Bowman Consulting Group Ltd. Q3 FY2024 earnings call

• Gary Bowman welcomed new employees and discussed introductory comments, leadership changes (Mike Bruen retired, Dan Swayze as COO), and market health with interest rates down reenergizing building infrastructure and large transportation awards. - Bruce Labovitz discussed financial results: net revenue up, gross margin improvements, staffing adjustments, organic growth details (trailing four-quarter organic growth of net revenue), backlog details, balance sheet health (cash, liquidity, debt), and stock repurchases. - Highlights also included acquisitions like Exeltech Consulting, performance in various market segments (transportation, ports and harbors, MEP group, power markets), and organic growth focus.

For the third quarter, gross revenue was $113.9 million, up 21% year-over-year, and net revenue was $101 million, up 23% year-over-year. Year-to-date, gross revenue was $313 million and net revenue was $281 million, with year-over-year increases of 24% and 26% respectively. Gross revenue by market: 49% from Building Infrastructure, 19% from Transportation, 18% from Power and Utilities, and 14% from emerging markets. Net revenue distribution by vertical was roughly the same. Backlog grew 27% year-over-year, with a $28 million increase since Q2, and book-to-burn ratio well above 1.

• 2024 net revenue outlook increased to accommodate recent acquisitions. - 2025 net revenue outlook: $422 million to $437 million, representing organic growth of net revenue between 5% and 9% based on pro forma full year 2024 net revenue adjusted for partial year acquisitions. - 2025 adjusted EBITDA projection: 16% to 17% margin on net revenue, range of $68 million to $75 million, excluding future acquisitions not closed as of today.

• Regulatory uncertainties, such as the IRS not releasing definitive guidance on R&D positions affecting tax filings. - Market volatility and potential impact on project starts and restarts. - Integration challenges with larger M&A deals.

Q: Are we done with internal changes and heading into the fourth quarter with a clean slate?

A: Gary Bowman said it's a clean slate, though always an evolution but the changes made in the third quarter are considered done for now.

Q: What level of organic growth are you assuming for 2025?

A: Bruce Labovitz said midpoint is around 7% organic growth for 2025, continuing focus on current markets.

Q: Moving up the size of M&A deals going forward, relative perspective and update on Surdex acquisition?

A: Gary Bowman said it's an evolution to larger deals for moving the needle, no specific target size; Surdex is performing well with cross-selling and revenue synergy.

Q: Talk about transportation pipeline and election impact on business?

A: Gary Bowman and Bruce Labovitz discussed transportation pipeline expansion and positive outlook on business from election, including potential regulatory environment changes and focus on certain markets.

Q: Backlog comparison to historical levels and permitting for 2025 outlook?

A: Gary Bowman said backlog is characteristically similar with more ready-to-go work for 2025, and no real hurdles anticipated for permitting.

Q: One-time costs in adjusted EBITDA and organic growth calculation?

A: Bruce Labovitz confirmed one-time costs are in adjusted EBITDA bridge; Gary Bowman explained organic growth calculation for trailing four quarters.

Q: Impact of organizational changes on deal flow and margin expansion levers?

A: Bruce Labovitz said organizational changes didn't adversely affect deal flow; levers for margin expansion include economies of scale, operational excellence, and squeezing more from labor-SG&A relationship.

Q: Stock-based comp decline and data center/multifamily market updates?

A: Gary Bowman said stock-based comp decline is a combination of metering stock use, burn off of old grants, and possible shift to cash comp; Bruce Labovitz and Gary Bowman discussed data center market activity and multifamily opportunities showing reacceleration.