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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 12, 2021, the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
1 |
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2 |
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3 |
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5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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Item 3. |
35 |
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Item 4. |
35 |
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PART II. |
36 |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
36 |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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38 |
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i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share data)
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September 30, 2021 |
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December 31, 2020 |
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(unaudited) |
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ASSETS |
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Current Assets |
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Cash and equivalents |
$ |
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$ |
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Accounts Receivable, net |
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Contract assets |
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Notes receivable - officers, employees, affiliates, current portion |
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Prepaid and other current assets |
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Total current assets |
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Non-Current Assets |
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Property and equipment, net |
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Goodwill |
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Notes receivable |
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Notes receivable - officers, employees, affiliates, less current portion |
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Other intangible assets, net |
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Other assets |
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Total Assets |
$ |
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$ |
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Bank line of credit |
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- |
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Accounts payable and accrued liabilities, current portion |
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Contract liabilities |
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Notes payable, current portion |
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Deferred rent, current portion |
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Capital lease obligation, current portion |
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Total current liabilities |
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Non-Current Liabilities |
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Other non-current obligations |
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Notes payable, less current portion |
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Deferred rent, less current portion |
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Capital lease obligation, less current portion |
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Deferred tax liability, net |
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Common shares subject to repurchase |
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Total liabilities |
$ |
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$ |
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Shareholders' Equity |
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Preferred Stock, $ |
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Common stock, $ |
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Additional paid-in-capital |
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Treasury Stock, at cost; |
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( |
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( |
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Stock subscription notes receivable |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total shareholders' equity |
$ |
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$ |
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TOTAL LIABILITIES AND EQUITY |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Amounts in thousands except per share data)
(Unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Gross Contract Revenue |
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$ |
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$ |
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$ |
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$ |
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Contract costs: (exclusive of depreciation and amortization below) |
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Direct payroll costs |
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Sub-consultants and expenses |
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Total contract costs |
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Operating Expenses: |
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Selling, general and administrative |
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Depreciation and amortization |
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(Gain) loss on sale |
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( |
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( |
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( |
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( |
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Total operating expenses |
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Income (loss) from operations |
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( |
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Other (income) expense |
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( |
) |
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( |
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Income (loss) before tax expense |
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( |
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( |
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Income tax (benefit) expense |
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( |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Earnings allocated to non-vested shares |
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- |
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Net income (loss) attributable to common shareholders |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Earnings (loss) per share |
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Basic |
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$ |
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$ |
( |
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$ |
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$ |
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Diluted |
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$ |
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$ |
( |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BOWMAN CONSULTING GROUP LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
For The Three Months Ended September 30, 2021 and 2020
(Amounts in thousands except per share data)
(Unaudited)
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Common Stock |
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Additional Paid-in |
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Treasury Stock |
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Stock Subscription Notes |
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Accumulated |
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Total Shareholders' Equity |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Receivable |
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Deficit |
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(Deficit) |
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Balance at June 30, 2020 |
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$ |
- |
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$ |
- |
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( |
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$ |
( |
) |
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$ |
- |
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$ |
( |
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$ |
( |
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Issuance of new common shares |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Purchase of treasury stock |
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- |
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- |
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- |
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( |
) |
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( |
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- |
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- |
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( |
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Issuance of common shares under stock compensation plan |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Common shares subject to repurchase liability |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Fair value adjustment to redeemable common stock |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Net Income |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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Balance at September 30, 2020 |
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$ |
- |
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$ |
- |
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( |
) |
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$ |
( |
) |
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$ |
- |
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$ |
( |
) |
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$ |
( |
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Balance at June 30, 2021 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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Issuance of new common shares |
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- |
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- |
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- |
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- |
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- |
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Purchase of treasury stock |
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- |
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- |
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- |
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( |
) |
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( |
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- |
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- |
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( |
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Issuance of common shares under stock compensation plan |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Issuance of new common shares under employee stock purchase plan |
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- |
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- |
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- |
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- |
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Stock based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Collections on stock subscription notes receivable |
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- |
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- |
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- |
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- |
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- |
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- |
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Capital reduction related to acquisition |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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( |
) |
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Net Income |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance at September 30, 2021 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BOWMAN CONSULTING GROUP LTD.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
For The Nine Months Ended September 30, 2021 and 2020
(Amounts in thousands except per share data)
(Unaudited)
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Common Stock |
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Additional Paid-in |
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Treasury Stock |
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Stock Subscription Notes |
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Accumulated |
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Total Shareholders' Equity |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Receivable |
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Deficit |
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(Deficit) |
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Balance at January 1, 2020 |
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$ |
- |
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$ |
- |
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( |
) |
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$ |
( |
) |
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$ |
- |
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$ |
( |
) |
|
$ |
( |
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|
Issuance of new common shares |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Purchase of treasury stock |
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( |
) |
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- |
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- |
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( |
) |
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( |
) |
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- |
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- |
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( |
) |
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Issuance of new common shares under stock compensation plan |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Common shares subject to repurchase liability |
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- |
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- |
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- |
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- |
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- |
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- |
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Fair value adjustment to redeemable common stock |
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- |
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- |
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- |
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- |
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- |
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- |
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|
( |
) |
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|
( |
) |
|
Net Income |
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- |
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- |
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- |
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- |
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- |
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- |
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|
|
|
Balance at September 30, 2020 |
|
|
|
|
|
$ |
- |
|
|
$ |
- |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Issuance of new common shares upon initial public offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Issuance of new common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Purchase of treasury stock |
|
|
- |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Issuance of new common shares under stock compensation plan |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Issuance of new common shares under employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Collections on stock subscription notes receivable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Conversion of common shares subject to repurchase liability to permanent equity |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Capital reduction related to acquisition |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Depreciation and amortization - property, plant and equipment |
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
Gain on sale of assets |
|
|
( |
) |
|
|
( |
) |
|
Bad debt |
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
( |
) |
|
|
|
|
|
Deferred rent |
|
|
( |
) |
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
|
( |
) |
|
|
|
|
|
Contract Assets |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses |
|
|
( |
) |
|
|
|
|
|
Other Assets |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Contract Liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of assets |
|
|
|
|
|
|
|
|
|
Amounts advanced under loans to shareholders |
|
|
( |
) |
|
|
( |
) |
|
Payments received under loans to shareholders |
|
|
|
|
|
|
|
|
|
Amounts advanced under notes receivable |
|
|
- |
|
|
|
( |
) |
|
Payments received under notes receivable |
|
|
- |
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
( |
) |
|
|
- |
|
|
Collections under stock subscription notes receivable |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs |
|
|
|
|
|
|
- |
|
|
Net payments under revolving line of credit |
|
|
( |
) |
|
|
( |
) |
|
Repayments under fixed line of credit |
|
|
( |
) |
|
|
( |
) |
|
Borrowings under fixed line of credit |
|
|
- |
|
|
|
|
|
|
Repayment under notes payable |
|
|
( |
) |
|
|
( |
) |
|
Payments on capital leases |
|
|
( |
) |
|
|
( |
) |
|
Payment of contingent consideration from acquisitions |
|
|
( |
) |
|
|
( |
) |
|
Payments for purchase of treasury stock |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
Property and equipment acquired under capital lease |
|
$ |
( |
) |
|
$ |
( |
) |
|
Stock redemption for exercise of stock option |
|
$ |
|
|
|
|
- |
|
|
Issuance of common stock for a note receivable |
|
|
- |
|
|
$ |
( |
) |
|
Stock redemption for payment of shareholder loans |
|
|
- |
|
|
$ |
|
|
|
Stock redemption for payment on note receivable |
|
|
- |
|
|
$ |
|
|
|
Issuance of notes payable for purchase of intangible asset |
|
$ |
( |
) |
|
|
- |
|
|
Issuance of notes payable for redemption of stock |
|
|
- |
|
|
$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
BOWMAN CONSULTING GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1. |
Nature of Business and Basis of Presentation |
Nature of Business
Bowman Consulting Group Ltd. and its affiliates (“Bowman” or “we” or the “Company”) incorporated in the Commonwealth of Virginia on June 5, 1995, and reincorporated in the State of Delaware on November 13, 2020. Bowman is a professional services firm delivering innovative solutions to the marketplace of customers who own, develop and maintain the built environment. Within that arena, we provide planning, design, engineering, geomatics, survey, construction management, environmental consulting and land procurement services to markets that encompass the buildings in which people live, work and learn in. As well as the systems that provide water, electricity and other vital services, and the roads, bridges, and transportation systems used to get from place to place. We provide services to customers through fixed-price and time-and-material based contracts containing multiple milestones and independently priced deliverables. Typically, contract awards are on a negotiated basis, ranging in value from a few thousand dollars to multiple millions of dollars and can have varying durations depending on the size, scope, and complexity of the project.
The Company’s workforce typically provides the full scope of engineering and other contract services. However, with respect to certain specialty services or other compliance requirements within a particular contract we may engage third-party sub-consultants. The Company’s headquarters is located in Reston, VA and the Company has over 30 offices throughout the United States.
Initial Public Offering
On May 11, 2021, we closed on our initial public offering (“IPO”), in which we issued and sold
On June 4, 2021, the underwriters exercised their option to purchase an additional
Deferred offering costs consist primarily of accounting, legal, and other fees related to our IPO. Prior to the IPO, all deferred offering costs were capitalized within prepaid and other current assets in the consolidated balance sheet. After the IPO, $
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in shareholders’ equity and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited combined financial statements and related footnotes included in our final prospectus dated May 6, 2021, and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
7
2. Significant Accounting Policies
The following is a summary of the significant accounting policies and principles used in the preparation of the condensed consolidated financial statements:
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is either not an emerging growth company or, an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contract with Customers (“ASC Topic 606”) provides a single comprehensive revenue recognition framework and supersedes almost all revenue recognition guidance including industry-specific revenue guidance. To determine the proper revenue recognition method under ASC Topic 606, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and if so, whether to account for the combined or single contract as more than one performance obligation. In general, the Company has concluded that there is a single performance obligation because the promise to transfer individual goods or services is not separately identifiable from the commitment to the deliverable of the contract and, therefore, is not distinct.
The Company generally recognizes revenue over time as control transfers to a customer based upon the extent of progress towards satisfaction of the performance obligation. For services delivered under fixed price contracts, the Company uses the ratio of actual costs incurred to total estimated costs at completion (an input method) as a reasonable measure of progress towards the satisfaction of a performance in order to estimate the portion of revenue earned. A contract containing a mix of hourly and fixed fee assignments may be characterized as one lump sum contract for purposes of ASC Topic 606. As such, a contract must contain hourly billed components exclusively to qualify for the as-billed practical expedient in ASC Topic 606. For the three and nine months ended September 30, 2021, the Company derived
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates and assumptions that were used.
