Good morning. My name is Tia and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group Third Quarter 2024 Conference Call. [Operator's Instructions] 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 take 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, Tia. Good morning. Thank you for joining the Bowman Consulting Group's third quarter 2024 earnings call. With me this morning is Bruce Labovitz, our CFO. I want to take a moment now to welcome all our new employees including everyone who is joining us from Exeltech Consulting in Washington State. This morning, I'm going to start off with some introductory comments, after which Bruce will discuss our financial results. Then I'll come back for some additional remarks about our trajectory into 2025 and we'll end with Q&A. You'll find our quarterly highlights on slide 3. For the third quarter, we reported over $100 million of net revenue, a first in the firm's history. This is a noteworthy accomplishment given that our revenue in 2020 that was the last full year prior to our IPO was $103 million. This is an exciting time for us as we continue to advance toward our frequently discussed goal of reaching $500 million in gross revenue annual run rate within our first five years as a public company. The continuing strength of our markets across all divisions and services resulted in healthy year-over-year growth of net service billings and adjusted EBITDA during the quarter. Interest rates came down for the first time in nearly five years, which reenergized the building infrastructure market. And as we had hoped would be the case, several large transportation awards that we have been waiting on finally got underway late in the quarter. In July we affected a change in leadership within operations. We promoted Dan Swayze to the role of Chief Operating Officer and he's hit the ground running. We expected Mike Bruen to settle into the newly independent position of President, engaging him an oversight of non-day-to-day operations and strategy of the company. Once in the…

Terrific. Thanks Gary. Well, it certainly was an all-hands-on deck effort during the quarter to refocus and realign our operations to deliver the solid results we released last night. As a quick reminder to everyone, we refer to net service billing and net revenue interchangeably. Net revenue is an industry standard non-GAAP metric that represents the revenue generated by our workforce by eliminating pass-through project expenses from gross revenue. So I'll start with revenue on slide 4. Gross revenue in the third quarter was up 21% year-over-year at $113.9 million with net revenue up 23% to $101 million. Year-to-date, we've generated $313 million of gross revenue and $281 million of net revenue, which represents year-over-year increases of 24% and 26% respectively. During the quarter, we implemented targeted staffing adjustments throughout the company to better align our labor with current and forecast revenue. Our gross margin for the quarter without giving effect to any of these labor adjustments was 52.4% as compared to 51.6% in the third quarter last year. Year-to-date gross margin has been 51.9%, as compared to 51%, this time last year. On a sequential basis as compared to Q2 this year SG&A was down 140 basis points as a percent of gross revenue at 45.6%. While this is not a destination, it is meaningful progress in our efforts to leverage economies of scale as we grow. On slide 5, you'll see the non-cash stock compensation in the quarter was $6.5 million compared to $7.2 million last year. Year-to-date non-cash stock compensation expense is $20.4 million which includes roughly $1.4 million of expense related to our employee stock purchase plan. We're still projecting roughly $26 million in total stock compensation expense for 2024, which will be 6% to 7% of net revenue. Looking ahead we expect that percentage to…

Okay. Thank you, Bruce. Last week we announced the acquisition of Washington state-based Exeltech Consulting. It's a well-established 35-year-old engineering design and program management firm. They have extensive bridge design, structural engineering, transportation planning and environmental sciences capabilities. Geographically, this acquisition complements our July acquisition of Washington-based FCS Group which is a professional services firm focused on rate and financial consulting for the utility and renewable energy industries. The acquisition of Exeltech fits right into our strategic objectives by fueling the growth of our national transportation practice and expanding the breadth of associated offerings. The fact that Exeltech and FCS are in close proximity to each other provides Bowman with an immediate combination of regional expertise established customer relationships and expansion of our operational footprint to the Pacific Northwest and beyond. From a macro perspective, the first Fed rate cut in several years has energized real estate markets. However, uncertainty around the pace of future rate cuts and the landscape of regulatory and economic policy is having a sort of paralyzing effect on this market. Good news for us is that planning and engineering are the first steps in preparing for project starts and restarts. And we see a notable uptick in market activity in real estate-related markets particularly in multifamily markets such as build for rent and apartments. Okay. Turning to slide 11. Several of the transportation award starts that were delayed over the first part of the year finally got underway in the latter part of the third quarter. Notable among these is the Illinois DOTI 55 corridor rehabilitation project where we're providing multiyear management and design services for a 16-mile section of the highway. Others include a design build project for the Virginia DOT and a comprehensive roadway improvement project for US. Right one in Philadelphia. Large…

We will now begin the Q&A session [Operator Instructions] The first question comes from the line of Jeff Martin with ROTH Capital Partners. Please proceed.

