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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________
FORM 10-Q
_____________________________________________
(Mark One)
| | | | | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-40371
_____________________________________________
BOWMAN CONSULTING GROUP LTD.
(Exact Name of Registrant as Specified in its Charter)
_____________________________________________
| | | | | |
| Delaware | 54-1762351 |
(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer
Identification No.) |
| |
12355 Sunrise Valley Drive, Suite 520 Reston, Virginia | 20191 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (703) 464-1000
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.01 par value | | BWMN | | The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | o | Accelerated filer | x |
| Non-accelerated filer | o | Smaller reporting company | o |
| Emerging growth company | x | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ o No x
As of November 7, 2024, the registrant had 17,529,821 shares of common stock outstanding.
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share data) | | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 |
| (Unaudited) | | |
| ASSETS | | | |
| Current Assets | | | |
| Cash and equivalents | $ | 11,660 | | | $ | 20,687 | |
| Accounts receivable, net | 105,406 | | | 87,565 | |
| Contract assets | 43,838 | | | 33,520 | |
| Notes receivable - officers, employees, affiliates, current portion | 1,146 | | | 1,199 | |
| Prepaid and other current assets | 10,869 | | | 11,806 | |
| Total current assets | 172,919 | | | 154,777 | |
| Non-Current Assets | | | |
| Property and equipment, net | 43,983 | | | 27,601 | |
| Operating lease, right-of-use assets | 41,271 | | | 40,743 | |
| Goodwill | 134,084 | | | 96,393 | |
| Notes receivable | 903 | | | 903 | |
| Notes receivable - officers, employees, affiliates, less current portion | 1,110 | | | 1,119 | |
| Other intangible assets, net | 59,524 | | | 46,294 | |
| Deferred tax asset, net | 41,682 | | | 33,780 | |
| Other assets | 1,481 | | | 1,175 | |
| Total Assets | $ | 496,957 | | | $ | 402,785 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Revolving credit facility | $ | 32,332 | | | $ | 45,290 | |
| Accounts payable and accrued liabilities | 43,983 | | | 44,394 | |
| Contract liabilities | 8,905 | | | 7,481 | |
| Notes payable, current portion | 15,134 | | | 13,989 | |
| Operating lease obligation, current portion | 10,635 | | | 9,016 | |
| Finance lease obligation, current portion | 9,817 | | | 6,586 | |
| Total current liabilities | 120,806 | | | 126,756 | |
| Non-Current Liabilities | | | |
| Other non-current obligations | 51,971 | | | 42,288 | |
| Notes payable, less current portion | 20,251 | | | 13,738 | |
| Operating lease obligation, less current portion | 36,681 | | | 37,660 | |
| Finance lease obligation, less current portion | 18,829 | | | 14,408 | |
| Pension and post-retirement obligation, less current portion | 5,213 | | | 4,654 | |
| Total liabilities | $ | 253,751 | | | $ | 239,504 | |
| Shareholders' Equity | | | |
Preferred Stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2024 and December 31, 2023. | $ | – | | | $ | – | |
Common stock, $0.01 par value; 30,000,000 shares authorized as of September 30, 2024 and December 31, 2023; 21,242,813 shares issued and 17,738,740 outstanding, and 17,694,495 shares issued and 15,094,278 outstanding as of September 30, 2024 and December 31, 2023, respectively | 212 | | | 177 | |
| Additional paid-in-capital | 323,255 | | | 215,420 | |
| Accumulated other comprehensive income | 559 | | | 590 | |
Treasury stock, at cost; 3,504,073 and 2,600,217, respectively | (51,489) | | | (26,410) | |
| Stock subscription notes receivable | (42) | | | (76) | |
| Accumulated deficit | (29,289) | | | (26,420) | |
| Total shareholders' equity | $ | 243,206 | | | $ | 163,281 | |
| TOTAL LIABILITIES AND EQUITY | $ | 496,957 | | | $ | 402,785 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months
Ended September 30, | | For the Nine Months
Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Gross Contract Revenue | $ | 113,932 | | | $ | 94,434 | | | $ | 313,341 | | | $ | 253,290 | |
Contract costs: (exclusive of depreciation and amortization below) | | | | | | | |
| Direct payroll costs | 41,713 | | | 33,383 | | | 118,471 | | | 94,287 | |
| Sub-consultants and expenses | 12,569 | | | 12,310 | | | 32,308 | | | 29,811 | |
| Total contract costs | 54,282 | | | 45,693 | | | 150,779 | | | 124,098 | |
| Operating Expenses: | | | | | | | |
| Selling, general and administrative | 51,903 | | | 41,735 | | | 145,795 | | | 113,717 | |
| Depreciation and amortization | 7,395 | | | 4,500 | | | 20,572 | | | 12,785 | |
(Gain) on sale | (81) | | | (110) | | | (393) | | | (347) | |
| Total operating expenses | 59,217 | | | 46,125 | | | 165,974 | | | 126,155 | |
| Income (loss) from operations | 433 | | | 2,616 | | | (3,412) | | | 3,037 | |
| Other expense | 1,572 | | | 1,495 | | | 6,000 | | | 3,852 | |
(Loss) income before tax benefit | (1,139) | | | 1,121 | | | (9,412) | | | (815) | |
Income tax (benefit) | (1,910) | | | (62) | | | (6,543) | | | (1,901) | |
Net income (loss) | $ | 771 | | | $ | 1,183 | | | $ | (2,869) | | | $ | 1,086 | |
| Earnings allocated to non-vested shares | $ | 53 | | | $ | 146 | | | $ | – | | | $ | 140 | |
Net income (loss) attributable to common shareholders | $ | 718 | | | $ | 1,037 | | | $ | (2,869) | | | $ | 946 | |
Earnings (loss) per share | | | | | | | |
| Basic | $ | 0.04 | | | $ | 0.08 | | | $ | (0.18) | | | $ | 0.08 | |
| Diluted | $ | 0.04 | | | $ | 0.08 | | | $ | (0.18) | | | $ | 0.07 | |
| Weighted average shares outstanding: | | | | | | | |
| Basic | 16,537,472 | | 12,814,971 | | 15,559,279 | | 12,304,751 |
| Diluted | 16,835,337 | | 13,793,120 | | 15,559,279 | | 13,437,841 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months
Ended September 30, | | For the Nine Months
Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income (loss) | $ | 771 | | | $ | 1,183 | | | $ | (2,869) | | | $ | 1,086 | |
| Other comprehensive loss | | | | | | | |
| Pension and post-retirement adjustments | (10) | | | (11) | | | (31) | | | (32) | |
