Good morning, everyone. Welcome to the Bowman Consulting Group Ltd. Q1 2024 Earnings Conference Call and Webcast. My name is Jacquetta, and I will be your moderator for today's call. I would now like to turn it over to your host, Bruce. Please proceed.

Thank you, Jacquetta. Before we get started, please note that many of the comments made today are considered forward-looking statements under federal securities law. As described in the company's filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and the company is not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information, such as adjusted EBITDA, adjusted net income and net service billing. You can find this information together with the reconciliations to the most direct comparable GAAP information in the company's earnings press release and 8-K filed with the SEC and on the company's investor website at investors.bowman.com. We will deliver prepared remarks today, after which we will be taking live questions from published research analysts. Throughout the call, attendees on the webcast may post questions for management to answer on the call or in subsequent communications, but there will be no live Q&A for the webcast attendees. Replays of the call will be available on the company's investor website. With that, I'm going to turn the call over to Gary Bowman.

Thank you, Bruce, and good morning, everyone, and thank you for joining the Bowman Consulting Group Q1 2024 earnings call. As he introduced, with me this morning is Bruce Labovitz, our CFO. We want to welcome all of our new shareholders and thank everybody for taking time to participate this morning. We also want to welcome all the firm's new employees, including everyone who joined us recently from Surdex and Moore Consulting Engineers. As usual, I'm going to start off with a quick business update, then Bruce will discuss our financial results. After that, I'll talk about our markets and pipeline before opening the line for questions. The first quarter of 2024, along with the start of the second quarter, have been both busy and impactful to our long-term journey. Turning first to the results of the quarter, I'm pleased to report that our net service billing rebounded from December's drop-off with three consecutive months of revenue increases. With year-end 2023 now in our rearview mirror, we are on track as expected for healthy growth in 2024. As mentioned in our press release last night, demand for engineering services remains strong in all of our markets. While it's certainly notable that backlog is up $78 million or 31% year-over-year, I think it's more relevant to note the $24 million increase in gross backlog during the first quarter, represented an increase of 8% over three months. The bulk of that increase was generated through new orders with transportation commitments being a meaningful component of the quarter's sales. As is typically the case in consequential election years, we see an uptick in urgency to produce transportation-related projects as local, state, and federal administrations promote infrastructure accomplishments. Since the end of the quarter, we have significantly increased our capital resources through a follow-on equity offering, an increase in availability under our primary revolver, and the refinance of the Surdex aviation and imaging assets. As of today, we have access to nearly $100 million of deployable capital between cash on hand, available debt, and free cash flow. As such, we are well-positioned to continue to execute on our current strategic growth initiatives. At this point, I'm going to turn the call over to Bruce.

