Note 1 – Organization and Nature of Business Operations
Business
NV5 Global, Inc. and its subsidiaries (collectively, the “Company” or “NV5 Global”) is a provider of technology, conformity assessment, consulting solutions, and software applications to public and private sector clients in the infrastructure, utility services, construction, real estate, environmental, and geospatial markets, operating nationwide and abroad. The Company’s clients include the U.S. Federal, state and local governments, and the private sector. NV5 Global provides a wide range of services, including, but not limited to:
●
Utility services
●
Commissioning
●
LNG services
●
Building program management
●
Engineering
●
Environmental health & safety
●
Civil program management
●
Real estate transaction services
●
Surveying
●
Energy efficiency & clean energy services
●
Construction quality assurance
●
Mission critical services
●
Code compliance consulting
●
3D geospatial data modeling
●
Forensic services
●
Environmental & natural resources
●
Litigation support
●
Robotic survey solutions
●
Ecological studies
●
Geospatial data applications & software
●
MEP & technology design
Fiscal Year
The Company operates on a "52/53 week" fiscal year ending on the Saturday closest to the calendar quarter end.
Note 2 –Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023 (the “2023 Form 10-K”). The results of operations and cash flows for the interim periods presented are not necessarily indicative of the results to be expected for any future interim period or for the full 2024 fiscal year.
Performance Obligations
To determine the proper revenue recognition method, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services that is not separately identifiable from other promises in the contracts and therefore, is not distinct.
The Company’s performance obligations are satisfied as work progresses or at a point in time. Revenue on the Company's cost-reimbursable contracts is recognized over time using direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations because it depicts the transfer of control to the customer. Contract costs include labor, sub-consultant services, and other direct costs.
Gross revenue from services transferred to customers at a point in time is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the reports and/or analysis performed.
As of September 28, 2024, the Company had $1,000,339 of remaining performance obligations, of which $771,433 is expected to be recognized over the next 12 months and the majority of the balance over the next 24 months. Contracts for which work authorizations have been received are included in performance obligations. Performance obligations include only those amounts that have been funded and authorized and does not reflect the full amounts the Company may receive over the term of such contracts. In the case of non-government contracts and project awards, performance obligations include future revenue at contract or customary rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, the Company includes revenue from such contracts in performance obligations to the extent of the remaining estimated amount.
Contract Balances
The timing of revenue recognition, billings, and cash collections results in billed receivables, unbilled receivables (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) on the Consolidated Balance Sheet. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts as of the reporting date. This liability is generally classified as current. During the three and nine months ended September 28, 2024 the Company performed services and recognized $6,672 and $40,883, respectively, of revenue related to its contract liabilities that existed as of December 30, 2023.
Goodwill and Intangible Assets
Goodwill is the excess of consideration paid for an acquired entity over the amounts assigned to assets acquired, including other identifiable intangible assets and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.
Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include macroeconomic and industry conditions, cost factors, overall financial performance, and other relevant entity-specific events. If the entity determines that this threshold is met, then the Company applies a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company determines fair value through multiple valuation techniques, and weights the results accordingly. Subjective and complex judgments are required in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. The Company has elected to perform its annual goodwill impairment review as of August 1 of each year. The Company conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.
As of August 1, 2024, the Company conducted its annual impairment tests using the quantitative method of evaluating goodwill. Based on the quantitative analyses the Company determined the fair value of each of the reporting units exceeded its carrying value. Therefore, the goodwill was not impaired and the Company did not recognize an impairment charge relating to goodwill as of August 1, 2024. Furthermore, there were no indicators, events, or changes in circumstances that would indicate goodwill was impaired during the period from August 2, 2024 through September 28, 2024.
Identifiable intangible assets primarily include customer backlog, customer relationships, trade names, non-compete agreements, and developed technology. Amortizable intangible assets are amortized on either a straight-line or sum-of-the-years' digits basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment, if any, is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. There were no indicators, events, or changes in circumstances that would indicate intangible assets were impaired during the nine months ended September 28, 2024. See Note 8, Goodwill and Intangible Assets, for further information on goodwill and identified intangibles.
There have been no material changes in the Company's significant accounting policies described in the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 30, 2023.
Correction of Previously Issued Financial Statements
In mid-October 2024, in the course of completing the preparation of these unaudited consolidated financial statements, the Company identified out of period misstatements related to the estimated time to complete ("ETC") on acquired percentage-of-completion ("POC") projects related to the February 2023 acquisition of Continental Mapping Acquisition Corp. and its subsidiaries, including Axim Geospatial, LLC (collectively "Axim"). Incorrect ETCs utilized as part of purchase accounting created a misstatement of the Company's unbilled receivables, goodwill, intangible assets (customer relationships, backlog, and non-competes), and billings in excess of costs and estimated earnings on uncompleted contracts. Incorrect ETCs further created a misstatement of accounts payable, accrued liabilities, retained earnings, gross revenues, sub-consultant services, gross profit, amortization expense, income before income tax benefit (expense), income tax benefit (expense), net income, and earnings per share in the consolidated financial statements included in the Form 10-K for the period ending December 30, 2023, the interim periods in the Form 10-Qs filed within fiscal year 2023, and the most recently filed Form 10-Qs for the quarters ended March 30, 2024, and June 29, 2024. The Company assessed the materiality of the errors, including the presentation on prior period consolidated financial statements, on a qualitative and quantitative basis in accordance with SEC Staff Accounting Bulletin Topics 1.M and 1.N (formerly No. 99, Materiality), codified in Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections.
Based on this assessment, the Company concluded that these errors and the related impacts did not result in a material misstatement of our previously issued consolidated financial statements as of and for the period ending December 30, 2023, the interim periods on the Form 10-Qs filed within fiscal year 2023, and the most recently filed Form 10-Qs for the quarters ended March 30, 2024, and June 29, 2024. However, correcting the cumulative effect of these errors in the three months ended September 28, 2024 would have a significant effect on the results of operations for the periods. Accordingly, the Company revised its historical financial statements prospectively to correct these errors and to facilitate comparisons of the Company's current results to prior periods.
A summary of the corrections to the impacted financial statement line items in the Company's previously issued Consolidated Balance Sheet, Consolidated Statement of Net Income and Comprehensive Income, and Consolidated Statement of Cash Flows as of and for the year ended December 30, 2023 included in the previously filed Annual Report on Form 10-K and Consolidated Balance Sheet, Consolidated Statement of Net Income and Comprehensive Income, and Consolidated Statement of Cash Flows for periods presented below, which were presented in previously filed Quarterly Reports on Form 10-Q, are as follows:
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker ("CODM") and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of the segment's profit or loss in assessing performance and deciding how to allocate resources. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company evaluated the impact of adopting ASU 2023-07 and expects it to result in additional disclosures when adopted.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). This ASU requires disaggregated information about a reporting entity's effective tax rate reconciliations as well as additional information on income taxes paid. This ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company evaluated the impact of adopting ASU 2023-09 and expects it to result in additional disclosures when adopted.
