NV5(NVEE) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements for the nine months ended September 30, 2023, detailing asset growth, revenue changes, and cash flow impacts from acquisitions Financial Statements This section presents the unaudited consolidated financial statements for the nine months ended September 30, 2023, highlighting asset growth driven by acquisitions, increased revenues, and a decline in net income due to higher expenses and acquisition funding Consolidated Balance Sheets The consolidated balance sheet as of September 30, 2023, shows significant asset and liability growth, primarily driven by acquisitions increasing goodwill, intangible assets, and long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,205,965 | $935,723 | +28.9% | | Cash and cash equivalents | $46,439 | $38,541 | +20.5% | | Goodwill | $527,030 | $400,957 | +31.4% | | Intangible assets, net | $236,433 | $160,431 | +47.4% | | Total Liabilities | $446,048 | $241,483 | +84.7% | | Notes payable and other obligations, less current portion | $215,642 | $39,673 | +443.5% | | Total Stockholders' Equity | $759,917 | $694,240 | +9.5% | Consolidated Statements of Net Income and Comprehensive Income Gross revenues increased for both Q3 and the nine-month period, but net income declined due to higher operating expenses, including depreciation, amortization, and interest Q3 Financial Performance (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Revenues | $239,287 | $204,075 | +17.3% | | Gross Profit | $115,444 | $99,935 | +15.5% | | Income from Operations | $15,074 | $18,323 | -17.7% | | Net Income | $13,316 | $16,063 | -17.1% | | Diluted EPS | $0.86 | $1.05 | -18.1% | Nine-Month Financial Performance (in thousands, except EPS) | Metric | 9M 2023 | 9M 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Revenues | $646,242 | $596,960 | +8.3% | | Gross Profit | $321,742 | $293,001 | +9.8% | | Income from Operations | $44,497 | $53,476 | -16.8% | | Net Income | $34,676 | $41,973 | -17.4% | | Diluted EPS | $2.24 | $2.75 | -18.5% | Consolidated Statements of Cash Flows Operating cash flow decreased, while investing activities surged due to acquisitions, largely financed by increased borrowings from the Senior Credit Facility Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,435 | $80,391 | | Net cash used in investing activities | ($203,071) | ($19,807) | | Net cash provided by (used in) financing activities | $165,727 | ($54,393) | | Net increase in cash and cash equivalents | $7,898 | $6,191 | - The significant increase in cash used for investing activities was primarily due to $189.1 million paid for acquisitions, net of cash received[21] - Financing activities were driven by $188.0 million in borrowings from the Senior Credit Facility, largely to fund acquisitions[21] Notes to Consolidated Financial Statements Notes detail accounting policies, business acquisitions, goodwill, intangible assets, and debt obligations, highlighting significant increases from 2023 acquisitions - As of September 30, 2023, the company had $853.8 million of remaining performance obligations, with $694.5 million expected to be recognized as revenue over the next 12 months[34] - The company completed six acquisitions in 2023, including VIS for $75.4 million and Axim for $139.6 million, primarily financed through the company's Senior Credit Facility[48][49][50] - Goodwill increased by $126.5 million during the first nine months of 2023, primarily from the Axim and VIS acquisitions, bringing the total balance to $527.0 million[63][54] - The outstanding balance on the Senior Credit Facility increased to $206.8 million as of September 30, 2023, from $33.8 million at the end of 2022, to fund acquisition activities[70][69] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes Q3 2023 revenue growth to acquisitions, but increased operating and interest expenses led to a decline in net income, impacting liquidity Q3 2023 vs Q3 2022 Performance Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Revenues | $239,287 | $204,075 | +17.3% | | Gross Profit | $115,444 | $99,935 | +15.5% | | Income from Operations | $15,074 | $18,323 | -17.7% | | Net Income | $13,316 | $16,063 | -17.1% | - The increase in Q3 gross revenues was primarily driven by $33.0 million from acquisitions completed since Q3 2022[106] - The decrease in Q3 net income was mainly due to increased payroll costs (+$10.6 million), amortization (+$3.5 million), general and administrative expenses (+$3.5 million), and interest expense (+$2.9 million)[108][109][111] - The Geospatial (GEO) segment's Q3 revenue increased by 71.0% to $79.9 million, largely due to acquisitions[123][118] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate Senior Credit Facility, with a 1% change impacting annual interest expense by approximately $2.1 million - The company's main market risk is interest rate changes on its Senior Credit Facility, which has a variable interest rate[148] - With $206.75 million outstanding on the facility, a 1% change in the interest rate would impact annual interest expense by approximately $2.1 million[148] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[149] - No changes occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[150] PART II – OTHER INFORMATION This section addresses other required disclosures, including no material legal proceedings or changes to risk factors, details on unregistered equity sales, and confirmation of no defaults on senior securities Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its financial position or operations - As of the filing date, the company is not involved in any litigation expected to have a material adverse effect on its business[153] Risk Factors There have been no material changes to the principal risk factors affecting the company's business from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred regarding the risk factors previously disclosed in the 2022 Form 10-K[154] Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock as partial consideration for an acquisition in a private transaction and repurchased shares from employees to satisfy tax withholding obligations - On July 31, 2023, the company agreed to issue $800,000 of common stock as partial consideration in an acquisition, utilizing the Section 4(a)(2) exemption for transactions not involving a public offering[155] - The company purchased 730 shares from employees at an average price of $111.23 per share to satisfy tax withholding obligations on vested restricted stock[156] Other Items (Defaults, Mine Safety, Other Info, Exhibits) This section confirms no defaults on senior securities, no applicable mine safety disclosures, and no other material information required to be reported, along with a list of filed exhibits - The company reports no defaults on senior securities (Item 3), no applicable mine safety disclosures (Item 4), and no other information to disclose (Item 5)[157][158][159]