Good morning. My name is Drew, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group Fourth Quarter and Full Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] 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 obliged 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 the published research analysts. Throughout the call attendees on the webcast may post questions from 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, Operator. Good morning. And thank you everyone for joining the Bowman 2023 year-end earnings call. As always, I’m joined this morning by Bruce Labovitz, our Chief Financial Officer. We appreciate everyone taking time to participate. I’m going to start off with a quick update on Bowman then Bruce will discuss our financial results. After that I’ll talk a bit about markets and pipeline before we open the line for questions. This call this morning is our first call after completing six acquisitions since our last earnings release. I want to welcome everyone from CFA, Blankinship, High Mesa, Hess-Rountree, TCE and Speece Lewis. This is a dynamic collection of organizations with highly skilled and motivated professionals who are already making an impact on Bowman. I also want to welcome everyone else who’s likewise joined us recently on our journey. I’m going to start off by reiterating our belief that the business of Bowman is foundationally solid. The markets we serve are well funded. The need to construct, improve and repair the infrastructure supporting the U.S. built environment remains urgent, demand for the work of qualified engineers and technical professionals exceeds the supply of resources and both our culture and our commitment to professional growth continue to attract and retain top talent. Since 2020, that’s the year preceding our IPO, we’ve grown in an exceptional compounded annual rate of 30%. We’ve completed 29 acquisitions of operating companies since the beginning of 2021, we’ve nearly tripled our staff by adding about 1,500 employees, we’ve diversified and deconcentrated our revenue streams and we’ve expanded geographically by nearly doubling our footprint of offices. We’re all tremendously proud of these accomplishments and I firmly believe in our team and our approach. However, we’ve not been nor will we always be flawless in the execution of our strategy. The end of 2023 was disappointing. It resulted from what we consider to be a series of miscalculations on our part relating to the integration of multiple cultures, new and unfamiliar clients and expectations around year-end utilization. Put simply, we didn’t achieve the levels of collective productivity at the end of the year that we have historically experienced and relied on for guidance. While we’re chagrined to have missed our forecast by what is in effect a couple of days of earned revenue, we’re no means ashamed of the year we delivered. Rest assured, as we persevere with our aggressive business strategy, we continually learn, adapt and change courses necessary. We press forward resolute in our commitment to continuous improvement and to delivering growth and shareholder value. Now I’ll turn it over to Bruce.

Great. Thanks, Gary. Good morning. I’m going to take a few minutes this morning to walk through our financial results and discuss our forecasts for 2024. For the fourth quarter, gross revenue was $93 million, up $17 million or 23% from last year. Net service billing, a non-GAAP financial metric also referred to as net revenue, was $80.5 million, up $14.3 million or 22% from last year. Our net-to-gross ratio, the indicator of how much our revenue -- of our revenue is generated by our workforce as compared to outside sub-consultants, was 86.6% for the fourth quarter, compared to 87.5% last year. That 1 percentage point change is representative of changes in client mix and really isn’t consequential. Gross revenue posted a 6% organic growth rate for the quarter, while net revenue posted a 4% organic growth rate. The organic growth rates were depressed as compared to prior periods because of comparatively lower productivity throughout the organization at the end of 2023. Gross margin was 50.4% in the fourth quarter. Although down around 180 basis points compared to last year, it’s still within our 50% to 55% range, albeit on the low end. Compared to last year, SG&A expenses rose in the fourth quarter, both nominally by nearly $10 million and as a percentage of both gross and net revenue. This increase in percentage was to be expected as more operations labor was classified as indirect this quarter, again due comparatively reduced productivity at the end of the year. Lower than expected revenue in the quarter resulted in a net loss from operations of $3.7 million. After other expenses and nearly $5 million R&D related tax accrual, which I’ll address later in my update on Section 174 issues, net loss after tax was $7.7 million for the quarter. Adjusted EBITDA…

