BOWMAN CONSULTING GROUP LTD. The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q. This discussion contains "forward-looking
statements" reflecting our current expectations, estimates and assumptions
concerning events and financial trends that may affect our future operating
results or financial position. Actual results and the timing of events may
differ materially from those contained in these forward-looking statements due
to several factors. Factors that could cause or contribute to such differences
include, but are not limited to, economic and competitive conditions, regulatory
changes, and other uncertainties, as well as those factors discussed elsewhere
in this Quarterly Report on Form 10-Q, particularly in "Cautionary Statement
about Forward-Looking Statements," all of which are difficult to predict.
Considering these risks, uncertainties and assumptions, the forward-looking
events discussed may not occur. We assume no obligation to update any of these
forward-looking statements, except to the extent required by applicable laws or
rules. Unless the context otherwise requires, references to "Bowman," the
"company," the "Company," "we," "us," and "our" refer to
Overview
Bowman is a professional services firm delivering innovative engineering solutions to customers who own, develop and maintain the built environment. We provide planning, engineering, construction management, commissioning, environmental consulting, geomatics, survey, land procurement and other technical services to over 2,200 customers operating in a diverse set of end markets. We work as both a prime and sub-consultant for a broad base of public and private sector customers that generally operate in highly regulated environments.
We have a diversified business that is not dependent on any one service line, geographic region, or end market. We are deliberate in our efforts to balance our sources of revenue and avoid reliance on any one significant customer, service line, geography or end market concentration. Our strategic focus is on penetrating and expanding our presence in markets which best afford us opportunities to secure assignments that provide reoccurring revenue and multi-year engagements thus resulting in dependable and predictable revenue streams and high employee utilization. We limit our exposure to risk by providing professional and related services exclusively. We do not engage in general contracting activities either directly, or through joint ventures, and therefore have no related exposure. We are not a partner in any design-build construction projects. We carry no heavy equipment inventory, and our risk of contract loss is generally limited to time associated with fixed fee professional services assignments.
Gross contract revenue for the three months ended
COVID-19 Update
It is not possible at this time to estimate the full impact that COVID-19 will
ultimately have on our business, as the impact will depend on future
developments, which are highly uncertain and cannot be predicted. We are
evaluating, and will continue to evaluate, the impact of COVID-19 on projects,
but the full effects COVID-19 will have on our operations are still unknown. As
of the date of this Quarterly Report on Form 10-Q, we have not experienced any
material financial distress resulting from the COVID-19 pandemic. We did not
qualify for the PPP Loan program under the CARES Act. Included in accounts
payable and accrued liabilities and other non-current obligations in the
consolidated balance sheet as of
Methods of Evaluation
We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of the information we use to evaluate our operations is financial information that is in accordance with generally accepted accounting principles (GAAP), while other information may be financial in nature and either built upon GAAP results or
19
--------------------------------------------------------------------------------
may not be in accordance with GAAP (Non-GAAP). We use all of this information together for planning and monitoring our operations, as well as determining certain management and employee compensation.
The Company operates as a single business segment represented by our core business of providing multi-disciplinary professional engineering solutions to customers. While we evaluate revenue and other key performance indicators relating to various divisions of labor, our leadership neither manages the business nor deliberately allocates resources by service line, geography, or end market. Our financial statements present results as a single operating segment.
Components of Income and Expense
Revenue
We generate revenue from services performed by our employees, pass-through fees from sub-consultants, and reimbursable contract costs. On our consolidated financial statements, we report gross revenue, which represents total revenue billed to customers excluding taxes collected from customers. Gross revenue less revenue derived from pass-through sub-consultant fees, reimbursable expenses and other direct expenses represents our net service billing, or that portion of our gross revenue attributable to services performed by our employees. Our industry uses the calculation underlying net service billing to normalize peer performance assessments and provide meaningful insight into trends over time. Refer to - Other Financial Data, Non-GAAP measurements and Key Performance Indicators below for further discussion of the use of this Non-GAAP financial measure.
We generally do not make profit from the pass-through of sub-consultants and reimbursable expenses. As such, contract profitability is most heavy impacted by the mix of labor utilized to complete the tasks and the efficiency of those resources in completing the tasks. Our largest direct contract cost is consistently our labor. To grow our revenue and maximize overall profitability we carefully monitor and manage our fixed cost of labor and the utilization thereof. Maintaining an optimal level of utilization on a balanced pool of growing labor resources represents our greatest prospect for delivering increasing profitability.
Our contracts with customers contain two types of pricing characteristics:
Hourly, also referred to as time and materials, are common for professional and
technical consulting assignments both short-term and multi-year in duration.
Under these types of assignments, there is no predetermined maximum fee and as
such, we generally experience no risk associated with our ability to bill for
all hours expended. We negotiate billing rates and charge our customers based
upon the actual hours expended toward a deliverable. These assignments may have
not-to-exceed parameters requiring us to receive additional authorizations from
our customer to continue working, but we likewise do not have to continue
working without assurances of payment for such additional work. Hourly
assignments represented approximately
Lump sum, also referred to as fixed fee, typically require the performance of
some, or all, of the obligations under the assignment for a specified amount,
subject to price adjustments only if the scope of the project changes or
unforeseen requirements arise. Our fixed fee assignments generally include a
specific scope of work and defined deliverables. The majority of our assignments
are lump sum in nature representing approximately
Contract Costs
Contract costs consists of direct payroll costs, sub-consultant costs and other direct expenses exclusive of depreciation and amortization.