Other comprehensive loss | (10) | | | (11) | | | (31) | | | (32) | |
| Income tax provision related to items of other comprehensive loss | – | | | – | | | – | | | – | |
Other comprehensive loss, net of tax | (10) | | | (11) | | | (31) | | | (32) | |
Comprehensive income (loss), net of tax | $ | 761 | | | 1,172 | | | $ | (2,900) | | | 1,054 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Months Ended September 30, 2024 and 2023
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-in
Capital | | Treasury Stock | | Accumulated
Other Comprehensive Income | | Stock
Subscription
Notes
Receivable | | Accumulated
Deficit | | Total
Shareholders'
Equity |
| Shares | | Amount | Shares | | Amount | |
| Balance at June 30, 2023 | 17,130,179 | | $ | 171 | | | $ | 189,351 | | | (2,529,886) | | $ | (24,417) | | | $ | 557 | | | $ | (125) | | | $ | (19,893) | | | $ | 145,644 | |
| Issuance of new common shares | – | | – | | | 7 | | | – | | – | | | – | | | – | | | – | | | 7 | |
| Purchase of treasury stock | – | | – | | | – | | | (300) | | (8) | | | – | | | – | | | – | | | (8) | |
| Issuance of new common shares under stock compensation plan | 25,849 | | – | | | – | | | – | | – | | | – | | | – | | | – | | | – | |
| Cancellation of shares under stock compensation plan | (31,632) | | | – | | | – | | | – | | | – | | | – | | | – | | | – | | | – | |
| Issuance of new common shares under employee stock purchase plan | 16,391 | | – | | | 393 | | | – | | – | | | – | | | – | | | – | | | 393 | |
| Stock based compensation | – | | – | | | 6,645 | | | – | | – | | | – | | | – | | – | | | 6,645 | |
| Collection on stock subscription notes receivable | – | | – | | | – | | | – | | – | | | – | | | 13 | | | – | | | 13 | |
| Exercises of conversion feature of convertible note | 24,001 | | – | | | 335 | | | – | | – | | | – | | | – | | – | | | 335 | |
| Other comprehensive loss, net of tax | – | | – | | | – | | | – | | – | | | (11) | | | – | | | – | | | (11) | |
| Net income | – | | – | | | – | | | – | | – | | | – | | | – | | | 1,183 | | | 1,183 | |
| Balance at September 30, 2023 | 17,164,788 | | $ | 171 | | | $ | 196,731 | | | (2,530,186) | | $ | (24,425) | | | $ | 546 | | | $ | (112) | | | $ | (18,710) | | | $ | 154,201 | |
| | | | | | | | | | | | | | | | | |
| Balance at June 30, 2024 | 20,570,916 | | $ | 206 | | | $ | 303,453 | | | (2,971,867) | | $ | (38,531) | | | $ | 569 | | | $ | (53) | | | $ | (30,060) | | | $ | 235,584 | |
| Issuance of new common shares | 400,738 | | 4 | | | 12,841 | | | – | | – | | | – | | | – | | | – | | | 12,845 | |
| Purchase of treasury stock | – | | – | | | – | | | (35,578) | | (1,093) | | | – | | | – | | | – | | | (1,093) | |
| Issuance of new common shares under stock compensation plan | 211,528 | | 2 | | | (2) | | | – | | – | | | – | | | – | | | – | | | – | |
| Cancellation of common shares under stock compensation plan | (5,285) | | – | | | – | | | – | | – | | | – | | | – | | | – | | | – | |
| Issuance of new common shares under employee stock purchase plan | 24,399 | | – | | | 499 | | | – | | – | | | – | | | – | | | – | | | 499 | |
| Stock based compensation | – | | – | | | 5,793 | | | – | | – | | | – | | | – | | | – | | | 5,793 | |
| Collections on stock subscription notes receivable | – | | – | | | – | | | – | | – | | | – | | | 11 | | | – | | | 11 | |
| Exercises of conversion feature of convertible note | 40,517 | | – | | | 671 | | | – | | – | | | – | | | – | | | – | | | 671 | |
| Other comprehensive loss, net of tax | – | | – | | | – | | | – | | – | | | (10) | | | – | | | – | | | (10) | |
Repurchases of common stock | – | | – | | | – | | | (496,628) | | (11,865) | | | – | | | – | | | – | | | (11,865) | |
Net income | – | | – | | | – | | | – | | – | | | – | | | – | | | 771 | | | 771 | |
| Balance at September 30, 2024 | 21,242,813 | | $ | 212 | | | $ | 323,255 | | | (3,504,073) | | $ | (51,489) | | | $ | 559 | | | $ | (42) | | | $ | (29,289) | | | $ | 243,206 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2024 and 2023
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-in
Capital | | Treasury Stock | | Accumulated
Other Comprehensive Income | | Stock
Subscription
Notes
Receivable | | Accumulated
Deficit | | Total
Shareholders'
Equity |
| Shares | | Amount | Shares | | Amount | |
| Balance at January 1, 2023 | 15,949,805 | | $ | 159 | | | $ | 162,922 | | | (2,393,255) | | $ | (20,831) | | | $ | 578 | | | $ | (173) | | | $ | (19,796) | | | $ | 122,859 | |
| Issuance of new common shares | 504,637 | | 5 | | | 14,878 | | | – | | – | | | – | | | – | | | – | | | 14,883 | |
| Purchase of treasury stock | – | | – | | | – | | | (136,931) | | (3,594) | | | – | | | – | | | – | | | (3,594) | |
| Issuance of new common shares under stock compensation plan | 646,488 | | 6 | | | (6) | | | – | | – | | | – | | | – | | | – | | | – | |
| Cancellation of shares under stock compensation plan | (31,632) | | | – | | – | | – | | – | | – | | – | | – | | – | |
| Issuance of new common shares under employee stock purchase plan | 47,488 | | – | | | 1,155 | | | – | | – | | | – | | | – | | | – | | | 1,155 | |
| Stock based compensation | – | | – | | | 17,111 | | | – | | – | | | – | | | – | | – | | | 17,111 | |
| Collection on stock subscription notes receivable | – | | – | | | – | | | – | | – | | | – | | | 61 | | | – | | | 61 | |
| Exercises of conversion feature of convertible note | 48,002 | | 1 | | | 671 | | | – | | – | | | – | | | – | | | – | | | 672 | |
| Other comprehensive loss, net of tax | – | | – | | | – | | | – | | – | | | (32) | | | – | | | – | | | (32) | |
| Net income | – | | – | | | – | | | – | | – | | | – | | | – | | | 1,086 | | | 1,086 | |
| Balance at September 30, 2023 | 17,164,788 | | $ | 171 | | | $ | 196,731 | | | (2,530,186) | | $ | (24,425) | | | $ | 546 | | | $ | (112) | | | $ | (18,710) | | | $ | 154,201 | |
| | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2024 | 17,694,495 | | $ | 177 | | | $ | 215,420 | | | (2,600,217) | | $ | (26,410) | | | $ | 590 | | | $ | (76) | | | $ | (26,420) | | | $ | 163,281 | |
Issuance of new common shares in common stock offering | 1,502,942 | | 15 | | | 47,136 | | | – | | – | | | – | | | – | | | – | | | 47,151 | |