Thanks. Good morning, Gary and Bruce. Hope you are doing well. Good to see the efforts put into the quarter starting to show through. So I guess first question are we done with the internal changes? Are we heading in – did you head into the fourth quarter with a clean slate? And if not what remains to be done?

Clean slate yes. It's always a journey. But over the third quarter the changes we've made we consider that – we reached our destination there. We're ever diligent and deliberate in keeping an eye on that. So it's something that always evolves but done deal.

Good to hear that. Okay. And then with respect to your updated 2025 guidance, what level of organic growth are you assuming for that year? And if you're assuming any different equation in that organic growth relative to what you had previously assumed maybe help detail that for us.

Yes, Jeff midpoint of that is probably around 7% organic growth for next year. Again, coming out of the shute conservative on that. We've -- it's basically looking at this year, as adjusted for acquisitions as the base growing forward. I don't know that there's any significant shifts in strategy related to next year, other than continuing focus on these markets that we're in. Q – Jeff Martin: Great. And then the last one for me. You mentioned, moving up the size of M&A deals going forward. Could you help maybe give us some relative perspective, on how much you plan to move up? And then I guess the second part to that question would be, curious to get an update on how the Surdex acquisition is performing since that is one of your largest acquisitions to date.

Right. I'll say, it's an evolution in our M&A strategy. Really, it's a recognition as we're getting larger and larger, it takes the larger deals to move the needle. So, we don't have any real -- we don't have a target size, but just a strategy get larger and the larger they get by definition almost a little less frequent. As far as Surdex, we're pleased so far. We're seeing lots of cross-selling and revenue synergy and it's moving along fine.

Jeff, we've averaged sub -10 this year in our acquisitions, and sort of setting a goal to get that into double digits next year, you think about the number of acquisitions and we talk about that in terms of revenue, right, revenue bought. Surdex was an outlier in that. So kind of putting that aside, I think doing things more in the sort of let's call it the recent Exeltech, which was closer in that -- the FCS, the Exeltech closer to the 10s as opposed to the smaller ones that the TCEs and the elements and species that were earlier in the year, and try to cut a couple of turns in terms of number of acquisitions out, but still continue to increase the amount of revenue bought. Q – Jeff Martin: Very helpful. Thank you.

Thank you. The next question comes from the line of Aaron Spychalla with Craig-Hallum. Please proceed. Q – Aaron Spychalla: Yes. Good morning, Gary and Bruce. Thanks for taking the questions. Good morning. So maybe first on transportation. Good to see some of those awards come in there. I know that's been a big focus for you. Can you just talk about how that pipeline looks there, continuing to expand to more DOTs and starting to see that IIJA funding come out here in the back half of the year?

We are seeing the pipeline continuing to expand in several of our acquisitions like we mentioned on the call, Exeltech. So it's a big focus of our inorganic growth strategy, but the acquisition several years ago of McMahon and our Chicago operations, they're seeing some good robust and large transportation projects.

Gary, you'll see we're focused on DOT certainly. That's kind of like let's call that a depth, but there's also a breadth, and breadth being things like the adding bridge, engineering, bridge design and that sort of structural element of transportation engineering to try to expand how many things we can do for an ever-growing base of clients. We've already started -- we mentioned, we already started working with Exeltech in advance of the acquisition and they're already teaming with them on projects that where their skill set brings additional capabilities, and opportunities to groups that are better entrenched with larger transportation departments, than they would have been nationally, but with an additional scope of services.

We're in early innings with Surdex, but Surdex was not able to serve big transportation markets prior to joining us. And now with our broad clientele, we're looking into actively marketing state DOTs for the aerial survey work that Surdex brings.

It's one of those that it kind of adds a bit of momentum. It's an accelerant. You get 1-2-3-5-20 DOTs. Now the next 10 of them are easier to get than the first 10 to 20. Q – Aaron Spychalla: No, that's really helpful color. Thanks. And then just second for me, can you just maybe some early reads or thoughts just on the election, and what that might mean for your business here moving forward?

