Bowman Consulting Group Ltd. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; financial amounts below are in millions of dollars unless noted. Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and emerging markets.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Gross contract revenue | $71.2 | $39.7 | $186.1 | $108.0 |
| Net income | $3.4 | $0.4 | $4.5 | $0.9 |
| Diluted EPS | $0.25 | $0.03 | $0.34 | $0.10 |
| Operating income | $2.2 | $0.3 | $4.5 | $1.5 |
| Operating cash flow | — | $12.2 | $3.2 | |
| Adjusted EBITDA (non-GAAP) | $9.6 | $4.4 | $24.6 | $12.7 |
| Adjusted EBITDA margin on net service billing (non-GAAP) | 14.8% | 12.4% | 14.6% | 13.1% |
Revenue grew 79.4% in Q3 and 72.3% year to date. Acquisitions contributed $22.6 million of the quarterly increase and $48.2 million of the nine-month increase; management reported organic growth of 23.1% and 27.9%, respectively. Net income benefited materially from income tax benefits: $1.8 million in Q3 and $2.1 million year to date, against pretax income of $1.6 million and $2.5 million. The nine-month effective tax rate was negative 86.0%.
At September 30, cash was $23.8 million, versus $20.6 million at year-end 2021. Current assets were $108.2 million and current liabilities $54.3 million. Notes payable were $25.7 million and capital lease obligations were $17.5 million on the balance sheet; no revolving-line balance was outstanding at quarter-end. Total liabilities were $87.9 million. Operating cash flow was offset by $15.2 million of investing cash outflow, principally for acquisitions; financing provided $6.3 million. Accounts receivable rose to $61.6 million from $38.5 million at year-end.
Business changes and outlook
- Q3 revenue growth spanned building infrastructure (+58.2%), transportation (+227.7%), power and utilities (+39.9%), and emerging markets (+310.8%). Building infrastructure remained the largest market. Transportation growth was principally acquisition-related.
- Bowman completed acquisitions including McMahon, Project Design Consultants, Anchor, and A&A during 2022. Purchase allocations for several deals remained preliminary, and some consideration includes seller notes or convertible notes.
- Backlog was $230.4 million at September 30, up 37.9% from December 31, 2021. Remaining performance obligations were approximately $206.6 million; the company expected to recognize 99.9% within 12 months. Backlog and remaining obligations are not assurances of future revenue.
- Management described demand as strong in building infrastructure, transportation, power and utilities, and water and energy-transition markets, and expected building infrastructure to remain the largest revenue source for the rest of 2022. No specific full-year revenue or earnings guidance was provided.
- Management said available liquidity, operating cash flow, and credit and lease facilities should fund projected needs and strategic initiatives for the next year; it expects to use debt and equity as needed for growth and acquisitions. On November 11, 2022, after quarter-end, the revolving credit facility was increased to $50 million, secured by company assets and subject to financial and other covenants.
Risks, contingencies and notable items
- Management cited risks including acquisition execution and integration, hiring and retaining qualified staff, project delivery and profitability, customer demand and collections, government funding, inflation and labor costs, interest rates, competition, weather and seasonality, and COVID-19 effects.
- Growth in accounts receivable and acquisition-related financing merit attention. The company also reported $11.5 million of stock-based compensation for the first nine months, which is excluded from adjusted EBITDA.
- After quarter-end, the company announced a $10 million share repurchase authorization; it had not repurchased shares under the program as of the filing. It also completed two additional acquisitions and refinanced approximately $9.5 million of leased equipment debt.
- The filing reported no litigation expected to have a material adverse effect. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was identified.
Investor verification points
- Check how much reported growth and future performance depend on acquisitions, and whether acquired businesses deliver expected revenue, synergies, and integration results.
- Monitor receivable collections, working-capital needs, operating cash conversion, and the company’s ability to sustain margins as staffing and overhead expand.
- Review debt and lease obligations, seller and convertible notes, credit-facility covenant headroom, and the effect of the expanded revolving facility.
- Assess earnings quality, particularly the tax benefits supporting net income and the scale of stock-based compensation and other adjusted EBITDA exclusions.
- Track backlog conversion, contract awards, market exposure, and whether management’s qualitative outlook translates into reported results.