Okay. Thanks, Bruce. I’m now going to take a moment to review our markets, our revenue diversification accomplishments and our vision for 2024 and beyond. We remain committed to our core markets of transportation, power, utilities and energy, building infrastructure, and our other emerging markets, which include mining, water resources and environmental consulting. For the past several years, we’ve relentlessly pursued a deliberate expansion of our scope of services and technical capabilities to gain market share through new relationships, while simultaneously increasing wallet share from existing customers. We’ve accomplished this through both strategic hiring and acquisition. Growing a business such as ours requires continuously adding productive human capital in an efficient manner. Our assembled group of talented professionals, which continually expands by way of acquisition and subsequent integration to a single operational -- operating organization, is the key ingredient in our ability to deliver exceptional growth and scale. To that end, our acquisition strategy is equally grounded in both expansion of capacity through accumulated of -- accumulation of assembled workforces, as well as the realization of revenue synergies. Once again, building infrastructure was our largest market at just under $195 million or 56% of our revenue. Power and utilities, however, was our fastest growing market, nearly doubling year-over-year. Starting this year, to better describe that market, we will refer to it as power, utilities and energy. Our transportation business grew an impressive 60% year-over-year and building infrastructure increased 14% year-over-year. These results are consistent with our commitment to revenue diversification and our focus on evolving and well-funded sectors of the infrastructure market. We continue to maintain a well-balanced and diverse customer base, with no one customer representing more than 5% of 2023’s gross contract revenue. Beginning with this call in the 10-K, we’ll file after market today, we’re providing further…

[Operator Instructions] Our first question today comes from Brent Thielman from D.A. Davidson. Your line is now open. Please go ahead.

Great. Hey. Thanks. Good morning, Gary, Bruce?

Good morning.

Good morning, Brent.

Gary, I appreciated your sort of candid comments on some of the challenges you face late in the quarter. Can you talk about some of the things you specifically faced and kind of what you’ve done to move beyond these kind of temporary integration issues, and I guess, what you’ve seen from the acquisition to-date sort of get us more comfortable with the go-forward cadence here?

Well, looking back, well, we really see it as sort of a, integration is an ongoing thing and we had maybe a critical mass of newly acquired companies that just are, we had not gotten the cultural integration come far enough along to impress upon everybody the need to keep moving throughout the year. What we’re learning from that and what we’re -- it’s really just improving and concentrating on the cultural integration and getting everybody on board the same -- in the same time.

Okay. And then, I guess, just with respect to the outlook for 2024, the comment about uneven growth and net service billing kind of from 1Q to 3Q, Bruce, can you just sort of clarify that? I mean, presumably you’re expecting sort of a sequential ramp up in revenue as we move from the first quarter to the third quarter as you typically see, but I’d love any more clarification to that?

Yeah. So, Brent, if you think about, you start with an average of the year 25-25-25 and when you say, well, we get out a little bit slower, we pick up second quarter and third quarter, and we might moderate that a little bit in four, I would just maybe shave a couple points off the front and the end, add them to the middle and have just a slightly uneven distribution so that there’s have a ramp up 1 to 3, maybe a plateau or we’re sort of thinking in our heads for don’t get -- don’t have it happen again. So maybe that we’ve kind of -- we’ve proformaed a little bit of a drop off or plateau in the fourth quarter, not continued growth in the fourth quarter. So I’d just take a couple points and move them around the spectrum.

Okay. And then just lastly, I guess, if you take a step back, looking at your transactions here recently throughout 2023, Gary, there aren’t necessarily any real large ones. I’m thinking about McMahon or kind of PDC, $10 million plus.

Right.

Are you finding those types of deals more competitive? Is there an appetite for those transactions that prevailing multiples? Just curious there.

The bigger we get and the attractive markets, they are more competitive, but we’re continuing to focus all throughout the size spectrum. So we are -- we have a focus this year and some good pipeline potentials of some more of the bigger acquisitions.

Okay. Great. I’ll pass it on. Thank you.

Thanks, Brent.

Thanks.

Our next question comes from Jeff Martin from ROTH MKM. Your line is now open. Please go ahead.

Thanks. Good morning, Gary and Bruce.

Good morning, Jeff.

I wanted to dive into the -- good morning. I wanted to dive into power and utilities segment a bit. Just noticing the growth year-over-year in conjunction with the increase in backlog, up $20 million year-over-year for the segment, typically you’d see backlog more flattish when you have that kind of outsized growth. So maybe comment with respect to the segment where you’re seeing particular strength. Are you adding customers? Are you able to capture new types of projects as a result of some of the acquisitions you’ve done over the past year?

Yeah. We’re continually adding new customers, Jeff, and especially in customers dealing with energy transition and renewable energy. Lots of solar, lots of battery storage, some wind and our power resiliency work is continuing to grow also. That’s especially the utility undergrounding and so forth. We are -- through our acquisitions we are adding some new or enhancing our capabilities. So, for instance, we’re increasing our ability to do more and more of the electrical engineering for these clients.

