NV5(NVEE) - 2022 Q4 - Annual Report

PART I This section outlines the company's business model, competitive advantages, growth initiatives, and significant risk factors ITEM 1. BUSINESS NV5 Global provides technology, conformity assessment, and consulting solutions across diverse public and private sector markets, emphasizing strategic growth and human capital Overview NV5 Global provides technology, conformity assessment, and consulting solutions to public and private sector clients across various markets - NV5 Global is a provider of technology, conformity assessment, and consulting solutions to public and private sector clients in infrastructure, utility services, construction, real estate, environmental, and geospatial markets[21] - The company operates from over 100 locations in the U.S. and abroad, utilizing a scalable shared services platform for human resources, marketing, finance, IT, legal, and corporate development[22] - Primary clients include U.S. Federal, state, municipal, and local government agencies, military and defense clients, as well as quasi-public and private sector clients in education, healthcare, and utility services[23] Competitive Strengths The company leverages a flat organizational structure, local market expertise, and cross-selling to enhance service delivery - The company's organizational structure is flat and vertical, organized by service offerings, allowing clients access to the entire platform of services and highly qualified professionals[27] - NV5 Global maintains over 100 local offices staffed with licensed professionals who understand local and regional markets, supported by a centralized shared services platform[28] - The company fosters synergy among service verticals to cross-sell and maximize organic growth, minimizing reliance on sub-consultants[29] Growth Strategies Growth is driven by strategic acquisitions, a focus on public sector clients, and strengthening human capital - NV5 Global seeks strategic acquisitions to expand or enhance existing service offerings, supplement with new related services, and broaden geographic footprint, aiming for economies of scale and cross-selling opportunities[33] - The company focuses on public sector clients (64% of 2022 gross revenues) due to their resilience during economic downturns, while also building private sector client capabilities for higher gross profit margins during economic expansion[34][35][78] - A key strategy is to strengthen human capital by providing entrepreneurial opportunities, equity incentive plans, and competitive benefits to attract and retain top professionals[36] Reportable Segments Operations are organized into Infrastructure, Building, Technology & Sciences, and Geospatial Solutions segments - The company's operations are organized into three reportable segments: Infrastructure (INF), Building, Technology & Sciences (BTS), and Geospatial Solutions (GEO)[37][38] Description of Services The company offers a broad range of services across infrastructure, building technology, and geospatial solutions - Infrastructure services include site selection, design, water resources, transportation, structural engineering, land development, surveying (including 3D laser scanning and UAV LiDAR mapping), power delivery, building code compliance, and GIS services[39][40][41][42][43][44][45][46][47][48] - Building, Technology & Sciences offers MEP design, proprietary Lifecycle Commissioning®, energy performance and CO2 reduction consulting, building program management, audiovisual technology, and environmental health & safety services[58][59][60][61][62][63][64][65][66][67] - Geospatial Solutions provides advanced data analytics leveraging remote sensing, autonomous solutions, and proprietary software for asset management, utility vegetation management, wildfire risk mitigation, and topobathymetric nearshore analytics[68][69][70][71] Strategic Acquisitions The company actively pursues strategic acquisitions to expand service offerings and geographic reach, optimizing performance post-acquisition - NV5 Global maintains a dedicated M&A initiative to identify, explore, negotiate, and integrate acquisitions that expand or enhance service capabilities, supplement offerings, or broaden geographic reach[74][75] - The company's performance optimization process for acquisitions focuses on improving service delivery, integrating personnel and technology, managing risk, and creating cross-selling synergies[75][76] Key Clients and Projects The company serves diverse clients, with public and quasi-public sectors forming the majority of revenues - The company serves approximately 11,400 clients, with its ten largest clients accounting for about 28% of gross revenues in 2022, and no single client exceeding 10%[78] - Public and quasi-public sector clients consistently represent the majority of revenues (64% in 2022), offering resilience during economic downturns, while private sector clients are targeted for higher gross profit margins during expansion[78][80] Marketing and Sales Client engagements are secured through business development, cross-selling, and fostering long-term relationships - Client engagements are primarily secured through business development, cross-selling existing services, maintaining client relationships, and referrals[81] - The industry trend is shifting towards long-term, multi-project client relationships, requiring significant resource commitment to client needs and a broad range of quality service offerings[84] Environmental, Social, and Governance (ESG) Matters NV5 Global is committed to ESG principles, integrating sustainability and social responsibility into its operations and projects - NV5 Global is committed to environmental sustainability, social responsibility, and corporate governance, aiming to make a positive impact through