NV5 Global, Inc. (NASDAQ:NVEE) Q4 2023 Earnings Call Transcript
NV5 Global, Inc. (NASDAQ:NVEE) Q4 2023 Earnings Call Transcript February 22, 2024
NV5 Global, Inc. misses on earnings expectations. Reported EPS is $1.14 EPS, expectations were $1.22. NV5 Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good afternoon, and thank you for participating in today's conference call to discuss NV5's Financial Results for the Fourth Quarter and Full Year 2023 ended December 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; Dan Levine, President of 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. You may begin.
Richard Tong: Thank you, operator. Welcome, everyone to NV5's fourth quarter and full year 2023 earnings call. Before we proceed, I would like to notify all participants that today's presentation can be found on ir.nv5.com and remind everyone that today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides 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 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 the fourth quarter 2023 comparisons are being made against the fourth quarter of 2022, and any reference to full year 2023 comparisons are being made to full year 2022. In this presentation, NV5 has included non-GAAP financial measures as defined in Regulation G promulgated under the Securities and Exchange Act of 1934 as amended. The 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 reconciliation of non-GAAP and GAAP measures is included in the appendix to this presentation. 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 fourth quarter and full year 2023 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead.
Dickerson Wright: Thank you, Richard, and thank you to everyone joining us for this call. 2023 was a year of positioning NV5 for profitability and growth above industry benchmarks. In 2024, we will focus on three specific segments of NV5 for continued growth and profitability. Infrastructure has focused on organic growth with the initiatives to place our key most senior people with direct access to our clients. Our geospatial segment has more than doubled from $136 million in 2020 to a budget of over $320 million in 2024. We will diversify our offerings to include additional areas of the market, further developing our software, and reoccurring revenue offerings. We anticipate further growth of our building technology group, both nationally and internationally, through organic as well as M&A growth.
Let's turn to Page 5 of the presentation deck that you have been furnished. As you can see, we grew revenue and earnings over full year 2022. When comparing the fourth quarter with the fourth quarter of 2022, we increased our revenues, net income, EBITDA, EPS and cash flow over Q4 '22. However, we cannot rest on past accomplishments. We are providing initiatives and incentives for growth in 2024. You will notice a list of these initiatives and incentives for 2024 growth on the right-hand side of this slide. We are also realizing a resurgence in our real estate transaction business, owner representation business, and our environmental service offerings. Let's now turn to Page 6, where I mentioned earlier that we have positioned our three major operations with a focus on organic growth.
Our building technology group will expand into new markets for data center commissioning. We will further invest in human and technology capital to expand areas of building and technology services. We are particularly interested in improving the organic growth in 2024 of our infrastructure group by placing technical experts deployed to be in front of our clients. We've improved and accelerated the recruiting process to fill open positions faster, but also to enter new areas for our services. A portion of our corporate budget will be focused to fund in new initiatives. Our Geospatial Group has grown dramatically from $136 million in 2020 to a budget of over $320 million in '24, with 11% of this growth being organic in 2024. We will focus on strengthening our analytical capabilities by expanding our software and reoccurring revenue model.
We have also strengthened our data acquisition capabilities of our geospatial business with capital expenditures. Please turn to Page 7 where we will discuss two specific acquisitions that will help grow NV5 in 2024. CHW was acquired in January of 2024 to expand our infrastructure platform in Florida. Their 130 employees will be fully integrated into our existing Florida operations and strengthen not only our existing survey and transportation capabilities, we'll also introduce NV5 to four new geographic locations. We also purchased Technical Design Services in the fourth quarter of 2023. This acquisition supports our rapidly growing building and technology group. They bring technical expertise in key areas, including aviation, government, finance and healthcare.
