NV5 Global - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered solid top-line and profitability growth: gross revenues $234.0M (+10% YoY), gross margin 52.6% (flat YoY), Adjusted EBITDA $29.7M (+8% YoY), Adjusted EPS $0.17 (+13% YoY). GAAP EPS was $0.01 as higher amortization from recent M&A weighed on GAAP results.
• Management reaffirmed full-year 2025 guidance: gross revenues $1.026B–$1.045B; GAAP EPS $0.52–$0.62; Adjusted EPS $1.27–$1.37, citing strong backlog and pipeline; cash from operations rose 96% YoY to $38.4M in Q1, supporting free cash conversion goals.
• Segment momentum was led by Infrastructure (+12% YoY) and Buildings & Technology (+17% YoY); Geospatial slowed due to federal award delays expected to normalize through 2025 as software transitions to SaaS and efficiency actions take hold.
• Acuren–NV5 merger announced May 15 creates a ~$2B revenue platform with ~$350M adjusted EBITDA post-synergies and $20M near-term cost synergies; transaction expected to close 2H25; management positioned cross-selling opportunities across utilities, infrastructure and data centers as key catalysts.

What Went Well and What Went Wrong

What Went Well

• Strong Q1 growth: revenues $234.0M (+10% YoY), gross profit $123.2M (+10% YoY), Adjusted EBITDA $29.7M (+8% YoY), Adjusted EPS $0.17 (+13% YoY); cash from operations $38.4M (+96% YoY) reflecting improved working capital and execution.
• Segment outperformance: Infrastructure (+12% YoY) and Buildings & Technology (+17% YoY) drove the quarter; data centers now ~15% of Buildings revenue, benefitting from expanding hyperscaler relationships and commissioning capabilities.
• Reaffirmed FY25 guidance and backlog strength: entering the year with $904M R12M backlog (88% of low-end FY25 revenue guide), underpinning confidence in organic growth and margin expansion initiatives. “We are reaffirming…full-year 2025 guidance for revenue and earnings per share”.

What Went Wrong

• Geospatial softness: growth slowed due to delays in federal contract awards amid administrative changes; management expects acceleration through 2025 as contracts resume and SaaS transitions lift margins.
• GAAP profitability remained muted: net income $0.4M and GAAP EPS $0.01, impacted by higher intangible amortization from acquisitions (+$1.4M YoY in Q1) and interest expense; adjusted measures showed healthier performance.
• Estimate comparison unavailable: S&P Global consensus mapping for NVEE was not accessible via our system this quarter, preventing beat/miss analysis against Street numbers (see Estimates Context) [GetEstimates error noted].

Transcript

Operator (participant)

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the first quarter 2025 ended March 29, 2025. Joining us today are Dickerson Wright, Executive Chairman of NV5, Ben Heraud, CEO of NV5, Edward Codispoti, CFO of NV5, and Richard Tong, Executive Vice President and General Counsel at NV5. I would now like to turn the call over to Richard Tong.

Richard Tong (EVP, Director, and General Counsel)

Thank you, Operator. Welcome, everyone, to NV5's first quarter 2025 earnings call. Before we proceed, I would like to notify all participants that today's presentation can be found on ir.nv5.com and remind everyone that today's discussion contains forward-looking statements about the company's future, business, and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the two is available in today's earnings release and on the company's website at www.nv5.com. Please note that, unless otherwise stated, all references to first quarter 2025 comparisons are being made against the first quarter of 2024.

In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated by the Securities and Exchange Act of 1934 as amended. The non-GAAP financial measures included in this presentation are adjusted earnings per share and adjusted EBITDA. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5's results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP. In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies. A webcast replay of this call and its accompanying presentation are available via the link provided in today's news release and on the Investors section of the company's website.

We will begin a call with comments from Dickerson Wright, Executive Chairman of NV5, before turning the call over to Ben Heraud, CEO of NV5, for an update of NV5's operations. Edward Codispoti, NV5's Chief Financial Officer, will provide a review of first quarter 2025 results, and Dickerson Wright will provide closing comments before we open the call for your questions. Dickerson, please go ahead.

Dickerson Wright (Executive Chairman)

Thank you, Richard. We also want to thank everyone for joining us. Let's turn to page three of the presentation that you have been furnished. As you know, in times of economic uncertainty, some sectors tend to fare better than others. I like to say that NV5 is a safe port in a storm of uncertainty because our focus is, and always has been, to provide mandated services to support essential infrastructure not subject to tariffs. NV5's business model has been designed to be untethered from economic conditions. We are consultants providing engineering, testing, and inspection and certification expertise to support essential utility, transportation, water, and technology infrastructure. When you hear about tariffs or DOGE or supply chain interruptions, please keep in mind that the services we provide are not discretionary. We are not subject to supply chains or inventory or construction materials. We are consultants.

