Good morning. My name is Alisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group Third Quarter 2023 Conference Call. [Operator Instructions] Thank you. Please note that many of the comments made today are considered forward-looking statements under federal securities laws. 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 directly 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. Management will deliver prepared remarks, after which they 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 from the webcast attendees. Replays of the call will be available on the company's investor website. Mr. Bowman, you may begin your prepared remarks.

Thank you, Alisa. Good morning. Thank you everyone for joining the Bowman Consulting third quarter 2023 earnings conference call. As usual, I'm joined here today by Bruce Labovitz, our Chief Financial Officer. This past quarter is a solid indicator of what we are able to produce over the long-term. Gross revenue approached $100 million, and our adjusted EBITDA margin on net revenue exceeded 18%. At the time of our IPO, just about 2.5 years ago, our 5-year strategic growth objectives were to reach a $500 million gross revenue run rate and high teen adjusted EBITDA margin, while maintaining a 10% to 15% net to gross spread. Our results this quarter and year-to-date clearly demonstrate that we are on a trajectory to achieve those goals. While we did not close any acquisitions during the third quarter, we've closed two acquisitions here in the fourth quarter. Accordingly, I'd like to take a moment to formally welcome all our new employees from Excellence Engineering and Dennis Corporation to their first earnings call, along with all other employees who recently joined the Bowman team. As we continue to grow, our enduring ability to attract, develop and retain talent is a testament to the culture and values that we are all committed to embracing and advancing. We continue to make good progress on our revenue diversification initiatives as evidenced by the ongoing increase in the contribution of non-building infrastructure revenue, which reached 45% of our total revenue, up meaningfully from 30% in the year of our IPO. We continue to experience strong, and what we believe to be, sustainable long-term demand for our services from both existing and new customers, including new-to-Bowman customers added through acquisitions. We are experiencing significant tailwinds related to the funding for transportation, energy and re-shoring initiatives, which are propelling us…

Terrific. Thanks, Gary. The third quarter was a breakout quarter for us in terms of demonstrating our capacity for revenue growth and operational efficiency. As we continue to grow, not every quarter will be a reflection of the last one or predictive of the next one, but the trends we are demonstrating are representative of what we believe we can achieve over time. Gross revenue for the third quarter increased to 33% to $94.4 million as compared to the third quarter of last year. Year-over-year, organic growth or gross revenue for the quarter was 11%. Net service billing, a non-GAAP result for which we provide reconciliations in our press release and disclosures, increased 27% to $82.1 million in the third quarter compared to the third quarter of last year. Year-over-year organic growth of net service billing was just over 9% in the quarter. During the third quarter, building infrastructure represented 55% of our gross revenue, with transportation at 21% and power and utilities representing 20%. Nonresidential revenue represented nearly 66% of building infrastructure or 36% of gross revenue. Residential revenue represented just under 19% of gross revenue with what we would characterize as for sale-related residential, accounting for just around 10% of gross revenue. In 2021, building infrastructure represented nearly 70% of gross revenue. While we are pleased with the progress we are making towards our long-term revenue diversification goals, there is more to be achieved. Year-to-date, gross revenue was up 36% to $253.3 million for the first 9 months of last year. Year-to-date, organic growth of gross revenue was just under 22%. Year-to-date, net service billing increased 32% to $223 million 0.5% as compared to the first 9 months of last year. Year-to-date organic growth of net service billing is just under 20%. Gross margin for the second quarter…

