Bowman Consulting Group Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where shown. Comparisons are with the corresponding 2020 periods unless otherwise noted.
Business context
Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and emerging markets. It operates as one reportable segment. The company completed its IPO in May 2021, receiving net proceeds of approximately $47.1 million during the nine-month period, and continued pursuing acquisitions.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Gross contract revenue | $39.7m | $31.8m | $108.0m | $92.1m |
| Net income (loss) | $0.36m | $(1.25)m | $0.90m | $0.79m |
| Basic EPS | $0.03 | $(0.22) | $0.10 | $0.14 |
| Operating cash flow | Not presented by quarter | $3.23m | $8.93m | |
| Adjusted EBITDA, non-GAAP | $4.43m | $3.85m | $12.70m | $10.55m |
| Adjusted EBITDA margin on net service billing, non-GAAP | 12.4% | 15.2% | 13.1% | 13.6% |
For the nine months, revenue grew 17.3% and net service billing grew 25.6%. Management attributed revenue growth to organic expansion and acquisitions; acquired revenue was $6.8 million of the nine-month total increase. Building infrastructure was the largest end market, while transportation revenue declined as major projects concluded. Reported operating income was $0.29 million for Q3 and $1.47 million for the nine-month period.
At September 30, cash and equivalents were $38.7 million, versus $0.4 million at year-end 2020. Current assets were $87.4 million and current liabilities $28.7 million. The revolving credit line had no balance; notes payable totaled $6.6 million, and capital lease obligations totaled $13.5 million. Total liabilities were $52.5 million. The company reported $3.2 million of operating cash flow, $3.7 million of investing cash outflow and $38.9 million of financing cash inflow for the nine months; financing included IPO proceeds. Accounts receivable increased $10.0 million and was a major operating-cash use.
Backlog was $139.3 million at September 30, up 23.3% from December 31, 2020. Remaining performance obligations were approximately $114.6 million, with management expecting 99.1% to be recognized within 12 months. Backlog and remaining performance obligations are distinct measures.
Material changes versus prior period
- Q3 revenue rose 25.0%; net income improved from a loss to a profit. Nine-month net income increased modestly, while adjusted EBITDA rose 20.3%.
- Adjusted EBITDA margin declined year over year in both periods, which management attributed in part to public-company costs. SG&A rose 25.1% for the nine months; depreciation and amortization also increased substantially following the 2020 conversion of equipment and vehicle leases to capital leases.
- Net cash from operations fell to $3.2 million from $8.9 million, primarily reflecting working-capital movements, including higher receivables.
- The company acquired KTA Group and, in Q3, McFarland-Dyer & Associates (MDA); MDA consideration was approximately $4.0 million, including cash, stock, promissory note and assumed liabilities. Goodwill increased to $13.5 million.
Outlook, commentary and risks
Management expressed a positive outlook for building infrastructure and power and utilities, and described transportation as an opportunity, with recent awards expected to begin generating revenue in Q4 2021. No quantified full-year revenue or earnings guidance is provided. Management said liquidity, operating cash flow and credit and lease facilities were expected to fund projected needs and strategic initiatives for the next year, while noting that it expects to use a meaningful portion of resources for acquisitions.
Management said the full effects of COVID-19 remained uncertain, though it had not experienced material financial distress from the pandemic as of the filing date. Other identified risks include competition, hiring and utilization, economic and client-spending cycles, fixed-price cost overruns, contract cancellation or suspension, acquisition integration, professional liability and insurance, and the possibility that backlog may not convert to revenue or earnings as expected. The company reported no material litigation and said disclosure controls were effective. The filing does not provide the otherwise required risk-factor discussion because Bowman identified as a smaller reporting company.
Subsequent to quarter-end, Bowman completed acquisitions of Triangle Site Design, PCD Engineering and BTM Engineering. The filing said preliminary purchase-price allocations were not practicable to disclose. The company also adopted executive incentive plans and issued performance stock units to four executives.
Important facts for investors to verify
- Whether receivables and contract assets convert to cash as expected, given the decline in operating cash flow and growth in accounts receivable.
- How much reported growth and future performance depend on acquisitions, and whether acquired businesses integrate successfully.
- The sustainability of margins and earnings after public-company expenses, lease-related depreciation and amortization, and substantial stock-based compensation; review the company’s non-GAAP reconciliations and adjustments.
- The terms, maturity and covenant requirements of debt and lease obligations, as well as the effect of the revolving-credit amendment.
- Whether backlog and remaining performance obligations are retained and converted on schedule; the filing cautions that backlog can be adjusted, cancelled or suspended and is not a reliable indicator of future profit.
- Related-party notes receivable and notes payable, executive equity awards and potential dilution, and the final accounting for recent acquisitions.