Concentration of Credit Risk and other Concentrations
The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and accounts receivable.
Cash balances at various times during the year may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash deposits are held in institutions whose credit ratings are monitored by management, and the Company has not incurred any losses related to such deposits.
The Company is subject to a concentration of credit risk with respect to outstanding accounts receivable. However, the Company believes no such concentration existed during the nine months ended September 30, 2021, or the year ended December 31, 2020. The Company’s customers are located throughout the United States. Although the Company generally grants credit without collateral, management believes that its contract acceptance, billing, and collection policies are adequate to minimize material credit
8
risk. Also, for non-governmental customers, the Company can often place mechanics liens against the real property associated with the contract in the event of non-payment.
Fair Value Measurements
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides the framework for measuring and reporting financial assets and liabilities at fair value. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The codification establishes a three-level disclosure hierarchy to indicate the level of judgment used to estimate fair value measurements:
Level 1:Quoted prices in active markets for identical assets or liabilities as of the reporting date;
Level 2:Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices (such as interest rate and yield curves);
Level 3:Uses inputs that are unobservable, supported by little or no market activity and reflect significant management judgment.
As of September 30, 2021 and December 31, 2020:
|
|
• |
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short duration of these instruments; |
|
|
• |
The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local financial institutions for arrangements with similar terms to industry peers with comparable credit characteristics. Accordingly, the debt obligations involve Level 2 fair value inputs; |
|
|
• |
As of December 31, 2020 the liability related to shares subject to repurchase is recognized at fair value using Level 3 inputs that were primarily determined based on the contractual settlement price as defined by the terms of the Company’s Shareholders’ Buy-Sell Agreement. As of September 30, 2021 the liability related to shares subject to repurchase is recognized at fair value using Level 1 inputs as there is an active market for the Company’s publicly traded stock. For further discussion, see Note 15, Stock Bonus Plan. |
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events recognized in the consolidated financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates expected to apply when the differences settle or become realized. Valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable or recoverable in the future.
The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in income in the period that includes the enactment date. The Company’s effective tax rate for the nine months ended September 30, 2021 and 2020 was (
The Company assesses uncertain tax positions to determine whether the position will more likely than not be sustained upon examination by the Internal Revenue Service (IRS) or other taxing authorities. If the Company cannot reach a more-likely-than-not determination, no benefit is recorded. If the Company determines that the tax position is more likely than not to be sustained, the Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.
The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. Based on the timing of the filing of certain tax returns, the Company’s federal income tax returns for tax years 2017 and after remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.
9
Segments
The Company operates in
Recently Issued Accounting Guidance
Accounting guidance not yet adopted
Leases. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”) to increase transparency and comparability of accounting for lease transactions by requiring lessees to recognize the right-of-use assets and lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions and enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The effective date of ASU 2016-02 for the Company is January 1, 2022, with early adoption permitted. The Company is currently evaluating the impact this ASU may have on its consolidated financial statements and related disclosures.
Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) to replace the incurred loss impairment methodology under U.S. GAAP. This ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which could result in earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model will require the Company to use a forward-looking expected credit loss impairment methodology for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired, and require a loss be incurred before it is recognized. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The new standard will apply to accounts receivable, loans, and other financial instruments. This standard is effective for the Company beginning January 1, 2023. Adoption of ASU 2016-13 will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this ASU on our consolidated financial statements.
Goodwill. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350), simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which the reporting unit’s carrying amount exceeds its fair value, limited to the carrying amount of the goodwill. ASU 2017-04 is effective for us beginning January 1, 2022. The Company does not expect the impact of this ASU to be material to its consolidated financial statements.
3. Earnings per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the three and nine months ended September 30, 2021 and 2020. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were either exercised or converted into common stock or resulted in the issuance of common stock that would share in the earnings of the Company. The dilutive effect of options is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of shares to be purchased under the Company’s Employee Stock Purchase Plan is reflected in diluted earnings per share by the weighted-average number of shares outstanding that would have been outstanding during the period. The Company uses the two-class method to determine earnings per share.
For calculating basic earnings per share, for the three and nine months ended September 30, 2021, the weighted average number of shares outstanding exclude
For calculating basic earnings per share, for the three and nine months ended September 30, 2020, the weighted average number of shares outstanding exclude
10
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 (in thousands, except share data):
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Earnings allocated to non-vested shares |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive nominal options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Effect of dilutive contingently earned shares |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Dilutive average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Dilutive earnings (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
4. Acquisitions
Business Combinations
McFarland-Dyer & Associates, Inc.
In the third quarter of 2021, the Company signed a purchase agreement to acquire
The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to have the promissory note increased by a maximum of $
The acquisition of MDA allows Bowman to further enhance its land architectural and civil engineering competencies thereby allowing the Company to broaden its offerings and better serve its public and private sector customers.
The following summarizes the preliminary calculations of the fair values of MDA assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
Total Purchase Price |
$ |
|
|
|
Purchase Price Allocation: |
|
|
|
|
Accounts Receivable |
|
|
|
|
Contract assets |
|
|
|
|
Property and equipment, net |
|
|
|
|
Intangible Assets |
|
|
|
|
Other assets |
|
|
|
|
Accounts payable and other current liabilities |
|
( |
) |
|
Contract liabilities |
|
( |
) |
|
Total identifiable assets |
$ |
|
|
|
Goodwill |
|
|
|
|
Net assets acquired |
$ |
|
|
The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future
11
synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes. The Company has not completed its final assessment of the fair values of MDA’s assets acquired and liabilities assumed. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.
Identified intangible assets are comprised of customer relationships and contract rights for a total amount of $
5. Disaggregation of Revenue and Contract Balances
The Company generally recognizes revenue over time as control transfers to a customer based upon the extent of progress towards satisfaction of the performance obligation. For services delivered under fixed price contracts, the Company uses the ratio of actual costs incurred to total estimated costs at completion (an input method) as a reasonable measure of progress towards the satisfaction of a performance in order to estimate the portion of revenue earned. A contract containing a mix of hourly and fixed fee assignments may be characterized as one lump sum contract for purposes of ASC Topic 606. As such, a contract must contain hourly billed components exclusively to qualify for the as-billed practical expedient in ASC Topic 606. For the three and nine months ended September 30, 2021, the Company derived
The Company recognized $
6. Contracts in Progress
The following table reflects the calculation of the net balance of contract assets and contract liabilities. Costs and estimated earnings on contracts in progress consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Costs incurred on uncompleted contracts |
|
$ |
|
|
|
$ |
|
|
|
Estimated contract earnings in excess of costs |
|
|
|
|
|
|
|
|
|
Estimated contract earnings to date |
|
|
|
|
|
|
|
|
|
Less: billed to date |
|
|
( |
) |
|
|
( |
) |
|
Net contract assets |
|
$ |
|
|
|
$ |
|
|
7. Notes Receivable
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Officers, employees and affiliated entities - Interest accrues annually at rates ranging from The notes receivable mature through . |
|
$ |
|
|
|
$ |
|
|
|
Unrelated third party - Currently |
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
Less: current portion |
|
|
|
|
|
|
|
|
|
Officers, employees and affiliates |
|
|
( |
) |
|
|
( |
) |
|
Unrelated third party |
|
|
- |
|
|
|
- |
|
|
Noncurrent portion |
|
$ |
|
|
|
$ |
|
|
Each borrower may prepay all or part of the outstanding balance at any time prior to the date of maturity. During the nine months ended September 30, 2021, interest accrued on the notes receivable at the stipulated rates between
12
8. Property and Equipment, Net
Property and equipment for fixed assets are as follows (in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Computer equipment |
|
$ |
|
|
|
$ |
|
|
|
Survey equipment |
|
|
|
|
|
|
|
|
|
Vehicles |
|
|
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Software |
|
|
|
|
|
|
|
|
|
Fixed assets pending lease financing 1 |
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property and Equipment, net of capital leased assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 assets acquired which will be re-financed under the Company's capital lease facilities |
|
|
|
|
|
|
|
|
Depreciation expense for fixed assets for the three and nine months ended September 30, 2021 was $
Property and equipment for capital leased assets are as follows (in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Equipment |
|
$ |
|
|
|
$ |
|
|
|
Vehicles |
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
Less: accumulated amortization on leased assets |
|
|
( |
) |
|
|
( |
) |
|
Capital Leased Assets, net |
|
$ |
|
|
|
$ |
|
|
Amortization expense for capital leased assets for the three and nine months ended September 30, 2021 was $
9. Goodwill
The following is a summary of goodwill resulting from business acquisitions held by the Company at September 30, 2021 and December 31, 2020 (in thousands):
|
|
|
Goodwill |
|
|
|
Balance as of December 31, 2020 |
|
$ |
|
|
|
Acquisition - KTA Group |
|
|
|
|
|
Acquisition - McFarland-Dyer & Associates |
|
|
|
|
|
Balance as of September 30, 2021 |
|
$ |
|
|
13
10. Intangible Assets
Total intangible assets consisted of the following at September 30, 2021 and December 31, 2020 (in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
|
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Balance |
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Balance |
|
||||||
|
Customer relationships |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Contract rights |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
Leasehold |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Non-complete agreement |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Domain name |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Licensing rights |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The domain name and licensing rights acquired during the year ended December 31, 2020 for a total of $
The following table summarizes the weighted average useful lives of intangible assets by asset class used for straight-line expense purposes:
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Customer relationships |
|
|
|
|
|
|
|
|
|
Contract rights |
|
|
|
|
|
|
|
|
|
Leasehold |
|
|
|
|
|
|
- |
|
|
Non-compete agreement |
|
|
|
|
|
|
|
|
Amortization expense for the three and nine months ended September 30, 2021 was $
Future amortization for the remainder of 2021 and for the succeeding years is as follows (in thousands):
|
2021 |
|
|
|
$ |
|
|
|
2022 |
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
11. Bank Revolving Line of Credit and Fixed Credit Facilities
In 2017, the Company entered into a credit agreement (“the Credit Agreement”) with Bank of America (“the Bank”) which included a revolving line of credit (“the Revolving Line”) and a non-revolving line of credit (“the Fixed Line #1”). The Revolving Line allowed for repayments and re-borrowings. The maximum advance was equal to the lesser of $
During the year ended December 31, 2019, the Credit Limit increased to $
On July 30, 2021, the Company entered into a Sixth Amendment to the Credit Agreement whereby the Company and the Bank agreed to extend the maturity date of the Revolving Line to July 31, 2023. The Sixth Amendment also eliminated the adjusted debt to EBITDA covenant along with certain administrative requirements and established the Secured Overnight Financing Rate (SOFR) as the replacement for LIBOR. Additional modifications to the Revolving Line included expanded allowances for acquisition and reduced interest rate spreads to a range of
14
As of June 30, 2021, the Revolving Line required monthly payments of interest at the greater of the London Interbank Offered Rate (LIBOR) daily floating rate or
Fixed Line #1 has a maximum advance of $
Fixed Line #2 has a maximum advance of $
Facility #4 is a term loan with a principal loan amount of $
The Company secures its obligations under the Credit Agreement with substantially all assets of the Company. Fixed Line #1 is guaranteed by Gary Bowman, the Company’s Chairman and Chief Executive Officer (“Guarantor”). Obligations of the Company to the Guarantor and certain other shareholders of the Company are subordinated to the Company’s obligations under the Credit Agreement and Fixed Line loans. The Company must maintain, on a combined basis certain financial covenants defined in the Credit Agreement.