We support essential infrastructure. I'll now turn the call over to Ben Heraud, CEO of NV5, to provide an update of NV5's business in the first quarter and what we're expecting for the remainder of the year.

Ben Heraud (CEO)

Thanks, Dickerson. Please turn to slide four of the presentation. We're off to a strong start to 2025, exceeding our budget in the first quarter and delivering 5% organic growth on gross revenues. We have grown in both revenues and profitability over the first quarter of 2024 with $234 million in gross revenues, $30 million in adjusted EBITDA, and $123 million in gross profits for Q1. Our strong growth was attributed to our infrastructure and buildings and technology segments, which increased gross revenues in the quarter by 12% and 17%, respectively. Growth in the geospatial segment was slowed due to delays in federal contract awards, which is somewhat typical when new administrations enter the federal government. We anticipate accelerated growth in our geospatial group as we move through 2025.

We referenced a number of margin and cash flow initiatives in our last earnings call, and we have successfully implemented these through this quarter. I'll provide more detail on these on later slides. With these initiatives in place, we are on track to achieve our set targets, which are listed on the right-hand side of the slide: 5-9% organic growth, margin expansion of 150 basis points, and free cash flow conversion of 60% of adjusted EBITDA in 2025. We have also set a cross-selling target for $40 million in revenues over the next 12 months. In Q1, we completed three acquisitions, and we continue to pursue strategic acquisitions to densify our platform and accelerate organic growth.

Ed Codispoti, NV5 CFO, will now provide some more detail about the financial performance of NV5 in the first quarter, as well as an update on our 2025 cash flow conversion initiative and strong balance sheet.

Edward Codispoti (CFO)

Thank you, Ben, and good afternoon, everyone. If you would please turn to slide six of the presentation, I'll review our 2025 first quarter financial results. Our gross revenues in the first quarter grew 10% to $234 million compared to $212.6 million in the first quarter of the prior year. These are record first quarter results for the company. Our gross profit was $123.2 million compared to $111.7 million in the prior year, an increase of 10%. Our net income was $428,000 in the first quarter of 2025 compared to $77,000 in the first quarter of last year, and our GAAP diluted earnings per share was $0.01 versus $0.00 in the prior year period. Keep in mind that our GAAP results were impacted by increases of $1.4 million related to amortization of our intangible assets as a result of acquisitions.

Our adjusted EBITDA increased 8% to $29.7 million from $27.6 million in the prior year first quarter, and our adjusted EPS increased 13% this quarter to $0.17 compared to $0.15 in the first quarter of 2024. Turning now to slide seven, as you can see, we had very strong cash flows from operations of $38.4 million this quarter, which represents a 96% increase over the first quarter of last year. Moreover, it represents a conversion of adjusted EBITDA of 129%. We continue to target an unlevered free cash flow conversion rate of 60% for the year, and the results of this quarter put us on track to achieve that goal. At the same time, our net leverage has come down to 1.3 times from 1.4 times at the end of last year.

We believe our strong balance sheet will enable us to continue to execute our business model as we focus on organic growth and strategic acquisitions. I'll now turn it back over to Ben for a deeper dive into our operations.

Ben Heraud (CEO)

Thanks, Ed. Please turn to slide nine. I want to draw your attention to the image on this slide. This is a LiDAR image of the city of Boston, which was captured by our geospatial group as part of a project that we performed in the city. Within this image, you can see bridges, roads, water, buildings, and power distribution, all of the assets that make up the built environment that NV5 has deep expertise in. We are true consultants, providing insights that improve the performance of civil infrastructure and building systems during capital investments and throughout the operation of these facilities. Our services are required at every phase of these assets' life cycle, from cradle to grave, from site selection through design, build, and operations. Underpinning this is NV5's technology and intellectual property that enables our services to be scalable, efficient, highly accurate, and recurring in nature.

By integrating our geospatial capabilities with our engineering expertise, we are currently on a path to being disruptive in a number of areas within our field, and we have a few examples to show you on the next slide. Innovation and technology have been a core part of our DNA throughout the growth of NV5. With close collaboration between our geospatial and engineering teams, we have a number of solutions that we believe are unique to NV5 and will be disruptive to our industry. A more mature example of this is our building digitization offering, which leverages geospatial technology, MEP and commissioning expertise, and building analytics to create powerful digital twins for our clients that have subscription-based revenue. We are set to grow this offering organically this year by around 20%.