SEC Climate Disclosures
In March 2024, the SEC adopted rules to enhance and standardize disclosures related to the impacts and risks of climate-related matters. Under the new rules, an entity will be required to disclose information about climate-related risks that have materially impacted, or are likely to have a material impact, on its business strategy, results of operations, or financial condition. In addition, certain disclosures related to severe weather events, other natural conditions, and material greenhouse gas emissions will be required in the audited financial statements. This guidance is effective prospectively and is effective for annual periods beginning with the year ending December 31, 2025, or in the case of the Company the fiscal year ending January 3, 2026. On April 4, 2024, the SEC announced that it will stay implementation of its final rule pending the results of a legal challenge.
Note 4 –Earnings per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period, excluding unvested restricted shares. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The effect of potentially dilutive securities is not considered during periods of loss or if the effect is anti-dilutive.
On September 25, 2024, the Company announced a 4-for-1 forward split (the "Stock Split") of its common stock, par value $0.01 per share (the "Common Stock"), to be effected through an amendment to the Company's Amended and Restated Certificate of Incorporation (the "Amendment"). The Amendment also effected a proportionate increase in the number of shares of authorized Common Stock and became effective at 4:30 p.m. Eastern Time on October 9, 2024. As a result of the Stock Split, each holder of record of Common Stock as of the close of business on October 9, 2024 received three additional shares of Common Stock after the close of trading on October 10, 2024. Trading in the Common Stock commenced on a split-adjusted basis on October 11, 2024.
The weighted average number of shares outstanding in calculating basic earnings per share for the nine months ended September 28, 2024 and September 30, 2023 exclude 3,001,872 and 2,750,864 non-vested restricted shares, respectively. During the three and nine months ended September 28, 2024 there were 24,266 and 23,644 weighted average securities, respectively, which are not included in the calculation of diluted weighted average shares outstanding because their impact is anti-dilutive or their performance conditions have not been met. During the three and nine months ended September 30, 2023, there were 89,460 and 127,544 weighted average securities, respectively, which are not included in the calculation of diluted weighted average shares outstanding because their impact is anti-dilutive or their performance conditions have not been met.
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share:
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Numerator:
Net income – basic and diluted
$
17,078
$
13,056
$
22,549
$
33,578
Denominator:
Basic weighted average shares outstanding
61,982,888
60,840,402
61,500,930
60,143,591
Effect of dilutive non-vested restricted shares and units
1,010,679
1,050,836
1,183,866
1,550,626
Effect of issuable shares related to acquisitions
49,395
100,110
84,779
100,550
Diluted weighted average shares outstanding
63,042,962
61,991,348
62,769,575
61,794,767
Note5– Business Acquisitions
2024 Acquisitions
The Company has completed six acquisitions during 2024. The aggregate purchase price for the six acquisitions was $65,159, including $56,427 in cash, $3,534 of the Company's common stock, and potential earn-outs of up to $14,100 payable in cash, which have been recorded at an estimated fair value of $5,198. The cash portions of the purchase prices and other related costs associated with the transactions were partially financed through the Company's amended and restated credit agreement (the "Second A&R Credit Agreement" or "Senior Credit Facility") with Bank of America, N.A. and other lenders party thereto. See Note 10, Notes Payable and Other Obligations, for further detail on the Second A&R Credit Agreement. An option-based model and a probability-weighted approach were used to determine the fair value of the earn-outs, which are generally accepted valuation techniques that embody all significant assumption types. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company engaged an independent third-party valuation specialist to assist in the determination of fair values. The final determination of the fair values of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The 2024 acquisitions will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the relevant acquisition date, including intangible assets, accounts receivable, prepaid expenses, deferred tax liabilities, and other certain liabilities.
On April 6, 2023, the Company acquired all of the outstanding equity interests in the Visual Information Solutions commercial geospatial technology and software business ("VIS") from L3Harris. VIS is a provider of subscription-based software solutions for the analysis and management of software applications and Analytics as a Service (AaaS) solutions. The Company acquired VIS for a cash purchase price of $75,371. The purchase price and other related costs associated with the transaction were financed through the Company's Second A&R Credit Agreement. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company engaged an independent third-party valuation specialist to assist in the determination of fair values. The final determination of the fair value of assets and liabilities was completed within the one-year measurement period as required by ASC 805.
On February 22, 2023, the Company acquired all of the outstanding equity interests in Continental Mapping Acquisition Corp. and its subsidiaries, including Axim Geospatial, LLC (collectively "Axim"), a provider of comprehensive geospatial services and solutions addressing critical mission requirements for customers across the defense and intelligence and state and local government sectors. The aggregate purchase price of the acquisition was $139,569, including $119,736 in cash, a $6,333 promissory note, and $13,500 of the Company's common stock. The cash portion of the purchase price and other related costs associated with the transaction were financed through the Company's Second A&R Credit Agreement. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company engaged an independent third-party valuation specialist to assist in the determination of fair values. The final determination of the fair value of assets and liabilities was completed within the one-year measurement period as required by ASC 805.
The Company completed five other acquisitions during 2023. The aggregate purchase price for the five acquisitions was $9,477, including $8,000 in cash, $867 of the Company's common stock, and a potential earn-out of up to $640 payable in cash, which has been recorded at an estimated fair value of $610. A probability-weighted approach was used to determine the fair value of the earn-out, which is a generally accepted valuation technique that embodies all significant assumption types. The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The 2023 acquisitions will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the relevant acquisition date, including intangible assets, accounts receivable, and deferred tax liabilities.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date for the acquisitions closed during the nine months ended September 28, 2024 and the fiscal year ended December 30, 2023:
2024
2023
Total
VIS
Axim
Other
Total
Cash
$
2,080
$
7,027
$
5,419
$
1,316
$
13,762
Billed and unbilled receivables, net
6,678
5,042
12,080
1,609
18,731
Right-of-use assets
2,583
2,162
1,643
552
4,357
Property and equipment
1,762
118
2,870
38
3,026
Prepaid expenses
1,070
1,503
1,180
17
2,700
Other assets
46
—
156
2
158
Intangible assets:
Customer relationships
29,390
35,626
36,439
2,526
74,591
Trade name
944
3,025
2,266
210
5,501
Customer backlog
4,455
894
2,155
943
3,992
Developed technology
—
4,024
2,185
—
6,209
Non-compete
2,753
26
414
254
694
Total Assets
$
51,761
$
59,447
$
66,807
$
7,467
$
133,721
Liabilities
(5,995)
(16,689)
(26,889)
(2,297)
(45,875)
Deferred tax liabilities
(131)
(8,728)
(3,624)
(496)
(12,848)
Net assets acquired
$
45,635
$
34,030
$
36,294
$
4,674
$
74,998
Consideration paid (Cash, Notes and/or stock)
$
59,961
$
75,371
$
139,569
$
8,867
$
223,807
Contingent earn-out liability (Cash and stock)
5,198
—
—
610
610
Total Consideration
$
65,159
$
75,371
$
139,569
$
9,477
$
224,417
Excess consideration over the amounts assigned to the net assets acquired (Goodwill)
$
19,524
$
41,341
$
103,275
$
4,803
$
149,419
Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from these acquisitions. See Note 8, Goodwill and Intangible Assets, for further information on fair value adjustments to goodwill and identified intangibles.