| Issuance of new common shares | 1,078,465 | | 11 | | | 35,337 | | | – | | – | | – | | – | | – | | 35,348 | |
| Purchase of treasury stock | – | | – | | | – | | (340,335) | | (11,130) | | – | | – | | – | | (11,130) | |
| Issuance of new common shares under stock compensation plan | 750,587 | | 7 | | | (8) | | | – | | – | | – | | – | | – | | (1) | |
| Cancellation of common shares under stock compensation plan | (32,491) | | – | | | – | | | – | | – | | – | | – | | – | | – | |
| Issuance of new common shares under employee stock purchase plan | 56,745 | | – | | | 1,431 | | | – | | – | | – | | – | | – | | 1,431 | |
| Stock based compensation | – | | – | | 20,573 | | – | | – | | – | | – | | – | | 20,573 | |
| Collections on stock subscription notes receivable | – | | – | | – | | – | | – | | – | | 34 | | – | | 34 | |
| Exercises of conversion feature of convertible note | 192,070 | | 2 | | 3,366 | | – | | – | | – | | – | | – | | 3,368 | |
| Other comprehensive loss, net of tax | – | | – | | – | | – | | – | | (31) | | – | | – | | (31) | |
Repurchases of common stock | – | | – | | | – | | | (563,521) | | (13,949) | | | – | | | – | | | – | | | (13,949) | |
| Net loss | – | | – | | – | | – | | – | | – | | – | | (2,869) | | (2,869) | |
| Balance at September 30, 2024 | 21,242,813 | | $ | 212 | | | $ | 323,255 | | | (3,504,073) | | $ | (51,489) | | | $ | 559 | | | $ | (42) | | | $ | (29,289) | | | $ | 243,206 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2024 | | 2023 |
| Cash Flows from Operating Activities: | | | |
| Net (loss) income | $ | (2,869) | | | $ | 1,086 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Depreciation and amortization - property, plant and equipment | 9,722 | | | 7,172 | |
| Amortization of intangible assets | 10,850 | | | 5,613 | |
| Gain on sale of assets | (393) | | | (347) | |
| Credit losses | 1,043 | | | 630 | |
| Stock based compensation | 20,272 | | | 18,280 | |
| Accretion of discounts on notes payable | 486 | | | 459 | |
| Deferred taxes | (18,351) | | | (11,134) | |
| Changes in operating assets and liabilities, net of acquisition of businesses | | | |
| Accounts receivable | (10,830) | | | (14,581) | |
| Contract assets | (5,229) | | | (8,118) | |
| Prepaid expenses and other assets | 2,909 | | | (4,370) | |
| Accounts payable and accrued expenses | 6,438 | | | 19,752 | |
| Contract liabilities | (1,666) | | | (2,171) | |
| Net cash provided by operating activities | 12,382 | | | 12,271 | |
| Cash Flows from Investing Activities: | | | |
| Purchases of property and equipment | (819) | | | (2,081) | |
| Fixed assets converted to lease financing | 17 | | | – | |
| Proceeds from sale of assets and disposal of leases | 399 | | | 347 | |
| Payments received under loans to shareholders | 61 | | | 115 | |
| Acquisitions of businesses, net of cash acquired | (23,327) | | | (15,442) | |
| Collections under stock subscription notes receivable | 33 | | | 62 | |
| Net cash used in investing activities | (23,636) | | | (16,999) | |
| Cash Flows from Financing Activities: | | | |
Proceeds from common stock offering, net of underwriting discounts and commissions and other offering costs | 47,151 | | | – | |
| (Repayments) Borrowings under revolving credit facility | (12,958) | | | 22,379 | |
| Repayments under fixed line of credit | (345) | | | (381) | |
| Proceeds from notes payable | 6,209 | | | – | |
| Repayment under notes payable | (10,951) | | | (8,715) | |
Proceeds from finance leases | 4,567 | | | – | |
| Payments on finance leases | (6,462) | | | (4,989) | |
Payment of contingent consideration from acquisitions | (1,357) | | | – | |
| Payments for purchase of treasury stock | (11,130) | | | (3,594) | |
| Repurchases of common stock | (13,950) | | | – | |
| Proceeds from issuance of common stock | 1,453 | | | 1,177 | |
| Net cash provided by financing activities | 2,227 | | | 5,877 | |
| Net (decrease) increase in cash and cash equivalents | (9,027) | | | 1,149 | |
| Cash and cash equivalents, beginning of period | 20,687 | | | 13,282 | |
| Cash and cash equivalents, end of period | $ | 11,660 | | | $ | 14,431 | |
| | | |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid for interest | $ | 5,073 | | | $ | 2,815 | |
| Cash paid for income taxes | $ | 7,792 | | | $ | 900 | |
| Non-cash investing and financing activities: | | | |
| Property and equipment acquired under finance lease | $ | (9,558) | | | $ | (6,724) | |
Note payable converted to common shares | $ | (3,368) | | | $ | (672) | |
| Issuance of notes payable for acquisitions | $ | (15,291) | | | $ | (6,277) | |
Issuance of contingent considerations | $ | (1,722) | | | $ | (8,599) | |
| Settlement of contingent consideration | $ | 1,202 | | | $ | – | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOWMAN CONSULTING GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Basis of Presentation
Nature of Business
Bowman Consulting Group Ltd. (along with its consolidated subsidiaries, “Bowman” or “we” or the “Company”) was incorporated in the Commonwealth of Virginia on June 5, 1995 and reincorporated in the State of Delaware on November 13, 2020. The Company’s headquarters is located in Reston, VA and the Company has over 100 offices throughout the United States and two offices in Mexico. Bowman is a professional services firm delivering innovative solutions to the marketplace of customers who own, develop and maintain the built environment. Within that arena, we provide planning, design, engineering, geospatial, survey, construction management, environmental consulting and land procurement services to markets that encompass the buildings in which people live, work and learn in; as well as the systems that provide water, electricity and other vital services, and the roads, bridges, and transportation systems used to get from place to place. We provide services to customers through fixed-price and time-and-material based contracts containing multiple milestones and independently priced deliverables. Typically, contract awards are on a negotiated basis, ranging in value from a few thousand dollars to multiple millions of dollars and can have varying durations depending on the size, scope, and complexity of the project.
