Bowman Consulting Group Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. All amounts below are in U.S. dollars; financial-statement amounts are rounded to millions unless stated otherwise. The filing is unaudited.
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. Growth during the period reflected both organic expansion and acquisitions, including McMahon Associates, acquired May 4, 2022.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Gross contract revenue | $62.4m | $36.5m | $114.9m | $68.3m |
| Net income (loss) | ($0.3m) | ($0.4m) | $1.1m | $0.5m |
| Operating income | $0.5m | ($0.3m) | $2.3m | $1.2m |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $4.3m | ($0.5m) |
| Adjusted EBITDA (non-GAAP) | $7.6m | $4.2m | $15.0m | $8.3m |
| Adjusted EBITDA margin on net service billings (non-GAAP) | 13.4% | 12.9% | 14.4% | 13.5% |
Gross contract revenue grew 71.0% in Q2 and 68.2% for the six-month period. Net service billings, a company-defined non-GAAP measure, rose 73.5% in Q2 to $56.4m and 69.8% for the six months to $104.1m. Net margin was (0.5%) in Q2 versus (1.2%) a year earlier, and 1.0% for the six months versus 0.8%.
Contract costs were 49.8% of revenue in Q2, unchanged year over year; for the six months, they were 49.2% versus 50.3%. Selling, general and administrative expense increased 63.4% in Q2 and 69.7% for the six months, reflecting staffing, public-company overhead, growth, and higher stock compensation. Depreciation and amortization also increased, primarily due to leased assets and acquisition-related intangibles.
Cash, debt and liquidity
- Cash and equivalents were $25.8m at June 30, 2022, compared with $20.6m at December 31, 2021. Current assets were $105.1m and current liabilities $48.2m.
- Six-month cash flows: $4.3m provided by operations, $8.1m used in investing, and $9.0m provided by financing. Investing outflows principally reflected acquisitions; financing included $15.5m net proceeds from the follow-on stock offering.
- Notes payable totaled $14.8m, including $6.1m current. Capital lease obligations were approximately $16.5m, including $5.8m current. No balance was drawn on the $25m revolving credit facility at quarter-end.
- The revolving facility was extended to July 31, 2024. Borrowing is subject to a borrowing base, interest-rate terms and financial covenants; Bowman reported compliance with its covenants at June 30, 2022.
Material changes and transactions
- Acquisitions increased goodwill to $39.6m from $28.5m at year-end; purchase price allocations for 2022 acquisitions were preliminary.
- McMahon was acquired for approximately $18.3m, including 476,796 shares valued at $7.9m, cash, notes and assumed liabilities. It contributed $5.5m of revenue and $0.2m of net income from acquisition through June 30.
- Perry Engineering and Fabre Engineering were also acquired during the first half. On July 15, 2022, after quarter-end, Bowman acquired Project Design Consultants for approximately $11.0m, including cash, notes and a $4.0m convertible note.
- The February follow-on offering generated approximately $15.5m in net proceeds for the company. The CEO also sold 150,000 shares and received proceeds; Bowman received none from that sale.
- Backlog rose to $205.6m from $167.0m at December 31, 2021. Remaining performance obligations were approximately $165.8m at June 30; Bowman expected to recognize 90.8% within the next 12 months.
Outlook, risks and unusual items
No formal numerical earnings or revenue guidance is provided. Management said it expected building infrastructure to remain the largest revenue source for the rest of 2022 and expressed confidence in opportunities in transportation, power and utilities, renewable energy and water resources. Management also said it planned to continue pursuing acquisitions and believed existing liquidity and facilities would fund projected needs and strategic initiatives for the next year.
Management noted signs of weakness in for-sale homebuilding, while stating that this activity represented 14.6% of Q2 gross contract revenue. Risks cited include hiring and retaining skilled staff, wage and healthcare cost increases, inflation and interest rates, changes in client demand and public funding, project execution and collections, competition, acquisition integration, and economic and geopolitical uncertainty. COVID-19 had not caused material financial distress as of the filing; $1.2m of deferred employer payroll taxes remained recorded.
Adjusted EBITDA included substantial stock-based compensation add-backs: $4.0m in Q2 and $7.3m for the six months. The company also added back acquisition expenses and a legal settlement. These non-GAAP adjustments should be considered alongside GAAP results. The effective tax rate benefited from stock-award vesting and R&D credits. The IRS approved a requested accounting-method change on July 27, 2022; management expected a third-quarter reversal of a $1.9m uncertain tax position, with related deferred-tax and tax-expense effects. The filing reports no litigation expected to have a material adverse effect.
Investor facts to verify
- Reconcile the acquisition share count: the McMahon acquisition note reports 476,796 shares, while the unregistered-sales section reports 476,976.
- Check the MD&A’s six-month acquired-revenue discussion against its table: the narrative cites $21.1m, while the table reports $25.6m; the table’s stated acquired-growth percentage also appears unclear.
- Assess how much reported growth and backlog conversion depend on acquisitions, and monitor integration, purchase-price allocations and related financing obligations.
- Track operating cash conversion and receivables: accounts receivable increased to $56.9m from $38.5m at year-end, and working-capital changes reduced operating cash flow.
- Evaluate earnings quality in light of the Q2 GAAP net loss and significant stock-compensation and other adjustments included in non-GAAP Adjusted EBITDA.
- Monitor liquidity, lease commitments, notes payable, covenant compliance and potential dilution from equity compensation and the post-quarter convertible note.