projects and operations[85] - The company formed a 'clean energy team' in 2021 to support NetZero client needs, focusing on carbon reporting, sustainability, engineering, data solutions, and renewable energy service lines[86] Human Capital Resources The company prioritizes attracting and retaining talent through entrepreneurial opportunities, equity plans, and a strong ethical culture - As of December 31, 2022, NV5 Global had 3,644 employees, including 977 licensed engineers and other professionals, with a focus on attracting, motivating, and retaining top talent[87] - The company offers entrepreneurial opportunities, equity incentive plans, 401(k) retirement plans, healthcare, and wellness programs, emphasizing employee safety, talent acquisition, engagement, development, diversity, and pay equity[88][89] - NV5 Global fosters a strong corporate culture with high ethical standards, including a Code of Business Conduct and Ethics, a whistleblower policy, and anti-corruption training[93] Competition The engineering and consulting industry is highly fragmented and competitive, with firms competing on quality, experience, and price - The engineering and consulting industry is highly fragmented and competitive, with numerous regional, national, and global firms[94] - Competition is primarily based on quality of service, experience, staffing, reputation, geographic presence, stability, and price, with price being a significant factor in public sector contracts[95] - Key publicly listed competitors include AECOM, Bureau Veritas SA, Jacobs Solutions Inc., Stantec Inc., and Tetra Tech, Inc[97] Seasonality Operating results are typically weaker from November to March due to adverse weather and holiday impacts - Operating results are generally weaker from November through March due to adverse weather conditions and the holiday season, leading to lower revenues and net income in the first and fourth fiscal quarters[98] Insurance and Risk Management The company maintains professional liability insurance and integrates risk management into project oversight - The company maintains professional liability insurance and coverage for bodily injury, property, and economic loss, with limits, deductibles, and reserves considered adequate[99] - Risk management is integrated into project management, with a dedicated group overseeing the risk profile of operations and reviewing higher-risk projects[100] Regulation NV5 Global operates under various U.S. and international regulations, including government contract laws and anti-corruption acts - NV5 Global is regulated in its fields of operation, requiring compliance with U.S. governmental contract laws (e.g., cost/pricing data, procurement regulations, national security information) and OSHA[101] - Internationally, the company is subject to various government laws, including the Foreign Corrupt Practices Act (FCPA), and local regulations, with mandatory ethics and compliance training for employees[102] ITEM 1A. RISK FACTORS The company faces operational, financial, acquisition, regulatory, and common stock-related risks, including dependence on key personnel, cyclical demand, indebtedness, and compliance challenges Summary Risk Factors Key risks include loss of personnel, cyclical demand, indebtedness, acquisition integration, and regulatory compliance - Key operational risks include loss of key personnel, cyclical demand from government and private clients, and the impact of the COVID-19 pandemic[108][109] - Indebtedness risks involve restrictive covenants and exposure to variable interest rates[109] - Acquisition strategy risks include integration challenges and the inability to manage growth successfully[109] - Regulatory compliance risks encompass adherence to procurement laws, potential misconduct, and liabilities under environmental laws[109] Risks Related to Our Operations Operational risks include dependence on key personnel, cyclical client demand, intense competition, lump-sum contract exposure, and cybersecurity vulnerabilities - The loss of key personnel, including Chairman and CEO Mr. Dickerson Wright, or the inability to attract and retain qualified staff, could significantly disrupt business operations[110][111] - Demand from state, local government, and private clients is cyclical and vulnerable to economic downturns, potentially leading to project delays, cancellations, or payment issues[112][113][114] - Dependence on public and quasi-public governmental agencies (64% of 2022 gross revenues) exposes the company to risks from government funding changes, budget constraints, and contract terminations[117][118][119][121] - The company faces intense competition in a fragmented industry, requiring effective marketing, strong client relationships, accurate cost estimation, and quality work to maintain market share and profitability[126] - Lump-sum contracts (44% of 2022 revenue) expose the company to risks of underestimation of costs, unforeseen difficulties, and delays, which could adversely impact financial results[127][218] - The company is highly dependent on information and communications systems, making it vulnerable to system failures, security breaches, and cyber-attacks that could disrupt operations and harm its reputation[147][148][149] Risks Related to Our Indebtedness Indebtedness risks involve restrictive covenants, exposure to variable interest rates, and uncertainty from LIBOR to SOFR transition - The Senior Credit Facility contains restrictive covenants that limit the company's ability to incur additional debt, create liens, make acquisitions, pay dividends, and undergo certain changes in control, potentially affecting future financing and business activities[150][152] - Variable interest rate indebtedness under the credit agreement exposes the company to interest rate risk, which could