Direct payroll costs represent the portion of salaries and wages incurred in connection with the production of deliverables under customer assignments and contracts. Direct payroll costs include allocated fringe costs (i.e. health benefits, employer payroll taxes, and retirement plan contributions), paid leave and incentive compensation.
Sub-consultants and direct expenses include both sub-consultants and other outside costs associated with performance under our contracts. Sub-consultant and direct costs are generally reimbursable by our customers under the terms of our contracts.
20
--------------------------------------------------------------------------------
Performance under our contracts does not involve significant machinery or other long term depreciable assets. Most of the equipment we employ involves desktop computers and other shared ordinary course IT equipment. We present direct costs exclusive of depreciation and amortization and as such we do not present gross profit on our consolidated financial statements.
Operating Expense
Operating expenses consists of selling, general and administrative costs, non-cash stock compensation, depreciation and amortization and settlements and other non-core expenses.
Selling, general and administrative expenses represent corporate and other general overhead expenses, salaries and wages not allocated to customer projects including management and administrative personnel costs, incentive compensation, personal leave, office lease and occupancy costs, legal, professional and accounting fees.
Non-cash stock compensation represents the expenses incurred with respect to
shares and options issued by the Company, both vested and unvested, to employees
as long-term incentives. For the three months ended
Depreciation and amortization represent the depreciation and amortization expense of our property and general IT equipment, capital lease assets, tenant improvements and intangible assets.
(Gain) loss on sale represents gains or losses inclusive of foreign exchange and accumulated depreciation recapture resulting from the disposal of an asset upon the sale or retirement of such asset.
Other (Income) Expense
Other (income) expense consists of other non-operating and non-core expenses.
Tax Expense
Income tax (benefit) expense, current and deferred, includes estimated federal, state and local tax expense associated with our net income, as apportioned to the states in which we operate. Estimates of our tax expense include both current and deferred tax expense along with all available tax incentives and credits.
Other Financial Data, Non-GAAP Measurements and Key Performance Indicators
Backlog
We measure the value of our undelivered gross revenue in real time to calculate our backlog and predict future revenue. Backlog includes awarded, contracted and otherwise secured commitments along with revenue we expect to realize over time for predictable long-term and reoccurring assignments. We report backlog quarterly as of the end of the last day of the reporting period. We use backlog to predict revenue growth and anticipate appropriate future staffing needs. Backlog definitions and methods of calculation vary within our industry. As such, backlog is not a reliable metric on which to evaluate us relative to our peers. Backlog neither derives from, nor connects to, any GAAP results.
Net Service Billing
In the normal course of providing services to our customers, we routinely subcontract services and incur direct third-party contract expenses that may or may not be reimbursable and may or may not be billed to customers with mark-up. Gross revenue less revenue derived from pass-through sub-consultant fees and reimbursable expenses represents our net service billing, which is a non-GAAP financial measure, or that portion of our gross contract revenue attributable to services performed by our employees. Because the ratio of sub-contractor and direct expense costs to gross billing varies between contracts, gross revenue is not necessarily indicative of trends in our business. As a professional services company, we believe that metrics derived from net service billings more accurately demonstrate the productivity and profitability of our workforce. Our industry uses the calculation of net service billing to normalize peer performance assessments and provide meaningful insight into trends over time.
21
--------------------------------------------------------------------------------
Adjusted EBITDA
We view Adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of normalized performance. We define Adjusted EBITDA as net income before interest expense, income taxes and depreciation and amortization, plus discontinued expenses, legal settlements and other costs not in the ordinary course of business, non-cash stock-based compensation (inclusive of expenses associated with the adjustment of our liability for common shares subject to redemption), and other adjustments such as costs associated with preparing for our IPO. Our peers may define Adjusted EBITDA differently.
Adjusted EBITDA Margin, net
Adjusted EBITDA Margin, net, which is a non-GAAP financial measure, represents Adjusted EBITDA, as defined above, as a percentage of net service billings, as defined above.
Results of Operations
Combined results of operations
The following represents our condensed consolidated results of operations for periods indicated (in thousands):
For the Three Months Ended March 31,
2021 2020
Gross contract revenue $ 31,802 $ 28,611
Contract costs (exclusive of depreciation and
amortization) 16,156 15,530
Operating expense 14,151 12,374
Income from operations 1,495 707
Other (income) expense 205 (9 )
Income tax expense 309 290
Net income $ 981 $ 426
Net income margin 3.1 % 1.5 %
Other financial information 1
Net service billing $ 28,868 $ 24,733
Adjusted EBITDA 4,086 1,589
Adjusted EBITA margin, net 14.2 % 6.4 %
1 Represents non-GAAP financial measures. See Other Financial Information and
Non-GAAP key performance indicators below in results of operations.
Three Months Ended
Gross Contract Revenue
Gross contract revenue for the three months ended
22
--------------------------------------------------------------------------------
Changes in gross contract revenue ("GCR") disaggregated between our core and emerging end markets were as follows (in thousands other than percentages):
© Edgar Online, source