Thanks, Gary. Just as a reminder, we refer to net service billing and net revenue interchangeably. This is a non-GAAP revenue metric that nets subcontractor and outside production costs from gross revenue. A reconciliation of all non-GAAP metrics is available in the press release we issued last night. At the end of March, we completed a $57.5 million equity offering, which included $51.1 million of gross primary proceeds after exercise of the issue. Due to the timing of the offering, with respect to Good Friday, the offering closed on Monday, April 1st, 2024. As a result, the offering will be accounted for entirely as a second-quarter event and none of the associated activity is reflected in Q1. This means the share counts reflected on the balance sheet and the P&L will not reflect the dilution, but the share count on the cover of the 10-Q we will file tonight will reflect all shares issued in connection with the offering, along with subsequent acquisitions and any other related stock activities. From a revenue perspective, the first quarter was a good rebound from the end of the fourth quarter for sure. We generated just under $95 million in gross revenue and just under $86 million in net service billing for roughly a 90% net to growth ratio. As Gary mentioned, net revenue increased sequentially each month throughout the quarter with a higher ratio of bill to earn this quarter, meaning the change in our net contract assets was a smaller percentage of total net revenue as compared to the fourth quarter. It's important to highlight that even though gross revenue was relatively flat compared to Q4, net revenue, the revenue earned by our workforce, and from where we make most of our profit, increased nearly 7% over Q4. Gross margin for the quarter was in line with prior periods at 51% on gross revenue. Gary mentioned in the press release that we believe we have sufficient labor in place to deliver the revenue growth throughout the remainder of 2024. We believe some of our margin expansion during the remainder of the year will come from increased gross margin based on the value of work in backlog. At $44.7 million, SG&A was up about 140 basis points as a percentage of gross revenue in the quarter as compared to full year 2023. We believe SG&A as a percent of gross revenue will revert to below last year's percentage as revenue grows during the year. We continue to monitor progress in the U.S. Senate with respect to the potential repeal of the R&D tax amortization and expense rules. For now, we continue to maintain our uncertain tax position concerning current period expensing of costs that could otherwise be construed as qualifying for R&D capitalization. It's a bit complicated, but suffice it to say that recent IRS guidelines treat 2022 positions and 2023 positioned differently. In connection with the portion of the UTP relating to 2023, we have accrued $1.3 million of penalties and interest in the first quarter that could be levied if we maintain the position and do not prevail in the long term. That brings the total to about $6 million accrued to date for P&I. We have until October of this year to decide on our position. If we choose to unwind the UTP, we will recover the accrued P&I. We estimate the 2024 cash exposure to a change in our position to be roughly $15 million. We will keep you posted as this evolves. Adjusted EBITDA for the quarter was $12.1 million or 14.2% of net revenue. Our adjusted EPS for the quarter was $0.22 basic and $0.20 dilutive as compared to $0.28 and $0.26, respectively for Q1 2023. This is a relatively new non-GAAP metric we recently introduced to help normalize earnings comparisons. To calculate adjusted EPS, the company adds back non-recurring expenses specific to acquisitions, non-cash stock compensation expense associated with pre-IPO grants, and other expenses not in the ordinary course of business. With respect to the elimination of any non-cash stock comp expense, the company computes an adjusted tax expense or benefit, which accounts for the elimination of any periodic windfall or shortfall tax effects resulting from the difference between grant date fair value and vest date value. With respect to all other eliminations, the company applied its average marginal statutory rate, currently 25.6%, to derive the tax adjustment associated with the eliminations. Turning back to revenue, we continue to advance our efforts on our revenue diversification with roughly 55% of revenue in the quarter derived from building infrastructure, 19% from transportation, 20% from power, utilities, energy, and the remaining 6% from other emerging markets. For the remainder of this year, Surdex-related revenue will be included in other emerging markets until such time as it either emerges from that category to be its own standalone category or is aggregated into another new or existing market category. Stand by on that front. Before moving on, I want to take a moment to address organic growth. Organic growth of net service billing was around 3% compared to Q1 last year. With no acquisition closing in the first quarter of 2023, we had no revenue to add to the organic basis for year-over-year comparison this year, meaning all organic growth was based on acquisitions we had closed prior to 2023. Despite having experienced organic growth since acquisition, all revenue from the 2023 acquisition class is nonetheless reported as acquired revenue during Q1 because none of them have reached the one-year mark yet. When you consider the organic growth embedded in the acquired revenue of the 2023 acquisition, however, our year-over-year organic growth rate for net revenue increases to over 4%. While this is low for us historically, the trajectory of revenue suggested by our 2024 guidance and backlog growth suggests that there is increased organic growth on the horizon this year. As mentioned earlier, the equity offering does not reflect on our March 31st cash and stock outstanding. As of today, we have approximately 17.6 million shares outstanding, including all unvested restricted stock grants, but exclusive of 570,000 performance stock units that could vest over the next three years based on total shareholder return. At the end of the quarter, our net debt was $84 million, and cash on hand was $12 million. Our leverage was 1.7 times trailing four quarters adjusted EBITDA, but that was all prior to the equity offering, which reduced net debt by more than half. Last week, we closed on a $100 million replacement revolver with BofA as administrative agent and TD Bank as syndication agent. This new line not only adds $30 million of borrowing capacity in the short run, but it also restructures our revolver to accommodate additional syndication participants as it grows. This is an important evolution in the character of our borrowing. We also entered into a new $11 million aggregate facility last week with Honour Capital as lease buyer to refinance the aviation and imaging assets of Surdex. With the new equity and the recycled capital, our cash position today is approximately $25 million, with roughly $75 million of borrowing available under the new revolver. We believe this should be sufficient to advance our current growth plans. Finally, we're increasing 2024 net revenue guidance to a range of $382 million to $397 million based on recent acquisitions, and the projected recognition of revenue from those companies post-closing. We are likewise increasing our 2024 guidance for adjusted EBITDA to a range of $63 million to $69 million. This includes all acquisitions closed as of today but does not contemplate future acquisitions.