Interest expense on the Revolving and Fixed Lines totaled $
12. Notes Payable
Notes payable consist of the following (in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Related parties: |
|
|
|
|
|
|
|
|
|
Shareholders - Interest accrues annually at rates ranging from |
|
$ |
|
|
|
$ |
|
|
|
Unrelated third parties: |
|
|
|
|
|
|
|
|
|
Note payable for purchase of intangible asset |
|
|
|
|
|
|
- |
|
|
Fixed line notes payable - see note 11 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Less: current portion |
|
|
( |
) |
|
|
( |
) |
|
Noncurrent portion |
|
$ |
|
|
|
$ |
|
|
15
The Company’s chairman and Chief Executive Officer guarantees certain of the notes payable, and certain of the notes payable are subordinate to the terms of the Credit Agreement disclosed in Note 11.
Interest expense attributable to the notes payable totaled $
Future principal payments on notes payable for remainder of 2021 and succeeding years are as follows (in thousands):
|
2021 |
|
|
|
$ |
|
|
|
2022 |
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
13. Related Party Transactions
The Company leases commercial office space from BCG Chantilly, LLC (BCC), an entity in which Mr. Bowman, Mr. Bruen and Mr. Hickey collectively own a
Bowman Lansdowne Development, LLC (BLD) is an entity in which Mr. Bowman, Mr. Bruen, Mr. Hickey have an ownership interest. On September 30, 2021 and December 31, 2020, the Company’s notes receivable included $
Lansdowne Development Group, LLC (LDG) is an entity in which BLD has a minority ownership interest. On September 30, 2021 and December 31, 2020, our accounts receivable included $
Bowman Realty Investments 2010, LLC (BR10) is an entity in which Mr. Bowman, Mr. Bruen, Mr. Hickey have an ownership interest. On September 30, 2021 and December 31, 2020, the Company’s notes receivable included $
Alwington Farm Developers, LLC (AFD) is an entity in which BR10 has a minority ownership interest. On September 30, 2021 and December 31, 2020, notes receivable included $
During the nine months ended September 30, 2021 and 2020, the Company provided administrative, accounting and project management services to certain of the related party entities. The cost of these services was $
Bowman Realty Investments 2013 LLC (BR13) is an entity in which Mr. Bowman, Mr. Bruen, and Mr. Hickey have an ownership interest.
Leesburg Acquisition Partners (LAP) is an entity in which Mr. Bowman, Mr. Bruen and Mr. Hickey have an ownership interest. During the three months ended September 30, 2021, the Company made $
On September 30, 2021 and December 31, 2020, the Company was due $
On September 30, 2021 and December 31, 2020, the Company owed $
As of September 30, 2021 and December 31, 2020, the Company owed certain of our current and former shareholders $
16
14. Stock Options
Effective May 11, 2021 the Company established the Bowman Consulting Group Ltd. 2021 Omnibus Equity Incentive Plan (“the Plan”). The plan is administered by the Board of Directors through which they can grant stock options, including Incentive Stock Options (“ISO”), and non-qualified stock options (“NQSO”). The purpose of the Plan is to grant equity incentive awards to eligible participants to attract, motivate and retain key personnel. The Plan supersedes and replaces any prior plan for stock options except that the prior plan shall remain in effect with respect to options granted under such prior plan until such options have been exercised, expired or canceled.
The number of shares for which each option shall be granted, whether the option is an ISO or NQSO, the option price, the exercisability of the option, and all other terms and conditions of the option are determined by the Board at the time the option is granted. The options generally vest over a period between
For the nine months ended September 30, 2021,
A summary of the status of stock options exercised, including the substantive options discussed in Note 3, is as follows:
|
|
|
Number of shares |
|
|
Weighted Average Exercise Price |
|
||
|
Outstanding at January 1, 2021 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
Expired or cancelled |
|
|
- |
|
|
|
- |
|
|
Outstanding at September 30, 2021 |
|
|
|
|
|
$ |
|
|
The following summarizes information about options outstanding and exercisable at January 1, 2021 and September 30, 2021:
|
|
|
Options Outstanding and Exercisable |
|
|||||||||||||||||
|
|
|
Exercise Price |
|
|
Total Outstanding |
|
|
Weighted Average Remaining Life (Years) |
|
|
Weighted Average Exercise Price |
|
|
Total Exercisable |
|
|||||
|
January 1, 2021 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
September 30, 2021 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
The intrinsic value of these options on September 30, 2021 and December 31, 2020 was $
The Company received cash payments of $
The Company did
As of September 30, 2021, there is
15. Stock Bonus Plan
Effective May 11, 2021 the Company established the Bowman Consulting Group Ltd. 2021 Omnibus Equity Incentive Plan. The Plan is administered by the Board of Directors through which they can issue restricted stock awards. The purpose of the Plan is to grant equity incentive awards to eligible participants to attract, motivate and retain key personnel. The Plan supersedes and replaces any prior plan for stock bonus grants to employees of the Company except that the prior plan shall remain in effect with respect to awards granted under such prior plan until such awards have been forfeited or fully vested.
During the nine months ended September 30, 2021, the Board granted
17
The following table summarizes the activity of restricted shares subject to forfeiture:
|
|
|
Number of shares |
|
|
Weighted Average Grant Price |
|
||
|
Outstanding at January 1, 2021 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
Outstanding at September 30, 2021 |
|
|
|
|
|
$ |
|
|
The following table represents the change in the liability to common shares subject to repurchase and the associated non-cash compensation expense for the nine months ended September 30, 2021 and the year ended December 31, 2020 (in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Beginning Balance |
|
$ |
|
|
|
$ |
|
|
|
Non-cash compensation from ratable vesting |
|
|
|
|
|
|
|
|
|
Non-cash compensation from change in fair value of liability |
|
|
|
|
|
|
|
|
|
Other stock activity, net |
|
|
|
|
|
|
( |
) |
|
Reclassification upon modification |
|
|
( |
) |
|
|
( |
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
As of September 30, 2021, the Company had
The future expense of the unvested awards for the remainder of 2021 and succeeding years is as follows (in thousands):
|
2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
16. Capital Leases
On September 30, 2020, the Company converted operating leases for equipment and vehicles to capital leases and recorded the associated equipment purchases and capital lease liability, current and non-current. The payment terms on the lease agreements range between
Future minimum commitments under non-cancelable capital leases for the remainder of 2021 and succeeding years are as follows (in thousands):
|
2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
|
Less: amount representing interest |
|
|
( |
) |
|
Present value of total net minimum lease payments |
|
$ |
|
|
|
Less: current portion of net minimum lease payments |
|
|
( |
) |
|
Long-term portion of net minimum lease payments |
|
$ |
|
|
18
The above table is exclusive of the $
17. Commitments and Contingencies
Operating leases
The Company leases office space, equipment and vehicles. The Company financed vehicles, certain IT, and other equipment under the terms of
Future minimum lease payments for the remainder of 2021 and for the succeeding years is as follows (in thousands):
|
2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
18. Subsequent Events
The Company has evaluated subsequent events through November 12, 2021, the date that financial statements were issued.
On October 1, 2021, the Company completed the acquisition of assets and operations of Triangle Site Design located in Raleigh, North Carolina. In connection with the acquisition, the Company issued
On October 8, 2021, the Company completed the acquisition of assets and operations of PCD Engineering, Inc. located in Denver, Colorado. In connection with the acquisition, the Company issued
On October 15, 2021, the Company completed the acquisition of assets and operations of BTM Engineering located in Louisville, Kentucky. The Company did
Given the short period of time between these acquisition dates and the issuance of this quarterly report on Form 10-Q, it is not practicable to disclose the preliminary purchase price allocations for these transactions.
On November 10, 2021, the Company’s Board of Directors adopted the 2021 Executive Officers Short Term Incentive Plan and the 2021 Executive Officers Long Term Incentive Plan (“21LTIP”). Under the terms of the 21LTIP, performance stock units in the amount of
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to several factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes, and other uncertainties, as well as those factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly in “Cautionary Statement about Forward-Looking Statements,” all of which are difficult to predict. Considering these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements, except to the extent required by applicable laws or rules. Unless the context otherwise requires, references to “Bowman,” the “company,” the “Company,” “we,” “us,” and “our” refer to Bowman Consulting Group Ltd., its wholly owned subsidiaries and combined entities under common control, or either or all of them as the context may require.
Overview
Bowman is a professional services firm delivering innovative engineering solutions to customers who own, develop and maintain the built environment. We provide planning, engineering, construction management, commissioning, environmental consulting, geomatics, survey, land procurement and other technical services to over 2,200 customers operating in a diverse set of end markets. We work as both a prime and sub-consultant for a broad base of public and private sector customers that generally operate in highly regulated environments.
We have a diversified business that is not dependent on any one service line, geographic region, or end market. We are deliberate in our efforts to balance our sources of revenue and avoid reliance on any one significant customer, service line, geography or end market concentration. Our strategic focus is on penetrating and expanding our presence in markets which best afford us opportunities to secure assignments that provide reoccurring revenue and multi-year engagements thus resulting in dependable and predictable revenue streams and high employee utilization. We limit our exposure to risk by providing professional and related services exclusively. We do not engage in general contracting activities either directly, or through joint ventures, and therefore have no related exposure. We are not a partner in any design-build construction projects. We carry no heavy equipment inventory, and our risk of contract loss is generally limited to time associated with fixed fee professional services assignments.
Gross contract revenue for the three months ended September 30, 2021 and 2020 was $39.7 million and $31.8 million, respectively. Gross contract revenue derived from our workforce represented 90.0% and 80.0% of gross contract revenue for the three months ended September 30, 2021 and 2020, respectively (see Net service billing – non-GAAP below). Our adjusted EBITDA was $4.4 million on net income of $0.4 million and $3.9 million on net loss of $1.2 million for the three months ended September 30, 2021 and 2020, respectively.
Gross contract revenue for the nine months ended September 30, 2021 and 2020 was $108.0 million and $92.1 million, respectively, representing year over year growth of 17.3%. Gross contract revenue derived from our workforce represented 89.8% and 83.9% of gross contract revenue for the nine months ended September 30, 2021, and 2020, respectively (see Net service billing – non-GAAP below). Our adjusted EBITDA was $12.7 million on net income of $0.9 million and $10.6 million on net income of $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.