Bridge deck delamination represents a serious structural risk in bridges and requires regular inspection to identify any potential issues that might exist. The traditional method for detecting issues is done through chain dragging, where a chain is physically dragged across the bridge deck, and hollow or muted sounds indicate delaminated areas. This requires a partial shutdown of the bridge and can take up to three days to complete. Leveraging our sensor technology and analytics, we have developed a method of detection with the same accuracy by flying the bridge and are able to assess over 40 bridges in one day. Finally, landslide detection is another application that now utilizes geospatial data for early detection. Synthetic aperture radar, or SAR data, can now be utilized to identify ground shifting in millimeter increments using satellite imagery. These minute shifts can provide an early indication of the risk for a landslide.

This application is especially useful in an area like Southern California during heavy rain events or after fire events when there is particularly high risk of landslide activity. These are just three examples of the initiatives we are working on, and while we do not want to create a training center for our competition, it felt important to share with our investors some of the more innovative side of our business. These are also great examples of moving our engineering and consulting work into the asset management space, driving recurring revenue and creating a more scalable, efficient, and accurate offering not tied to man hours. We will continue to develop disruptive applications for our technologies that provide more efficient, accurate, and novel solutions to our clients' challenges. On slide 11, we have included an update on the infrastructure segment, which had strong performance in Q1.

The infrastructure business grew 12% in Q1 2025 versus the same period last year. The infrastructure segment supports utilities, transportation, and water infrastructure through resilient design, testing, inspection, and asset management services. Utilities and transportation infrastructure performance have been strong throughout our business, and we've seen particularly robust investments in the Northeast and Southeast. We've received many questions from investors related to infrastructure spending, and investments in the infrastructure remain a priority across the country. These investments are for essential services that are not dependent on economic conditions, such as reliable electricity, safe drinking water, and dependable transportation. I'd also like to point out that our funding for our projects is already secured before a project begins.

Infrastructure projects can't be paused and restarted at a later time, and the funding for these projects comes at many state and local sources, such as gas taxes for roadways, utility and water bills, and property taxes. To answer the question, infrastructure funding is strong, and we anticipate continued growth throughout the year. I'd like to bring in Alex Hockman, who leads our infrastructure segment, to get his take on the state of the infrastructure sector. Alex, can you give us some insights on what you're seeing in the infrastructure funding and where you are seeing the growth opportunities in the sector?

Alex Hockman (President)

Yes. Ben, as you stated, we have a number of funding mechanisms that come through the federal government, through state, through local governments, but there are others as well. We have, for example, special assessment districts where a community may have a project that they want to fund, and they're able to then develop a tax base or sell bonds in order to fund that particular project. Also, we have our civil plan check as well as our building safety. Those services are funded through permit fees. There are a number of mechanisms which ultimately fund the projects that we provide services to, and we're not seeing any headwinds right now for our fundamental services.

In terms of excitement regarding growth, I think one of the things that you've mentioned previously is how we're incorporating our geospatial, our building technology, as well as our infrastructure, where we're offering a total solution to our clients in mandated services. I see a very exciting and growing 2025.

Ben Heraud (CEO)

That's great. Thank you very much, Alex. On slide 12, our buildings and technology segment continues to deliver strong growth and profitability, with 17% growth in revenues in Q1 2025 versus Q1 2024. As we've discussed in the past, data centers continue to grow as a component of our sector mix, now making up 15% of our buildings' revenues. We continue to see growth in the data center sector, which is largely dedicated to cloud computing, hyperscale data centers. Our data center clients are actually benefiting from the current economic conditions due to the low cost of energy for their facilities. They're large consumers of electricity. Real estate due diligence is another part of the business that is performing very well due to the pent-up demand for property transactions by REITs and other large property portfolio holders.

The recent addition of fire protection services has had a great deal of success already. We've had significant cross-sells to our clients who have traditionally come to NV5 for mechanical, electrical, and plumbing services. Though most of our private sector work is performed in our building segment, we have the unique benefit of providing consulting and design services, which are not subject to tariffs. We're in sectors that have high demand, such as data centers and healthcare facilities, so incremental cost increases have less of an impact on future projects. Tariff and trade policies that promote industrial growth in the U.S. are an opportunity for us, as it would create additional opportunities for our buildings business domestically. I'd like to bring in Andrew Chang, who leads our buildings business, to get his perspective on some of the key areas of growth within our buildings segment.

Andy, how will the current tariffs affect the buildings business in the short and long term?

Andrew Chang (COO, Buildings and Technology)

Ben, that's a great question. While the current tariff situation has some inconsistent messaging, we are very well prepared. In the short term, our unique digital twin and digital building solutions have proven to affect construction costs and time by reducing material waste. The increased accuracy in material counts will reduce the impact of the tariffs on imported building materials. In the longer term, we anticipate growth in reshoring industrial and manufacturing sectors. Our manufacturing engineering design teams are arguably the best in the country and well positioned, being currently engaged with several very large manufacturing firms.