significantly increase debt service obligations if rates rise[154] - The transition from LIBOR to SOFR for variable rate borrowings introduces uncertainty regarding market acceptance and potential volatility of the new reference rate[155][157] Risks Related to Our Acquisition Strategy Acquisition risks include operational disruption, integration challenges, failure to realize synergies, and potential dilution or liabilities - Acquisitions, a core growth strategy, may disrupt operations, divert management attention, and expose the company to unanticipated problems or legal liabilities, including undisclosed or contingent liabilities of acquired businesses[158][160] - Failure to successfully integrate acquired businesses could impede the realization of expected benefits, synergies, and cost savings, potentially harming results of operations and stock price[161][164] - Acquisitions may lead to dilution of current stockholders' ownership, increased interest expense and leverage, assumption of liabilities, goodwill impairment charges, and potential litigation[165] Risks Related to Regulatory Compliance Regulatory risks involve compliance with government procurement laws, potential misconduct, and changes in environmental or tax regulations - As a government contractor, the company must comply with various procurement laws and regulations (e.g., FAR, CAS) and is subject to regular government audits, with violations potentially leading to sanctions, contract termination, or reputational harm[166][167] - Employee, agent, or partner misconduct, including fraud or non-compliance with anti-bribery laws like FCPA, could significantly impact the company's reputation and financial results, leading to criminal and civil enforcement actions[168] - Changes in resource management, infrastructure industry laws, environmental regulations, or tax laws could reduce demand for services, increase liabilities, or raise the effective tax rate, negatively impacting revenue and results of operations[169][170][171] Risks Related to Our Common Stock Common stock risks include CEO influence, anti-takeover provisions, and potential dilution from future equity issuances - The Chairman and CEO, Mr. Dickerson Wright, beneficially owned approximately 11% of common stock as of February 17, 2023, giving him significant influence over corporate decisions[174] - Anti-takeover provisions in charter documents and Delaware law could make it more difficult for a third party to acquire the company, potentially discouraging takeover attempts and affecting stockholders[176] - Future issuances of common stock under equity incentive plans may have a dilutive effect on existing investments, and the company does not intend to pay dividends in the foreseeable future[177][178] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments from the SEC - This item is not applicable, indicating no unresolved staff comments from the SEC[179] ITEM 2. PROPERTIES The company leases office space in the U.S. and internationally to support its service delivery - The company leases office space both domestically and internationally for its operations[180] ITEM 3. LEGAL PROCEEDINGS Information regarding material pending legal proceedings is detailed in Note 14 to the Consolidated Financial Statements - Material pending legal proceedings are described in Note 14, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements[181] ITEM 4. MINE SAFETY DISCLOSURES There are no mine safety disclosures to report - No mine safety disclosures are applicable[182] PART II This section covers market information for common equity, management's financial analysis, audited financial statements, and market risk disclosures ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The company's common stock trades on Nasdaq, with no cash dividends planned due to credit restrictions and a focus on reinvesting earnings for growth - The company's common stock is listed on the Nasdaq Capital Market under the symbol NVEE, with 15,529,919 shares outstanding as of February 17, 2023[7][184] - The company has not paid cash dividends and does not intend to in the foreseeable future, as its credit agreement restricts dividend payments and earnings are retained for business growth[178][184] - In 2022, the company issued common stock totaling $1.6 million as partial consideration for acquisitions, relying on Section 4(a)(2) of the Securities Act of 1933[185][186][187] ITEM 6. RESERVED This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes NV5 Global's 2022 financial performance, highlighting revenue growth, net income, liquidity, and critical accounting policies - Gross revenues increased by 11% to $786,778 thousand in 2022, primarily due to $53,550 thousand from acquisitions and organic growth of $15,480 thousand in geospatial solutions and $10,520 thousand in LNG business[220] - Net cash provided by operating activities decreased to $93,980 thousand in 2022 from $101,442 thousand in 2021, mainly due to increases in working capital and deferred income tax assets[235] - The outstanding balance on the Senior Credit Facility was reduced from $98,750 thousand at January 1, 2022, to $33,750 thousand at December 31, 2022[240] Consolidated Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :----------------------------- | :------------------ | :------------------ | :--------- | | Gross revenues | $786,778 | $706,706 | 11% | | Gross profit | $385,974 | $359,314 | 7.4% | | Income from operations | $66,182 | $68,344 | -3.16% | | Interest expense | $(3,808) | $(6,239) | -38.97% | | Income tax expense | $(12,401) | $(14,958) | -17.1% | | Net income | $49,973 | $47,147 | 6% | | Basic earnings per share | $3.39 | $3.34 | 1.5% | | Diluted earnings per share | $3.27 | $3.22 | 1.6% | Overview NV5 Global provides technology and consulting solutions, balancing