Bowman Consulting Group Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and emerging markets. The unaudited statements are prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Gross contract revenue | $94.9 million | $76.1 million |
| Net service billing (non-GAAP) | $85.7 million | $67.6 million |
| Operating income (loss) | $(2.6) million | $1.5 million |
| Net income (loss) | $(1.6) million | $0.5 million |
| Basic and diluted EPS | $(0.11) | $0.04 |
| Adjusted EBITDA (non-GAAP) | $12.1 million | $9.7 million |
| Adjusted EBITDA margin on net service billing | 14.2% | 14.3% |
| Operating cash flow | $2.5 million | $6.3 million |
Gross revenue rose 24.7%, but the company attributed $18.5 million of the $18.8 million increase to acquisitions; company-defined organic revenue growth was 0.4%. Net service billing grew 26.8%. Contract costs were 49.4% of gross revenue versus 49.1%. SG&A rose 33.0% to $44.7 million, and depreciation and amortization increased 66.7% to $6.0 million. Management cited higher staffing, overhead, stock compensation and acquisition-related amortization. Adjusted EBITDA increased 25.4%, while its margin edged down from 14.3%.
Cash and equivalents were $11.7 million at quarter-end, down $9.0 million from December 31, 2023. Current assets were $162.9 million and current liabilities $134.7 million. Operating cash generation declined year over year, with working-capital outflows including higher receivables and prepaid expenses, partly offset by increased payables and accrued expenses. Investing used $2.7 million, including $3.0 million for acquisitions; financing used $8.8 million, including $5.7 million for treasury stock purchases.
At March 31, the company had $47.3 million drawn under its $70 million revolving facility, bearing a 9.60% interest rate, and $25.8 million of notes payable. Finance lease obligations totaled approximately $22.3 million; operating lease obligations were approximately $46.2 million. The company reported compliance with credit covenants. It stated that available liquidity and expected operating cash flow should fund projected needs and strategic initiatives for the next year.
Material changes, outlook and notable items
- Revenue mix and demand: Power and utilities revenue increased 38.6%, emerging markets 128.4%, building infrastructure 19.1%, and transportation 13.2%. Management described continued demand in areas including data centers, utilities, transportation and water resources, and expects opportunities in these markets; no formal numerical earnings or revenue guidance was provided.
- Backlog and contracted work: Backlog increased 7.9% from year-end to $329.9 million. Remaining performance obligations were approximately $259.9 million, of which the company expected to recognize 86.6% within 12 months. Backlog is a company-defined measure and is not a GAAP metric.
- Acquisitions and capital raising: Bowman completed two acquisitions in Q1 for total consideration of $8.9 million. After quarter-end, it completed the approximately $44 million Surdex acquisition. On April 1, it issued 1,502,942 shares, generating approximately $51.1 million gross proceeds; the filing reports $42.0 million net proceeds for the initial issuance and $5.7 million net for the overallotment, before offering expenses as described. Selling shareholders also sold shares, from which Bowman received no proceeds.
- Financing after quarter-end: On May 2, Bowman entered a new $100 million, five-year credit agreement, replacing the prior facilities and maturing May 2, 2029. It includes leverage and fixed-charge coverage covenants, including minimum fixed-charge coverage of 1.25:1.00 and a maximum leverage ratio of 3.25:1.00, subject to specified acquisition-related provisions.
- Tax and unusual items: The quarter included a $3.5 million income tax benefit and a 68.9% effective tax rate. The filing cites a $47.9 million uncertain tax position relating to capitalized research and development costs, as well as discrete tax benefits and charges. Stock-based compensation was a substantial Adjusted EBITDA add-back: $7.9 million in Q1 2024 versus $4.4 million a year earlier.
- Risks and contingencies: Key risks include hiring and retaining qualified staff, client demand and collections, project execution and estimates, acquisition integration, economic and interest-rate conditions, public-sector funding, and compliance with restrictive credit covenants. The company reported no litigation expected to have a material adverse effect and no material change to previously disclosed risk factors. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- How much future growth is organic versus acquired, given that acquisitions accounted for most Q1 revenue growth and organic growth was 0.4%.
- Whether operating margins and cash conversion improve as acquisition costs, staffing, stock compensation and amortization rise.
- Receivables, contract assets and collections, which contributed to Q1 operating cash flow being below the prior-year level.
- The terms, covenants, borrowing availability and resulting leverage after the new credit agreement, Surdex acquisition and post-quarter financing.
- The resolution and potential cash or earnings effects of the $47.9 million uncertain tax position, and the assumptions supporting the reported tax benefit.
- Acquisition integration, preliminary purchase-price allocations, contingent consideration and the extent to which backlog converts into revenue and cash.