Ben Heraud (CEO)

Thanks, Andy. I think it's great to get that perspective. Now to 13 for an update on our geospatial segment. Utility and asset vegetation management continues to be the fastest growing part of this segment and now makes up almost one-third of our geospatial revenues currently. I mentioned the recurring nature of asset management earlier, and we have a strong focus on growing our revenue in this area, and our geospatial services are a great enabler for this strategy. In terms of end markets, we are seeing high growth in utilities, transportation, and forestry and coastal infrastructure. Coastal infrastructure is subject to challenging conditions such as salt exposure, sea level rise, and storms, and geospatial applications for asset management. Assessment of shipping channels and port facilities will continue to grow.

I'd also like to touch on our geospatial software performance, which grew 11% in Q1 2025 over Q1 2024 at much improved margins. The significant development investments we have made in 2024 to a SAR software model are paying off now, and we anticipate continued growth in revenues and profitability from our geospatial software growth. Of course, DOGE and federal spending is in the news a lot these days, and I will tell you that the impact DOGE has had on our business has been minimal. We have seen some delays in awards due to the shifting around of people in the federal government who sign off on our contracts. However, we've had only one small contract cancellation. The minimum impact to our federal business can be attributed to the mandated nature of the services that we provide, which is related to natural and water resources and national security.

In fact, DOGE presents an opportunity for us as the administration is proposing a record budget for the Department of Defense, and there's a federal mandate to use consultants due to a reduction of headcount in federal agencies and hiring freezes. I'd like to introduce Kurt Allen, who oversees our geospatial business, to get his insights on the federal sector. Curt, DOGE has been a hot topic recently. What impacts have we seen from DOGE's activities, and can you elaborate on the opportunities that you see in the federal space?

Kurt Allen (President, Geospatial)

Thanks, Ben. Yeah, with respect to NV5's federal contract situation, as you mentioned, we have had one contract cancellation with the Centers for Disease Control and Prevention. This small contract was valued at approximately $100,000. We think this action is a one-and-done situation, and we do not expect another negative contract action with any other agency. In fact, we're now seeing contracts being signed, and money is moving through the bureaucracy across many agencies, and we believe that the worst is behind us. Our focus on mandated service and the value that these services provide to the public has insulated us greatly from the upheaval affecting other consulting companies. We've had contracting delays while approvals for our work continue to wind their way through the system, but we remain confident that the situation will improve over the rest of the year.

Ben Heraud (CEO)

Thanks, Kurt, for providing that additional clarification and color. I'd like to now provide some information about a couple of our recent acquisitions on slide 14. As the company evolves, our focus is on organic growth. The intent of NV5's mergers and acquisitions program is to strengthen our value proposition to clients through complementary services that embed us in our clients' organizations and accelerate our organic growth. In the first quarter, we completed three acquisitions. We discussed the acquisition of Group Delta on our last earnings call in February, but we've since completed two others. Herman CX provides commissioning services for hyperscale data centers in the U.S. Commissioning is a mandated service that supports the safety and efficiency of data center infrastructure, including the delivery of power to the data center.

This acquisition has given us access to new domestic data center clients and opened opportunities for cross-selling of our power delivery services to our data center clientele. CRS Survey is a land surveying and mapping company that provides both traditional and geospatial aerial surveys for roadway and bridges in North Carolina. This acquisition expands our service area to the north and east of Charlotte and has already grown our surveying services with the North Carolina Department of Transportation, our largest client in the state. Both Herman CX and CRS Survey are companies that NV5 has worked with in the past, and both of them have already made contributions to the growth of our existing business through cross-selling. Slide 16 provides an update on the margin improvement initiatives for 2025, which we announced on our last earnings call.

As we discussed, we are driving margin improvement throughout the organization with the goal to increase our EBITDA margins by 150 basis points over the course of the year. In Q1, we implemented a number of measures to directly impact margins. We made significant reductions to indirect labor, both in shared services and our operations, and we consolidated offices where beneficial. In our geospatial group, we restructured the organization, implementing efficiency measures for data collection and optimized for data storage processes. Geospatial analysis uses massive amounts of data, and the savings from our new process for data storage will provide significant savings in data storage costs. We are also rolling out a business development tool using artificial intelligence to speed up the preparation of proposals while reducing the cost of sales through automation.

This will also enable us to cast a wider net when going after larger RFPs and increase utilization. We anticipate benefiting from all of these margin improvement initiatives beginning in Q2 and increasing through the second half of the year. Let's now turn to slide 17 to dive a little bit deeper into the efficiency and growth measures that were implemented for geospatial. We made significant investments in 2024 for the geospatial business that were related to optimizing the AXIM geospatial and geospatial software acquisitions we made in 2023. On past earnings calls, we have discussed the importance of migrating our geospatial software platform to a SaaS model. We finished the development of our SaaS software in 2024. We also completed ERP and CRM systems integrations for our geospatial organization in 2024 while scaling our data collection assets to create efficiencies.