Certainly, we're speaking of early innings. We're in barely up to the plate on assessing that. We think if anything, it will be positive for our business. We have some presence in fossil fuels and oil and gas. We think the change in the regulatory environment will make that a more robust market. We're looking forward to that. We fully anticipate that the infrastructure spending is -- the dice is cast on that. So we're quite confident that we won't see any adverse effect on that. Some analysts feel that the new administration may move to some more privatization of infrastructure. So we're already thinking how we focus on marketing to our PPP developer clients. And in the mining the lack of the change in the regulatory environment probably increased mining. We're cautiously optimistic on the renewables there's a lot of thought that the renewables the IRA has created so much economic activity in red states that it hopefully will stay in effect. If a different party -- the other party had won the election, we'd probably be more apt to double down on our renewables, but we're fully confident that our presence in renewables will continue to be a robust part of what we do.

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

Thank you, Aaron.

Thank you. The next question comes from the line of Andy J. Wittmann with Baird. Please proceed.

Hi, good morning thank you for taking my questions. I guess I just wanted to ask a little bit more about the early look here at 2025. And specifically if you looked at your backlog today how does it compare to like historical levels in terms of the amount of that 2025 work that you're guiding to that's covered? Is it more? Is it less? And can you also just comment about the level of permitting and notices received that you've received on this work just as it comes out of last quarter where some of those delays were some of the reasons for the shortfall. So, I just wanted to get your confidence that the permitting and the things that are needed to get to work are in place for this 2025 outlook.

So, Andy, I would say that the backlog is relatively characteristically similar maybe a little bit more beneficially stacked for next year only because of some of these timing issues we've had in the last couple of quarters and a quarters or so that there's a little bit of more ready-to-go kind of stuff that might hit a little quicker. But I'd say generally speaking, the backlog is similar in nature. It's bigger obviously than it's been. But relative to what we forecast for next year, I think it's characteristically aligned. In terms of permitting, again, we don't anticipate any real hurdles with that.

Okay, that's helpful. Just maybe a couple of clarifications here then. It looks like the one-time costs associated with the staffing adjustments. Was that it looks like there's in the other line for your adjusted EBITDA bridge is more than a little bit than it has been historically. Is it in there and added back Bruce?

Yes.

Okay. And then -- I'm sorry just on the -- in your script, the comments on the changes related to the calculation of organic growth -- can you just go through that one more time just so I can make sure understood what you're doing now?

For the quarter, so looking at third quarter, we looked at a trailing four-quarter organic growth rate using the same methodology we've used in terms of anything that is more than four quarters prior was in the organic base from which we were growing. Anything that was acquired in the last four quarters is eliminated from the total net revenue used to calculate the growth on top of that. In terms of the year-to-date, it's the same as it's been.

Sorry. So, you're saying that the 8% organic NSR growth that you highlighted in your release is based on a four-quarter result that's reported for this quarter. Did I understand that correctly?

Trailing four quarters. Trailing four quarters from third quarter. So, it would be fourth through third and then third -- fourth 2022 to third 2023 versus fourth 2023 to third 2024 was everything from...

Got it. Okay. I'm going to try this maybe a couple of different ways. What would the calculation have been under the old methodology for the third quarter?

So the third quarter discretely would have been about flat because there was -- because of the timing of acquisitions in the previous year, singular Q over singular Q was more flat.

Yes. Okay. Yes, that's what I was trying to understand. Okay. That makes more sense. Okay. So then just in terms of the M&A pace, I'm just -- I'm kind of curious did the organizational changes in the quarter at all impact the deal flow that you're able to execute? Or were they kind of mutually exclusive actions for the company during the quarter?

The organizational changes didn't adversely affect our ability to do deals and a pace of deals. I'll call it our machine is still in place.

Got it. Okay. I think that's are my questions for today. Thanks.

Thanks, Andy.

Thanks, Andy.

Thank you. The next question comes from the line of Brent Thielman with D.A. Davidson & Company. Please proceed.

Hi, great. Thanks. A question around the margin expansion implied in 2025. What are the levers you're going to be able to pull to support that? Just thinking about that in context of what we've seen in 2024 thus far? Is it beneficial contract mix? Is it the margin expansion implied in 2025? I mean, what are the levers you're going to be able to pull to support that?