Thank you, Bruce. It's been about six weeks since our last market update, and frankly, not much has changed in that time with respect to our markets. I'd like to take a moment to address organic growth. Since Bowman's founding in 1995, we've been all about growth. Results ebb and flow over time and growth has not always been at a consistent pace, but we've always managed to deliver dependable growth over the long run and are committed to continuing to do so. As we grow ever larger, we're taking proactive steps by bringing on highly experienced and well-connected talent devoted to continually increasing revenues in absolute terms to ensure continued healthy organic growth rates. Reiterating what I said in the press release, with the bulk of our organic growth anticipated to occur during the balance of 2024, we're confident we have sufficient revenue and backlog and a rightsized organizational infrastructure to deliver expanding margins as we realize the increased benefits of scale throughout the year. In April, we closed on the Surdex acquisition, our largest since McMahon back in 2022. This is an exciting expansion of our geospatial services portfolio as it now includes high altitude aerial imagery as a complement to our existing terrestrial and low altitude imaging capabilities. Furthermore, the addition of our extensive unmanned drone fleet, mobile scanning, and licensed surveying crews from the Surdex suite of services will be immediately accretive to that business. The integration of imaging fleets and capabilities is well underway with our professional services teams becoming familiar with each other and the breadth of our expanded capabilities. Our business development resources are actively exploring synergies with clients. We've already seen the fruits of this effort with a new approximately $3 million award in Oregon to start sometime later this year. While the Surdex business is complementary to ours, it's important to recognize some differences that affect the timing of revenue. Much of Surdex's high altitude aerial imaging business has two distinct seasons referred to as leaf-on and leaf-off. Certain contracts can only be performed during one of the other seasons. So, depending on the mix of backlog at any given time, revenue can be a bit more seasonal than in our legacy business. Weather also plays a bigger role in the timing of revenue in the high-altitude imaging business. Surdex's operations managers work hard to maintain utilization by repositioning assets as weather changes, but it's not a perfect science, and sometimes the weather can impact short-term timing of revenue recognition. We're very pleased with the access this acquisition gives us to expanded universal public sector clients and we look forward to using these relationships to expand our public sector revenue. Many of our utility, transportation, and development clients use high-altitude aerial imaging at the outset of projects, when relationships are established that last throughout the project. By offering these services, we expect to have more opportunities to get in on the outset of projects, thus enhancing our incumbency position, which will enable us to secure more wallet shares through longer-term assignments. I'd like to take a moment before turning the call over to questions to talk about where our leadership team is currently focused, as we approach our five-year goal of $500 million in annualized revenue in high teens margins. First and foremost, our most tangible return comes from relentless attention to tuning our utilization and rate multipliers to leverage the highest possible return from our labor. Across the organization, we are broadening our strategic focus on adjacency beyond just acquisitions to encompass all investments we make including technology, equipment, integration, business development and facilities. Labor optimization and cross utilization of resources are critical to our long-term success. In operations, we remain steadfast in our commitment to fostering work sharing and collaboration amongst our teams. Our leaders flatten silos when they see them forming and they challenge our employees to share best practices where they are identified. At every opportunity, we expose our employees to technical training and professional development opportunities that empower them to identify not just good, but exceptional solutions for customers. In IT, we are investing in systems, platforms, and processes that accelerate our ability to deliver more efficiently to iterate more extensively and to apply learning quickly throughout the company. We're investing in a constantly improving multidimensional production and communications environment, where our collection of extended resources operates both independently and as interconnected contributors in the delivery results that delight our customers. With regard to development of new business, we are adding well-connected rainmaking talent to our team. These folks bring along existing relationships and have the ability to leverage the resources of Bowman to form new relationships and expand our networks in the marketplace. We're recruiting highly connected senior professionals who run things, are well-networked, and know how to close deals. These foundational investments in people are critical to ensuring continuing healthy organic growth. As seems to always be the case, our pipeline of M&A opportunity shows no sign of slowing down. If anything, the volume of opportunities enables us to be more discriminating as to what deals we take past the initial indication to intent stage. So far this year, we've closed on nearly two-thirds of the revenue we closed on last year. I'm confident that we'll continue to be successful in finding adjacent deals for our acquisition program. With that, I'm going to turn the call back to the operator for Q&A.