Great. And then on the transportation segment, obviously, the opportunity is there, the funding is there. What things do you foresee positioning the business to take advantage of that beyond what you’ve got today in terms of maybe adding resources, pursuing additional acquisitions or maybe partnering up with other firms?

Yes. Yes, to both. We have over this year we’ve added some resources that will get us into especially some of the bigger program management aspects of this. That’s an area where we see the DOTs really going to be, they’re going to be short on staff to administer all this. So, that will be an area of growth, and also, it is a particular function of our -- our focus of our M&A strategy firms that serve the transportation markets and will continue to be able to take advantage of the IIJA funding.

I think you can see, Jeff…

And in terms of demand…

… there’s been a lot of focus on DOTs. Sorry, go ahead.

I didn’t mean to cut you off there.

No. I was just saying there’s been a lot of focus on DOTs and expanding the number of DOT clients and the depth within those clients.

Right. Right. Okay. And then last one for me on the geospatial side, speak to the enhancements you’ve made through acquisitions and maybe organically. And I know that’s used broadly across your segments, but maybe speak to the take rate or the uptake rate in terms of how clients are using geospatial increasingly throughout your portfolio of segments?

It’s an area where we’re currently probably applying the greatest amount of our sort of our digital skills and talents. It enables us to -- a lot of our acquisitions so find don’t do the geospatial work. So we’re able to immediately add a wallet share to the clients we acquire. The technology is high definition scanning and developing some digital twinnings. So, that -- those technologies have been advanced by several of our recent acquisitions.

Great. Thanks for taking the questions.

Thanks, Jeff.

Our next question comes from Alex Rygiel from B. Riley. Your line is now open. Please go ahead.

Good morning, Gary and Bruce. Very, very nice year. Congratulations.

Thank you, Alex.

Thanks, Alex.

A couple quick questions here. There’s been a notable mixed shift away from building infrastructure towards transportation and power and utilities over the past two years. Noting your earlier comments that this hasn’t really changed your margin expectation, but has it changed your organic revenue growth outlook at all and what is your sort of 2024 or intermediate multiyear kind of view on what organic growth could be for this asset?

This asset being Bowman or…

Yeah. Yeah. Sorry.

No. This asset being Bowman.

Okay.

We see organic growth this year being in the low- to mid-teens, and the -- I say the change in mix, that was our strategy from the day or before the day, we decided to embark upon this journey of being a public company. So, it’s execution of a strategy. We don’t really -- we don’t see that changing our strategy as far as organic growth or our expectations and our ability to execute on organic growth.

Yeah. So, a margin point of view, I don’t think that necessarily the markets themselves -- within each market, there’s pockets of differentiating margin. But essentially, at the end of the day, we’re doing the same things in different markets. It’s really a de-concentration of risk strategy more than a -- in terms of diversifying markets. But to earlier questions, the introduction of technology and disruptive services could, for periods of time, have margin enhancing benefit. So, it’s really sort of more in the services that we see that there’s opportunity for margin than it is in the distribution of revenue between markets.

That’s helpful. And then, sort of looking at your end markets, I mean, Gary, could you maybe rank the two or three strongest end markets from an organic growth standpoint, and then maybe identify the ones that are either sort of declining or flattish at this moment in time?

The strongest right now from organic is the power and energy, and especially those aspects, like I mentioned earlier, dealing with energy transition and renewable energy. That growth has been fairly phenomenal and it’s been almost all organic. The -- I’ll say, in 2023, the building infrastructure was probably the softest. We see that what we’re seeing in the market indicates that we’ll probably pick up some this year as the interest rates peak and the outlook for interest rates to start going down.

The other thing I would say is that, the markets themselves are the strongest organic. For us, again, starting from smaller basis, the way to accelerate growth and create future organic, bigger organic growth returns is to acquire into those spaces, increase our capability. So, short run, our organic growth rate within a market may not exactly line up with the organic growth rate of a market, follow the difference. We may acquire our way to a bigger basis to then take more opportunity from the organic growth nature of that market.

