Good morning. My name is Candice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group first quarter 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you. Please note many of the comments made today are considered forward-looking statements under federal securities law.
As described in the company's filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and the company is not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information such as Adjusted EBITDA and net service billing.
You can find this information together with the reconciliations to the most direct comparable GAAP information, the company's earnings press release and 8-K filed with the SEC and the company's investor website at investors.bowman.com.
Management will deliver prepared remarks after which they will be taking live questions from published research analysts. Throughout the call, attendees on the webcast may post questions for management to answer on the call or in subsequent communications, but there will be no live Q&A from the webcast attendees. Replays of the call will be available on the company's investor website. Mr. Bowman, you may now begin your prepared remarks.
Thank you, Candice, and welcome to the Bowman Consulting Group first quarter 2022 earnings call. I'm Gary Bowman, Chairman and CEO of Bowman, joined here this morning by Bruce Labovitz, our Chief Financial Officer. Before we get started, I want to welcome everyone from McMahon Associates, the most recent addition to Bowman.
The addition of this committed team of talented professionals is going to be transformative to our transportation practice as well as to our business overall. We're excited to have this transaction completed, and we're really looking forward to the great work we're going to be doing together. The first quarter of 2022 picked up where 2021 left off, generating record results for sales, revenue, and Adjusted EBITDA, and the Q1 momentum continues unabated into the second quarter. During the quarter, we closed on a $17 million equity raise.
We booked over $60 million in net new orders, and we produced record gross and net revenue. The growth was driven across every one of the markets served by our business. Despite challenging world conditions, we continue to see multiple opportunities for profitable growth.
Net Service Billings for the quarter increased 65% over the first quarter of 2021, with an organic growth rate of 36% over that period. During the quarter, we continued with the integration of seven acquisitions we made post IPO, and we closed on an 8th with Perry Engineering in Tucson.
Our collaborative culture of cross-selling and work sharing generated meaningful revenue synergies between our acquisitions and our legacy operations, which positively impacted the quarter results. Continuing to execute on our growth strategy, last week we closed on the purchase of transportation engineering firm McMahon Associates, which is our largest acquisition to- date.
Within the first week, we've already realized over $1 million of revenue synergy from this acquisition through a new traffic study engagement with one of Bowman's long-standing quick-service restaurant clients. The financial impact of this one assignment alone essentially reduces the transaction multiple by nearly a full turn.
Gross revenue in the first quarter continued to be concentrated on building infrastructure market at just under 74%, followed by power and utilities at 14.5%, transportation at 7.5%, and emerging markets at 4%.
For the sake of illustration on a pro forma basis, if McMahon transaction had occurred on January 1st, transportation would have been about 18% of our gross revenue, and building infrastructure would have been 65%. McMahon's the first of a number of steps toward meaningful diversification of our business by way of larger acquisitions.
During Q1, building infrastructure grew by nearly $18 million or 84% over the same period in 2021, with nearly equal growth between commercial and residential, followed closely by public sector contracts. We continue to see healthy increases in quick-service restaurants and commercial industrial projects, along with build-for-rent and residential inventory creation for home builders.
Quick-service restaurants represent a dependable source of repeat customer revenue, while development engagements like the Amazon HQ2 project in Arlington, Virginia, represent reliable long-term revenue. Demand for data centers and other industrial facility work is as high as it's ever been, with pricing power remaining in our favor.
Our current complement of building infrastructure clients and projects have so far proven to not be tightly correlated to interest rate movements, and we've not experienced any slowdown in activity or requests for proposals.
Transportation is clearly in a transitional moment at Bowman. While down slightly this quarter over last year with constant between McMahon acquisition and the upcoming spending we expect to begin later this year and next in the infrastructure bill, this trend will quickly reverse course, and the transportation will increasingly become a more meaningful component of our revenue over the next year.
Our work on the Mile Long Bridge and Burleigh Avenue projects continue to generate meaningful recurring revenue, and the Cook County Roadway Construction Management project is starting off in earnest this quarter. The I-35 Northeast expansion projects in San Antonio will be gearing up for long-term recurring revenue over the next several years.
I'm happy to report that Bowman was recently selected by the Illinois Tollway for the upcoming Central Tri-State I-294 project. We're negotiating the contract. I'll update you on that project on our next conference call.
Our power and utilities work grew 16% year-over-year, due in large part to increased spending on utility undergrounding and gas line engineering projects. We recently awarded a renewal on our long-term contract with Southwest Gas, and we continue to build on our long-term relationship with WEC Energy Group. Most of our longstanding utility clients are looking to increase their spend with us substantially this year over last.