These investments impacted margins in 2024, but they will benefit our growth and profitability in 2025 and beyond. As we moved into the first quarter of 2025, we implemented additional initiatives for the geospatial group. The software development team was refocused on our most popular applications. Sales organizations from the acquired companies were integrated into a single sales organization, and the geospatial segment adopted a new reporting structure based on market verticals to drive growth and accountability. The results of these investments and the reorganization of the geospatial group are expected to be positive for the top line and bottom line. The impact of geospatial software was immediate, with double-digit growth and profitability in Q1. As we move throughout the year, we anticipate geospatial to deliver margin improvement and accelerated organic growth. On slide 18, we've provided some information about our revamped cross-selling program.

We have a history of successful cross-selling programs that have helped us to bring subcontracted work back into NV5 and driven organic growth throughout the business. One of the challenges we faced with our cross-selling program was that we incentivized our people for signing contracts rather than as the revenue was generated. Our new program will reward employees as cross-sell revenue is recognized, giving us a more accurate view of the impact of our cross-selling program. Our target for the first 12 months of the program, which runs from Q2 2025 through to Q1 2026, is $40 million in revenue, and we will report on the progress of our cross-selling program in subsequent earnings calls. On slide 19, you'll find our priorities for the remainder of 2025 to carry our Q1 momentum throughout the year.

We enter Q2 with a strong backlog, and we are working diligently to build upon our sales success. We will push forward our organic growth goal of 5-9% in 2025 and continue to implement our initiatives to deliver margin expansion of 150 basis points and unlevered free cash flow conversion of 60% of EBITDA. Our new cross-selling program will drive sales and inclusion across our three segments and deliver a comprehensive differentiating value proposition to our clients. Finally, we will continue to be opportunistic in identifying strategic acquisition targets that densify our platform and provide opportunities to accelerate organic growth. Based on our strong Q1 performance and the outlook for the rest of the year, we are reaffirming our guidance of $1,026,000,000-$1,045,000,000 in gross revenues, $0.52-$0.62 GAAP earnings per share, and $1.27-$1.37 adjusted earnings per share for the full 2025.

At this point, I'll turn the call over to Dickerson to speak about NV5's DNA and closing comments.

Dickerson Wright (Executive Chairman)

Thank you, Ben. Let's turn to slide 20. We have received many questions concerning our name, NV5. And it's our intent for NV5 to depict our business plan, which was purposefully designed to differentiate NV5 and to perform above the industry standard in strong economic times and also in challenging economic times. Our vertical approach flattens the organization, thus the name V in NV5, allowing us to put our best people in front of the client to deliver value. Our diversified service offering allows us to act as a true consultant throughout the entire lifecycle of an asset or of a project, embedding our consultants into our clients' organizations and fostering organic growth and continuity of earnings. We also focus on mandated services that are driven by population growth and a finite amount of resources to serve that growing population.

Our services are not dependent on economic conditions or tariffs, but by the fact that clean water, reliable energy, and safe transportation are essential services as our population increases. The majority of our revenue comes from pre-funded projects for local, state, and federal government clients. Funding for our project comes from a number of sources, including property taxes, gas taxes, utility bills, as well as state and federal grants. In some instances, our municipal clients actually pay us to assist with obtaining these state and federal funds. Mergers and acquisitions are a part of our growth strategy, but the acquisitions are only made to support our existing services and accelerate our organic growth. We're active in identifying these M&A targets throughout our operations rather than depending on brokers, and we use cash or stock based upon immediate appreciation.

Our unique business model is in our DNA, and we will continue to adhere to these principles to drive growth of the NV5 organization and provide value to NV5 shareholders.

Operator (participant)

Thank you, sir. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and the number one. Our first question will come from the line of Chris Moore with CJS Securities. Please proceed.

Chris Moore (Senior Research Analyst)

Hey, good afternoon, guys. Thanks for taking a couple of questions. Yeah, maybe we could—good afternoon. Just maybe we could start with geospatial. I think it was a little slow coming out of the gate in Q1, primarily new administration related. Just wanted to get a sense in terms of what you're seeing early in Q2 and really for the year. Just is there a reasonable organic growth range that we should be thinking about for geospatial?

Dickerson Wright (Executive Chairman)

Okay. Chris, let me start with answering that, and specifically, may go to Kurt Allen, who heads our geospatial group, or to Ben. At the very beginning, when you say we're off to a slower thought, geospatial was very affected by our integration on certain acquisitions. Particularly in the software side of things, it took time for us to really make sure we had the efficiencies, and certain people were laid off. You started to see the effects of that in the latter part of the first quarter, and you'll begin to see more of that efficiency and profit. I would say it was mostly internalized, not so much on what market-driven by a slowness. There may be some specific delays in projects, but nothing related to any of the political landscape.