The Company’s workforce typically provides the full scope of engineering and other contract services. However, with respect to certain specialty services or other compliance requirements within a particular contract, we may engage third-party sub-consultants.
Common Stock Offering
On April 1, 2024, the Company closed on an offering of common stock in which it issued and sold 1,323,530 shares at an offering price of $34.00 per share, resulting in net proceeds of $42.0 million after deducting underwriting discounts and commissions, but before expenses of the offering.
On April 1, 2024, the underwriters exercised their option to purchase an additional 179,412 shares of the Company’s common stock at an offering price of $34.00 per share, resulting in additional gross proceeds of approximately $6.1 million. After giving effect to this exercise of the overallotment option, the total number of shares sold by the Company in this common stock offering increased to 1,502,942 shares with gross proceeds of approximately $51.1 million. The exercise of the over-allotment option closed on April 1, 2024, at which time the Company received net proceeds of $5.7 million after underwriting discounts and commissions.
Deferred offering costs consist primarily of accounting, legal and other fees related to the common stock offering. Prior to the offering, all deferred costs were capitalized within prepaid and other current assets in the consolidated balance sheet. We capitalized $0.2 million of deferred offering costs within prepaid and other current assets in the consolidated balance sheet as of December 31, 2023. No deferred offering costs were capitalized in the condensed consolidated balance sheet as of September 30, 2024.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in shareholders’ equity and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 12, 2024.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
2. Significant Accounting Policies
The following is a summary of the significant accounting policies and principles used in the preparation of the condensed consolidated financial statements:
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is either not an emerging growth company or, an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Revenue Recognition
As discussed in Note 1, the Company provides a variety of engineering and related professional services to customers located throughout the United States. The Company enters into agreements with clients that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services transfer to the customer. It is customary practice for the Company to have written agreements with its customers and revenue on oral or implied arrangements is generally not recognized. The Company recognizes revenue based on the consideration specified in the applicable agreement. Excluded from the transaction price are amounts collected on behalf of third parties for sales and similar taxes.
Long-term contracts typically contain billing terms that provide for invoicing once a month and payment on a net 30-day basis. Exceptions to monthly billing are to ensure that the Company performs satisfactorily and do not represent a significant financing component. For example, certain fixed price contracts provide for milestone billings based upon the attainment of specific project objectives to ensure the Company meets its contractual requirements rather than monthly billing. Another example is, contracts that include retentions or holdbacks paid at the end of a project to ensure that the Company meets the contract requirements. The Company does not assess whether a contract contains a significant financing component if the Company expects, at contract inception, that the period between payment by the customer and the transfer of promised services to the customer will be less than one year.
As a professional services engineering firm, the Company generally recognizes revenue over time as control transfers to a customer based upon the extent of progress towards satisfaction of the performance obligation.
For services delivered under fixed price contracts, the Company uses the ratio of actual costs incurred to total estimated costs since costs incurred (an input method) represents a reasonable measure of progress towards the satisfaction of a performance obligation in order to estimate the portion of revenue earned. This method faithfully depicts the transfer of value to the customer when the Company is satisfying a performance obligation that entails a number of interrelated tasks or activities for a combined output that requires the Company to coordinate the work of employees and sub-consultants. Contract costs typically include direct labor, subcontract and consultant costs, materials and indirect costs related to contract performance. Changes in estimated costs to complete these obligations result in adjustments to revenue on a cumulative catch-up basis, so that revised estimates are recognized in the current period. Changes in estimates can routinely occur over the contract term for a variety of reasons including, changes in scope, unanticipated costs, delays or favorable or unfavorable progress that differ from original expectations. In situations where the remaining estimated costs to perform exceed the consideration to be received, the Company accrues the entire estimated loss during the period the loss becomes known.
When a performance obligation is billed using a time-and-material type contract, the Company measures its progress to complete based upon the hours incurred for the period times contractually agreed upon billing rates plus any materials delivered or consumed in the project. When applicable, the Company will recognize revenue under these contracts as invoiced under the practical expedient.
In certain situations, it is possible that two or more contracts should be combined and accounted for as a single contract, or a single contract should be accounted for as multiple performance obligations. This requires significant judgment and could impact the amount and timing of revenue recognition. Such determinations are made using management’s best estimate and knowledge of contracts and related performance obligations.
The Company’s contracts may contain variable consideration in the form of unpriced or pending change orders or claims that either increase or decrease the contract price. Variable consideration is generally estimated using the expected value method but may from time to time be estimated using the most likely amount method depending on the circumstance. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends.
The Company recognizes claims against vendors, sub-consultants, and others as a reduction in costs when the contract establishes enforceability, and the amounts of recovery are reasonably estimable and probable. Reduction in costs are recognized at the lesser of the amount management expects to recover or costs incurred.
Contract related assets and liabilities are classified as current assets and current liabilities. Significant balance sheet accounts related to the revenue cycle are as follows:
Accounts receivables, net:
Accounts receivable, net (contract receivables) includes amounts billed under the contract terms. The amounts are stated at their net realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated number of receivables that will not be collected. The Company considers several factors in its estimated expected credit losses including knowledge of a client’s financial condition, its historical collection experience, and other factors relevant to assessing the collectability of such receivables. No single client accounted for more than 10% of the Company's outstanding receivables at September 30, 2024 and December 31, 2023.
Contract Assets:
Contract Assets are recorded when progress to completion revenue earned on contracts exceeds amounts billed under the contract. It may also include contract retainages that can be billed once contract stipulations are satisfied.
Contract Liabilities:
Contract Liabilities are recorded when amounts billed under a contract exceeds the progress to completion revenue earned under the contract.
