Q2 2024 Earnings Summary
- NV5 expects strong revenue growth in the second half of the year, potentially exceeding 10%.
- The company is projecting significant growth in its data center business, aiming to increase revenues from $40 million to $400 million over five years, with current organic growth at 30%.
- NV5 is on track to achieve its target of $1 billion run rate revenue by Q4 2024, aligning with its 2022 guidelines.
- NV5 Global's ambitious revenue growth targets may be challenging to achieve, as management expresses uncertainty regarding exceeding 10% revenue growth in the second half of the year. "I have not -- I am not -- I'm sure that probably the second half is above the 10%."
- The company's aggressive growth plans rely significantly on acquisitions, introducing uncertainty. Management indicates that achieving their target of growing the data center business from $40 million to $400 million in five years will be a combination of organic growth and acquisitions, which may not materialize as planned. "It's about 55% CAGR over that time period of the goal... the remainder through acquisitions, which we're looking at, at the moment."
- NV5 does not provide adjusted EBITDA guidance and acknowledges potential variability in achieving EBITDA targets, indicating possible margin pressures. "We have a goal of 160. I mean that could -- of course, that could vary, but -- and we don't give guidance on adjusted EBITDA."
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Organic Growth Outlook
Q: Is the guidance raise due to acquisitions or improved organic growth?
A: The guidance raise is due to an improved outlook on the organic side of the business. We expect to continue at 6% to 10% organic growth in the second half of the year. Year-to-date, we've seen 7% organic growth. We do not include pending acquisitions in our guidance. -
EBITDA Margin Expectations
Q: What are EBITDA margin expectations for the rest of the year?
A: We expect consolidated margins to improve, with Geospatial lifting overall performance. For the full year, we estimate coming close to a 17% EBITDA margin, aiming for around $160 million in EBITDA. -
Impact of Pending Acquisitions
Q: Can you discuss the pending acquisitions and their expected contributions?
A: We have agreements to acquire two companies, adding roughly 400 people to NV5. Due to nondisclosure agreements, we cannot disclose valuations or expected revenue contributions. These acquisitions are not included in our guidance, as we do not include pending acquisitions in our forecasts. -
Data Center Growth Plans
Q: How will data center growth ramp up to $400 million in five years?
A: Our data center business is currently at a $40 million run rate, experiencing about 30% organic growth. We aim for a 55% compound annual growth rate over the five-year period, reaching $400 million through a combination of organic growth and acquisitions. Growth is expected to be consistent, with higher rates in the next couple of years, particularly in the U.S. -
Geospatial Business Outlook
Q: Can you elaborate on the NV ecosystem and Geospatial business growth?
A: Our NV ecosystem and solutions generate $40 million annually. Margins are improving and are on an upturn. We see software and services components growing together, leading to growth in implementation services. We do not anticipate any impact from the upcoming election, as we are resilient to administrative changes. -
Backlog and Mix Changes
Q: How is backlog changing and what is the mix evolution?
A: Backlog is up about 9% year-over-year. We've seen greater increases in Geospatial and Building Technology businesses. Our focus on cross-selling within our main segments is enhancing growth across the board. -
Real Estate Transaction Business
Q: Can you provide an update on real estate transactions?
A: Our real estate transaction business represents roughly $60 million annually. This business is coming back strong, and any relief in interest rates will help. We expect a significant uptick once rates become more attractive for real estate transactions. -
Revenue from Acquisitions
Q: What was the revenue contribution from acquired companies in Q2 and first half?
A: For the second quarter, 2024 acquisitions contributed $10.5 million in revenue. For the six months, they contributed $15.9 million. -
Utility O&M Business Acquisition
Q: Is the utility O&M business a new market opportunity for expansion?
A: The O&M business is a new area for us within the utility market, providing sticky, recurring revenue. We have an agreement to purchase but have not closed yet. This acquisition is not included in our guidance. -
M&A Multiples and Competition
Q: Are acquisition multiples increasing compared to a few years ago?
A: Yes, multiples are tending to rise, particularly as private equity gets more involved in the space. We sometimes use our appreciated stock in acquisitions, leading to multiples above the traditional 6x, sometimes as high as 10x. -
Cash Burn and Working Capital
Q: What drove the cash burn this quarter, particularly in working capital?
A: The cash burn was driven by increases in unbilled receivables due to ramp-up in the business, especially in Geospatial. As work resumed after delays, it takes time to convert unbilled amounts to accounts receivable and then to cash. -
Next Revenue Target Beyond $1B
Q: What are your thoughts on setting the next revenue target after reaching $1 billion?
A: We are confident in reaching $1 billion by the end of 2024 or entering 2025. We're gathering information from our operations to set our new goal for 2028, which we will announce shortly.
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