We've made other changes in 2024 to ensure the success of NV5 not only now, but in the years to come. Please turn to Page 8. In 2024, I will step up to the Executive Chairman position, and reporting to me directly will be Alex Hockman as Co-CEO, having responsibility for our Infrastructure Group; Ben Heraud as Co-CEO will be responsible for all Building and Technology operations, both domestically and internationally; Dan Levine as President of our Geospatial Group will be responsible for all Geospatial operations. Let's turn to Page 9 and hear from Ben as he provides a building technology update and tells us of the opportunities for 2024.
Ben Heraud: Thank you, Dickerson. 2023 represented a significant increase for our international mission-critical business, which reflected an explosive demand for commissioning of data centers in support of cloud services. Our international planning and design business also drove 24% organic growth, supporting renovations and new construction in Asia, and technology and audiovisual design in the Middle East. In the U.S., our clean energy and technology businesses led the way with 23% organic growth, supporting clients' energy efficiency and electrification initiatives, as well as audiovisual and technology building retrofits. Our domestic planning and design organic growth was impacted by interest rate dependent capital investments by our clients.
2024 growth opportunities are bright. We expect an increase in profitability of traditional MEP work, domestic and international data center expansion, market diversification for our technology design services, and industry's conversion to clean energy are all expected to be drivers in 2024.
Dickerson Wright: Thank you, Ben. Alex Hockman will now, on Page 10, discuss our infrastructure results for 2023 and the opportunities for 2024.
Alex Hockman: Thank you, Dick. Please turn to Slide 10. In 2023, we made investments to accelerate organic growth moving forward. We added key leadership in our Southeast and Pacific Northwest businesses, and in early 2024, we acquired CHW Professional Consultants, a leading provider of engineering design, surveying, transportation consulting and landscape architecture, to strengthen leadership in the Florida market. We are also seeing green shoots in the construction quality assurance markets in the east and west. In the utility services vertical, we were successful in bringing outsourced working into NV5 and our focus in 2024 is advancing organic growth. Our utility services continue to expand in the Northwest and Southwest, and we continue to pursue opportunities for geographic expansion of electrical transmission, distribution and LNG services.
We've also advanced our offshoring of utility and LNG design to enhance our competitive advantage and improve margins. Growth opportunities in 2024 include our strategic initiatives in infrastructure and transportation, putting some of our best technical experts in direct client-facing positions. Transportation infrastructure investments continue to drive opportunities and we focus on additional investments in water and wastewater infrastructure. Electrical grid hardening continues to be a driver of growth to mitigate fires in the west to protect against storm damage in the east, and client electrification initiatives are driving the demand for additional electrical power delivery to reduce reliance on fossil fuels and support the conversion from petroleum energy to electricity.
I will now turn the call over to Dan Levine to give an update on Geospatial.
Dan Levine: Thanks, Alex. Geospatial grew 67% in 2023, including contributions from acquisitions and 6% organic growth in our existing business. This impressive growth was achieved despite delays in federal contract awards as a result of the continuing resolution status of the Federal Government's budget. Our '23 acquisitions of Axim Geospatial and L3 Harris Geospatial software businesses gave us entry into Geospatial software market and expanded our defense and intel capabilities. In fourth quarter of 2023 and continuing into the first quarter of 2024, we have increased our commercial sales opportunities in utility, asset and vegetation management areas. We entered '24 having strengthened our position as the nation's leading provider of Geospatial data analytics.
Our 2024 growth opportunities are coming in several areas. First, federal infrastructure dollars are flowing through the state departments of transportation and airports, providing numerous contract opportunities we are pursuing. Sustainability and climate change initiatives are also driving demand for geospatial data acquisition and analytics that we are uniquely positioned for. We've developed new data acquisition and processing capabilities that provide us with competitive advantages that we've already fielded in '24. And finally, within our software group, we have released new technology platforms that is - that are gaining traction, providing access to a broader market and we are now bundling services capabilities with our software sales to extract the full value of our comprehensive enterprise IT, data analytics and software capabilities.
I'll hand it over back to you, Dick.