Absolutely. We will now begin the question-and-answer session. The first question comes from Aaron Spychalla with Craig-Hallum. Your line is now open.

Yeah. Good morning, Gary and Bruce. Thanks for taking the questions. First for me, on transportation, you've had a big focus on expanding the capabilities there to provide more services to DOTs. It seems like you're starting to see more traction given activity this quarter. Can you just talk about how you're feeling about your offering, the outlook there? And is it still pretty early in those IIJA dollars kind of flowing from the states in the market?

Yes, our position is expanding, and we're seeing the results of that. The flow of the IIJA dollars is still in the early stages, but it is progressing. Some of the activity we are experiencing with the deals that have been closed, as well as those in the pipeline, are outcomes of IIJA activity.

Yeah, Aaron. Good morning. I think it's good news that almost all the money now is at least at the states. And so, that positions it now at the starting gate. And certainly, some of it has left the gate, but it's lining up, and we do think that there's still a lot of tailwinds to it.

All right. Thanks for that. And then, on backlog, good to see that you're getting close to that 50% level outside of building infrastructure, but not really at the expense of growth there. Can you just talk a little bit about the outlook in building infrastructures as we move through the year, where you're seeing some good prospects for growth in any areas that might be a little more challenged in the near-term?

It's positive news on that front. Starting with our data centers, which are a small but growing part of our business, that market is experiencing significant demand with numerous orders coming in. We’re also noticing a marked uptick in the residential sector; single-family homes have begun to recover since the start of the year, and we're seeing some encouraging signs in multifamily developments recently. Other segments are performing well, with retail remaining very strong. Overall, we're anticipating a very robust year in the building infrastructure market.

We are not involved in the urban high-rise market, and there has been no change in that. We are not being drawn into it. However, everything in the suburban and exurban areas has been very popular.

Understood. Thanks for the color. I'll turn it over.

Thanks, Aaron.

Thanks, Aaron.

Thank you. The next question comes from the line of Jeff Martin with Roth. Your line is now open.

Thanks. Good morning, guys. Wanted to dive in a little bit more on the shift from Q4 to Q1. You mentioned sequential increases throughout the quarter. I was just curious if you could highlight which areas were particularly improved by segment?

I don't think it was particularly detailed. What we're seeing sequentially is that, as we mentioned in December, there was a general decline at the end of the year, and in the first quarter, we experienced a uniform recovery back to revenue levels above where they had been. I don't believe that any one segment drove more performance than usual during this time. Transportation has remained strong, and the power and utility sectors have been performing well, working to build their market share. The mention of growth refers to the overall picture, which we indicated at the end of last year would rebound and revenues would recover. It was merely a temporary situation.

Great. And then, on the Surdex acquisition, that's your largest to date. I was just curious if you could talk us through kind of integration timing. What may be different from integration from past acquisitions relative to its size and perhaps a bit more complexity?

So, Jeff, we view integration as consisting of three key components. The first is financial systems integration. The second is IT network integration. The third is operational and organizational integration, which occur over different time frames. We expect the financial integration to take place this year. Our ultimate aim for all our acquisitions is to have one profit and loss statement and one operating environment from a finance and reporting standpoint. However, some acquisitions take longer than others to integrate. This one should not be significantly different from the previous ones and will follow the integration schedule. The IT networks have some differing systems, and the amount of data they handle is considerably higher than what we process, especially regarding imaging. Therefore, integrating the networks will take some time. The real acceleration in sharing will happen once everyone is on a common platform. Operationally, as Gary mentioned, that process is already underway.

I'll address that. I'm focused on the social integration, which is currently my top priority. This acquisition has generated a lot of enthusiasm among our leaders regarding the potential for cross-selling. We have already conducted several joint strategy planning sessions. Therefore, I believe early indicators are showing positive signs, and our integration efforts in this area are progressing well, which will lead to revenue synergies.

I have one more question. Regarding the SG&A for the quarter, there were several unusual or non-recurring items. You mentioned that you anticipate having seen operating leverage year-over-year for the year. I just wanted to give you a chance to elaborate on SG&A in Q1, especially since stock compensation appears to be a bit of an outlier.