So we think that we are again continuing to improve our economies of scale. We think that we are -- as we're growing the top line we're starting to be able to better meter the overhead costs associated with the revenue. Like some of the -- I don't know that I would say it's built into the contract rates. We certainly are seeing some improvement in I think some of the multipliers that we think we can be getting on some of these projects marginally and that's all it takes is marginal improvement.

A continued focus on operational excellence. That's a lever that always to be pushed and it's one that renewed focus on that.

When we look at this quarter -- we're in the range of that.

Right. So the expectation is especially with some of the things you've been doing here internally in the last -- well more than nine months that you should be able to outgrow your SG&A?

Yes. We think we can squeeze a little bit more out of labor the relationship with labor multiple of revenue multiple of labor and SG&A. And again I think this quarter we're in the range of where we want to be for the whole year next year.

Okay. And then I guess just on building infrastructure maybe just sort of the residential exposure state of affairs some companies talking about sort of slower trends as of late. I know you're not really directly tied to the stats per sequential, but is that area of your business stable for you? It sounds like maybe you're anticipating it to reaccelerate based on conversations you're having. Just be curious if you could talk around that.

Yes it's stable and not to quit what you just said, but we are -- based on conversations based on level of activity on proposal activity we do see new energy being injected into that going into 2025.

Thank you.

Thanks, Brent.

Thanks, Brent.

Thank you. The next question comes from the line of Alex Rygiel with B. Riley. Please proceed.

Good morning, Alex.

Good morning, gentlemen. A couple of quick questions here. First on stock-based comp first stock-based comp declining as a percentage of revenue. Is this a change in compensation strategy? Is it a swap into more cash comp? Can you talk about that comment a little bit more?

I think it's a combination of a couple of things. Yes, it is metering of the utilization of stock as compensation looking ahead. There is the burn off of old grants that burned off now of -- from pre-IPO days. It has to do with the -- yes, there may be some shift towards more cash-based compensation. I don't know that it is an increase in overall compensation but a shifting of paradigm there a bit and just growing into the level of having revenue grow at such that it absorbs from a percentage basis more of that stock comp.

That is helpful. And then two questions as it relates to some of your end markets. First, any update on the data center market and in particular these really large AI data centers? And then secondly, if you can provide any comments on whether or not you're seeing multifamily opportunities reaccelerate?

On the data centers the activity is robust. We continue to grow our presence in that market. Right now, it's outside of the building almost -- we do civil engineering and for the site engineering. We are looking at opportunities, looking into next year some opportunities to get inside the building with the mechanical and electrical facilities. On the residential -- on the multifamily, yes, we are seeing some significant movement in multifamily. Like I say as far as proposals, level of interest from the market. So we have a high degree of optimism that we'll see some acceleration in the multifamily activity next year.

Yeah, Alex. The data center market constraint today is the power not the land. And so in a lot of ways things are bleeding across a couple of different sectors for us. So I think there is activity we see in the capacity side of power to provide for what is an ever-increasing demand for the physical data center locations. You're certainly reading about how folks are starting very preliminarily to look at SMRs as power sources for data centers. So we're -- it's coming at us from two different directions.

And one of the things that we're seeing hearing from -- in the data center market the AI data centers they're not so -- I use this term I think it's right extensive to latency. So there's a lot more flexibility to where AI data centers can be located as far as proximity to the fiber corridors. So that just -- that opens up more opportunities for us with our geographic dispersion to do data center work in areas that we weren't doing it before.

We do get a lot of inquiries I'm told about from landowners thinking about rezonings or reuse applications to change over. Hey., can I be a data center? Everybody now has got a couple of acres left to be a data center.

Great. Helpful. Thank you very much.

Thanks, Alex.

Thank you. [Operator Instructions] There are no additional questions left at this time. I will hand it back to Gary for closing remarks.

Thank you, Tia. Just I'll close by thanking everybody for participating this morning. Thank you to those who are part of the Bowman for all the hard work done all the good work over this quarter certainly to our investors and stockholders. Thank you for the faith you put into us. And we're quite pleased with Q3 and quite pleased with our progress in continuing to evolve this company and reach our growth goals. With that we'll wrap it up for the morning. Thank you everyone.

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