The U.S. power grid continues to face unrelenting pressure to increase resilience and reliability, replacing aging infrastructure and integrate technologies such as electric vehicles, distributed generation, and battery storage.
Spending on these initiatives is generally independent of macroeconomic conditions, and we're focused on continuing to invest and grow in this market. Our emerging markets, including mining, water resources, and energy services, grew by 5% year-over-year in the first quarter.
This increase was led by growth in renewable energy revenue, followed by mining and water resources. In the renewables market, we're providing a wide array of engineering services to solar and battery storage projects throughout the Northeast and Mid-Atlantic, and a growing number of wind energy projects in the Midwest and the West.
Growth in renewables-related revenue has so far been organic, but we expect to accelerate that effort through acquisition later in 2022 and beyond. Acquisition integration continues to be a huge focus for us.
Our dedicated integration team is doing a great job with both the tactical and the social aspects of integration. Including McMahon, we've added over 400 employees through acquisition in our first year as a public company, and the staff retention rate of our integrated companies thus far has been close to 97%.
Above and beyond the talent we've gained from the acquisitions, our dedicated recruiting team has been able to add nearly 10% to the acquired firms' workforces. Just as important, our integration team immediately gets everybody focused on revenue synergies, and we've already notched a number of successes along those lines.
Between the revenue synergies and improved utilization resulting from our recruiting successes, we're benefiting from substantial post-closing effective compression of our transaction multiples. Our M&A pipeline continues to be as diverse and robust as it's ever been, and our outlook for continued strategic transaction activity remains bullish.
At $28 million in annualized revenue, McMahon is well above what we expect to be our average deal size in 2022. As we've said, we expect the average to be significantly larger than last year. We're currently shopping many deals in the low double-digit revenue range.
We continue to be focusing on deals in the 6x-7x multiple range with occasional deal above and below that. McMahon, as an example, was priced at a multiple of 6.5x Adjusted EBITDA without any consideration given to revenue synergies. We're not directly affected by supply chain disruptions, and labor is our only real inflationary exposure.
The overwhelming majority of our clients are likewise not directly affected by material supply constraints, and their demand for our services is only increasing. Across our markets, demand for engineering and design services remains strong, as evidenced by growth in revenue and backlogs. Pricing power remains in our favor, as evidenced by year-over-year revenue growth meaningfully outpacing our growth in labor costs.
Despite certain headwinds in the equity markets, we remain bullish on our prospects for continued growth and upside in our value proposition to our shareholders. We're raising our outlook for 2022 today, and as new acquisitions close, we'll continue to increase our outlook accordingly. Now I'm going to turn the call over to Bruce to discuss our first quarter results in greater detail.
Terrific. Thanks, Gary. As Gary mentioned, first quarter was a record-setting quarter at Bowman. Last week was the one-year anniversary of the pricing of our IPO. I'm extremely proud to say that we've successfully navigated the transition from private to public and completed the year of firsts. Last year, Q1, we were still a private company, so comparisons to that quarter and periods which include that quarter are still a bit apples to oranges.
As compared to Q1 2021, gross revenue for the first quarter increased 65% or $20.7 million to $52.5 million from $31.8 million. Of the nearly $21 million increase, $7.6 million was from acquired revenue and $13 million was organic, representing a 41% organic growth rate on gross revenue.
Net service revenue, which we refer to as net revenue, a non-GAAP metric, increased 65.2% or $18.8 million to $47.7 million in the first quarter as compared to $28.9 million for the first quarter last year. Of the nearly $19 million increase in net revenue, $8.6 million was from acquisition and the remaining $10 million was organic, representing a nearly 36% organic growth rate year-over-year.
Gross margin for the first quarter was 51.5% as compared to 49.2% in Q1 2021. Improvement of gross margin over Q1 last year is principally a function of lower non-cash stock comp expense, but also improved utilization, mix of business, and a bit of pricing power. SG&A was 43.5% of gross revenue in the first quarter, compared to 40.1% for Q1 2021.
As I mentioned earlier, this comparison is not necessarily meaningful since this time last year we were still private and did not have any of the costs of being public, and we had lower non-cash stock comp expenses. What is notable is that SG&A as a percent of gross revenue is trending down relative to Q4 last year and last year as a whole.
We continue to be focused on reducing the rate of growth of SG&A relative to revenue. We expect SG&A to fall as a percent of gross revenue as we continue to build scale. Net income before tax was relatively flat year-over-year, with net profit for the first quarter up 50% to $1.5 million.