Subsequent Events
Acquisitions
After the end of the quarter, the Company engaged in the following subsequent events:
On October 1, 2021, the Company completed the acquisition of assets and operations of Triangle Site Design located in Raleigh, North Carolina. In connection with the acquisition, the Company issued 65,428 shares of common stock to the seller.
On October 8, 2021, the Company completed the acquisition of assets and operations of PCD Engineering, Inc. located in Denver, Colorado. In connection with the acquisition, the Company issued 36,444 shares of common stock to the seller.
On October 15, 2021, the Company completed the acquisition of assets and operations of BTM Engineering located in Louisville, Kentucky. The Company did not issue shares of common stock to the seller.
20
Compensatory Arrangements
On November 10, 2021, the Compensation Committee of the Company’s Board of Directors adopted compensatory arrangements in which the named executive officers and other members of senior management may participate. The Committee approved the adoption of the 2021 Executive Officers Short Term Incentive Plan and the 2021 Executive Officers Long Term Incentive Plan. Copies of each plan are filed as exhibits.
The Short-Term Incentive Plan permits the award of annual cash bonuses to the named executive officers and other executives who are approved by the Committee based on the Company’s achievement of performance goals established by the Committee and approved by the Board. The Short-Term Incentive Plan is effective as of November 1, 2021 and will continue in effect for five (5) years unless terminated earlier by the Committee. The Committee has broad discretion under the plan to establish performance goals for the year, which may be financial and/or nonfinancial goals as well as setting the level of satisfaction or achievement necessary for determining performance. The Short-Term Incentive Plan also provides that the Committee may, in its discretion, adjust the performance goals and the award opportunity during the year to account for the occurrence of external events or unanticipated business conditions.
For 2021, the Committee selected one metric, Adjusted EBITDA, as the performance measure. The total amount that an executive may earn will depend on: (1) his salary or eligible earnings because the bonus will be calculated and paid as a percentage of the annual salary or amount earned and (2) the level of performance attained because performance levels were set at the threshold, target, and high levels of achievement. Results will be interpolated between these levels. For each of the named executive officers the percentage amount that may be earned was set under his employment agreement which was previously filed with the Commission.
The Long-Term Incentive Plan permits the award of equity-based awards to the named executive officers and other executives who are approved by the Committee. As with the Short-Term Incentive Plan, the Long-Term Incentive Plan is effective as of November 1, 2021 and will continue in effect for five (5) years unless terminated earlier by the Committee. Under the Long-Term Incentive Plan, executives will have the opportunity to receive under the Company’s 2021 Omnibus Equity Incentive Plan both time based restricted stock awards and performance based restricted stock units. Unless previously set forth in an employment agreement, the Committee will establish an executive’s threshold, target, and maximum award opportunity as a percentage of such executive’s salary. For each of the named executive officers these levels were established under his employment agreement. The Long-Term Incentive Plan also provides for vesting of certain of the restricted stock units in the event of an executive’s Retirement or Early Retirement, as defined in the plan. Each of the executive’s employment agreements addresses vesting in the event of death, disability, and other circumstances.
Except for the chief executive officer, twenty-five percent (25%) of the target award opportunity will be an annual grant of time-based restricted stock that will vest quarterly over a three-year period beginning on December 31 in the year of grant. The Long-Term Incentive Plan also provides for vesting of 100% of the time-based award in the event of an executive’s Retirement or Early Retirement, as defined in the plan. Each of the executive’s employment agreements addresses vesting in the event of death, disability, and other circumstances. The remaining seventy-five percent (75%) of the target award opportunity will be a grant of performance based restricted stock units. For the chief executive officer, 100% of the award opportunity is in performance based restricted stock units. The restricted stock units will vest based on the Company’s level of achievement measured over a defined performance period on total shareholder return relative to a peer group approved by the Committee.
The Committee did not award any time-based restricted stock for 2021 under the plan. The Committee made the following awards of performance-based stock units for the performance period November 1, 2021 through December 31, 2023: Mr. Bowman 131,473 units; Mr. Bruen 43,649 units; Mr. Labovitz 43,649 units; and Mr. Hickey 42,071 units. The award opportunity represents the maximum number of shares that may be earned at the end of the performance period if the Company achieves a “high” level performance on total shareholder return relative to the peer group approved by the Committee.
COVID-19 Update
It is not possible at this time to estimate the full impact that COVID-19 and its variants will ultimately have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. We are evaluating, and will continue to evaluate, the impact of COVID-19 on projects, but the full effects COVID-19 will have on our operations are still unknown. As of the date of this Quarterly Report on Form 10-Q, we have not experienced any material financial distress resulting from the COVID-19 pandemic. We did not qualify for the PPP Loan program under the CARES Act. Included in accounts payable and accrued liabilities and other non-current obligations in the consolidated balance sheet as of September 30, 2021, is $2.5 million of deferred employer payroll taxes as afforded us under the CARES Act. The duration and extent of the impact from the COVID-19 pandemic depends on future developments and possible shelter-in-place orders that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, and the impact of these and other
21
factors on our employees and clients. The Company is evaluating the requirements, cost of compliance and potential implications to our workforce with respect to recently issued executive orders on vaccine mandates.
Methods of Evaluation
We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of the information we use to evaluate our operations is financial information that is in accordance with generally accepted accounting principles (GAAP), while other information may be financial in nature and either built upon GAAP results or may not be in accordance with GAAP (Non-GAAP). We use all this information together for planning and monitoring our operations, as well as determining certain management and employee compensation.
The Company operates as a single business segment represented by our core business of providing multi-disciplinary professional engineering solutions to customers. While we evaluate revenue and other key performance indicators relating to various divisions of labor, our leadership neither manages the business nor deliberately allocates resources by service line, geography, or end market. Our financial statements present results as a single operating segment.
Components of Income and Expense
Revenue
We generate revenue from services performed by our employees, pass-through fees from sub-consultants, and reimbursable contract costs. On our consolidated financial statements, we report gross revenue, which represents total revenue billed to customers excluding taxes collected from customers. Gross revenue less revenue derived from pass-through sub-consultant fees, reimbursable expenses and other direct expenses represents our net service billing, or that portion of our gross revenue attributable to services performed by our employees. Our industry uses the calculation underlying net service billing to normalize peer performance assessments and provide meaningful insight into trends over time. Refer to — Other Financial Data, Non-GAAP measurements and Key Performance Indicators below for further discussion of the use of this non-GAAP financial measure.
We generally do not make profit from the pass-through of sub-consultants and reimbursable expenses. As such, contract profitability is most heavy impacted by the mix of labor utilized to complete the tasks and the efficiency of those resources in completing the tasks. Our largest direct contract cost is consistently our labor. To grow our revenue and maximize overall profitability we carefully monitor and manage our fixed cost of labor and the utilization thereof. Maintaining an optimal level of utilization on a balanced pool of growing labor resources represents our greatest prospect for delivering increasing profitability.
Our contracts with customers generally contain multiple assignments based on two types of pricing characteristics:
Hourly, also referred to as time and materials, are common for professional and technical consulting assignments both short-term and multi-year in duration. Under these types of assignments, there is no predetermined maximum fee and as such, we generally experience no risk associated with our ability to bill for all hours expended. We negotiate billing rates and charge our customers based upon the actual hours expended toward a deliverable. These assignments may have not-to-exceed parameters requiring us to receive additional authorizations from our customer to continue working, but we likewise do not have to continue working without assurances of payment for such additional work. Hourly assignments represented approximately $11.6 million and $31.6 million or 30% and 29% of our gross contract revenue for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020 hourly assignments represented approximately $11.2 million and $35.3 million or 36% and 38% of our gross contract revenue, respectively.
Lump sum, also referred to as fixed fee, typically require the performance of some, or all, of the obligations under the assignment for a specified amount, subject to price adjustments only if the scope of the project changes or unforeseen requirements arise. Our fixed fee assignments generally include a specific scope of work and defined deliverables. Most of our assignments are lump sum in nature representing approximately $28.1 million and $76.4 million or 70% and 71% of our gross contract revenue for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020 assignments that are lump sum in nature represented approximately $20.6 million and $56.8 million or 64% and 62% of our gross contract revenue. Recognizing revenue from lump sum assignments requires management estimates of both total contract value when there are contingent compensation elements of the fee arrangement and expected cost at completion. We closely monitor our progress to completion and adjust our estimates when necessary. We do not recognize revenue from work that is performed at risk with no documented customer commitment.
22
Contract Costs
Contract costs consists of direct payroll costs, sub-consultant costs and other direct expenses exclusive of depreciation and amortization.
Direct payroll costs represent the portion of salaries and wages incurred in connection with the production of deliverables under customer assignments and contracts. Direct payroll costs include allocated fringe costs (i.e. health benefits, employer payroll taxes, and retirement plan contributions), paid leave and incentive compensation.
Sub-consultants and direct expenses include both sub-consultants and other outside costs associated with performance under our contracts. Sub-consultant and direct costs are generally reimbursable by our customers under the terms of our contracts.
Performance under our contracts does not involve significant machinery or other long term depreciable assets. Most of the equipment we employ involves desktop computers and other shared ordinary course IT equipment. We present direct costs exclusive of depreciation and amortization and as such we do not present gross profit on our consolidated financial statements.
Operating Expense
Operating expenses consists of selling, general and administrative costs, non-cash stock compensation, depreciation and amortization and settlements and other non-core expenses.
Selling, general and administrative expenses represent corporate and other general overhead expenses, salaries and wages not allocated to customer projects including management and administrative personnel costs, incentive compensation, personal leave, office lease and occupancy costs, legal, professional and accounting fees.
Non-cash stock compensation represents the expenses incurred with respect to shares and options issued by the Company, both vested and unvested, to employees as long-term incentives. Non-cash stock compensation cost will be the grant date fair value of the awards, or the Black-Sholes-Merton value of stock options on the grant date, recognized ratably over the vesting periods of each award. Future non-cash stock compensation expense for unvested shares awarded prior to December 31, 2020 is based on a $12.80 per share fair value on the date of modification. Stock awards will continue to be an important part of our long-term retention and rewards philosophy.
Depreciation and amortization represent the depreciation and amortization expense of our property and general IT equipment, capital lease assets, tenant improvements and intangible assets.
(Gain) loss on sale represents gains or losses inclusive of foreign exchange and accumulated depreciation recapture resulting from the disposal of an asset upon the sale or retirement of such asset.
Other (Income) Expense
Other (income) expense consists of other non-operating and non-core expenses, including costs associated with acquisitions.