Allowance for Doubtful Accounts and Expected Credit Losses
The Company records accounts receivable net of an allowance for doubtful accounts. The allowance is determined based upon management’s review of the estimated collectability of the specific accounts receivable, client type, client credit worthiness, plus a general provision based upon the historical loss experience and existing economic conditions. The Company charges off uncollectible amounts against the allowance for doubtful accounts once management determines the amount, or a portion thereof, to be worthless. Upon determination that a specific receivable is uncollectible, the receivable is written off against the allowance for expected credit losses. As of September 30, 2024 and December 31, 2023, the balance in the allowance for expected credit losses was $2.8 million and $2.2 million, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates and assumptions that were used.
Concentration of Credit Risk and other Concentrations
The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and accounts receivable.
Cash balances at various times during the year may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash deposits are held in institutions whose credit ratings are monitored by management, and the Company has not incurred any losses related to such deposits.
The Company can, at times, be subject to a concentration of credit risk with respect to outstanding accounts receivable. However, the Company believes no such concentration existed during the nine months ended September 30, 2024, or the year ended December 31, 2023. The Company’s customers are located throughout the United States across diverse market sectors. Although the Company generally grants credit without collateral, management believes that its contract acceptance, billing, and collection policies are adequate to minimize material credit risk. Also, for non-governmental customers, the Company can often place mechanics liens against the real property associated with the contract in the event of non-payment.
Fair Value Measurements
Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides the framework for measuring and reporting financial assets and liabilities at fair value. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The codification establishes a three-level disclosure hierarchy to indicate the level of judgment used to estimate fair value measurements:
Level 1: Quoted prices in active markets for identical assets or liabilities as of the reporting date;
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices (such as interest rate and yield curves);
Level 3: Uses inputs that are unobservable, supported by little or no market activity and reflect significant management judgment.
As of September 30, 2024 and December 31, 2023:
•The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short duration of these instruments;
•The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local financial institutions for arrangements with similar terms to industry peers with comparable credit characteristics. Accordingly, the debt obligations involve Level 3 fair value inputs;
Fair value measurements relating to our business combinations are made primarily using Level 3 inputs including discounted cash flow and to the extent applicable, Monte Carlo simulation techniques. Fair value for the identified intangible assets is generally estimated using inputs primarily for the income approach using the multiple period excess earnings method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rates and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as property, plant and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation. The fair value of the contingent consideration is estimated using published treasury rates in the Wall St. Journal and discounting the present value along with other significant assumptions which include projections of revenue, and probabilities of meeting those projections, as well as Monte Carlo simulation techniques.
The following is a summary of change in contingent consideration:
| | | | | | | | | | | |
| (in thousands) | For the Nine Months Ended September 30, 2024 | | For the Year Ended December 31, 2023 |
| Balance at beginning of period | $ | 10,567 | | | $ | 487 | |
| Fair value of contingent consideration issuances | 1,874 | | | 10,379 | |
| Change in fair value of contingent consideration | 321 | | | (299) | |
| Settlement of contingent consideration | (3,518) | | | – | |
| Balance at end of period | $ | 9,244 | | | $ | 10,567 | |
The change in fair value consideration is included in Other Expense in the Condensed Consolidated Income Statement.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events recognized in the condensed consolidated financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates expected to apply when the differences settle or become realized. Valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable or recoverable in the future. As of September 30, 2024, no valuation allowances are required, and all deferred tax assets are realizable.
The Company assesses uncertain tax positions to determine whether income tax positions will more likely than not be sustained upon examination by the Internal Revenue Service or other taxing authorities. If the Company cannot reach a more-likely-than-not determination, no benefit is recorded. If the Company determines that the tax position is more likely than not to be sustained, the Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As of December 31, 2023, the Company recorded an uncertain tax return of $42.5 million related to its position regarding Section 174 costs. During the second quarter of 2024, the Company made a determination to change its accounting method for Section 174 costs, and accordingly, released an uncertain tax position reserve of $47.9 million associated with the previously established position. While this method change is a timing difference between current and deferred taxes, the effect of this release generated an income tax benefit of $4.0 million as a result of a decrease in accrued tax penalties and interest. In October 2024, the Company reevaluated its previous determination in this matter and concluded there was a reasonable basis to file the 2023 income tax return under its historical accounting method for Section 174 costs. Accordingly, the Company has re-established the aforementioned uncertain tax position, and determined that accrued penalties are no longer necessary based on the tax filing position and disclosure. As of the quarter ended September 30, 2024, the Company's uncertain tax position reserve for Section 174 costs was $51.1 million.
The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in income in the period that includes the enactment date. The Company’s effective tax rate for the nine months ended September 30, 2024 and 2023 was 69.5% and 233.4%, respectively. The change in the Company’s effective tax rate is predominantly due to changes in the estimated annual effective tax rate and certain non-recurring discrete events, as discussed below. The most prominent factors impacting the estimated annual effective tax rate include an increase in projected R&D credits generated for 2024, an increase in the projected limitations of the deductible executive compensation for 2024, and an overall reduction in forecasted income for 2024 relative to 2023. With respect to the projected R&D credit, the Company anticipates the 2024 generated R&D credit to be $3.5 million as of September 30, 2024, as compared to the projected R&D credit to be generated of $2.9 million as of September 30, 2023. Similarly, the Company anticipates the annual projected limitation on the deductibility of executive compensation to be $21.3 million for 2024 as compared to $7.9 million for 2023.
Further, the Company also recognized a net discrete benefit of $7.0 million for the nine months ended September 30, 2024, as compared to a net discrete benefit of $1.5 million for the nine months ended September 30, 2023. The net discrete benefit is predominantly the result of a windfall tax benefit for restricted stock awards, penalties and interest recorded for uncertain tax positions, and other non-recurring adjustments. More specifically, the windfall tax adjustment for restricted stock awards recognized at a value higher than the grant date fair value is $4.4 million for the nine months ended September 30, 2024, and $2.1 million for the nine months ended September 30, 2023. Penalties and interest accrued for uncertain tax positions was $1.4 million for the nine months ended September 30, 2024, and $0.4 million for the nine months ended September 30, 2023. In addition, there was a one-time $4.0 million decrease in accrued penalties and interest for the reversal of the uncertain tax position for Section 174 costs for the nine months ended September 30, 2024, as discussed above. Further, for the nine months ended September 30, 2023, the Company recognized a non-recurring $0.2 million reduction to the state income tax payable. These factors increased the rate by 74.4% for the quarter ended September 30, 2024, and increased the rate by 186.6% for the quarter ended September 30, 2023.
The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. Based on the timing of the filing of certain tax returns, the Company’s federal income tax returns for tax years 2020 and thereafter
remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.
Segments
The Company operates in one segment based upon the financial information used by its chief operating decision maker in evaluating the financial performance of its business and allocating resources. The single segment represents the Company’s core business of providing engineering and related professional services to its customers.