public sector resilience with private sector growth opportunities - NV5 Global provides technology, conformity assessment, and consulting solutions to public and private sector clients, focusing on infrastructure, utility services, construction, real estate, environmental, and geospatial markets[194] - The company aims to expand private sector client offerings, recognizing their potential for higher gross profit margins during economic expansion, while public and quasi-public clients offer resilience during downturns[195] Fiscal Year The company operates on a 52/53-week fiscal year, ending on the Saturday closest to December 31st - The company operates on a 52/53-week fiscal year, ending on the Saturday closest to December 31st, with fiscal years 2022 and 2021 each having 52 weeks, compared to 53 weeks in fiscal 2020[196] Critical Accounting Policies and Estimates Key accounting policies include revenue recognition, allowance for doubtful accounts, and annual goodwill impairment assessments - Revenue recognition under ASC Topic 606 involves evaluating contract combinations and performance obligations, with 88% of 2022 revenues recognized over time, primarily for cost-reimbursable contracts[197][198][199] - The allowance for doubtful accounts is estimated based on client type, historical performance, collection trends, and general economic conditions[202] - Goodwill is evaluated annually for impairment using a quantitative method, with no impairment recognized in 2022, 2021, or 2020. Identifiable intangible assets are amortized over their useful lives and reviewed for impairment[204][205][206] Recent Acquisitions The company completed several acquisitions from 2020-2022, expanding its service offerings and geographic footprint - In late 2022, the company entered a definitive agreement to acquire the Visual Information Solutions commercial geospatial technology and software business from L3Harris[210] Acquisition Summary (2020-2022) | Fiscal Year | Number of Acquisitions | Aggregate Purchase Price (in thousands) | Cash Paid (in thousands) | Common Stock Issued (in thousands) | Estimated Fair Value of Earn-outs (in thousands) | | :---------- | :--------------------- | :-------------------------------------- | :----------------------- | :--------------------------------- | :--------------------------------------------- | | 2022 | 5 | $14,220 | $5,882 | $433 | $6,299 | | 2021 | 8 | $100,449 | $69,501 | $6,787 | $5,133 | | 2020 | 1 | $1,949 | $882 | $312 | $255 | Secondary Offering In March 2021, the company completed a secondary public offering of common stock, generating significant net proceeds - In March 2021, the company completed an underwritten public offering of 1,612,903 shares of common stock at $93.00 per share, generating net proceeds of approximately $140,690 thousand[213] - Underwriters exercised an option in April 2021 to purchase an additional 241,935 shares, yielding net proceeds of $21,150 thousand[213] Segments Operations are structured into Infrastructure, Building, Technology & Sciences, and Geospatial Solutions segments - The company's operations are structured into three reportable segments: Infrastructure (INF), Building, Technology & Sciences (BTS), and Geospatial Solutions (GEO)[214] Impact of COVID-19 on Our Business The company continues to monitor the uncertain and evolving impacts of the COVID-19 pandemic on its business - The COVID-19 pandemic has significantly impacted global markets, and the company continues to monitor its evolving effects on all aspects of its business, with future impacts remaining uncertain[215] Components of Income and Expense Revenue is primarily from cost-reimbursable contracts, with direct and operating costs comprising key expenses - Cost-reimbursable contracts include time and materials, cost-plus, and lump-sum agreements, with lump-sum contracts representing approximately 44% of revenues in 2022[217][218] - Direct costs of revenues comprise technical and non-technical salaries, production expenses (including depreciation), and sub-consultant services[219] - Operating expenses include marketing, management and administrative personnel costs, payroll taxes, benefits, facility costs, depreciation and amortization, and professional/legal fees[219] Gross Revenue by Pricing Provision (2020-2022) | Contract Type | 2022 | 2021 | 2020 | | :--------------- | :--- | :--- | :--- | | Cost Reimbursable | 88% | 90% | 92% | | Fixed-unit Price | 12% | 10% | 8% | Results of Operations Gross revenues increased by 11% in 2022, driven by acquisitions and organic growth, while gross profit margin slightly decreased - Gross profit margin slightly decreased from 50.8% in 2021 to 49.1% in 2022, primarily due to a change in work mix, with increased sub-consultant services and other direct costs[221] Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change ($) | Change (%) | | :----------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Gross revenues | $786,778 | $706,706 | $80,072 | 11% | | Gross profit | $385,974 | $359,314 | $26,660 | 7.4% | | Operating expenses | $319,792 | $290,970 | $28,822 | 10% | | Income from operations | $66,182 | $68,344 | $(2,162) | -3.16% | | Interest expense | $(3,808) | $(6,239) | $2,431 | -38.97% | | Income tax expense | $(12,401) | $(14,958) | $2,557 | -17.1% | | Net income | $49,973 | $47,147 | $2,826 | 6% | Segment Performance (2022 vs. 2021) | Segment | Gross Revenues 2022 (in thousands) | Gross Revenues 2021 (in thousands) | Revenue Change (%) | Segment Income Before Taxes 2022 (in thousands) | Segment Income Before Taxes 2021 (in thousands) | Income Change (%) | | :------ | :--------------------------------- | :--------------------------------- | :----------------- | :---------------------------------------------- | :---------------------------------------------- | :---------------- | | INF | $395,878 | $383,725 | 3% | $68,259 | $71,838 | -5% | | BTS | $232,577 | $185,995 | 25% | $43,810 | $35,221 | 24% | | GEO | $158,323 | $136,986 | 16% | $42,640 | $33,027 | 29% | LIQUIDITY AND CAPITAL RESOURCES Liquidity is supported by cash, operating cash flows, and the Senior Credit Facility, deemed sufficient for near-term needs - Principal liquidity sources include cash, cash flows from operations, and borrowing capacity under the Senior Credit Facility, deemed sufficient for the next twelve months[234] - The decrease in cash from operating activities was due to increases in working capital and deferred income tax assets, partially offset by higher net income[235] - Cash used in investing activities decreased significantly due to lower cash paid for acquisitions ($5,910 thousand in 2022 vs. $68,000 thousand in 2021)[236][270] - Cash used in financing activities increased due to $65,000 thousand in payments on the Senior Credit Facility and higher note payable payments[237][270] Cash Flow Activities (2022 vs. 2021) | Activity Type | 2022 (in thousands) | 2021 (in thousands) | Change ($) | | :-------------- | :------------------ | :------------------ | :--------- | | Operating | $93,980 | $101,442 | $(7,462) | | Investing | $(21,510) | $(80,259) | $58,749 | | Financing | $(81,909) | $(38,112) | $(43,797) | Financing The Senior Credit Facility provides $400 million in revolving commitments, with variable interest rates and financial covenants - The Second A&R Credit Agreement provides $400 million in revolving commitments available through August 13, 2026, with an outstanding balance of $33,750 thousand as of December 31, 2022[240] - Borrowings bear variable interest rates tied to LIBOR (transitioning to SOFR) plus an applicable margin, with the interest rate at 5.3% as of December 31, 2022[241] - The credit agreement includes financial covenants requiring maintenance of a consolidated net leverage ratio (no greater than 4.00 to 1.00) and a consolidated fixed charge coverage ratio (no less than 1.10 to 1.00), with the company in compliance as of December 31, 2022[242][243] - The company has aggregate acquisition-related obligations of $13,840 thousand due in fiscal 2023, with a weighted average interest rate of 2.3% on other outstanding obligations[247] Recently Issued Accounting Pronouncements The company adopted ASU No. 2020-04 and ASU 2022-06, and early adopted ASU No. 2021-08, impacting contract liabilities - The company applied ASU No. 2020-04 and ASU 2022-06 (Reference Rate Reform) to its Second A&R Credit Agreement with no financial statement impact[317] - ASU No. 2021-08 (Business Combinations - Accounting for Contract Assets and Liabilities) was early adopted, resulting in the recording of opening balance contract liabilities of $2,200 thousand[318] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk exposure is to interest rate changes on its variable-rate Senior Credit Facility. As of December 31, 2022, with $33.75 million outstanding, a one percentage point change in the interest rate would alter annual interest expense by approximately $0.34 million - The company's primary market risk exposure is to interest rate changes on its variable-rate Senior Credit Facility[249] - As of December 31, 2022, with $33,750 thousand outstanding on the Senior Credit Facility, a one percentage point change in the assumed interest rate would change annual interest expense by approximately $340 thousand[249] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section provides audited consolidated financial statements, including balance sheets, income statements, cash flows, and related notes, with an unqualified audit opinion - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[254][255][395][396] Consolidated Balance Sheet Summary (in thousands) | Metric | December 31, 2022 | January 1, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Cash and cash equivalents | $38,541 | $47,980 | | Total assets | $935,723 | $961,943 | | Total notes payable and other obligations | $54,849 | $131,796 | | Total equity | $694,240 | $624,720 | Consolidated Statements of Net Income and Comprehensive Income (in thousands) | Metric | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :------------------------------------ | :----------------------------- | :---------------------------- | :---------------------------- | | Gross revenues | $786,778 | $706,706 | $659,296 | | Gross profit | $385,974 | $359,314 | $334,538 | | Income from operations | $66,182 | $68,344 | $44,149 | | Net income and comprehensive income | $49,973 | $47,147 | $21,018 | | Basic earnings per share | $3.39 | $3.34 | $1.70 | | Diluted earnings per share | $3.27 | $3.22 | $1.65 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :----------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Operating activities | $93,980 | $101,442 | $96,009 | | Investing activities | $(21,510) | $(80,259) | $(9,067) | | Financing activities | $(81,909) | $(38,112) | $(53,858) | | Net (decrease) increase in cash | $(9,439) | $(16,929) | $33,084 | Reports of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the financial statements and internal control, noting revenue recognition as a critical audit matter - Deloitte & Touche LLP provided an unqualified opinion on the company's consolidated financial statements for the period ended December 31, 2022, and on the effectiveness of internal control over financial reporting[254][255] - Revenue recognition for long-term lump-sum contracts was identified as a critical audit matter due to the significant judgments required in estimating total costs and profit[259][261] Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of December 31, 2022, and January 1, 2022 Consolidated Balance Sheet Data (in thousands) | Asset/Liability/Equity | December 