If there's any more specificity that you'd like to answer.

Ben Heraud (CEO)

Yeah, I mean, I think we're certainly seeing an improvement through the remainder of the year based on the current numbers that we've got. As we mentioned earlier on the call, a lot about the mandated nature of the services that we're providing within that space sort of have us feeling positive about the business and the continued growth.

Chris Moore (Senior Research Analyst)

I got it. I appreciate that. Maybe just staying on geospatial for a minute, the split. In terms of federal, is it roughly 50% of geospatial at this point in time?

Ben Heraud (CEO)

Yeah, roughly 48%.

Chris Moore (Senior Research Analyst)

Is that—I guess I'm just trying to understand longer term—is that a level that you're comfortable with? Will federal likely be more or less moving forward, say, three to five years out?

Ben Heraud (CEO)

Yeah, Chris, I think right now we're fishing where the fish are. And really, we're seeing a lot of opportunities in the commercial space, especially with utilities. I would expect the amount of private sector work that we do to actually grow to a larger share where federal may be more flat relative to the total growth for the entire portion of the business. Just adding that on the utility side of things, we have our power delivery group within the infrastructure side of things. We've got a recent initiative here where we're really cross-selling within geospatial and the power delivery groups to capture more market share of these clients that we're working with where there's not currently overlap. We're pretty excited about that.

Dickerson Wright (Executive Chairman)

Chris, maybe I could just chime in here. I'm going to have some of the concluding comments. We hear so much about a cutback in federal spending and government. Basically, our geospatial group works with the defense industry. If you know anything, this new administration is not, if anything, it's increasing the commitment to the defense community. I think our geospatial group will benefit from that, which is just the inverse of what's going on with other cutbacks in federal governments that are non-defense related.

Chris Moore (Senior Research Analyst)

Got it. Very helpful. I'll jump back in line, guys. Thank you.

Operator (participant)

Your next question comes from the line of Rob Brown with Lake Street. Please proceed.

Rob Brown (Co-Founder Partner and Senior Equity Research Analyst)

Good afternoon.

Dickerson Wright (Executive Chairman)

Hi, Rob.

Rob Brown (Co-Founder Partner and Senior Equity Research Analyst)

Hi. You talked about the data center business growing pretty nicely, and then you did an acquisition in that space as well. Just wanted to get a sense of the acquired business. What's a typical commissioning service contract in that business? How big is it, and what's sort of the opportunity in the commissioning side?

Dickerson Wright (Executive Chairman)

Yeah, it's typically around in the $1 million to $2 million range as a typical contract size. It's often done in phases as these data centers are huge, and they look at them in these sectors that we do. That may represent part of one data center. They just—we continue to go as the data center grows.

Rob Brown (Co-Founder Partner and Senior Equity Research Analyst)

Okay, great. Thank you. And then on the funding sources, go ahead.

Dickerson Wright (Executive Chairman)

Yeah, just a quick comment on that. Our scope of work in data centers varies very much. Most of the majority of it is commissioning work, but we do many other things involving the data center. Sometimes that contract can be small or much larger depending on what the scope of services that we are providing.

Yeah. I mean, for that, speaking to that specific acquisition where the one plus one equals three is they're approaching those—they brought in new hyperscaler clients. Currently, they're only approaching them with commissioning work. We can bring in power delivery, MEP, fire protection, many other things. And Andy, I don't know if you want to add a little bit of color there, but.

Ben Heraud (CEO)

Yeah. We're really excited. We're grabbing a lot larger part of the data center business on all the projects we're working on. We're starting to get engaged at the power level. As we all know, that's a big lift at the moment. We get involved in, like Ben said, all the building services. We're getting civil engineering involved, structural, the mandated fire. We're going through the commissioning and staying in the life of the building. Yeah, it's a very exciting time.

Rob Brown (Co-Founder Partner and Senior Equity Research Analyst)

Okay, great. Thank you. On the funding sources, I guess on the infrastructure side, I know it comes from a lot of pots. Do you have a sense of how much is sort of gas tax and state and local versus federal in that vertical?

Dickerson Wright (Executive Chairman)

It varies very much depending upon which state we're working in. For example, in California, quite a bit of the roadway transportation projects we're doing is funded by the gas tax, not so much in other areas. It is very geographic specific.

Rob Brown (Co-Founder Partner and Senior Equity Research Analyst)

Yep. Got it. Okay. Thank you. I'll turn it over.

Operator (participant)

Your next question comes from the line of Andy Whitman with Baird. Your line is open.