The consolidated financial statements of the Company include the results of operations from any business acquired from their respective dates of acquisition. The following table presents the results of operations of businesses acquired from their respective dates of acquisition for the three and nine months ended September 28, 2024 and September 30, 2023.
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Gross revenues
$
11,346
$
31,228
$
22,202
$
65,960
Income before income taxes
$
2,697
$
4,559
$
3,779
$
8,000
General and administrative expenses for the three and nine months ended September 28, 2024 and September 30, 2023 include acquisition-related costs pertaining to the Company's acquisition activities. Acquisition-related costs were not material to the Company's consolidated financial statements.
The following table presents the unaudited, pro forma consolidated results of operations (in thousands, except per share amounts) for the three and nine months ended September 28, 2024 and September 30, 2023 as if the fiscal 2024 and 2023 acquisitions had occurred at the beginning of fiscal year 2023. The pro forma information provided below is compiled from pre-acquisition financial information and includes pro forma adjustments for amortization expense of intangible assets to reflect the fair value of identified assets acquired, to record the effects of financing from the Company's Senior Credit Facility, to record the effects of promissory notes issued, adjustments to other certain expenses, and to record the income tax impact of these adjustments. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of these acquisitions actually been acquired at the beginning of fiscal year 2023 or (ii) future results of operations:
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Gross revenues
$
250,885
$
249,184
$
701,806
$
700,879
Net income
$
17,078
$
12,425
$
23,523
$
30,383
Basic earnings per share
$
0.28
$
0.20
$
0.38
$
0.50
Diluted earnings per share
$
0.27
$
0.20
$
0.37
$
0.49
Note6–Billed andUnbilled Receivables
Billed and unbilled receivables consists of the following:
September 28, 2024
December 30, 2023
Billed receivables
$
168,289
$
155,988
Less: allowance for doubtful accounts
(3,883)
(3,395)
Billed receivables, net
$
164,406
$
152,593
Unbilled receivables
$
144,179
$
113,578
Less: allowance for doubtful accounts
(905)
(2,274)
Unbilled receivables, net
$
143,274
$
111,304
Note7– Property and Equipment, net
Property and equipment, net, consists of the following:
September 28, 2024
December 30, 2023
Office furniture and equipment
$
4,188
$
3,487
Computer equipment
37,581
31,999
Survey and field equipment
73,231
62,553
Leasehold improvements
7,471
6,881
Total
122,471
104,920
Less: accumulated depreciation
(66,085)
(54,652)
Property and equipment, net
$
56,386
$
50,268
Depreciation expense was $4,107 and $12,054 for the three and nine months ended September 28, 2024, respectively, of which $1,458 and $4,544 was included in other direct costs. Depreciation expense was $3,703 and $10,574 for the three and nine months ended September 30, 2023, respectively, of which $1,453 and $4,072 was included in other direct costs.
The changes in the carrying value by reportable segment for the nine months ended September 28, 2024 were as follows:
Nine Months Ended
December 30, 2023
2024 Acquisitions
Adjustments
Foreign Currency Translation of non-USD functional currency goodwill
September 28, 2024
INF
$
91,658
$
13,733
$
—
$
—
$
105,391
BTS
115,945
2,911
—
80
118,936
GEO
342,195
2,880
517
75
345,667
Total
$
549,798
$
19,524
$
517
$
155
$
569,994
Goodwill of $13,038 from acquisitions completed during the nine months ended September 28, 2024 is expected to be deductible for income tax purposes. During the nine months ended September 28, 2024, the Company recorded purchase price adjustments of $517 that increased goodwill related to 2023 acquisitions.
Intangible Assets
Intangible assets, net, as of September 28, 2024 and December 30, 2023 consist of the following:
September 28, 2024
December 30, 2023
Gross Carrying Amount
Accumulated Amortization
Net Amount
Gross Carrying Amount
Accumulated Amortization
Net Amount
Finite-lived intangible assets:
Customer relationships(1)
$
326,974
$
(140,268)
$
186,706
$
297,583
$
(114,631)
$
182,952
Trade name(2)
23,328
(20,121)
3,207
22,384
(18,327)
4,057
Customer backlog(3)
37,864
(35,302)
2,562
33,409
(31,227)
2,182
Non-compete(4)
17,574
(14,102)
3,472
14,821
(12,690)
2,131
Developed technology(5)
39,153
(24,133)
15,020
39,153
(19,816)
19,337
Total finite-lived intangible assets
$
444,893
$
(233,926)
$
210,967
$
407,350
$
(196,691)
$
210,659
(1) Amortized on a straight-line or sum-of-the-years' digits basis over estimated lives (2 to 17 years)
(2) Amortized on a straight-line basis over their estimated lives (1 to 5 years)
(3) Amortized on a straight-line basis over their estimated lives (1 to 10 years)
(4) Amortized on a straight-line basis over their contractual lives (1 to 5 years)
(5) Amortized on a straight-line basis over their estimated lives (5 to 10 years)
The identifiable intangible assets acquired during the nine months ended September 28, 2024 consist of customer relationships, trade name, customer backlog, and non-competes with weighted average lives of 10.9 years, 1.9 years, 1.0 year, and 3.9 years, respectively. Amortization expense was $12,654 and $37,235 during the three and nine months ended September 28, 2024, respectively, and $10,731 and $29,869 during the three and nine months ended September 30, 2023, respectively.
Notes payable and other obligations consists of the following:
September 28, 2024
December 30, 2023
Senior credit facility
$
241,750
$
195,750
Uncollateralized promissory notes
10,340
15,303
Finance leases
5,655
4,408
Other obligations
673
1,188
Debt issuance costs, net of amortization
(1,359)
(1,914)
Total notes payable and other obligations
257,059
214,735
Current portion of notes payable and other obligations
8,627
9,267
Notes payable and other obligations, less current portion
$
248,432
$
205,468
As of September 28, 2024 and December 30, 2023, the carrying amount of debt obligations approximates their fair values based on Level 2 inputs as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.