And then, lastly, Bruce, or maybe Gary, you mentioned on the call that the class of acquisitions in 2024 in the aggregate will probably be, on average a little bit larger than the class of 2023. Can you comment, as you kind of look at larger businesses here, does that suggest or imply that maybe the purchase prices are greater as well and/or suggest or imply any other improved growth opportunities or risks?

We’re not envisioning that in 2024 on hold we’ll be paying more pound-for-pound for our acquisitions. So, in the -- as we are evolving to larger acquisitions, we’re still, I’ll say, in the same general ballpark, so the same expectations for what we pay. What we’re finding is it’s not quite so much size dependent, again, in the area where we’re doing business, but we need to get more aggressive on the pricing in the more desirable markets. So, for instance, the transportation businesses are expensive. Those dealing with the energy grid are more expensive. So, it’s -- that’s where we see our expectations to have to pay increase based on the market they serve.

Very helpful. Thank you very much. Nice quarter.

Thanks, Alex.

Thanks, Alex.

Our next question comes from Aaron Spychalla from Craig-Hallum. Your line is now open. Please go ahead.

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

Hi, Aaron.

Good morning, Aaron.

Good morning. So, appreciate the commentary earlier about still seeing more demand for services than available supply. Can you just talk about any changes you might be seeing as it relates to pricing in the market and then just maybe an update on labor as you manage the growth here moving forward?

We’re expecting and foresee the pricing in the marketplace to be the same as last year. Obviously, inflation, you have to sort of adjust, but inflation adjusted. We anticipate being able to still get, again, pound-for-pound, at least the same thing in the near future that we’ve been getting in the past and the -- and our --we have done a good job in managing our labor costs. The labor costs certainly are increasing with inflation, but we’re seeing an ability for the pricing and the cost of labor to increase at the same rate as parallel lines.

So, I think part of what we’re saying also is, we’re not expecting hyperinflation in pricing. Our growth in the future is not just because the same clients are paying 1.5 times what they were paying before. It’s really foundational growth, right? There will be pricing growth. We continue to be -- we also continue to be unique in our -- amongst our peers in terms of the construct of the company and our ability to use equity as a form of compensation and it benefits us in our attraction and retention of labor to be what we are today relative to the competitive market for clients and the competitive market for labor. We work very hard in both markets to gain market share.

Right. Understood. Okay. Then maybe second, can you just kind of talk about the visibility you have into 2024 guidance from the backlog and the pipeline today, maybe how that compares the past years? And then just maybe a little bit on other visibility you have from some of the reoccurring projects or sort of phased in projects that might come in over time that aren’t in backlog today?

Yeah. So, Aaron, I would say, we certainly are seeing -- we are seeing a bigger impact from long-term projects. As we get bigger, that’s one of the benefits of size is that we are more engaged with more. That doesn’t mean it’s a majority yet, but we’re more engaged with more long-term visible projects. So that helps with visibility. Backlog, generally, we can look into our backlog and try to see when projects will deliver. It’s hard to be so granular that you’re literally by day planning what’s going to deliver, but you get a general sense from the bottom up of we really do spend a lot of time looking at when do we think projects will deliver, what do we think our backlog will support in utilization, and therefore, how much revenue we can earn over a period of time. We generally go into a year expecting that 70% to 80% of our backlog will turn in a year and then there’s a lot of intra-year selling and delivering that sometimes never even makes it to backlog. Shorter term deliverables that, you sell it on January 3rd and you deliver it on March 29th, and the market never sees it as backlog. We feel like we have good, strong visibility to being able to deliver, and again, we caveat it always with the world doesn’t fall apart in front of us. On the trajectory of the markets today, we have confidence between our pipeline of opportunities and our backlog that guidance is deliverable.

Got it. Then just maybe last on the regulatory backdrop, last quarter, you mentioned less than 20% of the Infrastructure Bill and IRA funds. It sounds like start -- that’s starting to come more to the state level, but is that still something that you think is more of a late 2024 and into 2025 dynamic for when you might see more of a benefit from that?

We are forecasting it, not to repeat what you said, but in that timeframe. We -- IIJA has contributed fairly meaningfully to our revenue in the past six months to 12 months. It’s picking up. I think it’s ramping up slower than anybody anticipated that it would, but in our outreach to our clients and our feel for the market, we are expecting it second half of this year and well into 2025.

What we appreciate is that we expected, I think, everybody expected it maybe to come a little sooner. We’ve still delivered the growth that we’ve delivered…

Right.