Tax Expense
Income tax (benefit) expense, current and deferred, includes estimated federal, state and local tax expense associated with our net income, as apportioned to the states in which we operate. Estimates of our tax expense include both current and deferred tax expense along with all available tax incentives and credits.
Other Financial Data, Non-GAAP Measurements and Key Performance Indicators
Backlog
We measure the value of our undelivered gross revenue in real time to calculate our backlog and predict future revenue. Backlog includes awarded, contracted, and otherwise secured commitments along with revenue we expect to realize over time for predictable long-term and reoccurring assignments. We report backlog quarterly as of the end of the last day of the reporting period. We use backlog to predict revenue growth and anticipate appropriate future staffing needs. Backlog definitions and methods of calculation vary within our industry. As such, backlog is not a reliable metric on which to evaluate us relative to our peers. Backlog neither derives from, nor connects to, any GAAP results.
23
Net Service Billing
In the normal course of providing services to our customers, we routinely subcontract services and incur direct third-party contract expenses that may or may not be reimbursable and may or may not be billed to customers with mark-up. Gross revenue less revenue derived from pass-through sub-consultant fees and reimbursable expenses represents our net service billing, which is a non-GAAP financial measure, or that portion of our gross contract revenue attributable to services performed by our employees. Because the ratio of sub-contractor and direct expense costs to gross billing varies between contracts, gross revenue is not necessarily indicative of trends in our business. As a professional services company, we believe that metrics derived from net service billings more accurately demonstrate the productivity and profitability of our workforce. Our industry uses the calculation of net service billing to normalize peer performance assessments and provide meaningful insight into trends over time.
Adjusted EBITDA
We view Adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of normalized performance. We define Adjusted EBITDA as net income before interest expense, income taxes and depreciation and amortization, plus discontinued expenses, non-core legal settlements and other costs not in the ordinary course of business, non-cash stock-based compensation (inclusive of expenses associated with the adjustment of our liability for common shares subject to redemption), and other adjustments such as costs associated with preparing for our IPO. Our peers may define Adjusted EBITDA differently.
Adjusted EBITDA Margin, net
Adjusted EBITDA Margin, net, which is a non-GAAP financial measure, represents Adjusted EBITDA, as defined above, as a percentage of net service billings, as defined above.
Results of Operations
Combined results of operations
The following represents our condensed consolidated results of operations for periods indicated (in thousands):
|
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
For the Nine Months Ended September 30, |
|
||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
2020 |
|
||||
|
Gross contract revenue |
|
$ |
39,715 |
|
|
$ |
31,766 |
|
|
|
|
|
$ |
108,041 |
|
|
|
|
$ |
92,126 |
|
|
Contract costs (exclusive of depreciation and amortization) |
|
|
19,498 |
|
|
|
19,389 |
|
|
|
|
|
|
53,840 |
|
|
|
|
|
51,582 |
|
|
Operating expense |
|
|
19,925 |
|
|
|
14,706 |
|
|
|
|
|
|
52,735 |
|
|
|
|
|
39,462 |
|
|
Income (loss) from operations |
|
|
292 |
|
|
|
(2,329 |
) |
|
|
|
|
|
1,466 |
|
|
|
|
|
1,082 |
|
|
Other (income) expense |
|
|
314 |
|
|
|
(102 |
) |
|
|
|
|
|
706 |
|
|
|
|
|
(179 |
) |
|
Income tax expense (benefit) |
|
|
(379 |
) |
|
|
(979 |
) |
|
|
|
|
|
(139 |
) |
|
|
|
|
467 |
|
|
Net income (loss) |
|
$ |
357 |
|
|
$ |
(1,248 |
) |
|
|
|
|
$ |
899 |
|
|
|
|
$ |
794 |
|
|
Net margin |
|
|
0.9 |
% |
|
|
-3.9 |
% |
|
|
|
|
|
0.8 |
% |
|
|
|
|
0.9 |
% |
|
Other financial information 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service billing |
|
$ |
35,748 |
|
|
$ |
25,412 |
|
|
|
|
|
$ |
97,074 |
|
|
|
|
$ |
77,312 |
|
|
Adjusted EBITDA |
|
|
4,426 |
|
|
|
3,850 |
|
|
|
|
|
|
12,697 |
|
|
|
|
|
10,553 |
|
|
Adjusted EBITA margin, net |
|
|
12.4 |
% |
|
|
15.2 |
% |
|
|
|
|
|
13.1 |
% |
|
|
|
|
13.6 |
% |
|
1 |
Represents non-GAAP financial measures. See Other Financial Information and Non-GAAP key performance indicators below in results of operations. |
Three months ended September 30, 2021 as compared to the three months ended September 30, 2020
Gross Contract Revenue
Gross contract revenue for the three months ended September 30, 2021 increased $7.9 million or 24.8% to $39.7 million as compared to $31.8 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, gross contract revenue attributable to work performed by our workforce increased $10.3 million, or 40.6% to $35.7 million or 89.8% of gross contract revenue as compared to $25.4 million or 83.9% for the three months ended September 30, 2020 (see Net service billing – non-GAAP). Of the $7.9 million increase in gross contract revenue during the three months ended September 30, 2021, acquisitions represented $2.3 million or 29.4% of the increase.
24
Changes in gross contract revenue (“GCR”) for the three months ended September 30, 2021, disaggregated between our core and emerging end markets, were as follows (in thousands other than percentages):
|
|
|
For the Three Months Ended September 30, |
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|
|
|
|
|
|
|
|
|
|||||||||||||
|
Consolidated Gross Contract Revenue |
|
2021 |
|
|
%GCR |
|
|
2020 |
|
|
%GCR |
|
|
Change |
|
|
% Change |
|
|
||||||
|
Building Infrastructure 1 |
|
$ |
28,303 |
|
|
|
71.3 |
% |
|
$ |
20,183 |
|
|
|
63.5 |
% |
|
$ |
8,120 |
|
|
|
40.2 |
% |
|
|
Transportation |
|
|
4,033 |
|
|
|
10.2 |
% |
|
|
5,929 |
|
|
|
18.7 |
% |
|
|
(1,896 |
) |
|
|
(32.0 |
%) |
|
|
Power & Utilities |
|
|
6,295 |
|
|
|
15.8 |
% |
|
|
4,943 |
|
|
|
15.6 |
% |
|
|
1,352 |
|
|
|
27.4 |
% |
|
|
Other emerging markets 2 |
|
|
1,084 |
|
|
|
2.7 |
% |
|
|
711 |
|
|
|
2.2 |
% |
|
|
373 |
|
|
|
52.5 |
% |
|
|
Total: |
|
$ |
39,715 |
|
|
|
100.0 |
% |
|
$ |
31,766 |
|
|
|
100.0 |
% |
|
$ |
7,949 |
|
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic |
|
$ |
37,380 |
|
|
|
94.1 |
% |
|
$ |
31,766 |
|
|
|
100.0 |
% |
|
$ |
5,614 |
|
|
|
17.7 |
% |
|
|
Acquired |
|
|
2,335 |
|
|
|
5.9 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
|
2,335 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 formerly referred to as Communities, homes & buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2 represents renewable energy, mining, water resources and other |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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|
|||
For the three months ended September 30, 2021, gross revenue from our building infrastructure market (formerly referred to as communities, homes, and buildings) increased $8.1 million as compared to the three months ended September 30, 2020. The increase is attributable to a $3.9 million increase from residential and mixed-use projects including $2.0 million from multi-family and $1.2 million from single family, and a $4.2 million increase from commercial, municipal, and other projects with $2.2 million from office/ industrial and $2.0 million from big box/ chain retail. Gross revenue derived from the acquisition of KTA was almost exclusively attributable to commercial projects. As the U.S. economy recovers from the COVID-19 pandemic, we are experiencing continued expansion of demand for our building infrastructure services. We continue to maintain a positive outlook on this market and expect it to represent most of our gross revenue for the remainder of 2021.
For the three months ended September 30, 2021, revenue from transportation decreased $1.9 million as compared to the three months ended September 30, 2020. The reduction was primarily attributable to the completion of large transportation projects in Texas, Florida and Virginia. Recent contracts awards in transportation are expected to begin generating revenue in the fourth quarter of 2021. We believe the transportation market continues to present significant opportunity for future growth and we remain committed to investing in leadership, technical expertise, business development and acquisitions for this market.
For the three months ended September 30, 2021, revenue from power and utilities increased $1.4 million as compared to the three months ended September 30, 2020. The increase in gross contract revenue from the power and utilities market is attributable to increased revenue associated with a multi-year utility undergrounding assignment in Florida. The power and utilities market continues to experience increasing infrastructure investment as changing weather patterns, energy transition mandates and other safety initiatives positively impact demand for the services we provide. As evidenced by recent increases in program commitments within the gas pipeline market, we believe trends in power and utilities provide meaningful opportunity for continued growth and we are committed to investing resources accordingly.
Our other emerging markets consist of renewable energy and energy efficiency, mining, water resources, and other natural resources services. For the three months ended September 30, 2021, revenue from emerging markets increased $0.4 million as compared to the three months ended September 30, 2020. Increased emerging market revenue included a $0.4 million increase from our mining services where we have specialized in copper mining, the demand for which is cyclical in nature and had been negatively impacted by the COVID-19 pandemic. Increases in demand for copper and the reduced impact of the COVID-19 pandemic on mining operators suggest this market will continue to grow over the next few years. Scarcities in water resources and the increasing need for water management gives us confidence that the water resources market will likewise grow and that we will be able to increase associated revenue accordingly. With recent and future acquisitions, we expect to experience continued growth from investment in renewable energy and energy transition.
For the three months ended September 30, 2021 and 2020, public sector customers, defined as direct contracts with municipalities, public agencies, or governmental authorities, represented 12.4% and 18.0% of our gross contract revenue, respectively. Gross contract revenue from projects for public sector clients are included in the end market most aligned with work performed.
25
Contract costs (exclusive of depreciation and amortization)
Total contract costs, exclusive of depreciation and amortization, increased $0.1 million or 0.5% to $19.5 million for the three months ended September 30, 2021, as compared to $19.4 million for the three months ended September 30, 2020. For the three months ended September 30, 2021 and 2020, total contract costs represented 49.1% and 61.0% of total contract revenue, respectively. For the three months ended September 30, 2021 and 2020 total contract costs represented 54.6% and 76.4% of revenue attributable to our workforce, respectively (see Net Service Revenue).
Direct payroll costs increased $2.5 million or 19.2% to $15.5 million for the three months ended September 30, 2021, as compared to $13.0 million for the three months ended September 30, 2020. Direct payroll accounted for 79.7% of total contract costs for the three months ended September 30, 2021, an increase of 12.5 percentage points as compared to 67.2% for the three months ended September 30, 2020.