SeniorCredit Facility
On August 13, 2021 (the "Closing Date"), the Company amended and restated its Credit Agreement (the "Second A&R Credit Agreement" or "Senior Credit Facility"), originally dated December 7, 2016 and as amended to the Closing Date, with Bank of America, N.A. ("Bank of America"), as administrative agent, swingline lender and letter of credit issuer, the other lenders party thereto, and certain of the Company's subsidiaries as guarantors. Pursuant to the Second A&R Credit Agreement, the previously drawn term commitments of $150,000 and revolving commitments totaling $215,000 in the aggregate were converted into revolving commitments totaling $400,000 in the aggregate. These revolving commitments are available through August 13, 2026 (the "Maturity Date") and an aggregate amount of approximately $138,750 was drawn under the Second A&R Credit Amendment on the Closing Date to repay previously existing borrowings under the term and revolving facilities prior to such amendment and restatement. Borrowings under the Second A&R Credit Agreement are secured by a first priority lien on substantially all of the assets of the Company. The Second A&R Credit Agreement also includes an accordion feature permitting the Company to request an increase in the revolving facility under the Second A&R Credit Agreement by an additional amount of up to $200,000 in the aggregate. As of September 28, 2024 and December 30, 2023, the outstanding balance on the Second A&R Credit Agreement was $241,750 and $195,750, respectively.
Borrowings under the Second A&R Credit Agreement bear interest at variable rates which are, at the Company's option, tied to a Eurocurrency rate equal to either Term SOFR (Secured Overnight Financing Rate) or Daily Simple SOFR, plus in each case an applicable margin or a base rate denominated in U.S. dollars. Interest rates remain subject to change based on the Company's consolidated leverage ratio. As of September 28, 2024, the Company's weighted average interest rate was 6.7%.
The Second A&R Credit Agreement contains financial covenants that require NV5 Global to maintain a consolidated net leverage ratio (the ratio of the Company's pro forma consolidated net funded indebtedness to the Company's pro forma consolidated EBITDA for the most recently completed measurement period) of no greater than 4.00 to 1.00.
These financial covenants also require the Company to maintain a consolidated fixed charge coverage ratio of no less than 1.10 to 1.00 as of the end of any measurement period. As of September 28, 2024, the Company was in compliance with the financial covenants.
The Second A&R Credit Agreement contains covenants that may have the effect of limiting the Company's ability to, among other things, merge with or acquire other entities, enter into a transaction resulting in a Change in Control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, or engage in new lines of business or sell a substantial part of their assets. The Second A&R Credit Agreement also contains customary events of default, including (but not limited to) a default in the payment of principal or, following an applicable grace period, interest, breaches of the Company's covenants or warranties under the Second A&R Credit Agreement, payment default or acceleration of certain indebtedness, certain events of bankruptcy, insolvency or liquidation, certain judgments or uninsured losses, changes in control and certain liabilities related to ERISA based plans.
The Second A&R Credit Agreement limits the payment of cash dividends (together with certain other payments that would constitute a "Restricted Payment" within the meaning of the Second A&R Credit Agreement and generally including dividends, stock repurchases and certain other payments in respect to warrants, options, and other rights to acquire equity securities), unless the Consolidated Leverage Ratio would be less than 3.25 to 1.00 and available liquidity (defined as unrestricted, domestically held cash plus revolver availability) would be at least $30,000, in each case after giving effect to such payment.
Total debt issuance costs incurred and capitalized in connection with the issuance of the Second A&R Credit Agreement were $3,702. Total amortization of debt issuance costs was $185 and $556 during the three and nine months ended September 28, 2024, respectively, and $208 and $573 during the three and nine months ended September 30, 2023, respectively.
Other Obligations
The Company has aggregate obligations related to acquisitions of $11,013 and $16,491 as of September 28, 2024 and December 30, 2023, respectively. As of September 28, 2024, the Company's weighted average interest rate on other outstanding obligations was 3.7%.
Note11– Contingent Consideration
The following table summarizes the changes in the carrying value of estimated contingent consideration:
September 28, 2024
December 30, 2023
Contingent consideration, beginning of the year
$
4,065
$
15,335
Additions for acquisitions
5,198
610
Reduction of liability for payments made
(3,640)
(2,600)
Decrease of liability related to re-measurement of fair value
The Company is subject to certain claims and lawsuits typically filed against the engineering, consulting and construction profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.
Note13– Stock-Based Compensation
In June 2023, the Company's stockholders approved the NV5 Global, Inc. 2023 Equity Incentive Plan (the "2023 Equity Plan"). The 2023 Equity Plan provides directors, executive officers, and other employees of the Company with additional incentives by allowing them to acquire ownership interest in the business and, as a result, encouraging them to contribute to the Company’s success. The Company may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As of September 28, 2024, 7,213,696 shares of common stock are authorized, reserved, and registered for issuance under the 2023 Equity Plan. The restricted shares of common stock granted generally provide for service-based cliff vesting after two to four years following the grant date.
The following summarizes the activity of restricted stock awards during the nine months ended September 28, 2024:
Number of Unvested Restricted Shares of Common Stock and Restricted Stock Units
Weighted Average Grant Date Fair Value
December 30, 2023
2,707,040
$
26.16
Granted
1,398,808
$
23.78
Vested
(878,528)
$
22.90
Forfeited
(65,232)
$
24.93
September 28, 2024
3,162,088
$
26.06
Stock-based compensation expense relating to restricted stock awards during the three and nine months ended September 28, 2024 was $5,955 and $19,943, respectively, and $5,777 and $16,504 during the three and nine months ended September 30, 2023, respectively. Stock-based compensation expense during the three and nine months ended September 28, 2024 includes $492 and $2,302, respectively, of expense related to the Company's liability-classified awards. Stock-based compensation expense during the three and nine months ended September 30, 2023 includes $318 and $1,473, respectively, of expense related to the Company's liability-classified awards. The total estimated amount of the liability-classified awards for fiscal 2024 is approximately $8,625. Approximately $44,720 of deferred compensation, which is expected to be recognized over the remaining weighted average vesting period of 1.79 years, is unrecognized at September 28, 2024. The total fair value of restricted shares vested during the nine months ended September 28, 2024 and September 30, 2023 was $19,887 and $29,235, respectively.
Note14– Income Taxes
As of September 28, 2024 and December 30, 2023, the Company had net deferred income tax assets of $20,296 and $6,388, respectively. Net deferred income tax assets are primarily due to the capitalization of research and development costs under Section 174 of the Internal Revenue Code and the amortization of intangible assets.
The Company's effective income tax rate was (7.0%) and (11.1%) during the three and nine months ended September 28, 2024, respectively, and (20.1)% and 1.1% during the three and nine months ended September 30, 2023, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate was primarily due to an increase in federal tax credits and a decrease in the recognition of excess tax benefits from stock-based payments during the nine months ended September 28, 2024 as compared to the the nine months ended September 30, 2023.
The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. Fiscal years 2012 through 2014 are considered open tax years in the State of California. Fiscal years 2020 through 2023 are considered open tax years in the U.S. federal jurisdiction, state jurisdictions, including the State of California, and foreign jurisdictions. It is not expected that there will be a significant change in the unrecognized tax benefits within the next 12 months.
In 2021, the Organization for Economic Co-operation and Development (“OECD”) released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. The United States has not yet enacted legislation implementing the Pillar Two rules, however, they have been enacted or substantively enacted in certain jurisdictions in which the Company operates. The Company is continuing to assess the Pillar Two rules, however, based on the legislation enacted at this stage, the impact of Pillar Two is not expected to be material.