Recently Issued Accounting Guidance
Accounting guidance not yet adopted
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Improvements to Reportable Segment Disclosures, which requires disclosure of significant segment expenses and other segment items in annual and interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the potential impact of the new standard.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and should be applied prospectively. Retrospective application is permitted. We are currently evaluating the potential impact of the new standard.
Other than those noted above, which are still being evaluated, the Company does not believe that any other recently issued standards will have a material effect on its condensed consolidated financial statements.
3. Earnings (loss) Per Share and Certain Related Information
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the three and nine months ended September 30, 2024 and 2023. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were either exercised or converted into common stock or resulted in the issuance of common stock that would share in the earnings (loss) of the Company. The dilutive effect of options is reflected in diluted earnings (loss) per share by application of the treasury stock method. The dilutive effect of shares to be purchased under the Company’s Employee Stock Purchase Plan is reflected in diluted earnings (loss) per share by the weighted-average number of shares outstanding that would have been outstanding during the period. The dilutive effect of convertible debt is reflected in diluted earnings (loss) per share by application of the if-converted method. The Company uses the two-class method to determine earnings (loss) per share.
For calculating basic earnings (loss) per share, for the three and nine months ended September 30, 2024, the weighted average number of shares outstanding exclude 1,225,485 and 1,329,013 non-vested restricted shares and 2,291 and 3,561 unexercised substantive options. The computation of diluted earnings per share for the three and nine months ended September 30, 2024 did not assume the effect of restricted shares or substantive options because the effects were antidilutive.
For calculating basic earnings per share, for the three and nine months ended September 30, 2023, the weighted average number of shares outstanding exclude 1,795,553 and 1,806,070 non-vested restricted shares and 7,273 and 8,501 unexercised substantive options. The computation of diluted earnings per share for the three and nine months ended September 30, 2023 did not assume the effect of restricted shares or substantive options because the effects were antidilutive.
The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 (in thousands, except share data):
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
| | 2024 | | 2023 | 2024 | | 2023 |
| Numerator | | | | | | |
Net income (loss) | $ | 771 | | | $ | 1,183 | | $ | (2,869) | | | $ | 1,086 | |
| Earnings allocated to non-vested shares | 53 | | | 146 | | – | | | 140 | |
Total | $ | 718 | | | $ | 1,037 | | $ | (2,869) | | | $ | 946 | |
| Denominator | | | | | | |
| Weighted average common shares outstanding | 16,537,472 | | 12,814,971 | 15,559,279 | | 12,304,751 |
| Effect of dilutive nominal options | – | | – | – | | – |
| Effect of dilutive contingently earned shares | 297,865 | | 978,149 | – | | 1,133,090 |
| Dilutive average shares outstanding | 16,835,337 | | 13,793,120 | 15,559,279 | | 13,437,841 |
Basic income (loss) per share | $ | 0.04 | | | $ | 0.08 | | $ | (0.18) | | | $ | 0.08 | |
Dilutive income (loss) per share | $ | 0.04 | | | $ | 0.08 | | $ | (0.18) | | | $ | 0.07 | |
Share Repurchases
On November 17, 2023, the board of directors authorized a $10 million share repurchase program under which the Company may repurchase up to $10 million of our common stock. On August 16, 2024, the Board of Directors authorized an increase to this repurchase authorization from $10 million to $25 million (collectively referred to as the "2023 Repurchase Authorization"). The authorization is effective through August 31, 2025. The execution of the repurchase program is expected to be consistent with the Company’s strategic initiatives which prioritize investments in organic and acquisitive growth. The timing and amount of any share repurchases will be determined by management at its discretion based on several factors including share price, market conditions and capital allocation priorities. Shares may be repurchased from time to time through open market purchases, in privately negotiated transactions or by other means, including the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, in accordance with applicable securities laws and other restrictions. The share repurchase program does not obligate Bowman to acquire a specific number of shares of common stock and may be suspended, modified, or discontinued at any time without notice.
During the nine months ended September 30, 2024, the Company repurchased 563,521 shares of common stock at an average price per share of $24.75, and has $11.1 million remaining under the 2023 Repurchase Authorization.
4. Acquisitions
Business Combinations
Surdex Corporation
On April 2, 2024, the Company entered into a merger agreement with Surdex Corporation (“Surdex”), a St. Louis-based geospatial and engineering services firm providing low, medium and high-altitude digital orthoimagery, advanced high-resolution LiDAR, intelligent digital mapping, 3D hydrography, and disaster mapping. The Company paid total consideration of $43.3 million, which was comprised of cash, promissory note, common stock and assumed liabilities. The shares are subject to a six-month lock up. The promissory note bears a simple interest rate fixed at 6.50%, and is payable in equal quarterly payments of principal and interest beginning July 2024 and ending July 2027. The merger agreement contains a contingent consideration feature which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, depending on the average trading price of the Company's common stock for the 90 trading days post-acquisition. For tax purposes, the Surdex transaction is considered a tax-free merger, in which the assets have been recorded at their respective carrying values. As a result, there is no corresponding tax goodwill, and therefore no tax goodwill to be amortized or otherwise deductible.
The following summarizes the preliminary calculations of the fair values of Surdex assets acquired and liabilities assumed as of the acquisition date (in thousands):
| | | | | |
| (in thousands) | Surdex |
| Assets: | |
| Accounts receivable, net | $ | 4,052 | |
| Contract assets | 3,210 | |
| Prepaid and other current assets | 1,956 | |
| Property and equipment, net | 15,085 | |
| Operating lease, right-of-use assets | 1,030 | |
| Goodwill | 17,685 | |
| Other intangible assets | 12,810 | |
| Total assets acquired: | $ | 55,828 | |
| Liabilities: | |
| Accounts payable and accrued liabilities, current portion | $ | 3,937 | |
| Contract liabilities | 685 | |
| Other non-current obligations | 10,689 | |
| Operating lease obligation, less current portion | 1,030 | |
| Deferred tax liability | 7,067 | |
| Total liabilities assumed: | $ | 23,408 | |
| Net assets acquired: | $ | 32,420 | |
| Cash flow reconciling items: | |
| Issuance of common stock as partial consideration | $ | (16,536) | |
| Cash paid for acquisitions, net of cash acquired | $ | 15,884 | |
The purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.