Direct labor, the component of direct payroll costs associated with the cost of labor relating to work performed on contracts increased $2.6 million or 28.6% to $11.7 million for the three months ended September 30, 2021 as compared $9.1 million for the three months ended September 30, 2020. For the three months ended September 30, 2021 and 2020, direct labor costs represented 29.5% and 28.5% of gross contract revenue, respectively and represented 32.8% and 35.6% of the revenue attributable to our workforce, respectively.
Other direct payroll costs, the component of direct payroll costs associated with fringe and incentive compensation (cash and non-cash) decreased by $0.2 million or 5.3% to $3.8 million as compared to $4.0 million. This decrease includes $0.5 million in reduced non-cash compensation expense primarily due to an increase in the mark-to market expense for the shares subject to repurchase during the three months ended September 30, 2020.
Sub-consultants and other direct expenses decreased $2.4 million or 37.5% to $4.0 million for the three months ended September 30, 2021 as compared to $6.4 million for the three months ended September 30, 2020. For the three months ended September 30, 2021 and 2020, sub-consultant and other expenses represented 10.0% and 20.0% of gross contract revenue, respectively. This decrease is not indicative of an anticipated long-term shift in the composition of our gross contract revenue, and we expect to experience periodic volatility in concentration of sub-consultant utilization.
Operating Expense
Total operating expense increased $5.2 million or 35.4% to $19.9 million for the three months ended September 30, 2021 as compared to $14.7 million for the three months ended September 30, 2020.
Selling, general and administrative expenses increased $4.0 million or 27.8% to $18.4 million for the three months ended September 30, 2021, as compared to $14.4 million for the three months ended September 30, 2020. Indirect labor increased $1.9 million or 32.2% to $7.8 million as compared to $5.9 million and general overhead increased $1.9 million or 44.2% to $6.2 million as compared to $4.3 million primarily due to increased costs associated with operating as a public company. Non-cash stock compensation decreased $0.5 million or 20.8% to $1.9 million as compared to $2.4 million due to an increase in the mark-to market expense for the shares subject to repurchase during the three months ended September 30, 2020.
Depreciation and amortization increased $1.3 million or 433.3% to $1.6 million as compared to $0.3 million as a result of the conversion of our equipment and vehicle operating leases to capital leases on September 30, 2020. Gains on the sale of certain IT equipment and automobiles remained unchanged for the three months ended September 30, 2021 at less than $0.1 million of gain on the disposal of such assets.
Other (Income) Expense
Other (income) expense decreased by $0.4 million to $0.3 million of expense for the three months ended September 30, 2021 as compared to $0.1 million of income for the three months ended September 30, 2020. Income derived from incentives and rebates decreased by $0.1 million, interest expense increased by $0.1 million and acquisition related expenses increased by $0.1 million to $0.1 million.
Income Tax Expense (Benefit)
Income tax benefit for the three months ended September 30, 2021 decreased $0.6 million or 60.0% to $0.4 million, as compared to $1.0 million for the three months ended September 30, 2020. The benefit was the result of increased pre-tax book income
26
offset by an increase in our projected research and development tax credit for 2021 to $1.5 million reserve. For the three months ended September 30, 2020, we were a cash basis taxpayer, which affects the timing of the payment of tax but not the expense of tax.
Income (Loss) Before Tax and Net Income (Loss)
Income before tax expense increased by $2.2 million or 100.0% to $22,000 loss for the three months ended September 30, 2021, as compared to a $2.2 million loss for the three months ended September 30, 2020. Net income increased by $1.6 million or 133.3% to $0.4 million in income for the three months ended September 30, 2021, as compared to a $1.2 million loss for the three months ended September 30, 2020.
Other financial information and Non-GAAP key performance indicators
Net service billing (non-GAAP)
Net service billing increased $10.3 million or 40.6% to $35.7 million for the three months ended September 30, 2021, as compared to $25.4 million for the three months ended September 30, 2020. Net service billing reconciles to gross contract revenue as follows (in thousands):
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|
|
For the Three Months Ended September 30, |
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|
|||||
|
|
|
2021 |
|
|
2020 |
|
|
||
|
Gross revenue |
|
$ |
39,715 |
|
|
$ |
31,766 |
|
|
|
Less: sub-consultants and other direct expenses |
|
|
3,967 |
|
|
|
6,354 |
|
|
|
Net services billing |
|
$ |
35,748 |
|
|
$ |
25,412 |
|
|
Net service billing increased by 10.0 percentage points to 90.0% of gross contract revenue for the three months ended September 30, 2021, as compared to 80.0% for the three months ended September 30, 2020. This increase reflects a shift in contract mix and was positively affected by a net service billing to gross contract revenue ratio of 97.2% from acquired revenue.
Because sub-consultants and reimbursable expenses are most often pass-through items with little or no mark-up, they generally have a dilutive effect on gross, operating, and net margins while having little accretive effect on profitability. As such, where possible, we focus our resources and business development efforts principally on increasing revenue derived from our own workforce. Management primarily focusses its internal performance metrics on net service billing.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $0.5 million or 12.8% to $4.4 million for the three months ended September 30, 2021 as compared to $3.9 million for the three months ended September 30, 2020. Adjusted EBITDA reconciles to net income in as follows (in thousands):
|
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2021 |
|
|
2020 |
|
|
|
$ Change |
|
|
% Change |
|
|
||||
|
Net Income |
|
$ |
357 |
|
|
$ |
(1,248 |
) |
|
|
$ |
1,605 |
|
|
|
(128.6 |
%) |
|
|
+ interest expense |
|
|
216 |
|
|
|
118 |
|
|
|
|
98 |
|
|
|
83.1 |
% |
|
|
+ depreciation & amortization |
|
|
1,598 |
|
|
|
311 |
|
|
|
|
1,287 |
|
|
|
413.5 |
% |
|
|
+ tax expense |
|
|
(379 |
) |
|
|
(979 |
) |
|
|
|
600 |
|
|
|
(61.3 |
%) |
|
|
EBITDA |
|
$ |
1,792 |
|
|
$ |
(1,798 |
) |
|
|
$ |
3,590 |
|
|
|
(199.6 |
%) |
|
|
+ non-recurring operating lease rent |
|
|
- |
|
|
|
641 |
|
|
|
|
(641 |
) |
|
|
(100.0 |
%) |
|
|
+ non-cash stock compensation |
|
|
2,634 |
|
|
|
3,546 |
|
|
|
|
(912 |
) |
|
|
(25.7 |
%) |
|
|
+ transaction related expenses |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
0.0 |
% |
|
|
+ settlements and other non-core expenses |
|
|
- |
|
|
|
1,461 |
|
|
|
|
(1,461 |
) |
|
|
(100.0 |
%) |
|
|
Adjusted EBITDA |
|
$ |
4,426 |
|
|
$ |
3,850 |
|
|
|
$ |
576 |
|
|
|
15.0 |
% |
|
|
Adjusted EBITDA margin, net |
|
|
12.4 |
% |
|
|
15.2 |
% |
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2021 and 2020, adjusted EBITDA includes add backs of $2.6 million and $3.5 million, respectively, relating to non-cash stock compensation expenses resulting from the vesting of restricted stock awards. For the three months ended September 30, 2020, adjusted EBITDA includes $0.6 million relating to non-recurring lease expenses. On September 30, 2020, we refinanced our outstanding operating leases to capital leases (see Credit Facilities and Other Financing herein). Accordingly, we increased our short and long-term capital lease debt and eliminated all future rent expense relating to these
27
operating leases. To present a meaningful representation of the impact of the new capital leasing structure on our consolidated financial results, and normalize the presentation of EBITDA, we added the non-recurring operating lease expenses to adjusted EBITDA for the three months ended September 30, 2020.
Adjusted EBITDA Margin, net (non-GAAP)
Adjusted EBITDA Margin, net represents Adjusted EBITDA (as defined above) as a percentage of net service billing (as defined above). For the three months ended September 30, 2021 and 2020, adjusted EBITDA Margin, net was 12.4% and 15.2% respectively. This decrease is in large part the result of increased costs associated with operating as a public company.
Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020
Gross Contract Revenue
Gross contract revenue for the nine months ended September 30, 2021 increased $15.9 million or 17.3% to $108.0 million as compared to $92.1 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, gross contract revenue attributable to work performed by our workforce increased $19.8 million, or 25.6% to $97.1 million or 89.8% of gross contract revenue as compared to $77.3 million or 83.9% for the nine months ended September 30, 2020 (see Net service billing – non-GAAP).
Changes in gross contract revenue (“GCR”) for the nine months ended September 30, 2021 disaggregated between our core and emerging end markets, were as follows (in thousands other than percentages):
|
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Consolidated Gross Contract Revenue |
|
2021 |
|
|
%GCR |
|
|
2020 |
|
|
%GCR |
|
|
Change |
|
|
% Change |
|
||||||
|
Building Infrastructure 1 |
|
$ |
74,511 |
|
|
|
69.0 |
% |
|
$ |
56,191 |
|
|
|
61.0 |
% |
|
$ |
18,320 |
|
|
|
32.6 |
% |
|
Transportation |
|
|
12,344 |
|
|
|
11.4 |
% |
|
|
16,217 |
|
|
|
17.6 |
% |
|
|
(3,873 |
) |
|
|
(23.9 |
%) |
|
Power & Utilities |
|
|
17,524 |
|
|
|
16.2 |
% |
|
|
16,133 |
|
|
|
17.5 |
% |
|
|
1,391 |
|
|
|
8.6 |
% |
|
Other emerging markets 2 |
|
|
3,662 |
|
|
|
3.4 |
% |
|
|
3,585 |
|
|
|
3.9 |
% |
|
|
77 |
|
|
|
2.1 |
% |
|
Total: |
|
$ |
108,041 |
|
|
|
100.0 |
% |
|
$ |
92,126 |
|
|
|
100.0 |
% |
|
$ |
15,915 |
|
|
|
17.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic |
|
$ |
101,216 |
|
|
|
93.7 |
% |
|
$ |
92,126 |
|
|
|
100.0 |
% |
|
$ |
9,090 |
|
|
|
9.9 |
% |
|
Acquired |
|
|
6,825 |
|
|
|
6.3 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
|
6,825 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 formerly referred to as Communities, homes & buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 represents renewable energy, mining, water resources and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2021, gross revenue from our building infrastructure market (formerly referred to as communities, homes, and buildings) increased $18.3 million as compared to the nine months ended September 30, 2020. The increase is attributable to an $8.2 million increase from residential and mixed-use projects including $3.5 million from both single family and multi-family projects, and a $10.1 million increase from commercial, municipal, and other projects with $6.1 million from office industrial and $3.9 million from big box chain retail. Gross revenue derived from the acquisitions was almost exclusively attributable to commercial projects. As the U.S. economy recovers from the COVID-19 pandemic, we are experiencing continued expansion of demand for our community infrastructure services. We continue to maintain a positive outlook on this market and expect it to represent most of our gross revenue for the remainder of 2021.