Note15– Reportable Segments
The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting” (“Topic No. 280”). The Company is organized into three operating and reportable segments: Infrastructure ("INF"), which includes the Company's engineering, civil program management, utility services, and construction quality assurance practices; Building, Technology & Sciences ("BTS"), which includes the Company's clean energy consulting, data center commissioning and consulting, buildings and program management, MEP & technology design practices, and environmental health sciences; and Geospatial Solutions ("GEO"), which includes the Company's geospatial solution practices.
The Company's chief operating decision maker ("CODM") group is comprised of the Company's Executive Chairman and Co-Chief Executive Officers. The Company identified changes to the CODM group effective March 1, 2024 when Dickerson Wright transitioned from his role as Chief Executive Officer to Executive Chairman of the Company, and Alexander Hockman and Benjamin Heraud were appointed Co-Chief Executive Officers. There was no change in the Company's operating or reportable segments as a result of the change in CODM.
The Company evaluates the performance of these reportable segments based on their respective operating income before the effect of amortization expense related to acquisitions and other unallocated corporate expenses. The following tables set forth summarized financial information concerning our reportable segments:
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Gross revenues
INF
$
100,891
$
102,136
$
291,987
$
287,074
BTS
65,699
57,235
189,281
164,113
GEO
84,295
78,174
213,482
191,114
Total gross revenues
$
250,885
$
237,545
$
694,750
$
642,301
Segment income before taxes
INF
$
16,592
$
15,902
$
48,713
$
49,628
BTS
10,944
10,226
31,426
26,757
GEO
22,998
14,783
45,932
34,317
Total Segment income before taxes
50,534
40,911
126,071
110,702
Corporate(1)
(34,566)
(30,040)
(105,772)
(76,742)
Total income before taxes
$
15,968
$
10,871
$
20,299
$
33,960
(1) Includes amortization of intangibles of $12,654 and $37,235 for the three and nine months ended September 28, 2024, respectively, and $10,731 and $29,869 during the three and nine months ended September 30, 2023, respectively.
The Company disaggregates its gross revenues from contracts with customers by geographic location, customer-type and contract-type for each of our reportable segments. Disaggregated revenues include the elimination of inter-segment revenues which has been allocated to each segment. The Company believes this best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic factors. Gross revenue, classified by the major geographic areas in which the Company's customers were located, were as follows:
The Company's accumulated other comprehensive loss consists of foreign currency translation adjustments related to the Company's foreign operations with functional currency other than the U.S. dollar. The after-tax changes in accumulated other comprehensive loss by component were as follows:
Accumulated Other Comprehensive Income
Foreign currency translation adjustments balance, December 30, 2023
$
(18)
Other comprehensive income
671
Foreign currency translation adjustments balance, September 28, 2024
$
653
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the financial condition and results of operations of NV5 Global, Inc. and its subsidiaries (collectively, the “Company,” “we,” “our,”“us,”or “NV5 Global”) should be read in conjunction with the financial statements included elsewhere in this Quarterly Report and the audited financial statements for the year ended December 30, 2023, included in our Annual Report on Form 10-K. This Quarterly Report contains, in addition to unaudited historical information, forward-looking statements, which involve risk and uncertainties. The words “believe,” “expect,” “estimate,” “may,” “will,” “could,” “plan,” or “continue,” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, those discussed under the headings “Risk Factors” in our Annual Report on Form 10-K forthe year ended December 30, 2023and this Quarterly Report on Form 10-Q, if any. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q.Amounts presentedarein thousands, except per share data.
Overview
We are a provider of technology, conformity assessment, consulting solutions, and software applications to public and private sector clients. We focus on the infrastructure, utility services, construction, real estate, environmental, and geospatial markets. Our primary clients include U.S. Federal, state, municipal, and local government agencies, and military and defense clients. We also serve quasi-public and private sector clients from the education, healthcare, utility services, and public utilities, including schools, universities, hospitals, health care providers, and insurance providers.
Fiscal Year
We operate on a "52/53 week" fiscal year ending on the Saturday closest to the calendar quarter end.
Recent Acquisitions
We have completed six acquisitions during 2024. The aggregate purchase price for the six acquisitions was $65,159, including $56,427 in cash, $3,534 of our common stock, and potential earn-outs of up to $14,100 payable in cash, which were recorded at an estimated fair value of $5,198. The cash portions of the purchase prices and other related costs associated with the transactions were partially financed through the Company's amended and restated credit agreement (the "Second A&R Credit Agreement" or "Senior Credit Facility") with Bank of America, N.A. and other lenders party thereto. See Note 10, Notes Payable and Other Obligations, of the Notes to the Consolidated Financial Statements included elsewhere herein for further detail on the Second A&R Credit Agreement. An option-based model and a probability-weighted approach were used to determine the fair value of the earn-outs, which are generally accepted valuation techniques that embody all significant assumption types. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, we engaged an independent third-party valuation specialist to assist in the determination of fair values. The final determination of the fair values of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The 2024 acquisitions will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the relevant acquisition date, including intangible assets, accounts receivable, prepaid expenses, deferred tax liabilities, and other certain liabilities.
Segments
Our operations are organized into three operating and reportable segments:
•Infrastructure ("INF") – includes our engineering, civil program management, utility services, and construction quality assurance practices;
•Building, Technology & Sciences ("BTS")– includes our clean energy consulting, data center commissioning and consulting, buildings and program management, MEP & technology design practices, and environmental health sciences; and
•Geospatial Solutions ("GEO")– includes our geospatial solution practices.
For additional information regarding our reportable segments, see Note 15, Reportable Segments, of the Notes to Consolidated Financial Statements included elsewhere herein.
40
Critical Accounting Policies and Estimates
For a discussion of our critical accounting estimates, see Management’s Discussion and Analysis of Financial Condition and Results of Operations that is included in the 2023 Form 10-K.
Results of Operations
Consolidated Results of Operations
The following table represents our condensed results of operations for the periods indicated (dollars in thousands):
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Gross revenues
$
250,885
$
237,545
$
694,750
$
642,301
Direct costs
121,375
123,281
333,707
324,040
Gross profit
129,510
114,264
361,043
318,261
Operating expenses
108,995
99,511
327,400
275,190
Income from operations
20,515
14,753
33,643
43,071
Interest expense
(4,547)
(3,882)
(13,344)
(9,111)
Income tax benefit (expense)
1,110
2,185
2,250
(382)
Net income
$
17,078
$
13,056
$
22,549
$
33,578
Three Months Ended September 28, 2024 Compared to the Three Months Ended September 30, 2023
Gross Revenues
Our consolidated gross revenues increased by $13,340, or 5.6%, for the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase in gross revenues was primarily due to incremental gross revenues from acquisitions of $14,308 completed since the third quarter of 2023 and organic increases in our international engineering and consulting services of $5,225, geospatial solutions business of $5,171, and infrastructure services of $2,830. These increases were partially offset by decreases in our liquefied natural gas ("LNG") business of $12,468 driven by project cycles and our power delivery and utility services of $1,773.