Andy Whitman (Senior Research Analyst)

Great. Thanks for taking my questions this afternoon. I guess I wanted to just talk about the profit margin expectations for the year. Obviously, you've stuck by the 150 basis points margin expansion goal over last year. Obviously, that's implying a pretty big ramp with the margin slightly lower here in the first quarter. I guess I want to get your sense of the confidence here. And specifically, as I look at some of the items that you listed as the areas where you're focusing for your efficiency measures, certainly indirect labor, office consolidations, those are very easy to characterize and kind of underrate. You know exactly what those can deliver. The other ones on here are a little bit more subjective. I guess maybe the question is for Ed or Ben.

Could you talk about what percentage or the dollars that you've already realized are identified in terms of these very discrete things just to help us understand how much left you would have to deliver on these more subjective or squishier ones that are harder to really identify to get to your target level?

Edward Codispoti (CFO)

Hey, Andy. It's Ed. Good to talk to you. The ramp-up really, as you said, will be a gradual ramp-up. As you see in the Q1 results, we were just pretty much flat with first quarter of last year, just a hair under. The initiatives that we've put in place that you just mentioned would really start to take effect in the second quarter, but more meaningfully as we discussed last quarter in the second half of the year. There are certain drivers that have already begun. For example, the software business restructuring. Others, like office and lab consolidation, will occur between now and Q3. Your point is a good one. The ramp-up is how we're reflecting it.

A slight bump in Q2 and then Q3 and Q4 would be more meaningful so that we hopefully end up 150 basis points over where we were last year, somewhere in the mid 16% range.

Andy Whitman (Senior Research Analyst)

Got it. Okay.

Ben Heraud (CEO)

Yeah. Just to maybe just add to that, some specifics, I mean, out of the software business alone, we did a riff of 25 staff. That is sort of immediate. Through the quarter, it comes at a little bit of a cost, but we'll see the benefit of that from now onward.

Andy Whitman (Senior Research Analyst)

Got it. Okay. I also noticed that your organic growth, last quarter, you were expecting 5-7% organic growth. I noticed on your slide deck this time that you have it at 5-9% organic growth. I was wondering which of the businesses that you have in the organic base has improved since last quarter to give you that confidence?

Dickerson Wright (Executive Chairman)

Andy, this is Dick. Good to hear from you again. Let me give an overview. We measure our growth not by just aspirational, but what is the backlog? We have seen significant growth in the backlog of our infrastructure business. We have seen significant growth in our technology business, specifically those with the data centers. We expect to see further growth with the software business in support of our geospatial services. I will mention a little bit more in the concluding comments. We measure our—so we are optimistic about the organic growth really based on the backlog that we have going forward.

Andy Whitman (Senior Research Analyst)

Yeah. Okay. Just last question for me. I guess, Dick, this one's probably for you. NV5 has never been a company to really do a lot of buyback, or I don't think any buyback. The stock is obviously less expensive than it's been in the past. It sounds like from your overall tone that while M&A is still very much a part of your culture and it always has been, it sounds like there's a little bit more focus on organic maybe today or the last few quarters than there has been over the last few years. That brings into the question, as your balance sheet continues to cash flow better, what you're going to do with the cash. I was just wondering if buyback is something that you've thought about or considered in terms of your capital allocation strategy on a go-forward basis?

Dickerson Wright (Executive Chairman)

That's a very observant question. We've announced a $20 million buyback. At the time that we can do that and the time that we do not have some conflicts that would prevent that, we fully intend to buy that back. On the acquisition side, obviously, we look for the arbitrage of the price of our shares and what we are buying things at. We have the flexibility. We did this earlier on. We will probably be using much more of that cash that you talked about, and we have been. We are not giving stock in the acquisition. We may give restricted stock as a portion of that, but that has a cliff-vesting period of three years. The actual stock or lettered stock, we replace that with cash. Therefore, the acquisitions are immediately accretive because we have more income coming in without increasing the share count.

Andy Whitman (Senior Research Analyst)

Great. Thank you for the perspective. Have a good evening.

Operator (participant)

Your next question comes from the line of Sam Cochswarm with William Blair. Please proceed.

Sam Cochswarm (Research Analyst)

Hey, thanks for taking our questions. I wanted to ask a bit more on the topic of tariffs. I appreciate you do not directly have much exposure to supply chains, but I was curious how these tariffs might impact your clients' projects. Have any clients shared they may need to slow down their own projects or pause projects as a result of these tariffs and impact their ability to complete the pieces of the project that might come before you guys get involved?

Kurt Allen (President, Geospatial)

Sam, let me give a macro answer. For specificity, we can really best hear from each of the reporting segments and how they see things. All of our work, a very small portion of it, is international. All of our work is domestic, and it's based on materials which are very limited because we're consultants. The materials that we're using there are all usually materials that are not subject to tariffs, or they are domestic. We have very, very limited exposure to tariffs. We're not worried about the supply chain. Those are not things that we see as a major impact on our business negatively. It's not that we are importing things that are subject to a tariff for the activity that we're doing.