Adjusted EBITDA for the first quarter was up 81% to $7.4 million, representing a 15.5% Adjusted EBITDA margin net. This is an increase of 1.3 percentage points over Q1 2021 and 3.3 percentage points over full year 2021. Adjusted EBITDA is a non-GAAP metric which adds non-recurring adjustments and non-cash expenses to EBITDA.
As of March 31st, the company had approximately 12.6 million shares outstanding, which includes all the shares issued in the secondary offering and roughly 2.1 million shares of unvested restricted stock included in that number. As of today, the company has approximately 13.2 million shares outstanding, which includes shares issued in connection with the McMahon acquisition and now roughly 2 million shares of unvested restricted stock included.
As of March 31st, our net debt was negative to the tune of roughly $7 million. Unadjusted for cash, our ratio of Adjusted EBITDA to total debt was approximately 1.4 x. We currently have approximately $23 million of cash on our balance sheet and zero outstanding on our $17 million line with B of A, which was recently approved to be increased to $25 million.
That leaves us with upwards of $35 million of deployable capital for growth after accounting for working capital needs. As such, we believe we have sufficient liquidity for the near term to continue our M&A program. Gross backlog on March 31st was $173 million, up from $167 million at year-end.
We expect roughly 85% or $150 million of that backlog to turn during the next 12 months. Backlog was approximately 65% building infrastructure, 18% transportation, 15% power and utilities, and 2% other emerging markets. Pro forma for the addition of McMahon, effective January 1, transportation would have represented roughly 29% of our backlog. Building infrastructure would have been roughly 56%.
As indicated in yesterday's release, we're increasing our outline for top-line guidance to net revenue of $185 million-$200 million and increasing our Adjusted EBITDA guidance to $25 million-$29 million. This adds the impact of McMahon to top and bottom line with little or no change to the outlook we issued just a few weeks ago back in mid-March.
As is our policy, this guidance only includes acquisitions closed at the time we issue the guidance. It does not suggest the results will be evenly distributed throughout the year, and it likewise does not contemplate additional acquisitions we expect to close this year.
As new acquisitions are closed, we will update our guidance accordingly on the subsequent quarterly conference calls. Before I turn back the call to Gary, I'd like to mention that we will be at the B. Riley Securities International Investor Conference later this month in California.
If you're planning to attend the conference and you've not already done so, please schedule a time to meet with us one-on-one. I'll now turn the call back over to Gary for concluding remarks and Q&A.
Thanks, Bruce. This morning we announced the addition of Raymond Vicks to our board of directors. I'm very happy to have Ray joining us on our upcoming journey. I also want to thank Dan Lefaivre for his service to the board over the past year. I want to thank everybody here for delivering a fantastic quarter. We'll all continue to work diligently every day to deliver disciplined growth and return to our shareholders, and that includes many of the fantastic professionals working here at Bowman.
Ownership's always been part of our culture, and today more than ever, the alignment of interest between employees and investors inspires us to succeed. Thanks. I will now turn it back over to the operator to open it up for questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Brent Thielman of D.A. Davidson. Your line is now open.
Great. Thanks. Good morning, Gary, Bruce. Thank you. My first question, I mean, really strong start to the year here. Anything to be aware of that might have had an unusually strong impact this quarter, you know, specific programs or contracts?
I'm just, you know, as a seasonally slower quarter for you, if I annualize that gets me to the midpoint of your guidance, frankly, a little bit above that. So I just wanna be sure I understand all the moving pieces in the quarter and what we should be thinking about for the rest of the year.
Yeah. You know, Brent, there really isn't, you know, one particular contract or one particular client or, you know, any one particular event that made the quarter strong. It was just a strong quarter for us.
It's the culmination of a lot of hard work in business development and acquisition strategy. There's really a very balanced portfolio of revenue that, you know, that makes up the quarter. That's a positive that there, you know, there isn't one anomalous thing that impacted it positively. I'll just reinforce that, but it is spread all over.
There's not any big rock, a couple big rocks that are not sustainable that boost it. You know, we were not terribly seasonally weather affected generally. You know, it was a mild, more mild winter in a lot of our markets. As we become more geographically diversified, somewhat less impacted by winter weather on outdoor work.
Okay. Okay, fair enough. The next question was just on, you know, the gross margins seem to be fine. I guess, you know, new contracts, you know, how you feel they're sort of appropriately capturing, you know, the cost increases we all see out there, fuel, labor, all that sort of stuff, feeding the business. You know, how are you kinda monitoring that as new work flows into the backlog?
