Q4 2023 Earnings Summary
- NV5 is experiencing strong demand in their utility services due to electrification initiatives. They are seeing growth in electrification now and expect it to continue for years to come, including additional demands in distribution and transmission as well as grid hardening. They have signed a significant contract for electric vehicle charging stations, indicating growth opportunities in this sector.
- The company is seeing a resurgence in their real estate transaction and construction quality assurance (CQA) businesses, with increased volume, profitability, and assignments. They are starting to see momentum in these areas, indicating positive trends in markets previously impacted by interest rates.
- NV5 is actively pursuing M&A opportunities to strengthen their platforms and drive future growth. They are more active than ever in M&A and intend to conclude a number of acquisitions to expand their platform, focusing on their key areas of growth.
- NV5 expects organic growth to be under 5% in 2024, indicating reliance on acquisitions for revenue growth. The CFO stated, "we're assuming very modest organic growth, we're assuming very modest organic growth... under 5%."
- Profit margins are not anticipated to significantly increase in 2024, particularly in the Geospatial segment due to integration challenges and delays in federal contracts caused by the government continuing resolution. The CFO mentioned, "I wouldn't anticipate a significant increase in EBITDA margins in '24."
- Cash flows from operations have been impacted by increased unbilled receivables and higher tax payments due to changes in tax law (Section 174(d)), which may affect liquidity. The CFO noted an additional $15 million in unbilled receivables and $19 million more in tax payments in 2023.
-
Organic Growth Guidance
Q: What's the outlook for organic growth in 2024?
A: Management is assuming under 5% organic growth for 2024, adopting a conservative stance due to uncertainties like federal funding delays. They aim to set low targets early in the year with the intention to beat and raise throughout the year. -
Impact of Federal Funding Delays
Q: How are federal funding delays affecting the geospatial segment?
A: Delays in federal government funding are impacting geospatial projects, particularly within the Axim division. Management anticipates a potential rebound in geospatial organic growth in the second half of the year if funding issues are resolved, possibly between March and June 2024 . -
Margins Outlook
Q: What is the expectation for profit margins in 2024?
A: Management does not anticipate a significant increase in EBITDA margins for 2024. The geospatial segment experienced lower margins due to federal funding delays and the integration of lower-margin acquisitions like VIS. They expect margins to remain consistent with 2023 levels . -
Infrastructure Organic Growth Initiatives
Q: How is the company planning to improve organic growth in infrastructure?
A: The company is accelerating recruitment to fill open positions faster, increasing client engagement, and incentivizing teams to drive organic growth. They have set specific initiatives and rewards to enhance performance in infrastructure services in 2024. -
LNG Business Outlook
Q: What's the outlook for the LNG business?
A: The LNG business, focused on peak shaving, generated $80 million in revenue in 2023 with an EBITDA margin of 10.6%. Management remains bullish, noting that recent regulatory announcements do not impact their operations, though project timing may cause cyclicality. -
Real Estate and CQA Recovery
Q: How are the real estate and construction quality assurance sectors performing?
A: Both sectors are showing signs of recovery despite being dependent on interest rates. The real estate business has seen increased volume and profitability, while construction quality assurance is experiencing a resurgence, particularly in Southern California. These areas are recovering quicker than municipal services. -
Electrification Trends
Q: How is NV5 positioned regarding electrification trends?
A: NV5 is benefiting from the growth in electrification, which is expected to continue for years. They are involved in projects like charging stations for electric vehicles, leading to increased demands on the grid and opportunities in their utility services. -
Cash Flow and Tax Considerations
Q: What affected cash flow from operations in 2023, and what's the outlook?
A: Cash flow was impacted by increased unbilled receivables and an additional $19 million paid due to IRS code Section 174(d) changes requiring capitalization of R&D expenses. If pending legislation repeals this provision, NV5 may recover these payments. -
M&A Activity and Strategy
Q: Is the company changing its M&A strategy?
A: NV5 remains active in mergers and acquisitions, aiming to strengthen key areas like Buildings and Technology, Infrastructure, and Geospatial. They plan to be opportunistic with acquisitions to expand their platform, with no significant changes in strategy expected. -
Management Transition
Q: What are the implications of Dickerson Wright's transition?
A: Dickerson Wright emphasized he is not leaving and will remain actively involved with the company. He believes it's time for others to step up, ensuring continuity in leadership while he continues to contribute to NV5's success .