31, 2022 | January 1, 2022 | | :--------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $38,541 | $47,980 | | Total current assets | $290,676 | $303,970 | | Goodwill | $400,957 | $389,916 | | Total Assets | $935,723 | $961,943 | | Total current liabilities | $160,894 | $163,951 | | Total liabilities | $241,483 | $337,223 | | Total stockholders' equity | $694,240 | $624,720 | Consolidated Statements of Net Income and Comprehensive Income This section details the company's revenues, expenses, net income, and earnings per share for the fiscal years 2020-2022 Consolidated Statements of Net Income and Comprehensive Income (in thousands, except per share data) | Metric | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :------------------------------------ | :----------------------------- | :---------------------------- | :---------------------------- | | Gross revenues | $786,778 | $706,706 | $659,296 | | Total direct costs | $400,804 | $347,392 | $324,758 | | Gross profit | $385,974 | $359,314 | $334,538 | | Total operating expenses | $319,792 | $290,970 | $290,389 | | Income from operations | $66,182 | $68,344 | $44,149 | | Net income and comprehensive income | $49,973 | $47,147 | $21,018 | | Basic earnings per share | $3.39 | $3.34 | $1.70 | | Diluted earnings per share | $3.27 | $3.22 | $1.65 | Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in common stock, additional paid-in capital, retained earnings, and total equity from 2019 to 2022 - Stock-based compensation expense was $19,330 thousand in 2022, $16,300 thousand in 2021, and $14,960 thousand in 2020[267] - Proceeds from the secondary offering in 2021, net of costs, amounted to $161,840 thousand, significantly increasing additional paid-in capital[267] Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) | Metric | Balance, Dec 28, 2019 | Balance, Jan 2, 2021 | Balance, Jan 1, 2022 | Balance, Dec 31, 2022 | | :----------------------------- | :-------------------- | :------------------- | :------------------- | :-------------------- | | Common Stock (Shares) | 12,852,357 | 13,270,131 | 15,414,005 | 15,523,300 | | Common Stock (Amount) | $129 | $133 | $154 | $155 | | Additional Paid-In Capital | $251,187 | $268,271 | $451,754 | $471,300 | | Retained Earnings | $104,647 | $125,665 | $172,812 | $222,785 | | Total Stockholders' Equity | $355,963 | $394,069 | $624,720 | $694,240 | Consolidated Statements of Cash Flows This section presents cash flows from operating, investing, and financing activities for the fiscal years 2020-2022 - Cash paid for acquisitions (net of cash received) decreased significantly from $67,990 thousand in 2021 to $5,910 thousand in 2022[270] - Payments of borrowings from the Senior Credit Facility totaled $65,000 thousand in 2022, a substantial decrease from $323,830 thousand in 2021[270] Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :----------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $93,980 | $101,442 | $96,009 | | Net cash used in investing activities | $(21,510) | $(80,259) | $(9,067) | | Net cash used in financing activities | $(81,909) | $(38,112) | $(53,858) | | Cash and cash equivalents – end of period | $38,541 | $47,980 | $64,909 | Note 1 – Organization and Nature of Business Operations This note describes NV5 Global's business as a professional engineering and consulting solutions provider and ongoing COVID-19 impact monitoring - NV5 Global, Inc. provides professional and technical engineering and consulting solutions to public and private sector clients in infrastructure, utility services, construction, real estate, environmental, and geospatial markets[274] - The company continues to monitor the impact of the COVID-19 pandemic on its operations, acknowledging the high uncertainty of future developments[275] Note 2 – Summary of Significant Accounting Policies This note details the company's significant accounting policies, including revenue recognition, goodwill impairment, and estimates - Financial statements are prepared in conformity with U.S. GAAP, consolidating accounts of the company and its subsidiaries, with all intercompany transactions eliminated[276] - Key estimates include fair value in business combinations, goodwill impairment, revenue recognition over time, and allowances for uncollectible accounts[280] - Goodwill is the excess of consideration paid over acquired net assets, evaluated annually for impairment using a quantitative method, with no impairment recognized in 2022, 2021, or 2020[293][294][296] - Revenue from cost-reimbursable contracts (88% of 2022 revenues) is recognized over time based on direct costs incurred, while fixed-unit price contracts are recognized at a point in time[299][302] - As of December 31, 2022, remaining performance obligations totaled $761,780 thousand, with $607,240 thousand expected to be recognized within the next 12 months[303] Note 3 – Recently Issued Accounting Pronouncements This note outlines the adoption of recent accounting pronouncements, including those related to reference rate reform and business combinations - The company adopted ASU No. 2020-04 and ASU 2022-06 (Reference Rate Reform) with no impact on financial statements, and early adopted ASU No. 2021-08 (Business Combinations) resulting in $2,200 thousand in opening balance contract liabilities[317][318] Note 4 – Earnings per Share This note provides the reconciliation and calculation of basic and diluted earnings per share for fiscal years 2020-2022 - Basic EPS is calculated by dividing net income by weighted average common shares outstanding, excluding unvested restricted shares[319] - Diluted EPS reflects potential dilution from securities or contracts to issue common stock, with anti-dilutive securities excluded[319][320] Earnings Per Share Reconciliation (2020-2022) | Metric | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :------------------------------------ | :----------------------------- | :---------------------------- | :---------------------------- | | Net income – basic and diluted | $49,973 | $47,147 | $21,018 | | Basic weighted average shares outstanding | 14,753,738 | 14,135,333 | 12,362,786 | | Diluted weighted average shares outstanding | 15,260,186 | 14,656,381 | 12,713,075 | Note 5 – Stockholders' Equity This note details changes in stockholders' equity, including the impact of the 2021 secondary public offering - In March 2021, the company completed a secondary public offering of 1,612,903 shares, generating net proceeds of approximately $140,690 thousand, with an additional $21,150 thousand from the underwriters' option exercise[323] Note 6 – Business Acquisitions This note summarizes business acquisitions from 2020-2022, including purchase prices, assets acquired, and goodwill recognized - Goodwill recorded from acquisitions is attributed to the acquired business's reputation, workforce, and anticipated synergies[329] Acquisition Summary (2020-2022) | Fiscal Year | Number of Acquisitions | Aggregate Purchase Price (in thousands) | Cash Paid (in thousands) | Common Stock Issued (in thousands) | Estimated Fair Value of Earn-outs (in thousands) | | :---------- | :--------------------- | :-------------------------------------- | :----------------------- | :--------------------------------- | :--------------------------------------------- | | 2022 | 5 | $14,220 | $5,882 | $433 | $6,299 | | 2021 | 8 | $100,449 | $69,501 | $6,787 | $5,133 | | 2020 | 1 | $1,949 | $882 | $312 | $255 | Fair Values of Assets Acquired and Liabilities Assumed (in thousands) | Item | 2022 Total | 2021 Total | 2020 Total | | :-------------------------- | :--------- | :--------- | :--------- | | Total Assets | $8,570 | $73,152 | $1,856 | | Liabilities | $(5,623) | $(13,984) | $(345) | | Deferred tax liabilities | — | $(4,521) | $(86) | | Net assets acquired | $2,947 | $54,647 | $1,425 | | Total Consideration | $14,220 | $100,449 | $1,949 | | Goodwill | $11,273 | $45,802 | $524 | Pro Forma Consolidated Results of Operations (in thousands, except per share amounts) | Metric | 2022 Pro Forma | 2021 Pro Forma | 2020 Pro Forma | | :------------------- | :------------- | :------------- | :------------- | | Gross revenues | $789,934 | $765,632 | $720,039 | | Net income | $50,071 | $49,769 | $22,774 | | Basic earnings per share | $3.39 | $3.50 | $1.83 | | Diluted earnings per share | $3.28 | $3.38 | $1.78 | Note 7 – Billed and Unbilled Receivables This note details billed and unbilled receivables, along with the allowance for doubtful accounts - The allowance for doubtful accounts decreased from $7,952 thousand at January 1, 2022, to $5,687 thousand at December 31, 2022, after write-offs of $2,210 thousand[336] Billed and Unbilled Receivables (in thousands) | Metric | December 31, 2022 | January 1, 2022 | | :-------------------------- | :------------------ | :------------------ | | Billed receivables, net | $145,637 | $153,814 | | Unbilled receivables, net | $92,862 | $89,734 | | Total allowance for doubtful accounts | $5,687 | $7,952 | Note 8 – Property and Equipment, net This note provides a breakdown of property and equipment, net of accumulated depreciation, for 2022 and 2021 - Depreciation expense was $11,720 thousand in 2022, $11,470 thousand in 2021, and $10,890 thousand in 2020[337] Property and Equipment, Net (in thousands) | Category | December 31, 2022 | January 1, 2022 | | :---------------------- | :------------------ | :------------------ | | Office furniture and equipment | $3,421 | $3,314 | | Computer equipment | $25,816 | $20,063 | | Survey and field equipment | $49,985 | $35,436 | | Leasehold improvements | $6,546 | $6,395 | | Total | $85,768 | $65,208 | | Less: accumulated depreciation | $(44,128) | $(32,479) | | Property and equipment, net | $41,640 | $32,729 | Note 9 – Goodwill and Intangible Assets This note details goodwill by segment and finite-lived intangible assets, including amortization expense and future amortization schedules - Amortization expense for finite-lived intangible assets was $32,340 thousand in 2022, $33,500 thousand in 2021, and $34,600 thousand in 2020[342] Goodwill by Reportable Segment (in thousands) | Segment | January 1, 2022 | Acquisitions | Adjustments | December 31, 2022 | | :------ | :-------------- | :----------- | :---------- | :---------------- | | INF | $90,725 | $120 | $87 | $90,932 | | BTS | $111,005 | $1,152 | $(319) | $111,838 | | GEO | $188,186 | $10,001 | — | $198,187 | | Total | $389,916 | $11,273 | $(232) | $400,957 | Intangible Assets, Net (in thousands) | Category | Gross Carrying Amount (Dec 31, 2022) | Accumulated Amortization (Dec 31, 2022) | Net Amount (Dec 31, 2022) | Net Amount (Jan 1, 2022) | | :---------------------- | :----------------------------------- | :-------------------------------------- | :------------------------ | :----------------------- | | Customer relationships | $222,998 | $(87,054) | $135,944 | $154,438 | | Trade name | $16,883 | $(15,933) | $950 | $1,800 | | Customer backlog | $29,419 | $(27,333) | $2,086 | $3,809 | | Non-compete | $14,110 | $(11,298) | $2,812 | $4,805 | | Developed technology | $32,944 | $(14,305) | $18,639 | $23,372 | | Total finite-lived intangible assets | $316,354 | $(155,923) | $160,431 | $188,224 | Future Estimated Aggregate Amortization (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2023 | $30,630 | | 2024 | $27,793 | | 2025 | $26,721 | | 2026 | $25,545 | | 2027 | $17,562 | | Thereafter | $32,180 | | Total | $160,431 | Note 10 – Accrued Liabilities This note provides a breakdown of accrued liabilities, including lease liabilities, vacation, payroll taxes, and benefits Accrued Liabilities (in thousands) | Category | December 31, 2022 | January 