463 million in backlog, and we like to say 70% of projected budget is a good backlog.

And so yes, perhaps maybe we are conservative in our guidance. But the core business is doing -- is good. The core business is fine. And we just think -- we think that Quantum Spatial is something that's going to -- it's going to enhance the overall business of NV5. But anyway, [thank you]. And Keith, pick up the cell anytime you want to call me. Thank you.

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Operator [72]

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At this time, this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Wright for closing remarks.

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Dickerson Wright, NV5 Global, Inc. - Chairman & CEO [73]

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Thank you, operator, and thank you, everyone, for listening to our conference call today. And I think it's good that I speak to what we're doing and looking forward as a company. We are very excited about our core business. Is there things we can improve on in the core business? Yes. Can we be more efficient in what we do? Yes. There's always certain room for improvement.

But the core business itself, as far as the market trends and as far as the work that we see, we -- and I am very excited about the go-ahead in our business. I don't -- I think there were some one-offs on downturns that were -- happened in that quarter; of course, could not be anticipated. But we have a very good outlook for NV5 in the core business.

Now adding on Quantum Spatial to that, we are very excited. So I think perhaps there can be some overreaction to guidance. There could be overreaction to a 1-quarter result. But where I can sleep at night is realizing that our core business is strong, our backlog is strong in our core business and we are very, very excited about Quantum Spatial because that business continues to grow. And we think it's going to be something that is extremely accretive to NV5 and accretive in a way that I will measure it and that is the growth of our business, the solidifying of our -- of new clients and adding to our existing core business a new line of service. And I do think, I do think that we will see a significant growth in the business because of the addition of Quantum Spatial.

So anyway, we spoke very specific to specific things this year. The macro picture is we are very excited of everyone's interest in NV5. We're looking for a very good 2020. We're looking for continued growth. Very, very excited about Quantum Spatial, and we just feel that this is something that gives us a great opportunity to grow.

So I like that you're with us. I like that you're listening to the calls. And please stay in touch with us because we feel very good about the going-forward look and prospects of NV5. So thank you, everyone, for listening to the call today.

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Operator [74]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.