Bowman Consulting Group Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with Q1 2020 unless noted. Amounts are in U.S. dollars; financial statement amounts are in thousands except per-share data. Bowman provides engineering and related professional services across buildings, transportation, power and utilities, and other markets. The statements are unaudited.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Gross contract revenue | $31.8 million | $28.6 million |
| Net service billing (non-GAAP) | $28.9 million | $24.7 million |
| Operating income | $1.5 million | $0.7 million |
| Net income | $981,000 | $426,000 |
| Net income attributable to common shareholders | $857,000 | $412,000 |
| Basic and diluted EPS | $0.17 | $0.07 |
| Adjusted EBITDA (non-GAAP) | $4.1 million | $1.6 million |
| Adjusted EBITDA margin on net service billing (non-GAAP) | 14.2% | 6.4% |
| Operating cash flow | $45,000 | $(1.5) million |
| Cash and equivalents at period end | $319,000 | $386,000 at Dec. 31, 2020 |
| Total assets / shareholders’ equity | $72.1 million / $18.4 million | $63.6 million / $17.1 million at Dec. 31, 2020 |
Gross contract revenue increased 11.2%; net service billing rose 16.7% (reported by management as 14.3%, a percentage that does not reconcile to the displayed figures). Contract costs were 50.8% of revenue versus 54.3%. Net income margin was 3.1% versus 1.5%. The filing attributes adjusted EBITDA improvement partly to higher revenue from Bowman’s workforce, increased depreciation and amortization add-backs, and a 2020 non-cash stock-compensation benefit that reversed to expense in 2021. Adjusted EBITDA and net service billing are non-GAAP measures.
Operating cash flow improved from a use of $1.5 million to a provision of $45,000, but receivables growth absorbed $3.6 million. Investing used $1.3 million, including $640,000 for the KTA acquisition and $438,000 for equipment. Financing provided $1.2 million, principally from $3.5 million net revolving-credit borrowings, partly offset by capital-lease payments and other uses.
At March 31, current assets were $39.4 million and current liabilities $28.7 million. The balance sheet reported $6.9 million of revolving credit, $6.3 million of notes payable, and $11.4 million of capital-lease obligations, or approximately $24.6 million combined. The $17 million revolving facility was subject to an accounts-receivable borrowing base and due for renewal in July 2021. Cash was low in part because operating-account balances swept against the facility.
Material changes and notable items
- Communities, homes and buildings revenue rose 28.0% to $21.0 million, including KTA contribution. Transportation revenue fell 15.6% to $4.1 million, and power and utilities revenue fell 11.7% to $5.0 million, with weather and project activity affecting both. Other emerging-market revenue was nearly unchanged.
- Revenue attributable to Bowman’s own workforce was $28.9 million, or 90.8% of gross revenue, versus $24.7 million, or 86.4%. Fixed-fee/lump-sum work represented 70% of gross revenue versus 56% a year earlier.
- Depreciation and amortization rose to $1.4 million from $320,000, largely reflecting the September 2020 conversion of equipment and vehicle operating leases to capital leases. Contract costs increased 4.5%, slower than revenue; SG&A increased 4.7%.
- Backlog increased 2.0% from year-end to $116.0 million. Separately, remaining performance obligations were $94.8 million; Bowman expected to recognize approximately 77% within twelve months. Backlog is a company-defined, non-GAAP operating measure and is not necessarily predictive of revenue or earnings.
- On January 4, 2021, Bowman acquired KTA Group, a mechanical, electrical and plumbing engineering firm, for approximately $3.4 million in cash, stock and a promissory note. The preliminary purchase allocation included $2.5 million of goodwill. Management cited cross-selling potential, including in renewable energy and building services.
Outlook, risks and subsequent events
No quantified full-year earnings or revenue guidance is provided. Management said it expects the buildings market to account for most 2021 revenue and described transportation, power and utilities, renewable energy, and water resources as growth opportunities. Management expects the revolving facility to renew on favorable terms, but cautioned that renewal is not assured. It said COVID-19 had not caused material financial distress as of the filing, while the pandemic’s ultimate effect remained uncertain.
Key risks include workforce hiring, retention and utilization; economic or client-spending downturns; fixed-fee cost overruns and project delays; acquisition integration and synergy execution; cancellation or suspension of backlog projects; competition, professional liability and job-site safety; and credit-facility renewal. The company reported compliance with its credit covenants at March 31. It also disclosed $2.5 million of deferred employer payroll taxes under the CARES Act, related-party notes and receivables, and stock repurchases that included shares bought from an entity owned by the CEO and his family. No litigation was identified as reasonably expected to have a material adverse effect.
After quarter-end, Bowman completed its IPO on May 11, 2021, selling 3.69 million shares at $14.00 and receiving $48.0 million after underwriting discounts and commissions but before offering expenses. The underwriters later exercised part of the over-allotment option; the additional net proceeds were approximately $1.5 million. The company said it used part of IPO proceeds to repay its revolving line and cover offering expenses, with remaining proceeds intended for general corporate purposes, organic expansion and potential acquisitions. These proceeds are not included in the March 31 balance sheet. A 29.5-for-1 stock dividend was declared after quarter-end, and the statements retroactively reflect the stock split.
Management concluded disclosure controls and procedures were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Reconcile management’s reported 14.3% net service billing growth with the disclosed figures of $28.9 million versus $24.7 million, which imply approximately 16.7% growth.
- Verify the July 2021 revolving-credit renewal, borrowing-base availability, covenant terms, and the post-IPO repayment amount.
- Assess whether receivables and contract assets convert to cash: operating cash flow was only $45,000 despite $981,000 of net income, and receivables rose $3.6 million.
- Track KTA’s final purchase-price allocation, integration, contribution to results, and the expected cross-selling benefits.
- Review adjusted EBITDA and backlog definitions and reconciliations, and distinguish management’s outlook statements from formal financial guidance.
- Monitor fixed-fee project estimates, capital-lease obligations, related-party balances and transactions, and the timing and repayment of deferred payroll taxes.