1, 2022 | | :---------------------- | :------------------ | :------------------ | | Current portion of lease liability | $13,081 | $12,897 | | Accrued vacation | $12,467 | $12,819 | | Payroll and related taxes | $6,616 | $10,931 | | Benefits | $5,160 | $6,767 | | Accrued operating expenses | $4,540 | $4,329 | | Other | $2,449 | $2,718 | | Total | $44,313 | $50,461 | Note 11 – Notes Payable and Other Obligations This note details notes payable, including the Senior Credit Facility, its covenants, and future contractual maturities - The Senior Credit Facility, with $33,750 thousand outstanding as of December 31, 2022, bears variable interest rates (5.3% at year-end 2022) and is secured by substantially all company assets[347][348] - The credit agreement includes financial covenants for consolidated net leverage ratio (max 4.00:1.00) and fixed charge coverage ratio (min 1.10:1.00), with the company in compliance[349][351] Notes Payable and Other Obligations (in thousands) | Category | December 31, 2022 | January 1, 2022 | | :-------------------------- | :------------------ | :------------------ | | Senior credit facility | $33,750 | $98,750 | | Uncollateralized promissory notes | $18,492 | $31,493 | | Finance leases | $3,465 | $2,215 | | Other obligations | $1,814 | $2,733 | | Debt issuance costs, net of amortization | $(2,672) | $(3,395) | | Total Notes Payable and Other Obligations | $54,849 | $131,796 | | Current portion | $15,176 | $20,734 | | Non-current portion | $39,673 | $111,062 | Future Contractual Maturities of Long-Term Debt (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2023 | $15,153 | | 2024 | $4,977 | | 2025 | $1,799 | | 2026 | $35,388 | | 2027 and thereafter | $204 | | Total | $57,521 | Note 12 – Contingent Consideration This note outlines changes in the estimated contingent consideration liability, primarily from acquisitions and fair value re-measurement - The total contingent consideration liability increased to $15,335 thousand at December 31, 2022, from $8,328 thousand at January 1, 2022, primarily due to additions from acquisitions and re-measurement of fair value[356] Changes in Estimated Contingent Consideration (in thousands) | Metric | December 31, 2022 | January 1, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Contingent consideration, beginning of the year | $8,328 | $2,400 | | Additions for acquisitions | $6,299 | $5,133 | | Reduction of liability for payments made | $(2,264) | $(1,538) | | Increase of liability related to re-measurement of fair value | $2,972 | $2,333 | | Total contingent consideration, end of the period | $15,335 | $8,328 | | Current portion | $10,854 | $5,807 | | Non-current portion | $4,481 | $2,521 | Note 13 – Leases This note describes the company's operating and finance leases, including lease liabilities, assets, and cost components - The company primarily leases property under operating leases for office facilities and has six equipment operating leases for aircraft used in geospatial operations[358] Lease Liabilities and Assets (in thousands) | Category | December 31, 2022 | January 1, 2022 | | :---------------------- | :------------------ | :------------------ | | Operating lease assets, net | $39,314 | $44,260 | | Finance lease assets, net | $3,446 | $2,197 | | Total lease liabilities | $(44,998) | $(48,281) | Lease Cost Components (in thousands) | Lease Cost Component | Fiscal Year Ended Dec 31, 2022 | Fiscal Year Ended Jan 1, 2022 | Fiscal Year Ended Jan 2, 2021 | | :------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Operating lease cost | $15,724 | $15,439 | $15,071 | | Variable operating lease cost | $3,806 | $1,655 | $2,934 | | Finance lease cost (amortization) | $1,239 | $1,250 | $1,035 | | Finance lease cost (interest) | $121 | $154 | $121 | | Total lease cost | $20,890 | $18,498 | $19,161 | Note 14 – Commitments and Contingencies This note details the company's exposure to claims and lawsuits, including a settlement in the Champlain Towers South Collapse litigation - The company is subject to claims and lawsuits typical for the engineering, consulting, and construction profession, primarily alleging professional errors or omissions[363] - A settlement agreement was reached in the Champlain Towers South Collapse litigation, with the company's insurers paying the settlement amount on its behalf[364] Note 15 – Stock-Based Compensation This note outlines the equity incentive plan, restricted stock awards activity, and stock-based compensation expense - The 2011 Equity Incentive Plan authorizes 1,995,274 shares of common stock for issuance, with an automatic annual increase[365] - Stock-based compensation expense was $19,330 thousand in 2022, $16,300 thousand in 2021, and $14,960 thousand in 2020, recognized on a straight-line basis over the vesting period[366] Restricted Stock Awards Activity (2020-2022) | Metric | Unvested Shares (Dec 28, 2019) | Unvested Shares (Jan 2, 2021) | Unvested Shares (Jan 1, 2022) | Unvested Shares (Dec 31, 2022) | | :------------------- | :----------------------------- | :---------------------------- | :---------------------------- | :----------------------------- | | Share Units | 652,677 | 770,183 | 744,490 | 713,793 | | Weighted Average Grant Date Fair Value | $58.20 | $57.20 | $66.34 | $81.25 | Note 16 – Employee Benefit Plan This note describes the company's 401(k) plans, including profit sharing match and related expenses - The company sponsors 401(k) plans and in 2022 offered a 50% profit sharing match on employee contributions up to the first 6% of eligible compensation, allocated 25% in cash and 75% in restricted stock awards with a three-year vesting period[369] - Expenses related to 401(k) plans were $1,650 thousand in 2022, $330 thousand in 2021, and $1,670 thousand in 2020[370] [Note 17 – Income Taxes](index=77&type=s