For the nine months ended September 30, 2021, revenue from transportation decreased $3.9 million as compared to the nine months ended September 30, 2020. The reduction was primarily attributable to the completion of large transportation projects in Texas, Florida, and Virginia. Recent contract awards are expected to begin generating revenue in the fourth quarter of 2021. We believe the transportation market continues to present significant opportunity for future growth and we remain committed to investing leadership, technical expertise, business development and acquisitions for this market.
For the nine months ended September 30, 2021, revenue from power and utilities increased $1.4 million as compared to the nine months ended September 30, 2020. The increase in power and utilities is primarily attributable to increased revenue from our Florida utility and undergrounding and Illinois gas line replacement projects. The power and utilities market continues to experience increasing infrastructure investment as changing weather patterns, energy transition mandates and other safety initiatives positively
28
impact demand for the services we provide. As evidenced by recent increases in program commitments within the gas pipeline market, we believe trends in power and utilities provide meaningful opportunity for continued growth and we are committed to investing resources accordingly.
Our emerging markets consist of renewable energy and energy efficiency, mining, water resources, and other natural resources services. For the nine months ended September 30, 2021, revenue from emerging markets increased $0.1 million as compared to the nine months ended September 30, 2020. Increased emerging market revenue included $0.4 million increase from our mining services where we have specialized in copper mining, the demand for which is cyclical in nature and had been negatively impacted by the COVID-19 pandemic. Increases in demand for copper and the reduced impact of the COVID-19 pandemic on mining operators suggest this market will continue to grow over the next few years. Scarcities in water resources and the increasing need for water management gives us confidence that the water resources market will likewise grow and that we will be able to increase associated revenue accordingly. With recent and future acquisitions, we expect to experience continued growth from investment in renewable energy and energy transition.
For the nine months ended September 30, 2021 and 2020, public sector customers, defined as direct contracts with municipalities, public agencies, or governmental authorities, represented 13.6% and 17.4% of our gross contract revenue, respectively. Gross contract revenue from projects for public sector clients are included in the end market most aligned with work performed.
Contract costs (exclusive of depreciation and amortization)
Total contract costs, exclusive of depreciation and amortization, increased $2.2 million or 4.3% to $53.8 million for the nine months ended September 30, 2021, as compared to $51.6 million for the nine months ended September 30, 2020. Total contract costs represented 49.8% and 56.0% of total contract revenue, respectively. For the nine months ended September 30 2021 and 2020, total contract costs represented 55.4% and 66.7% of revenue attributable to our workforce, respectively (see Net Service Revenue).
Direct payroll costs increased $6.1 million or 16.6% to $42.9 million for the nine months ended September 30, 2021 as compared to $36.8 million for the nine months ended September 30, 2020. Direct payroll accounted for 79.6% of total contract costs for the nine months ended September 30, 2021, an increase of 8.3 percentage points as compared to 71.3% for the nine months ended September 30, 2020.
Direct labor, the component of direct payroll costs associated with the cost of labor relating to work performed on contracts increased $4.4 million or 15.9% to $32.1 million for the nine months ended September 30, 2021, as compared with $27.7 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021 and 2020, direct labor costs represented 29.8% and 30.1% of gross contract revenue, respectively and represented 33.1% and 35.8% of the revenue attributable to our workforce, respectively.
Other direct payroll costs, the component of direct payroll costs associated with fringe and incentive compensation (cash and non-cash) increased by $1.7 million or 18.7% to $10.8 million as compared to $9.1 million. This increase includes an increase of $0.3 million in the cost of non-cash stock compensation to $1.7 million for the nine months ended September 30, 2021, as compared to $1.4 million for the nine months ended September 30, 2020. The increase in non-cash stock compensation is attributable to new stock awards granted during the nine months ended September 30, 2021. This increase also includes $0.2 million in additional bonus accrual for our variable compensation program due to improved company metrics.
Sub-consultants and other direct expenses decreased $3.8 million or 25.7% to $11.0 million for the nine months ended September 30, 2021 as compared to $14.8 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021 and 2020, sub-consultant and other expenses represented 10.2% and 16.1% of gross contract revenue, respectively. This decrease is not indicative of a long-term shift in the composition of our gross contract revenue, and we expect to experience periodic volatility in concentration of sub-consultant utilization.
Operating Expense
Total operating expense increased $13.2 million or 33.4% to $52.7 million for the nine months ended September 30, 2021 as compared to $39.5 million for the nine months ended September 30, 2020.
Selling, general and administrative expenses increased $9.7 million or 25.1% to $48.3 million for the nine months ended September 30, 2021, as compared to $38.6 million for the nine months ended September 30, 2020. Indirect labor increased $3.6 million to $20.5 million as compared to $16.9 million as a result of increased staffing to accommodate growth. During the nine months ended September 30, 2021, in connection with our initial public offering, several new stock awards and event related bonuses
29
were granted to employees. As a result, non-cash stock compensation increased $0.9 million or 33.3% to $3.6 million as compared to $2.7 million and other compensation, associated with performance bonuses, increased $2.6 million to $3.6 million as compared to $1.0 million.
Depreciation and amortization increased $3.5 million or 350.0% to $4.5 million as compared to $1.0 million because of the conversion of our equipment and vehicle operating leases to capital leases on September 30, 2020. Gains on the sale of certain IT equipment and automobiles remained unchanged for the nine months ended September 30, 2021 at less than $0.1 million of gain on the disposal of such assets.
Other (Income) Expense
Other (income) expense changed by $0.9 million to $0.7 million of expense for the nine months ended September 30, 2021 as compared to $0.2 million of income for the nine months ended September 30, 2020. Income derived from incentives and rebates decreased by $0.2 million, interest expense increased by $0.3 million, and acquisition related costs increased by $0.1 million.
Income Tax Expense (Benefit)
Income tax expense (benefit) decreased by $0.6 million or 120.0% to a benefit of $0.1 million for the nine months ended September 30, 2021, as compared to a $0.5 million expense for the nine months ended September 30, 2020. Effective upon the completion of our initial public offering our tax status converted from cash basis to accrual basis, retroactive to January 1, 2021. This affects the timing of the payment of tax but not the expense of tax. Our effective tax rate for the nine months ended September 30, 2021 was (18.6%). Our income tax expense includes an estimated $1.5 million research and development tax credit earned by the Company for work performed at risk. Excluding discrete items, our effective rate for the nine months ended September 30, 2021 was (12.9%).
Income Before Tax and Net Income
Income before tax expense decreased by $0.5 million or 38.5% to $0.8 million for the nine months ended September 30, 2021 as compared to $1.3 million for the nine months ended September 30, 2020. Net income increased by $0.1 million or 12.5% to $0.9 million for the nine months ended September 30, 2021 as compared to $0.8 million for the nine months ended September 30, 2020.
Other financial information and Non-GAAP key performance indicators
Net service billing (non-GAAP)
Net service billing increased $19.8 million or 25.6% to $97.1 million for the nine months ended September 30, 2021 as compared to $77.3 million for the nine months ended September 30, 2020. Net service billing reconciles to gross revenue as follows (in thousands):
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Gross revenue |
|
$ |
108,041 |
|
|
$ |
92,126 |
|
|
Less: sub-consultants and other direct expenses |
|
|
10,967 |
|
|
|
14,814 |
|
|
Net services billing |
|
$ |
97,074 |
|
|
$ |
77,312 |
|
Net service billing increased by 5.9 percentage points to 89.8% of gross contract revenue for the nine months ended September 30, 2021 as compared to 83.9% for the nine months ended September 30, 2020. This increase reflects a shift in contract mix and was positively affected by a net service billing to gross contract revenue ratio of 98.1% from acquired revenue.
30
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $2.1 million or 19.8% to $12.7 million for the nine months ended September 30, 2021 as compared to $10.6 million for the nine months ended September 30, 2020. Adjusted EBITDA reconciles to net income as follows (in thousands):
|
|
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Net Income |
|
|
$ |
899 |
|
|
$ |
794 |
|
|
$ |
105 |
|
|
|
13.2 |
% |
|
+ interest expense |
|
|
|
650 |
|
|
|
367 |
|
|
|
283 |
|
|
|
77.2 |
% |
|
+ depreciation & amortization |
|
|
|
4,506 |
|
|
|
952 |
|
|
|
3,554 |
|
|
|
373.4 |
% |
|
+ tax expense |
|
|
|
(139 |
) |
|
|
467 |
|
|
|
(606 |
) |
|
|
(129.8 |
%) |
|
EBITDA |
|
|
$ |
5,916 |
|
|
$ |
2,580 |
|
|
$ |
3,336 |
|
|
|
129.3 |
% |
|
+ non-recurring operating lease rent |
|
|
|
- |
|
|
|
2,430 |
|
|
|
(2,430 |
) |
|
|
(100.0 |
%) |
|
+ non-cash stock compensation |
|
|
|
5,341 |
|
|
|
4,082 |
|
|
|
1,259 |
|
|
|
30.9 |
% |
|
+ transaction related expenses |
|
|
|
1,440 |
|
|
|
- |
|
|
|
1,440 |
|
|
|
100.0 |
% |
|
+ settlements and other non-core expenses |
|
|
|
- |
|
|
|
1,461 |
|
|
|
(1,461 |
) |
|
|
(100.0 |
%) |
|
Adjusted EBITDA |
|
|
$ |
12,697 |
|
|
$ |
10,553 |
|
|
$ |
2,144 |
|
|
|
20.3 |
% |
|
Adjusted EBITDA margin, net |
|
|
|
13.1 |
% |
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2021 and 2020, adjusted EBITDA includes $5.3 million and $4.1 million, respectively, relating to non-cash stock compensation expenses resulting from the vesting of restricted stock awards and $1.4 million from transaction bonuses. For the nine months ended September 30, 2020, adjusted EBITDA includes $2.4 million relating to non-recurring lease expenses.
Adjusted EBITDA Margin, net (non-GAAP)
Adjusted EBITDA Margin, net represents Adjusted EBITDA (as defined above) as a percentage of net service billing (as defined above). For the nine months ended September 30, 2021 and 2020, adjusted EBITDA Margin, net was 13.1% and 13.6% respectively.
