Bowman Consulting Group Ltd. — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2023. Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and other markets. The company reports as one operating segment.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Gross contract revenue | $94.4 million | $71.2 million | $253.3 million | $186.1 million |
| Net income | $1.2 million | $3.4 million | $1.1 million | $4.5 million |
| Income from operations | $2.6 million | $2.2 million | $3.0 million | $4.5 million |
| Net margin, as reported | 1.3% | 4.8% | 0.4% | 2.4% |
| Adjusted EBITDA (non-GAAP) | $15.1 million | $9.6 million | $35.8 million | $24.6 million |
| Adjusted EBITDA margin on net service billing (non-GAAP) | 18.3% | 14.8% | 16.0% | 14.6% |
| Operating cash flow | Not separately presented | Not separately presented | $12.3 million | $12.2 million |
Gross contract revenue grew 32.6% in Q3 and 36.1% year to date. Net service billing, a company-defined non-GAAP measure, rose 26.5% in Q3 to $82.1 million and 32.2% year to date to $223.5 million. Acquisitions contributed $15.3 million of Q3 revenue growth and $26.9 million of year-to-date growth; management classified 89.3% of year-to-date revenue as organic under its acquisition-reclassification method.
Despite revenue growth, GAAP net income declined. For the nine months, Bowman recorded a pretax loss of $0.8 million but a $1.9 million income tax benefit, resulting in $1.1 million net income. Q3 pretax income was $1.1 million and the tax benefit was $0.1 million. The company reported unusually high year-to-date effective tax rate of 233.4%, affected by discrete tax items and its interim tax calculation approach. Adjusted EBITDA increased, but includes substantial add-backs, including $18.5 million of year-to-date stock-based compensation.
Balance sheet, cash flow and liquidity
- At September 30, cash and equivalents were $14.4 million, versus $13.3 million at year-end 2022. Accounts receivable rose to $85.2 million from $64.4 million, and contract assets to $28.9 million from $16.3 million.
- Operating cash flow was $12.3 million for the first nine months, near the prior-year $12.2 million. Investing used $17.0 million, principally reflecting acquisitions; financing provided $5.9 million, including $22.4 million of revolving-credit borrowings. Cash increased $1.1 million over the period.
- The revolving credit facility was expanded to $70 million and extended to July 31, 2025; $22.4 million was outstanding at quarter-end. It is secured by substantially all company and guarantor assets and carries financial and other covenants. The reported rate was 9.60% at September 30.
- Notes payable totaled $23.4 million, including $10.3 million current; finance lease obligations were $21.3 million. Operating lease obligations were $44.0 million. Total liabilities were $199.8 million, compared with $132.9 million at December 31, 2022.
- Goodwill rose to $75.7 million from $53.2 million, mainly from acquisitions; net intangible assets increased to $38.2 million from $28.0 million. Other non-current obligations increased to $32.4 million from $0.4 million; the filing excerpt does not clearly reconcile the full increase by component.
Material changes and outlook
- Growth was broad-based: Q3 building infrastructure revenue increased 16%, transportation 50%, and power and utilities 111%. For the first nine months, transportation rose 95% and power and utilities 95%. Building infrastructure remained the largest market.
- Management cites demand in data centers, quick-service restaurants, industrial distribution, schools, build-for-rent, transportation, utility undergrounding, gas pipeline replacement, and energy-transition work. It expects building infrastructure to remain the largest source of revenue for the rest of 2023 and sees continued opportunity in transportation and power and utilities.
- Backlog was $298.8 million at September 30, up 22.8% from year-end 2022 and 29.7% from September 2022. Remaining performance obligations were approximately $220.4 million; Bowman expected to recognize 91.6% within 12 months. Backlog is a company-defined measure and management cautions that industry definitions vary.
- Management stated that cash, operating cash flow, and borrowing and lease capacity should fund projected requirements and strategic initiatives for the next year. It expects to continue pursuing acquisitions and may rely on debt financing if growth or acquisition needs create capital shortfalls. No specific full-year financial guidance is provided in the supplied filing text.
- After quarter-end, Bowman acquired Excellence Engineering for approximately $1.1 million and Dennis Corporation for approximately $3.7 million, with consideration including cash, stock and notes. October share repurchases totaled 28,404 shares at an average $25.94; the company reported $9.3 million remaining under its $10 million authorization as of November 7.
Risks, contingencies and unusual items
- Acquisition integration, purchase-price estimates, contingent consideration and seller financing are important exposures. Several 2023 acquisition purchase-price allocations remained preliminary; recorded contingent consideration included $0.5 million for Spatial Acuity, $1.8 million for Fisher, $0.9 million for Hole Montes, $3.0 million for MTX and $1.5 million for Infrastructure Engineers.
- The company disclosed a $24.2 million uncertain tax position related to capitalization and amortization of research and development costs under tax law. Management said no valuation allowance was required against deferred tax assets as of September 30.
- Working capital absorbed cash: receivables increased $14.6 million and prepaid and other assets increased $4.4 million, partly offset by a $19.8 million increase in accounts payable and accrued expenses. Collection timing and contract-asset conversion merit attention.
- Management identifies risks including employee retention and utilization, customer demand and collections, project execution and profitability, contract awards and termination, government funding, economic and labor-cost conditions, acquisition integration, and credit-facility restrictions. It reported no litigation expected to have a material adverse effect and no material off-balance-sheet arrangements.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing also disclosed new or terminated executive 10b5-1 stock-sale plans.
Most important facts for investors to verify
- Whether revenue growth converts to stronger GAAP earnings and cash generation, given declining net income, working-capital usage and significant Adjusted EBITDA add-backs.
- Acquisition contribution, integration results, final purchase-price allocations, contingent consideration and the increase in other non-current obligations.
- Revolver availability, covenant compliance, borrowing costs and the schedule for notes, leases and other acquisition-related payments.
- The outcome and cash or accounting effects of the $24.2 million uncertain R&D tax position and the sustainability of the reported tax benefits.
- Backlog and remaining performance obligations conversion, including customer collections and project margins; these measures are not guarantees of future revenue or profit.