Bowman Consulting Group Ltd. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Bowman provides engineering and related professional services across buildings and communities, transportation, power and utilities, and other markets. Figures are in millions of dollars unless otherwise indicated.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Gross contract revenue | $36.5 | $31.7 | $68.3 | $60.4 |
| Operating income (loss) | $(0.3) | $2.7 | $1.2 | $3.4 |
| Net income (loss) | $(0.4) | $1.6 | $0.5 | $2.0 |
| Adjusted EBITDA (non-GAAP) | $4.2 | $5.1 | $8.3 | $6.7 |
| Adjusted EBITDA margin on net service billing (non-GAAP) | 12.9% | 18.8% | 13.5% | 12.9% |
- Q2 revenue grew 15.1%; first-half revenue grew 13.1%. First-half net service billing, a non-GAAP measure, rose 18.1% to $61.3 million.
- First-half contract costs were 50.3% of revenue, down from 53.3%. GAAP net margin was 0.8% for the first half, versus 3.4% a year earlier; Q2 net margin was negative 1.2%, versus positive 5.1%.
- First-half cash flow from operations was negative $0.5 million, compared with positive $8.3 million. Investing used $1.6 million; financing provided $40.2 million, principally from the IPO. Cash at June 30 was $38.5 million, versus $0.4 million at year-end 2020.
- Current assets were $83.9 million and current liabilities $26.9 million at June 30. The $17.0 million revolving facility had no outstanding balance at quarter-end.
- Notes payable totaled $5.8 million. Capital lease obligations totaled approximately $12.0 million ($4.1 million current and $7.9 million non-current). Deferred employer payroll taxes of $2.5 million were included in liabilities.
Material changes and business developments
- Bowman completed its IPO in May 2021 and the underwriters’ partial over-allotment exercise in June, selling 3,805,925 shares at $14 per share. Net proceeds reported in cash flows were $47.1 million; proceeds helped repay the revolver and fund offering costs. Common shares outstanding were 11,132,960 as of August 12, 2021.
- Q2 growth was led by communities, homes and buildings, up 28.7%; transportation revenue declined 22.8%. For the first half, communities, homes and buildings rose 28.4%, transportation declined 19.4%, and power and utilities was nearly flat.
- The KTA Group acquisition contributed $4.5 million of first-half revenue, according to management. KTA added mechanical, electrical and plumbing engineering capabilities; its preliminary purchase price was $3.4 million, including cash, stock and a promissory note.
- Backlog was $123.5 million at June 30, up from $113.0 million at December 31. Separately, remaining performance obligations were approximately $100.1 million, with about 77.1% expected to be recognized within twelve months. Backlog is a company-defined metric and may be adjusted, cancelled or suspended.
Outlook, commentary and risks
- No quantified full-year revenue or earnings guidance is provided. Management expressed a positive outlook for communities, homes and buildings and identified growth opportunities in transportation, power and utilities, water resources and renewable energy. It expects the buildings and communities market to represent most revenue for the remainder of 2021.
- Management said COVID-19 had not caused material financial distress as of the filing, but its future effects remained uncertain. The company did not qualify for a PPP loan.
- Q2 profitability reflected $1.4 million of transaction-related expenses, higher public-company and compensation costs, and increased depreciation and amortization following the conversion of equipment and vehicle leases to capital leases. Management’s adjusted EBITDA excludes specified items, including stock compensation and transaction costs.
- On July 30, the company amended its credit agreement, extending the revolver maturity to July 31, 2023, replacing LIBOR with SOFR, reducing interest spreads and eliminating the adjusted debt-to-EBITDA covenant.
- On August 2, Bowman acquired the assets and operations of McFarland-Dyer & Associates and issued 32,143 shares. The filing says it was not practicable to provide a preliminary purchase price allocation.
- Key disclosed risks include hiring and retaining qualified personnel, workforce utilization, economic and client-spending cyclicality, fixed-price cost overruns, acquisition integration and realization of synergies, project cancellations, reliance on subcontractors, professional liability and safety exposure, and competition. Management reported no litigation expected to have a material adverse effect and concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Reconcile the sharp divergence between first-half adjusted EBITDA growth and lower GAAP net income, including the size and recurrence of excluded costs and stock compensation.
- Assess the sustainability of operating cash flow: first-half cash use reflected working-capital movements, notably a $9.4 million increase in accounts receivable.
- Review the terms and covenants of the amended credit facility and the company’s lease and other debt obligations.
- Monitor conversion of backlog and remaining performance obligations into revenue, particularly given cancellation, suspension and cost-overrun risks.
- Check the final KTA purchase accounting and the financial impact of the August McFarland-Dyer acquisition.