… and that’s still in front of us. And so we are -- well, it’s good and bad news. Bad news, it hasn’t come as quickly. Good news is we’ve been able to do what we’ve been able to do without it coming as quickly as everybody thought. That’s still not in our backlog, because it -- a lot of that work hasn’t been yet. As we talked about, just in Illinois, there’s a backlog of $35 billion to $40 billion of transportation work and at 20%, that $8 billion just in one state of fees coming to pre-construction firms.

Right. right. No. Definitely. We’ll stay tuned for that. Thanks for taking the questions. I’ll turn it over.

Thanks, Aaron.

Thanks, Aaron.

Our last question is a follow-up from Brent Thielman from D.A. Davidson. Your line is now open. Please go ahead.

Welcome back, Brent.

Thanks. Thank you. Bruce, an accounting 101 or 202 question, I’m not sure which, but on the uncertain tax position, can you explain what happens if HR 7024 were miraculously adopted by the Senate and President? What should we expect to occur in the financial statement if this…

Yeah. If my tax nightmare goes away.

…tax expense reverses.

Yeah. My tax nightmare goes away. First, I have a lot more free time. But what happens really is in the P&L, you would see a reversal of tax expense, that $4.7 million. So, nothing to adjusted EBITDA as a result of that and the impact of the R&D amortization is not impacting short-term tax expense other than with that $4.7 million we talked about. So you wouldn’t see a huge P&L impact, but you would see a reversal of the liability and you would see the impact really run through the cash flow, but really it would be neutral. You would just see these wild swings. You’d see this big reversal of deferred tax assets and a big reduction in accounts payable and accrued expenses. So, there’s a lot of noise around not a lot of impact. The biggest impact for firms in this space has been the cash impact of this huge acceleration of tax payment that we have not yet experienced because of the positions that we’ve taken. So, you wouldn’t see a huge P&L impact. You’d see a big cash flow change, but on a net basis, it’s neutral. It would just take a lot of the anxiety out of the market and put a lot more investable cash back in the hands of firms like ours. I don’t know if that was an accounting answer.

And the impact on the cash flow is negligible because you’re already addressing that in the working capital portion is what you’re saying, just to correct?

Yeah. Because we’ve had to book it, then we booked this offset to it, right? So, it’s in the pre-working capital, sorry, it’s out in the pre-working capital and back in in the working capital section. So, but from a net income perspective, we would recover that $4.7 million of tax expense, which by the way, if for some reason we withdrew our tax position, we would also recover, but then we would be out the cash.

Okay. Fun stuff. I guess the other one I would ask is…

Call your senators, tell them to pass the bill.

I suspect this would get fleshed out maybe a bit more in the 10-K and the end market disaggregation. It would be interesting to see that. But I mean, you -- I think about this, you have a rather large land survey operation and it seems there are some rather large land consuming projects out there and manufacturing, industrial development, data centers. How much are these moving the needle in the building infrastructure segment today as we think about this kind of low- to mid-teens organic growth rate?

I’m not sure I exactly follow the question. Is it how is surveying affecting it or how are large land projects impacting the concentration of revenue?

Well, I think the topic du jour out there is there’s a lot happening in the supply chain coming back in the United States, a lot’s happening in manufacturing, plenty happening in data centers. I’d just be curious how that’s impacting the business?

The CHIPS Act, I think, we’re kind of talking now about the impact of the reclamation of manufacturing and stimulus. We don’t do a lot of manufacturing facility engineering, but what happens is it’s a stone in the pond and it has a ripple. So, when there is demand for resources in this market, and let’s say, a larger firm addresses that, it limits their ability to satisfy all demand of their existing portfolio. So, things spill out and come downstream. So, directly, I would say, Gary, you can add to it.

Yeah. To the sort of the large land, so where we’re seeing it is the utility projects, that is these mammoth pieces of land, say for solar farms or large transmission lines. So, that’s driving it and our data center work is tremendously robust in an area of tremendous growth. So, in the power and utilities and data center for the markets that we’re serving, we are really seeing that being a driver to geospatial, in particular and to the entire business.

Very helpful. Thanks, guys.

Thank you.

Thank you, Brent.

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

Thank you, Operator. Again, just want to thank everybody for participating in the call this morning and I want to thank -- again, thank all our staff for all the great work we do, hard work, and look forward to talking to everybody again in May. Take care.

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