Gross Profit
As a percentage of gross revenues, our gross profit margin was 51.6% and 48.1% for the three months ended September 28, 2024 and September 30, 2023, respectively. As a percentage of gross revenues, other direct costs and sub-consultant services decreased 3.5% and 0.2%, respectively. These decreases were partially offset by an increase in direct salaries and wages as a percentage of gross revenues of 0.2%. The decrease in sub-consultant services as a percentage of gross revenues was primarily driven by an increased proportion of infrastructure services that utilizes less sub-consultant services and a mix of business in our geospatial solutions business requiring a lower level of sub-consultant services. The decrease in other direct costs as a percentage of gross revenues was primarily driven by a decrease in the proportion of our LNG business.
Operating expenses
Our operating expenses increased $9,484, or 9.5%, for the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase in operating expenses primarily resulted from increased payroll costs of $6,660 and amortization expenses of $1,923. The increase in payroll costs was primarily driven by an increase in employees as compared to the prior year period driven by our 2023 and 2024 acquisitions. The increase in amortization expense was driven by acquisitions.
Interest Expense
Our interest expense increased $665 for the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase in interest expense resulted from an increase in our Senior Credit Facility indebtedness.
41
Income taxes
Our effective income tax rate was (7.0%) and (20.1%) for the three months ended September 28, 2024 and September 30, 2023, respectively. The increase in the effective income tax rate was primarily the result of an increase in income before income taxes and a decrease in excess tax benefits from stock-based payments in the third quarter of 2024, partially offset by an increase in federal tax credits.
Net income
Our net income increased $4,022, or 30.8%, for the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was primarily the result of an increase in gross profit of $15,246, partially offset by increases in payroll costs of $6,660 and amortization expenses of $1,923, and a decrease in income tax benefits of $1,075.
Nine Months Ended September 28, 2024 Compared to the Nine Months Ended September 30, 2023
Gross Revenues
Our consolidated gross revenues increased by $52,449, or 8.2%, for the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in gross revenues was primarily due to incremental gross revenues from acquisitions of $51,883 completed since the beginning of fiscal 2023 and organic increases in our international engineering and consulting services of $10,034, infrastructure services of $8,116, geospatial solutions business of $6,853, civil program management services of $4,532, and real estate transaction services of $1,793. These increases were partially offset by decreases in our LNG business of $21,553 driven by project cycles and our power delivery and utility services of $5,447.
Gross Profit
As a percentage of gross revenues, our gross profit margin was 52.0% and 49.6% for the nine months ended September 28, 2024 and September 30, 2023, respectively. As a percentage of gross revenues, other direct costs and sub-consultant services decreased 1.8% and 1.0%, respectively. These decreases were partially offset by an increase in direct salaries and wages as a percentage of gross revenues of 0.4%. The decrease in sub-consultant services as a percentage of gross revenues was primarily driven by an increased proportion of infrastructure services that utilizes less sub-consultant services and a mix of business in our geospatial solutions business requiring a lower level of sub-consultant services. The decrease in other direct costs as a percentage of gross revenues was primarily driven by a decrease in the proportion of our LNG business.
Operating expenses
Our operating expenses increased $52,210, or 19.0%, for the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in operating expenses primarily resulted from increased payroll costs of $28,583, general and administrative expenses of $14,592, and amortization expenses of $7,366. The increase in payroll costs was primarily driven by an increase in employees as compared to the prior year period driven by our 2023 and 2024 acquisitions. The increase in general and administrative expenses was primarily due to earn-out fair value adjustments of $7,518 that occurred during the nine months ended September 30, 2023 that decreased the contingent consideration liability related to acquisitions and incremental expenses from acquisitions of $5,193. The increase in amortization expense was driven by acquisitions.
Interest Expense
Our interest expense increased $4,233 for the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in interest expense resulted from a higher weighted average interest rate and an increase in our Senior Credit Facility indebtedness.
Income taxes
Our effective income tax rate was (11.1%) and 1.1% for the nine months ended September 28, 2024 and nine months ended September 30, 2023, respectively. The decrease in the effective income tax rate was primarily the result of an increase in federal tax credits, partially offset by a decrease in excess tax benefits from stock-based payments.
42
Net income
Our net income decreased $11,029, or 32.8%, for the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily a result of increases in payroll costs of $28,583, general and administrative expenses of $14,592, amortization expenses of $7,366, and interest expense of $4,233, partially offset by an increase in gross profit of $42,782.
Segment Results of Operations
The following tables set forth summarized financial information concerning our reportable segments (dollars in thousands):
Three Months Ended
Nine Months Ended
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Gross revenues
INF
$
100,891
$
102,136
$
291,987
$
287,074
BTS
65,699
57,235
189,281
164,113
GEO
84,295
78,174
213,482
191,114
Total gross revenues
$
250,885
$
237,545
$
694,750
$
642,301
Segment income before taxes
INF
$
16,592
$
15,902
$
48,713
$
49,628
BTS
$
10,944
$
10,226
$
31,426
$
26,757
GEO
$
22,998
$
14,783
$
45,932
$
34,317
For additional information regarding our reportable segments, see Note 15, Reportable Segments, of the Notes to the Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Three Months EndedSeptember 28, 2024 Compared to Three Months Ended September 30, 2023
INF Segment
Our gross revenues from INF decreased $1,245, or 1.2%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The decrease in gross revenues was primarily due to a decreases in our LNG business of $12,468 driven by project cycles. This decreases were partially offset by incremental gross revenues of $7,582 from acquisitions completed since the third quarter of 2023 and organic increases in our infrastructure services of $2,830 and civil program management services of $1,677.
Segment income before taxes from INF increased $690, or 4.3%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to higher margins driven by our infrastructure services.
BTS Segment
Our gross revenues from BTS increased $8,464, or 14.8%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase in gross revenues was primarily due to incremental gross revenues of $5,776 from acquisitions completed since the third quarter of 2023 and organic increases in our international engineering and consulting services of $5,225.
Segment income before taxes from BTS increased $718, or 7.0% during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to increased gross revenues.
GEO Segment
Our gross revenues from GEO increased $6,121, or 7.8%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023, primarily due to organic increases in our geospatial solutions services of $5,171 and incremental gross revenues of $950 from acquisitions completed since the third quarter of 2023.
43
Segment income before taxes from GEO increased $8,215, or 55.6%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to increased gross revenues.
Nine Months EndedSeptember 28, 2024 Compared to Nine Months Ended September 30, 2023
INF Segment
Our gross revenues from INF increased $4,913, or 1.7%, during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in gross revenues was primarily due to incremental gross revenues of $20,810 from acquisitions completed since the beginning of fiscal 2023 and organic increases in our infrastructure services of $8,116 and civil program management services of $4,532. These increases were partially offset by decreases in our LNG business of $21,553 driven by project cycles and in our power delivery and utility services of $5,447.