Thank you, Bruce. I'm going to take a moment here to discuss our markets, our M&A pipeline and our strategic planning before turning the call back over to the operator for our questions. Since we last reported our results, there hasn't been much change in terms of the general profile of demand for services in the market for infrastructure planning and engineering, which remains strong. What has evolved, however, is the breadth and scope of services we provide to meet that demand and the incremental wallet share and market share we can support. Our penetration of the traffic and transportation market is growing as we take on new clients, larger assignments and expanding scope of service covering roads, bridges and highways, railroad infrastructure, bus and light rail and aviation. I'm particularly encouraged by recent wins in our East Coast transportation group that continues to expand our assignments throughout Florida and Rhode Island. We expect to continue to add several new Departments of Transportation to our client roster over the next 12 months. In the power and utility market, we continue to grow our footprint and service offerings through acquisitions and strategic hiring. Our electric undergrounding practice continues to be a growing market for us as we expand our client base from Florida and the Mid-Atlantic to Southern California and several markets in between. We recently announced expansion into Nevada as we grow our engagement with our largest gas utility client for whom we are working on a series of multiyear programs for pipeline replacement, new construction and high-pressure gas station design. We are actively engaged in efforts to build our gas pipeline revenue throughout both Nevada and California. With the Excellence Engineering team now on board in Tulsa, we are experiencing increasing demand in our energy services practice for upstream…

[Operator Instructions] Your first question comes from the line of Aaron Spychalla with Craig-Hallum. Your line is open.

Yes. Good morning, Gary and Bruce. Thanks for taking the questions.

Good morning, Aaron and welcome.

Good morning. Thank you. First for me, good to see the continued diversification of the business. Can you touch on transportation and power and utilities, just some of the drivers that you're seeing there and if you're starting to see some of the infrastructure dollars coming out and how you're expecting this to unfold as we move forward?

Clearly, they're both driven currently by IIJA, IRA and similar programs. I know there's an underlying, a secular driver of just the need to improve these facilities. There are strong drivers for those programs. We are still in the early innings, as I mentioned earlier, of the IIJA funding. So we are starting to see some of that flow, but the outlook in the next year and ensuing years is going to be much stronger.

Understood. Thanks. And then just maybe second, can you talk about the extent that you're seeing higher rates and kind of macro impacting some of the bidding? I mean good to see the backlog expansion. But just can you talk about that a little bit, please?

Higher interest rates, you mean, I assume …

Yes, just kind of interest rates and just some of the broader kind of macro uncertainty and the impact you're seeing there.

We are seeing very little impact that we feel is driven by interest rates, certainly in the residential market that has slowed down. We are seeing, I think, green shoots of that coming back to life as people redo their cap tables and so forth for some of the build-to-rent projects. But overall, as far as impending recession or adverse effects of interest rates, we are seeing that as having very little adverse effect on our business.

All right. Thanks for taking the questions. I will turn it over.

Thanks, Aaron. Good to have you on board.

Your next question comes from the line of Alex Rygiel with B. Riley. Your line is open.

Good morning, Gary and Bruce. Very nice quarter.

Good morning, Alex. Thank you.

Thanks, Alex.

Good morning [indiscernible] as well.

Couple of quick questions here. First, Bruce, maybe could you break down the commercial slice of the pie a little bit greater? Just trying to understand commercial office buildings, data centers, that kind of thing?

Yes. Actually really don't get too granular about the composition of commercial. I would say that the biggest participant in that market is data centers today, followed by what we think of sort of as convenience commercial, which probably talked to as sort of a combination of small store convenience store, gas station, quick-serve restaurant and the category followed then by what we think of as big box structures. That could be a large commercial, a large warehouse store or an industrial facility. Last in that list would be commercial office. We talk about this in the three concentric circle model of Downtown Urban, where we are not very active at all. The second circle of suburban is mostly transit-oriented, we are fairly active in that, and it is a healthy part of the commercial market. Then that exurban, the third ring, we would say, is probably more active as redevelopment of commercial or reuse, a facility that's in its second or third generation of life being converted from old warehouse, flex to data center or converted to residential. That's about the makeup of that market.

Very helpful. And then when we talk about gross margins, can you talk about -- obviously, it's hard for us to tell as you make acquisitions, whether or not your -- these acquisitions are accretive or dilutive to margins. Maybe from a macro standpoint, you could talk about sort of the headwinds or the tailwinds to gross margins on a go-forward basis?