I think there's not much more to add than what we usually say. We are continuing to grow the company's infrastructure as we prepare for the next phases of moving beyond our emerging growth company status, which involves some investment. As Gary mentioned, we've announced some significant business development investments, recognizing that our nominal growth needs to be larger to achieve a similar growth rate. Stock compensation expenses are still impacting us from before our IPO, but we see it as part of our approach to attract talent in the market. However, I can't pinpoint any specific area of SG&A that looks like it's nearly finished. We are still focused on growing while trying to keep our organization as lean as possible.

Thank you.

Thanks, Jeff.

Thank you. The next question comes from the line of Jean Ramirez with D.A. Davidson. Your line is now open.

This is Jean Ramirez for Brent Thielman. Good morning.

Good morning.

Starting with Surdex. Could you talk a little bit more about that seasonality compared to Bowman's business? And perhaps if you could provide some details about the margin profile, whether it's lower or higher than Bowman expected or any details around that?

So, as we indicated in the press release, their margin profile is slightly higher than Bowman's overall organization. However, I don't believe that will significantly affect us since it represents a small percentage of our overall business. We expect it to have a positive contribution from a margin perspective, as they have historically operated around a 20% margin. While it is beneficial, it is not large enough to have a substantial impact on our operations. Regarding seasonality, we generally do not consider our business to be seasonal, although we do notice some holiday-related seasonal patterns. The way they conduct business does introduce some foundational seasonal elements. For instance, there are times when imaging the earth becomes more difficult due to foliage. In some cases, customers may want to see changes in vegetation, which adds a layer of complexity. There can be variability in their revenues based on the contracts they are fulfilling, depending on whether they are focusing on leaf-on or leaf-off work, which may affect the timing of their projects. This does not change the total amount of work but alters the phases of when that work occurs. Additionally, weather can have a greater impact on their business compared to ours in a broader sense.

Understood. If I may, could you clarify the revenue guidance increase? What are the new guidance range limits you are considering, and what factors might impact the low-end of that range?

Well, we look at our backlog; we look at the ability to deliver revenue. We narrowed that gap as we go through the year. Historically, we start with a slightly wider gap. It is a people business. It is a business that is often dependent on the timing of funding, the timing of public interactions. Even when they're private clients and private sector work, it often intersects with public activities, whether that's commissions, boards, and approvals. And so, we start with what we are confident on the low-end that our backlog and momentum will produce and we look at where we think on the high-end if things go right, we can squeeze the additional revenue in and narrow that throughout the course of the year. It's not really a handicapping of any one event or two events. It's early in the year. It's 2,200 people billing work to customers that require milestones and approvals. So, sometimes we just as we get closer, we have better visibility.

That makes sense. And just adding on to that, with the organic growth rate of the company that has recently slowed down, and you mentioned a couple of reasons why, do you still expect low to mid-teens in 2024, and do you have that line of sight today?

Yeah. Probably in the low-teens or high single digits is what we're looking at for organic growth rate in 2024.

We have examined our backlog and understand its sources. As we reach the anniversary dates of the companies we've acquired, their revenue will transition to organic revenue. There are two primary reasons we anticipate an improvement: we have already experienced organic growth within the acquired revenue that will continue to convert as the year progresses, and we have clarity on the delivery of our expected revenue. By the end of this year, everything we've acquired will be considered organic growth. We are confident that we will reach the same results as in previous years.

And just to clarify, according to that conversion or transition, what was your exit organic growth rate for March?

I'm sorry. What's that?

I just want to confirm, regarding the exciting growth in March, you mentioned the organic growth rate was 4%. Was that considering the previous acquisitions that converted in Q1? Is that correct?

There was additional organic growth that was embedded in the acquired revenue, that would have been the pro forma end of March. Yeah.

Got it. Thank you. Appreciate the time.

Thanks, Jean.

Thank you. There are no additional questions waiting at this time. So, I would now like to pass the conference back to management for any additional or closing remarks.

Thank you, operator. I just want to close by thanking everybody for participating in the call this morning and certainly for bearing through our technical difficulties here. And thanks again for your attention and for all the hard work for those who are part of the company and for investing in us for those of our shareholders. Have a good morning.

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.