Backlog (other key performance metrics)
Our backlog increased $15.8 million or 12.8% to $139.3 million during the three months ended September 30, 2021, as compared to $123.5 million at June 30, 2021 and $26.3 million or 23.3% for the nine months ended September 30, 2021, as compared to $113.0 million at December 31, 2020. At September 30, 2021 and December 31, 2020 our backlog was comprised as follows:
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Building Infrastructure 1 |
|
|
53 |
% |
|
|
43 |
% |
|
Transportation |
|
|
21 |
% |
|
|
28 |
% |
|
Power & Utilities |
|
|
22 |
% |
|
|
25 |
% |
|
Other Emerging Markets |
|
|
4 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
1 Formerly referred to as Communities, homes & buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, borrowing capacity under our credit facility, lease financing and proceeds from stock sales. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition related payments. Prior to September 30, 2020, we typically funded capital expenditures for vehicles, IT and design infrastructure, geomatics technology and field survey production equipment through operating lease facilities. On September 30, 2020, we refinanced our primary operating leases to capital leases. Our two primary lease finance providers are Huntington Technology Finance and Enterprise Leasing. We regularly monitor our capital requirements and believe our sources of liquidity, including existing cash, cash flow from operations and borrowing availability under our credit and lease facilities will be sufficient to fund our projected cash requirements and strategic initiatives for the next year.
We are actively pursuing acquisitions as part of our strategic growth initiative. At any given time, we are assessing multiple opportunities at varying stages of due diligence. These acquisition opportunities range in size, timing of closing, valuation and
31
composition of consideration. In connection with acquisitions, we use a combination of cash, bank financing, seller financing, and equity to satisfy the purchase price. At this time, we have several acquisitions under consideration. There can be no assurance that any opportunity in the process of being underwritten will close but we do expect to utilize a meaningful portion our current liquidity and capital resources over time for acquisitions.
Cash Flows
The following table summarizes our cash flows for the periods presented:
|
|
|
For the Nine Months Ended September 30, |
|
|||||
|
Consolidated Statement of Cash Flows (amounts in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by (used in) operating activities |
|
$ |
3,230 |
|
|
$ |
8,929 |
|
|
Net cash provided by (used in) investing activities |
|
|
(3,724 |
) |
|
|
(1,834 |
) |
|
Net cash provided by (used in) financing activities |
|
|
38,853 |
|
|
|
(7,043 |
) |
|
Change in cash, cash equivalents and restricted cash |
|
|
38,359 |
|
|
|
52 |
|
|
Cash and cash equivalents, end of period |
|
|
38,745 |
|
|
|
561 |
|
Operating Activities
During the nine months ended September 30, 2021, net cash provided by operating activities was $3.2 million, which primarily consisted of our $0.9 million net profit, adjusted for stock-based compensation expense of $5.3 million, depreciation and amortization expense of $4.5 million, and a decrease in deferred taxes of $1.3 million, offset by a net cash outflow of $6.3 million from changes in operating assets and liabilities. The net outflow from changes in operating assets and liabilities was primarily due to a $10.0 million increase in accounts receivable resulting from increased billing to our clients and acquired accounts receivable, a $1.0 million increase in other assets relating to a receivable from our lease financing facility, a $0.4 million increase in prepaid expenses relating to the purchase of fiduciary directors and officer’s insurance and a $1.0 million net increase in contract assets and liabilities, partially offset by a $6.1 million increase in accounts payable and accrued expense.
During the nine months ended September 30, 2020, net cash provided by operating activities was $8.9 million, which primarily consisted of our $0.8 million net profit, adjusted for stock-based compensation of $4.1 million, depreciation and amortization of $1.0 million and a net cash inflow of $0.2 million from changes in operating assets and liabilities. The net cash inflow from changes in operating assets and liabilities was primarily due to a $0.4 million increase in accounts receivable, a $0.8 million increase in accounts payable and accrued expense and a $0.7 million increase in prepaid expense offset by a $0.3 million reduction in other assets and a $1.8 million reduction in net contract assets and liabilities.
Investing Activities
Net cash used in investing activities increased by $1.9 million to $3.7 million for the nine months ended September 30, 2021 as compared to $1.8 million for the nine months ended September 30, 2020. The increase in net cash used for investing is primarily attributable to the acquisitions inclusive of $3.0 million cash paid to sellers in connection with closing.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2021 was $38.9 million compared to net cash used in financing activities of $7.0 million for the nine months ended September 30, 2020, an increase of $45.9 million. The increase in net cash provided by financing is primarily attributable to net proceeds of $47.1 million from our initial public offering, net of underwriting discounts commissions and other offering costs, offset by $0.6 million of payments for the purchase of treasury stock and $3.2 million of payments on capital leases and $4.8 million of payments under our notes payable and revolving line of credit in connection with our public offering.
Credit Facilities and Other Financing
On September 30, 2021, we maintained a $17.0 million revolving credit facility with Bank of America, our primary lender. Under the terms of the credit facility, available cash in our primary operating account sweeps against the outstanding balance every evening. As of September 30, 2021, we did not have a balance on this revolving line of credit as we used a portion of the net proceeds from our initial public offering to satisfy this obligation. On July 30, 2021, we entered into a Sixth Amendment to the Credit Agreement whereby the maturity date of the Revolving Line was extended to July 31, 2023. The Sixth Amendment eliminated the adjusted debt to EBITDA covenant along with certain administrative requirements and established the Secured Overnight Financing Rate (SOFR) as the replacement for LIBOR. Additional modifications to the Revolving Line included expanded allowances for acquisition and reduced interest rate spreads, among other things.
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We have master lease facilities with Huntington Technology Finance and Enterprise Leasing. The Huntington Technology Finance lease facility finances our acquisition of IT infrastructure, geomatics and survey equipment, furniture and other long-lived assets. The Enterprise lease facility finances the acquisition of field trucks and other service vehicles. We maintain a fleet of approximately 200 vehicles at any given time. Both leasing facilities allow for both operating and capital leasing. We treat operating lease payments as rental expenses included in selling, general and administrative expenses and allocate capital lease payments between amortization and interest. On September 30, 2020, we converted our Huntington and Enterprise operating leases to capital leases and recorded the associated equipment purchases and capital lease liability, current and non-current. The payment terms on the lease agreements range between 30 and 50 months with payments totaling approximately $0.4 million per month. We use the incremental borrowing rate on our revolving line of credit, to calculate the present value on new leases.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.
Critical Accounting Policies and Estimates
We use estimates in the determination of certain financial results. Estimates used in financial reporting utilize only information available to us at the time of formulation. These estimates are subject to change as new information becomes available.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies relating to the use of estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our final prospectus filed with the SEC dated May 6, 2021.
Cautionary Statement about Forward-Looking Statements
Our disclosure and analysis in this Quarterly Report on Form 10-Q, contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development and/ or otherwise are not statements of historical fact. In some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should,” “could” or the negative of such terms or similar expressions. The absence of these words does not mean that a statement is not forward-looking. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Quarterly Report on Form 10-Q.
These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Important factors that could cause such differences include:
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We engage in a highly competitive business. If we are unable to compete effectively, we could lose market share and our business and results of operations could be negatively impacted; |
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Our continued success is dependent upon our ability to hire, retain and utilize qualified personnel; |
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Our profitability could suffer if we are not able to maintain adequate utilization of our workforce due to slowdowns in the economy, reduced demand for our services or the impact of the COVID-19 pandemic; |
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If we are unable to integrate acquired businesses successfully, our business could be harmed; |
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We cannot assure you that we will achieve synergies and cost savings in connection with prior or future acquisitions; |
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Demand from clients is cyclical and vulnerable to economic downturns. If the economy weakens or client spending declines, our financial results may be impacted; |
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Construction, roadway, mining, and maintenance sites are inherently dangerous workplaces. If we, the owner, or others working at such sites fail to maintain safe work conditions, we can be exposed to significant financial losses and reputational harm, as well as civil and criminal liabilities; |
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Our services expose us to significant risks of liability, and our insurance policies may not provide adequate coverage; |
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We cannot assure you that we will renew our revolving credit facility on favorable terms; |
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The contracts in our backlog may be adjusted, cancelled, or suspended by our clients and, therefore, our backlog is not necessarily indicative of our future revenues or earnings. Additionally, even if fully performed, our backlog is not a good indicator of future gross profit; |
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The nature of our contracts, particularly those that are fixed price, subject us to risks of cost overruns. We may experience reduced profits or, in some cases, losses if costs increase above budgets or estimates or if the project experiences schedule delays; |
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Governmental agencies may modify, curtail or terminate our contracts at any time prior to their completion and, if we do not replace them, we may suffer a decline in revenue; |
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Our failure to comply with a variety of complex procurement rules and regulations could damage our reputation and result in our being liable for penalties, including termination of our government contracts, disqualification from bidding on future government contracts and suspension or debarment from government contracting; |
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We are dependent on third parties to complete certain elements of our contracts; |
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Our quarterly results may fluctuate significantly, which could have a material negative effect on the price of our common stock; |
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If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our common stock; |
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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud; |
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Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management; |
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except to the extent required by applicable laws or rules. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor of our business or to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not party to any litigation, the outcome of which if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.
Item 1A. Risk Factors
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the three months ended September 30, 2021, we issued the following securities that were not registered under the Securities Act:
On August 2 2021, we issued 32,143 shares of our common stock at $12.85 per share for a total of $0.4 million, as partial consideration for our acquisition of McFarland-Dyer & Associates, Inc. For a description of the acquisition, see note 4, Acquisitions, appearing in Part I of this Quarterly Report on Form 10-Q.
These shares were issued in a private placement exempt from registration under Section 4(a)(2) of the Securities Act. Accordingly, there were no underwriters, underwriting discounts or commissions.
Issuer Purchase of Equity Securities
The following table summarizes the purchases of shares of our common stock made by us during the three months ended September 30, 2021 (in thousands, except share data and average price per share):
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Period |
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Total Number of Shares Purchased |
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Average Price Paid Per Share |
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Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
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7/1/21 - 7/31/21 |
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6,987 |
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14.00 |
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- |
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- |
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8/1/21 - 8/31/21 |
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- |
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- |
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- |
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- |
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9/1/21 - 9/30/21 |
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- |
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- |
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- |
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- |
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We repurchased 6,987 shares of common stock which were tendered by employees to satisfy required tax withholding obligations arising from the vesting of restricted shares of common stock.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
None
Item 5. Other Information.
None
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Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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Exhibit Number |
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Description |
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10.16* |
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Bowman Consulting Group 2021 Executive Officers Long Term Incentive Plan.
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10.17* |
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Form of Executive Performance Based Restricted Stock Unit Award Agreement.
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10.18* |
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Bowman Consulting Group 2021 Executive Officers Short Term Incentive Plan.
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31.1* |
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31.2* |
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32.1*+ |
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32.2*+ |
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101: |
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XBRL. |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* |
Filed herewith. |
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*+ |
This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BOWMAN CONSULTING GROUP LTD. |
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Date: November 12, 2021 |
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By: |
/s/ Gary Bowman |
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Gary Bowman |
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President, CEO and Chairman (Principal Executive Officer) |
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Date: November 12, 2021 |
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By: |
/s/ Bruce Labovitz |
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Bruce Labovitz |
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Chief Financial Officer (Principal Financial Officer) |
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