Bowman Consulting Group Ltd. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited; financial amounts below are in millions of dollars unless stated otherwise. Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and other markets.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Gross contract revenue | $82.8 | $62.4 | $158.9 | $114.9 |
| Net service billing (non-GAAP) | $73.8 | $56.4 | $141.4 | $104.1 |
| Operating income (loss) | $(1.1) | $0.5 | $0.4 | $2.3 |
| Net income (loss) | $(0.6) | $(0.3) | $(0.1) | $1.1 |
| Adjusted EBITDA (non-GAAP) | $11.1 | $7.6 | $20.7 | $15.0 |
| Adjusted EBITDA margin on net service billing | 15.0% | 13.4% | 14.7% | 14.4% |
- Revenue grew 32.6% in Q2 and 38.3% in the first half. Management attributed $12.2 million of Q2 and $19.0 million of first-half revenue growth to acquisitions; reported organic growth was 13.1% and 21.9%, respectively. Net service billing grew 30.9% and 35.8%.
- Contract costs were 49.6% of revenue in Q2 and 49.4% for the first half. SG&A and depreciation/amortization rose materially with staffing, company growth, stock compensation, acquired intangibles and leased assets. The company does not present gross profit in its income statement.
- Operating cash flow was $2.1 million, down from $4.3 million in the first half of 2022. Investing used $15.6 million, including $15.4 million net cash for acquisitions; financing provided $10.0 million, including $21.2 million of revolver borrowings. Cash declined to $9.7 million from $13.3 million at year-end.
- At June 30, current assets were $130.3 million and current liabilities $90.7 million. The revolver balance was $21.2 million; notes payable totaled $29.2 million. Finance lease obligations were $20.6 million on the balance sheet. Revolver interest was 9.25% at quarter-end, and the company reported compliance with credit covenants.
- Backlog was $294.7 million, up 21.3% from year-end. Remaining performance obligations were approximately $234.6 million; management expected 93.9% to be recognized within 12 months. Backlog is a company-defined, non-GAAP operating measure.
Material changes and unusual items
- Q2 net loss widened to $0.6 million from $0.3 million; first-half results shifted from $1.1 million net income to a $0.1 million loss. First-half other expense increased to $2.4 million, primarily reflecting higher interest associated with leases, acquisitions and the credit line.
- Income tax benefits were $1.6 million in Q2 and $1.8 million for the first half. The company cited estimated annual tax-rate changes and discrete benefits, including a $2.0 million windfall tax benefit on restricted stock awards for the first half. It disclosed a $20.6 million uncertain tax position related to required capitalization and amortization of R&D costs.
- Adjusted EBITDA includes substantial adjustments: $6.9 million of stock-based compensation in Q2 and $11.3 million for the first half, plus acquisition and other specified costs. Stock-based compensation expense was $10.5 million in the first half; 2.5 million shares underlying awards remained unvested at June 30.
- Five acquisitions closed in Q2 for stated total consideration of approximately $38.2 million, using combinations of cash, shares, seller notes and assumed liabilities. Goodwill increased $23.9 million to $77.1 million; intangible assets rose to $39.8 million. Purchase accounting for these recent acquisitions was generally preliminary. Recorded contingent consideration liabilities for Fisher, Hole Montes, MTX and Infrastructure totaled $7.2 million.
- On August 2, 2023, after quarter-end, Bowman amended its credit agreement: the revolver limit increased from $50 million to $70 million and maturity extended from September 2024 to July 2025. The facility is secured by company and subsidiary assets and carries financial and other covenants.
Outlook, commentary and risks
Management expressed a positive outlook for building infrastructure and identified opportunities in transportation, power and utilities, energy transition, and water resources. It expects building infrastructure to remain the largest revenue market for the rest of 2023 and plans continued investment in transportation and power-and-utilities capabilities and acquisitions. The filing provides no specific full-year revenue or earnings guidance. Management said available cash, operating cash flow and borrowing capacity should fund projected requirements and strategic initiatives for the next year, while noting that growth and acquisitions may require additional debt financing.
Key risks include hiring, retaining and utilizing qualified staff; project execution, cost estimates and collections; fixed-price contract performance; acquisition integration and financing; interest rates and restrictive credit covenants; changes in customer demand and public funding; and economic, regulatory and seasonal factors. Most revenue is from lump-sum contracts (88.8% in Q2), which require estimates of costs to complete. Management reported effective disclosure controls and no material adverse litigation identified in the filing.
Investor verification priorities
- Reconcile reported growth to organic growth and acquired revenue, and monitor whether acquisitions deliver expected contributions.
- Track conversion of backlog and performance obligations into revenue and cash, particularly receivable and contract-asset growth and operating cash flow.
- Review acquisition integration, preliminary purchase-price allocations, contingent consideration and seller-note payment requirements.
- Monitor revolver utilization, interest expense, covenant headroom and the terms of the August 2023 credit amendment.
- Assess the sustainability of adjusted EBITDA growth alongside substantial stock-compensation add-backs, dilution and the disclosed R&D-related uncertain tax position.