Segment income before taxes from INF decreased $915, or 1.8%, during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to decreased margins driven by our LNG business, partially offset by increased gross revenues.
BTS Segment
Our gross revenues from BTS increased $25,168, or 15.3%, during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in gross revenues was primarily due to incremental gross revenues of $15,558 from acquisitions completed since the beginning of fiscal 2023 and organic increases in our international engineering and consulting services of $10,034 and real estate transactional services of $1,793. These increases were partially offset by decreases in our environmental health sciences services of $2,106.
Segment income before taxes from BTS increased $4,669, or 17.4% during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to increased gross revenues.
GEO Segment
Our gross revenues from GEO increased $22,368, or 11.7%, during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase in gross revenues was primarily due to incremental revenue of $15,515 from acquisitions completed since the beginning of fiscal 2023 and organic increases in our geospatial solution services of $6,853.
Segment income before taxes from GEO increased $11,615, or 33.8%, during the nine months ended September 28, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to increased gross revenues.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents balances, cash flows from operations, borrowing capacity under our Senior Credit Facility, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition expenditures. We believe our sources of liquidity, including cash flows from operations, existing cash and cash equivalents and borrowing capacity under our Senior Credit Facility will be sufficient to meet our projected cash requirements for at least the next twelve months. We will monitor our capital requirements thereafter to ensure our needs are in line with available capital resources and believe that there are no significant cash requirements currently known to us and affecting our business that cannot be met from our reasonably expected future operating cash flows, including upon the maturity of the Senior Credit Facility in 2026.
Operating activities
Net cash provided by operating activities was $57,111 for the nine months ended September 28, 2024, compared to $45,435 during the nine months ended September 30, 2023. The increase was a result of increases in our net income adjusted for noncash items, partially offset by changes in working capital. The changes in our working capital that contributed to decreased cash flows from operations was primarily a result of decreases in advanced billings and accrued liabilities and other long-term liabilities of $8,726 and $7,392, respectively, partially offset by increases in accounts payable of $11,813. The decrease in advanced billings was primarily due to timing of project billing cycles. The decrease in accrued liabilities was primarily due to a $4,869 decrease in taxes payable and a $2,839 decrease in accrued operating expenses. The increase in accounts payable was primarily due to timing of payments.
44
Investing activities
During the nine months ended September 28, 2024 and September 30, 2023, net cash used in investing activities totaled $67,487 and $203,071, respectively. The decrease in cash used in investing activities was primarily a result of decreased cash paid for acquisitions of $134,762.
Financing activities
Net cash flows provided by financing activities totaled $38,293 during the nine months ended September 28, 2024 compared to $165,727 during the nine months ended September 30, 2023. The decrease in cash provided by financing activities was primarily a result of decreased borrowings on our Senior Credit Facility of $130,000 during the nine months ended September 28, 2024.
Financing
SeniorCredit Facility
On August 13, 2021 (the "Closing Date"), we amended and restated our Credit Agreement (the "Second A&R Credit Agreement" or "Senior Credit Facility"), originally dated December 7, 2016 and as amended to the Closing Date, with Bank of America, N.A. ("Bank of America"), as administrative agent, swingline lender and letter of credit issuer, the other lenders party thereto, and certain of our subsidiaries as guarantors. Pursuant to the Second A&R Credit Agreement, the previously drawn term commitments of $150,000 and revolving commitments totaling $215,000 in the aggregate were converted into revolving commitments totaling $400,000 in the aggregate. These revolving commitments are available through August 13, 2026 (the "Maturity Date") and an aggregate amount of approximately $138,750 was drawn under the Second A&R Credit Amendment on the Closing Date to repay previously existing borrowings under the term and revolving facilities prior to such amendment and restatement. Borrowings under the Second A&R Credit Agreement are secured by a first priority lien on substantially all of our assets. The Second A&R Credit Agreement also includes an accordion feature permitting us to request an increase in the revolving facility under the Second A&R Credit Agreement by an additional amount of up to $200,000 in the aggregate. As of September 28, 2024 and December 30, 2023, the outstanding balance on the Second A&R Credit Agreement was $241,750 and $195,750, respectively.
Borrowings under the Second A&R Credit Agreement bear interest at variable rates which are, at our option, tied to a Eurocurrency rate equal either Term SOFR (Secured Overnight Financing Rate) or Daily Simple SOFR, plus in each case an applicable margin, or a base rate denominated in U.S. dollars. Interest rates remain subject to change based on our consolidated leverage ratio. As of September 28, 2024 our weighted average interest rate was 6.7%.
The Second A&R Credit Agreement contains financial covenants that require us to maintain a consolidated net leverage ratio (the ratio of our pro forma consolidated net funded indebtedness to our pro forma consolidated EBITDA for the most recently completed measurement period) of no greater than 4.00 to 1.00.
These financial covenants also require us to maintain a consolidated fixed charge coverage ratio of no less than 1.10 to 1.00 as of the end of any measurement period. As of September 28, 2024, we were in compliance with the financial covenants.
The Second A&R Credit Agreement contains covenants that may have the effect of limiting our ability to, among other things, merge with or acquire other entities, enter into a transaction resulting in a Change in Control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, or engage in new lines of business, or sell a substantial part of their assets. The Second A&R Credit Agreement also contains customary events of default, including (but not limited to) a default in the payment of principal or, following an applicable grace period, interest, breaches of our covenants or warranties under the Second A&R Credit Agreement, payment default or acceleration of certain indebtedness, certain events of bankruptcy, insolvency or liquidation, certain judgments or uninsured losses, changes in control, and certain liabilities related to ERISA based plans.
The Second A&R Credit Agreement limits the payment of cash dividends (together with certain other payments that would constitute a "Restricted Payment" within the meaning of the Second A&R Credit Agreement and generally including dividends, stock repurchases, and certain other payments in respect to warrants, options, and other rights to acquire equity securities), unless the Consolidated Leverage Ratio would be less than 3.25 to 1.00 and available liquidity (defined as unrestricted, domestically held cash plus revolver availability) would be at least $30,000, in each case after giving effect to such payment.
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Total debt issuance costs incurred and capitalized in connection with the issuance of the Second A&R Credit Agreement were $3,702. Total amortization of debt issuance costs was $185 and $556 during the three and nine months ended September 28, 2024, respectively, and $208 and $573 during the three and nine months ended September 30, 2023, respectively.
Other Obligations
We have aggregate obligations related to acquisitions of $3,122, $3,881, and $4,010 due in the remainder of fiscal 2024, 2025, and 2026, respectively. As of September 28, 2024, our weighted average interest rate on other outstanding obligations was 3.7%.
Recently Issued Accounting Pronouncements
For information on recently issued accounting pronouncements, see Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Cautionary Statement about Forward-Looking Statements
Our disclosure and analysis in this Quarterly Report on Form 10-Q, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding our “expectations,” “hopes,” “beliefs,” “intentions,” or “strategies” regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “predict,” “project,” “may,” “might,” “should,” “would,” “will,” “likely,” “will likely result,” “continue,” “could,” “future,” “plan,” “possible,” “potential,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning, but the absence of these words does not mean that a statement is not forward looking. The forward-looking statements in this Quarterly Report on Form 10-Q reflect the Company’s current views with respect to future events and financial performance.