As I said, I think maybe Ben or some of our segment chiefs can report to what they may be seeing.

Ben Heraud (CEO)

Yeah. I mean, we haven't seen any immediate disruption from it. It's obviously a very rapidly changing landscape, and we're watching it very closely. I don't know if Andy, Kurt, and Alex, you want to add some color to that?

Andrew Chang (COO, Buildings and Technology)

Yeah. In the building side, we've actually seen more focus using the digital buildings to make sure that equipment count and material count is more accurate. Less delays in projects that have already been budgeted for. We've seen increased focus on that. The construction schedules have not slowed down yet.

Kurt Allen (President, Geospatial)

I guess in geospatial, the only product that we really kind of deal with is our software group, but that's an inherent good and not subject to tariff.

Edward Codispoti (CFO)

Infrastructure, a lot of our projects already have Buy American, and we're just not seeing the impact of tariffs at this point.

Sam Cochswarm (Research Analyst)

Got it. Got it. Very helpful, Connor. Thanks, guys. Maybe switching gears here a little bit, maybe to ask about your utilities business and the fire hardening services you provide. I think last quarter was still pretty early following the California fire disaster. You shared these types of events usually lead to a pickup in business over the near to midterm. Have you guys begun to see that pickup at all, or is it still too early in this process?

Edward Codispoti (CFO)

It's still a bit too early to actually have the contracts in place, but we are seeing activity relative to fire hardening.

Kurt Allen (President, Geospatial)

We have a municipality initiative where Los Angeles, which was really impacted by the fires, as you well know, they now have 60 days for these local municipalities to get the permit process to get buildings. We feel a real—we are outsourcing business in our private provider business where we actually have our fees based on a percentage of the building permit. We see a tremendous opportunity and activity with the municipalities as they start to rebuild. On the bigger picture you mentioned, yes, we haven't seen any of the real construction uptick tremendously until we get that permit processing where we will be very embedded and involved with the municipalities and helping them to accelerate the building permit process.

Sam Cochswarm (Research Analyst)

Got it. Appreciate it. Thanks, guys.

Operator (participant)

At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Wright for closing remarks.

Dickerson Wright (Executive Chairman)

Thank you, everybody, for joining the call today. As you know, we are very pleased to report to our shareholders in a successful quarter one. We really have a positive outlook for the remainder of the year. I use a word, and I think that's really important for all of our people and our segments reporting, and that's the word adapt. Adapt to what the commercial circumstances are. We don't have any impact now on tariffs. We don't know where DOGE is, but whatever that is, if we have the ability to adapt and be flexible. Give an example. Our geospatial group, mainly a tremendous amount of their work has been with the federal government. For now, fortunately, it's with the Department of Defense. That administration seems to be—they are going to increase defense spending. Hopefully, we'll be impacted positively.

We think it's important that now they look for other areas. We're starting to position ourselves with other areas so they're not so dependent on specific services. They're cross-selling, and Ben mentioned that will be with utilities and commercial sectors where they now will have that whole segment of business. Here's where the adapt comes in. If the defense business continues, but also now they develop a further service with the commercial activity and the utilities, their business will prosper. This really is the same for all segments. We have to know the environment we're in, and we have to adapt our services and our organization so that we are part of that. That's really important.

Where I was pleased, and I'd like to really point this out to our investors, was you'll notice the cash flow conversion, close to 100% of what our EBITDA was. We are in a strong cash position. I was also pleased to see that our leverage has dropped to 1.3, and we now have $53 million, over $53 million in cash on hand that we can use to grow and promote our organic growth. Also, if we see opportunities that we can support and strengthen the platforms we have, we have the cash to do that, and we're not so worried about using stock. Those are very important things to look at in the quarter.

Our quarter, really, the other thing that I was very encouraged with, and I'd like to point this out to investors, is we did some major acquisitions in the beginning of the quarter in our software area. Learning that business, we ended up doing things that position us for further growth. We had a very good, profitable quarter that could have been better. Once we realized that Ben mentioned the amount of employees, we felt that the staffing of that, and as we learned better, that we had 40 people that we can now—they're no longer with us. We will see the benefit and the growth of the company in the second quarter as we realize even further benefits from that. We are encouraged with the outlook. We are encouraged with the year because of the political environment. We are reaffirming a strong guidance for the rest of the year.

We are not projecting any slowdowns. We feel very encouraged with the year going forward. I want to thank everybody for your questions. Thank everybody for participating in the call today. We will be available and working on anything that you may think of or want to address with us. Please feel free to do so. Thank you for the call. We appreciate being able to report these positive results to you. Thank you.

Operator (participant)

Thank you. This does conclude today's conference call. You may now disconnect.