The condensed consolidated financial statements of the Company include the results of operations since the date Surdex was acquired. The following table presents the results of operations of Surdex since the date of acquisition for the three and nine months ended September 30, 2024 (in thousands):
| | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2024 | | September 30, 2024 |
Gross Contract Revenue1 | $ | 8,638 | | | $ | 14,971 | |
Pre-tax Net Income2 | $ | 863 | | | $ | 2,064 | |
1 Gross contract revenue includes adjustments as required by ASC 606, Revenue from Contracts with Customers based on opening balance sheet provided by the acquired companies. There is no assurance these adjustments will be consistent in future periods. Opening balance sheet balances are subject to adjustment prior to being finalized.
2 Pre-tax Net Income excludes corporate overhead allocation.
The following table presents the unaudited pro forma condensed consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 assuming that the Surdex acquisition, discussed above, occurred on
January 1, 2023. The pro forma information provided below is compiled from pre-acquisition information and includes pro forma adjustments for amortization and depreciation. The unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2024 | September 30, 2023 | | September 30, 2024 | September 30, 2023 |
Gross Contract Revenue3 | $ | 113,932 | | $ | 104,205 | | | $ | 319,358 | | $ | 276,130 | |
Pre-tax Net (Loss) Income | $ | (1,011) | | $ | 2,545 | | | $ | (9,584) | | $ | 5 | |
3Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contracts with Customers, as it is impracticable to obtain the historical information necessary to apply this accounting standard. The historical estimates required to be able to accurately determine the percent complete accounting on the contracts that comprise the revenue is not available for the required periods.
Other 2024 Acquisitions
During the nine months ended September 30, 2024, the Company completed six additional acquisitions in diverse geographic regions and service lines. The Company paid total consideration of $31.0 million through combinations of cash, promissory notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock issued in connection with the acquisitions are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 5.00% to 6.75% and are payable in quarterly payments of principal and interest beginning May 2024 and ending in August 2027. For tax purposes, depending on the transaction, the acquisitions were treated either as an asset acquisition, in which case the assets have been stepped up and recorded at their respective fair values, or a tax-free merger, in which case the assets have been recorded at their respective carrying values. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. For asset acquisitions, all the goodwill recognized is expected to be deductible for tax purposes. For three of the acquisitions, the purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and non-negotiable promissory notes, based on certain financial performance thresholds. The final settlement amount will depend on ongoing operations of the
acquired company. The payout amounts range between $0 and $1.0 million. See Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration.
The following summarizes the preliminary calculations of the fair values of the other 2024 acquisition assets acquired and liabilities assumed as of the acquisition date (in thousands):
| | | | | |
| (in thousands) | 2024 |
| Assets: | |
| Accounts receivable, net | $ | 4,000 | |
| Contract assets | 1,878 | |
| Prepaid and other current assets | 140 | |
| Property and equipment, net | 522 | |
| Operating lease, right-of-use assets | 1,090 | |
| Goodwill | 19,618 | |
| Other intangible assets | 11,270 | |
Other assets | 116 | |
| Total assets acquired: | $ | 38,634 | |
| Liabilities: | |
| Accounts payable and accrued liabilities, current portion | $ | 925 | |
| Contract liabilities | 2,405 | |
| Other non-current obligations | 5,726 | |
| Operating lease obligation, less current portion | 1,090 | |
| Deferred tax liability | 3,382 | |
| Total liabilities assumed: | $ | 13,528 | |
| Net assets acquired: | $ | 25,106 | |
| Cash flow reconciling items: | |
| Issuance of common stock as partial consideration | $ | (17,780) | |
| Cash paid for acquisitions, net of cash acquired | $ | 7,326 | |
The purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.
The condensed consolidated financial statements of the Company include the results of operations from any business acquired from their respective dates of acquisitions (excluding Surdex). The following table presents the results of operations of the other companies acquired during 2024 (excluding Surdex) from their respective dates of acquisition for the three and nine months ended September 30, 2024 (in thousands):
| | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2024 | | September 30, 2024 |
Gross Contract Revenue1 | $ | 7,008 | | | $ | 13,214 | |
Pre-tax Net Income2 | $ | 1,852 | | | $ | 4,412 | |
1 Gross contract revenue includes adjustments as required by ASC 606, Revenue from Contracts with Customers based on opening balance sheet provided by the acquired companies. There is no assurance these adjustments will be consistent in future periods. Opening balance sheet balances are subject to adjustment prior to being finalized.
2 Pre-tax Net Income excludes corporate overhead allocation.
The following table presents the unaudited pro forma condensed consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 assuming that the companies acquired in 2024 (excluding Surdex), discussed above, occurred on January 1, 2023. The pro forma information provided below is compiled from pre-acquisition information and includes pro forma adjustments for amortization and depreciation. The unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2024 | September 30, 2023 | | September 30, 2024 | September 30, 2023 |
Gross Contract Revenue 3 | $ | 114,587 | | $ | 100,803 | | | $ | 321,686 | | $ | 271,774 | |
Pre-tax Net (Loss) Income | $ | (372) | | $ | 881 | | | $ | (7,457) | | $ | 551 | |
3Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contracts with Customers, as it is impracticable to obtain the historical information necessary to apply this accounting standard. The historical estimates required to be able to accurately determine the percent complete accounting on the contracts that comprise the revenue is not available for the required periods.
For the nine months ended September 30, 2024, for all of the 2024 acquisitions, the Company recorded measurement period adjustments of $1.0 million increase to goodwill, $0.3 million increase in intangible assets, offset by a $0.1 million decrease to property and equipment, $0.4 million increase to equity consideration, $0.1 million increase to notes payable and $0.7 million increase to deferred tax liabilities. If the change in provisional amounts have been recorded at the acquisition date, it would not have resulted in a chance in operating income in the prior periods.
In connection with all of the 2024 acquisitions, the Company recognized $0.4 million and $1.1 million of acquisition related expenses within Other Income and Expenses in the condensed consolidated statement of income for each of the three and nine months ended September 30, 2024, respectively, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions.
2023 Acquisitions
During 2023, the Company completed eleven acquisitions in diverse geographic regions and service lines. The Company paid total consideration of $75.7 million through combinations of cash, promissory notes, convertible notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 5.00% to 11.00% and are payable in quarterly payments of principal and interest beginning February 2023 and ending in December 2026. Convertible notes bear a simple interest rate ranging from 7.00% to 8.00% and are payable in lump sum payments or quarterly payments of principal and interest beginning December 2024 and ending in September 2027; see Note 12 Notes Payable for additional information regarding the convertible notes payable. For tax purposes, dependent on the transaction, the acquisitions were treated either as an asset, stock or a merger. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. Portions of the Goodwill recognized is expected to be deductible for tax purposes. For six of the acquisitions, the purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and non-negotiable promissory notes, based on certain financial performance thresholds. The final settlement amount will depend on ongoing operations of the acquired company. The payout amounts range
between $0 and $3.0 million; see Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration.