Dickerson Wright: Thanks, Dan. Let's mention our backlog for future work and it seems to be continuing in a strong growth mode, that's up to $838 million. So let's turn to Page 12 of the deck where you'll see the many projects on the right side of this deck that are listed. All of these projects are just a cumulative wind representation of 5% of the backlog, but aren't spread across all areas of our services. I would now like to the call over to our Chief Financial Officer, Ed Codispoti, to provide an overview. Go ahead, Ed.
Edward Codispoti: Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 14 of the presentation, I'll review our fourth quarter and year-end 2023 financial results. Our gross revenues in the fourth quarter were $215.5 million, compared to $189.8 million in the fourth quarter of the prior year. The 14% increase in growth was driven by our Axim and VIS acquisitions. Gross margin expanded 140 basis points as we produced a higher proportion of revenue through internal resources this quarter rather than through sub-consultants. Our gross profit was $108.6 million compared to $93 million in the prior year, an increase of 17%. Net income was $9.9 million in the fourth quarter of 2023, compared to $8 million in the fourth quarter of 2022, an increase of 24%.
Our GAAP diluted earnings per share was $0.64 in the fourth quarter of 2023 compared to $0.52 in the prior year fourth quarter, a 23% increase. EPS was based on 15.5 million shares outstanding this quarter compared to 15.3 million shares outstanding in the previous year quarter. Our adjusted EBITDA was $37.3 million, compared to $32.5 million in the fourth quarter of the prior year, an increase of 15%. Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related cost was $1.14 per share in the fourth quarter of 2023, compared to $1.21 per share during the fourth quarter of the prior year. Our cash flows from operations were $16.8 million compared to $13.6 million in the same quarter of the previous year, a 23% increase.
Our gross revenues increased 10% for the full year to $861.7 million from $786.8 million in the prior year. The increase in growth was driven by our Axim and VIS acquisitions. Gross margin expanded 80 basis points as we produced a higher proportion of our revenue through internal resources this year rather than through sub-consultants. Our gross profit was $430.4 million compared to $386 million in the prior year, an increase of 12%. Net income was $44.6 million for the year compared to $50 million in the prior year, a decrease of 11%. The decrease was impacted by $11.1 million of increased intangible amortization and $9.2 million of additional interest expense due to higher interest rates and debt to fund our Axim and VIS acquisitions. Our GAAP diluted earnings per share were $2.88 per share in 2023 compared to $3.27 per share in the prior year.
EPS was based on 15.5 million shares outstanding in 2023 compared to 15.3 million shares outstanding in 2022. Our adjusted EBITDA was $137.9 million compared to $135.2 million in the prior year. Our EBITDA margins were affected by mix of business and the ongoing integration of our recent geospatial acquisitions, Axim and VIS. Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related costs, was $4.81 per share in 2023 compared to $5.19 per share in 2022. If you would please turn to Slide 15, I'll now discuss our cash flows and balance sheet. Our cash flows from operations in 2023 were $62.2 million and were affected by increased interest expense of $9.2 million and working capital timing driven by large project cycles.
The higher interest expense, as I mentioned earlier, was driven by higher interest rates and debt associated with the geospatial acquisitions. However, we're still at a low net leverage. Our net leverage was 1.2 times as of the end of the year and has now dropped for two consecutive quarters. If you recall, at the end of the second quarter, our net leverage was 1.4 times, so we've made progress in bringing down our leverage. 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.
Dickerson Wright: Thank you, Ed. Let's go to Page 17 and we'll give further detail on how we are positioning NV5 for total growth, organic growth and profitability, measured by the industry's benchmarks. We are going to strengthen and expand our infrastructure platform by increasing organic growth from our existing platform and through strategic acquisitions that support future growth. We will continue to expand our software and reoccurring revenue for all key areas of operations. We will use the strength of our low leverage balance sheet to be opportunistic in all areas of growth. Our guidance for 2024 is $930 million to $935 million in gross revenues and an adjusted EPS of $5 to $5.06 per share. Thank you.
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