Forward-looking statements are not historical factors and should not be read as a guarantee or assurance of future performance or results, and will not necessarily be accurate indications of the times at, or by, or if such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith beliefs, expectations and assumptions as of that time with respect to future events. Because forward-looking statements relate to the future, they are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals,
•changes in demand from the local and state government and private clients that we serve,
•any material outbreak or material escalation of international hostilities, including developments in the ongoing conflict involving Russia and the Ukraine or the war involving Israel and Hamas (including an escalation or geographical expansion of these conflicts in the Red Sea region), and the economic consequences of related events such as the imposition of economic sanctions and resulting market volatility,
•changes in general domestic and international economic conditions such as inflation rates, interest rates, tax rates, higher labor and healthcare costs, recessions, and changing government policies, laws and regulations, including those relating to energy efficiency,
•the U.S. government and other governmental and quasi-governmental budgetary and funding approval process,
•our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business,
•the possibility that our contracts may be terminated by our clients,
•our ability to win new contracts and renew existing contracts,
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•competitive pressures and trends in our industry and our ability to successfully compete with our competitors,
•our dependence on a limited number of clients,
•our ability to complete projects timely, in accordance with our customers’ expectations, or profitability,
•our ability to successfully manage our growth strategy,
•our ability to raise capital in the future,
•the credit and collection risks associated with our clients,
•our ability to comply with procurement laws and regulations,
•weather conditions and seasonal revenue fluctuations may adversely impact our financial results,
•the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services,
•our ability to complete our backlog of uncompleted projects as currently projected,
•the risk of employee misconduct or our failure to comply with laws and regulations,
•our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties,
•our need to comply with a number of restrictive covenants and similar provisions in our senior credit facility that generally limit our ability to (among other things) incur additional indebtedness, create liens, make acquisitions, pay dividends and undergo certain changes in control, which could affect our ability to finance future operations, acquisitions or capital needs,
•significant influence by our principal stockholder and the existence of certain anti-takeover measures in our governing documents, and
•other factors identified throughout this Quarterly Report on Form 10-Q, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, those factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 30, 2023. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports filed with the SEC. Our Annual Report on Form 10-K filing for the fiscal year ended December 30, 2023 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995, as amended. Readers can find them in “Item 1A. Risk Factors” of that filing and under the same heading of this filing. You may obtain a copy of our Annual Report on Form 10-K through our website, www.nv5.com. Information contained on our website is not incorporated into this report. In addition to visiting our website, you may read and copy any document we file with the SEC at www.sec.gov.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks from transactions that are entered into during the normal course of business. We have not entered into derivative financial instruments for trading purposes. We have no significant market risk exposure to interest rate changes related to the promissory notes related to acquisitions since these contain fixed interest rates. Our only debt subject to interest rate risk is the Senior Credit Facility which rates are variable, at our option, tied to a Eurocurrency rate equal to either Term SOFR (Secured Overnight Financing Rate) or Daily Simple SOFR, plus in each case an applicable rate or a base rate denominated in U.S. dollars. Interest rates are subject to change based on our Consolidated Senior Leverage Ratio (as defined in the Credit Agreement). As of September 28, 2024, there was $241,750 outstanding on the Senior Credit Facility. A one percentage point change in the assumed interest rate of the Senior Credit Facility would change our annual interest expense by approximately $2,418 annually.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including the Company's Executive Chairman and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Executive Chairman and Chief Financial Officer concluded that, as of and for the period ending September 28, 2024, the period covered by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were not effective at the reasonable assurance level due to a material weakness in internal controls over financial reporting as described below. The material weakness described herein did not result in a material misstatement to the Company's previously issued consolidated financial statements, nor in the consolidated financial statements included in this Quarterly Report on Form 10-Q.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In February 2023, the Company acquired Continental Mapping Acquisition Corp. and its subsidiaries, including Axim Geospatial, LLC (collectively “Axim”). As the Company was in the process of a broader enterprise resource planning ("ERP") implementation, the Company delayed its ERP integration of Axim. As a result, certain of the Company’s project revenue controls at Axim were not designed at a sufficiently precise level. The Company has determined these control deficiencies constitute a material weakness.
Remediation Plan for Material Weakness
The Company is committed to maintaining a strong internal control environment. The Company is integrating Axim into the Company’s ERP system and its enhanced processes and controls as planned. The enhanced processes and controls under the Company’s ERP system will provide more detailed set up and review of Axim’s projects and a more comprehensive periodic analysis related to Axim’s percentage of completion projects. The material weakness will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and refine its remediation plan as appropriate.
Changes in Internal Control Over Financial Reporting
As described above, the Company is taking steps to remediate the material weakness in its internal control over financial reporting. Other than the remediation process described above, there were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) that occurred during the quarter ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.
ITEM 1A.RISK FACTORS.
There have been no material changes to any of the principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023, except as follows:
We have identified a material weakness in our internal control over financial reporting which, if not timely remediated, may adversely affect the accuracy and reliability of our future financial statements, and our reputation, business and the price of our common stock, as well as may lead to a loss of investor confidence in us.
As described under Item 4. “Controls and Procedures” above, management has concluded that a material weakness in our internal control over financial reporting existed as of September 30, 2024. This material weakness related to project revenue internal controls at Axim (a February 2023 acquisition) which were not designed at a sufficiently precise level. Accordingly, our internal control over financial reporting and our disclosure controls and procedures were not effective as of September 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
While we believe the steps described under Item 4 above will improve the effectiveness of our internal control over financial reporting and remediate the identified deficiencies, if our remediation efforts are insufficient to address the material weakness or we identify additional material weaknesses in our internal control over financial reporting in the future, our ability to analyze, record and report financial information accurately, to prepare our financial statements within the time periods specified by the rules and forms of the SEC and to otherwise comply with our reporting obligations under the federal securities laws and our long-term debt agreements will likely be adversely affected. The occurrence of, or failure to remediate, this material weakness and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability of our financial statements and have other consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Securities
None.
Issuer Purchase of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
During the three months ended September 28, 2024, Dickerson Wright, the Company's Executive Chairman, entered into a 10b5-1 trading arrangement intended to satisfy the affirmative defense of Rule 10b5-1(c). The 10b5-1 trading arrangement was adopted by Mr. Wright on August 14, 2024 and provides for the sale of up to 640,000 Common Shares of the Company beginning December 10, 2024 and ending on the earlier of December 10, 2025 or the execution of all trades contemplated by the plan.
** Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NV5GLOBAL, INC.
/s/ Edward Codispoti
Date: November 12, 2024
Edward Codispoti Chief Financial Officer (Principal Financial and Accounting Officer)