Yes. I'll start with the strategy of our acquisitions has been high frequency, lower dollar and lower risk profile. And as such, in the very short run, no one of them is really driving margin because size is so disparate between the incoming and the existing. We think that they are all, over time, accretive to margin by virtue of their existence in our portfolio, the scale that they create. But I wouldn't suggest at this point that any one of them has such a such a disparate profile in margin that it's going to drive gross. And so gross margin over time for us with a consistent set of product offerings, will stay in this -- we think sort of low 50% range. It does depend a little bit on utilization from period-to-period because we allocate fringe along with direct costs. So they said there's higher utilization, we get a little more fringe going into gross margin. At some point, we think that technologies can be introduced that will either periodically or in the long-term positively impact gross margin. Did I answer the question? Make sure I got [multiple speakers].

You sure did. And then just one last question. Coming back to kind of multifamily and single-family residential construction, there seems to be maybe a little bit of concern that multifamily residential might start to slow down going into 2024. What are your views on that?

We are seeing some slowdown. Multifamily is a fairly small part of our overall portfolio. A large part over the past couple of years has been the build-to-rent, which some could maybe characterize as horizontal multifamily. And we are really starting to see, and frankly, it's more anecdotal, maybe the [indiscernible] that we are hearing from our clients, we feel very optimistic that that market is getting ready to heat back up. And the elements of the residential market are generally countercyclical to each other in that housing demand remains, although the distribution of it may change. So at some point people don't want to buy a house, they want to rent until they decide to buy a house. And so we are agnostic to which component of residential is working at any given time because the overall market is what we are serving.

Very helpful. Thank you very much.

Thanks, Alex.

Thanks, Alex.

Your next question comes from the line of Oliver Chornous with D.A. Davidson. Your line is open.

Hey, guys. Thanks so much for having my call. I’m on for Brent this morning. Can you hear me?

Good morning.

Good morning.

Yes, I was wondering, you guys had real strong cash generation in 3Q. Do we think that, that's going to continue in 4Q?

We think that we are on a good path for positive cash generation, whether it continues at the exact pace, fourth quarter is always a little bit tougher of a quarter for us. Just the calendar can interrupt a business that is human-driven and with the holidays. I think it will still continue to be strong in the fourth quarter. That will be exactly -- the third is exactly predictive. The fourth might be a little lighter, but I don't think it's meaningfully different.

Awesome. And what organic growth rate is embedded in the guidance for 2024? Which areas do you anticipate seeing some contraction in '24, if any?

10% to 12% is currently inferred in that guidance. Areas of contraction, we are really not programming areas of contraction per se. We feel like the interest rate sensitive areas of our business, say, the residential has, we've seen the contraction are on the rebound there. We haven't programmed necessarily a strong rebound, but no contraction.

Yes. I think it's important to characterize the way we look forward as you ask organic. At some point, we take the mix of everything that's in the stew and grow it year-over-year. And so we don't really break it out like what's acquisitive, what's -- there's no new acquisitions, obviously. And we sort to say, okay, the base of business we have, based on when we bought it and how it annualizes and what we think it can grow at.

Okay. And you guys indicated earlier, I guess there's no plan for some huge pending M&A that would then kind of separate the overall growth from the organic numbers pretty significantly?

Well, I think we would say that there is always upcoming acquisitions in our pipeline. So, we don't include any acquisitions that haven't closed in the guidance at the time that we issued the guidance. I would not suggest that there won't be meaningful acquisitions in the future that will impact the guidance when it occurs, but it is not contemplated and included in it today.

Sure. Awesome. Thanks so much for your time, guys. I will jump back in the queue.

Thank you.

Thank you.

There are no further questions at this time. Mr. Bowman, I turn the call back over to you.

Thank you, Alisa. I want to just wrap up by thanking everybody at Bowman for their hard work, dedication and -- which turned in a good quarter. Looking forward to the same coming up in this quarter and next year. Thanks all of our owners for the faith you show in us and looking forward to seeing everybody at upcoming conferences. And by that time of the year, everybody, have a good holiday till we talk to you again.

This concludes today's conference call. You may now disconnect.