For the nine months ended September 30, 2024, for the 2023 acquisitions, the Company recorded measurement period adjustments of $0.4 million increase to goodwill offset by $0.4 million increase to consideration. The change did not result in a change to operating income.
In connection with these acquisitions, the Company recognized $0.2 million and $0.7 million of acquisition related expenses within Other Income and Expenses in the condensed consolidated statement of income for each of the three and nine months ended September 30, 2023, respectively, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions.
The purchase price allocations at fair value, for the 2023 acquisitions as of December 31, 2023 are presented below:
| | | | | | | | |
| (in thousands) | | 2023 |
| Assets: | | |
| Accounts receivable, net | | $ | 10,112 | |
| Contract assets | | 6,334 | |
| Prepaid and other current assets | | 361 | |
| Property and equipment, net | | 1,952 | |
| Operating lease, right-of-use assets | | 7,078 | |
| Goodwill | | 43,900 | |
| Other intangible assets | | 27,361 | |
| Other assets - non-current | | 44 | |
| Total assets acquired: | | $ | 97,142 | |
| Liabilities: | | |
| Accounts payable and accrued liabilities, current portion | | $ | 3,228 | |
| Contract liabilities | | 4,891 | |
| Other non-current obligations | | 24,222 | |
| Operating lease obligation, less current portion | | 7,078 | |
| Deferred tax liability | | 5,787 | |
| Total liabilities assumed: | | $ | 45,206 | |
| Net assets acquired: | | $ | 51,936 | |
| Cash flow reconciling items: | | |
| Issuance of common stock as partial consideration | | $ | (26,133) | |
| Cash paid for acquisitions, net of cash acquired | | $ | 25,803 | |
The amounts in the tables above represent the final purchase allocation for the 2023 acquisitions. The purchase price allocation has been completed and the amounts identified above are deemed final.
Definite-lived intangible assets that were acquired through asset acquisitions or business combinations include customer relationships, contract rights, and favorable leaseholds. These intangible assets are amortized over their estimated useful lives ranging from two to thirteen years using a straight-line method as it approximates the accelerated method.
The following table summarizes the purchase price allocation at fair value for identifiable intangible assets acquired in 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | Weighted-Average Life | | 2023 | | Weighted-Average Life |
| Customer relationships | $ | 19,510 | | | 12.67 | | $ | 20,050 | | | 10.45 |
| Contract rights | 4,570 | | | 1.31 | | 6,980 | | | 1.18 |
| Favorable leaseholds | - | | | n/a | | 331 | | | 7.76 |
| Total | $ | 24,080 | | | | | $ | 27,361 | | | |
5. Disaggregation of Revenue and Contract Balances
The Company disaggregates revenues by contract type, see Revenue Recognition in Note 2 for further details. For the three and nine months ended September 30, 2024, the Company derived 91.4% and 90.4% of its revenue from contracts classified as lump sum, and 8.6% and 9.6% of its revenue from time and material contracts, respectively. For the three and nine months ended September 30, 2023, the Company derived 87.9% and 88.7% of its revenue from contracts classified as lump sum, and 12.1% and 11.3% of its revenue from time and material contracts, respectively. The Company had approximately $307.1 million in remaining performance obligations as of September 30, 2024 of which it expects to recognize approximately 84.6% within the next twelve months and the remaining 15.4% in the next twelve to twenty-four months.
Disaggregated revenues by contract type were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
| 2024 | | 2023 | 2024 | | 2023 |
| Fixed fee | $ | 104,091 | | | 91.4 | % | | $ | 82,997 | | | 87.9 | % | $ | 283,174 | | | 90.4 | % | | $ | 224,751 | | | 88.7 | % |
| Time-and-materials | 9,841 | | | 8.6 | % | | 11,437 | | | 12.1 | % | 30,167 | | | 9.6 | % | | 28,539 | | | 11.3 | % |
| Gross contract revenue | $ | 113,932 | | | 100.0 | % | | $ | 94,434 | | | 100.0 | % | $ | 313,341 | | | 100.0 | % | | $ | 253,290 | | | 100.0 | % |
The Company recognized $0.3 million and $3.4 million of revenue for the three and nine months ended September 30, 2024, respectively, which were included in the contract liabilities balance as of December 31, 2023, and $0.2 million and $2.9 million of revenue for the three and nine months ended September 30, 2023, respectively, which were included in the contract liabilities balance as of December 31, 2022.
6. Contracts in Progress
The following table reflects the calculation of the net balance of contract assets and contract liabilities. Costs and estimated earnings on contracts in progress consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Costs incurred on uncompleted contracts | $ | 395,417 | | | $ | 359,509 | |
Estimated contract earnings in excess of costs incurred | 613,797 | | | 541,851 | |
| Estimated contract earnings to date | 1,009,214 | | | 901,360 | |
| Less: billed to date | (974,281) | | | (875,321) | |
| Net contract assets | $ | 34,933 | | | $ | 26,039 | |
7. Notes Receivable
The Company has unsecured notes receivable from related parties, certain non-executive officers of the Company and an unrelated third party. The following is a summary of these notes receivable (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Officers, employees and affiliated entities - Interest accrues annually at rates ranging from 0.0% - 5.5%. The notes receivable mature through January 2026. | $ | 2,256 | | | $ | 2,318 | |
Unrelated third party - Currently no interest is being accrued on this note. The note receivable matures in December 2025.1 | 903 | | | 903 | |
| Total: | 3,159 | | | 3,221 | |
| Less: current portion | | | |
| Officers, employees and affiliates | (1,146) | | | (1,199) | |
| Noncurrent portion | $ | 2,013 | | | $ | 2,022 | |
1Note issued prior to the Company's initial public offering.
Each borrower may prepay all or part of the outstanding balance at any time prior to the date of maturity. During the nine months ended September 30, 2024, interest accrued on the notes receivable at the stipulated rates between 0.0% and 5.50%.
8. Property and Equipment, Net
Property and equipment for fixed assets are as follows (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Computer equipment | $ | 2,887 | | | $ | 2,321 | |
| Survey equipment | 5,943 | | | 5,711 | |
| Vehicles | 2,382 | | | 2,127 | |
| Furniture and fixtures | |