Brent, we're, you know, I anticipated that in thinking about it this morning. We have really probably hundreds of pricing agents out there, seller doers, and we counsel them, we coach them, and we listen through them. Our customers are experiencing price increases all across the board in their materials, their fuel, their labor.
We're coaching our folks because, you know, we're having a lot of pressure to increase our labor price. Our labor price is going up. Our folks are not meeting resistance to increase pricing. Our customers are expecting it. Our folks are receptive to the coaching, and they're at their desks.
We're able to get our pricing up, coincident with what's happening in the marketplace. This inflationary environment's new to everybody. The other thing, Brent, just to point out, fuel in particular, since you mentioned it, is not a significantly large component of our costs on a regular basis.
We have a fleet of vehicles that are out, you know, that do survey work, but the vast majority of the work that we produce and the revenue that comes out of here is done from inside an office and, you know, isn't necessarily, you know, from our cost point of view, particularly fuel driven. Now expenses, labor.
Yeah. Okay. Fair enough. You know, Gary, why McMahon Associates? Why was that the right kinda large transaction to expand the transportation footprint for you? I mean, what did you especially like about, you know, this business?
Great question. It's, you know, a little bit of it is geographically correct. That's, you know, made it a, i t's a more than bite size, but it was a comfortable size for us. It was the appropriate stretch. We really like the culture, similar to our culture. It's a strong ownership culture. Lots of stockholders that have been there a long time, and very receptive leadership to taking the next step along with us and growing with us.
Certainly congruent with our strategy of growing our transportation practice, really. They have some great clients, PennDOT, Pennsylvania Turnpike Commission, Massachusetts Turnpike Authority.
They do work for Florida DOT, which we do, but they own the design side. So some really complementary clients. So just lots of factors made them a great fit for us, our first really big increase in a diverse market. Also, as we started to do due diligence, the way they've grown the organization, you know, it as they've grown the size of the business, was very professional.
The product of information that they were able to provide to us was quick, accurate, you know, organized. And so, you know, they had built in a lot of ways the way we had built as we grew through their size. So it was very easy to understand them and, you know, complement to the folks who do all of their back office work there. You know, we saw that it would be easy to plug in. It was.
Okay, great.
I'm kinda manna from heaven, but it was really confirmed literally within the first few days, this one deal from one of our long-standing clients immediately, "Hey, we closed this seven-figure traffic study deal because we had McMahon." It's like, wow, that's what it's all about.
That's great. Maybe just the last one, and I'll turn it over. You know, considering this is a larger deal, I assume there's a little more integration to it. You obviously have some bigger targets for which you'd like to do, I think, this year in terms of acquired revenue. Do you take a step back here in the short term and focus on integration? Maybe just, you know, how we might think about the deal flow here through the rest of the year.
They're gonna continue to come. We have built a very robust dedicated integration team. We've got strong integration bandwidth. We've got a lot of lifting to do to integrate McMahon. It's going to be a long haul to integrate McMahon. The deals will keep on coming.
We've got the bandwidth, we've got the team, we've got the machine built to continue to integrate and also assimilate them. You know, bring them into the team here.
Got it. Okay.
In sum, McMahon is not gonna slow us down.
Understood. Okay. Thanks, Gary. Thanks, Bruce.
Thanks, Brent.
Thank you. Your next question comes from the line of Alex Rygiel of B. Riley Financial. Your line is now open.
Thank you. Good morning, gentlemen, and nice quarter and nice acquisition.
Thank you, Alex.
A couple quick questions. You've talked in the past about some other end markets such as power infrastructure, mining, water, and renewables. Can you talk about the activity in the quarter there and the pipeline of work that you see on the horizon?
Yeah. Those are still, you know, the smaller parts of our business. We definitely saw good growth in renewables over the course of the quarter, a little bit of a decline in water resources, and strong activity in mining. Again, sort of as a collective, they represent, you know, less than 5% of revenue today.
I think that they are, you know, knowing our pipeline, they are a focus of M&A activity. I don't think anything necessarily in the short term of the size, you know, say that would, you know, that would move them into, you know, a more, you know, to kind of a, you know, a competing percentage as the three other primary. I'll turn to Gary here.
I'll expand a little bit on what Bruce is saying. On renewables is a focus, although we've not had any hits on acquisitions, but it is a focus. We've really had some super successes kind of under my radar, candidly. They just started lighting up my radar with organic growth of successes in renewables.
Organically, we're really growing our renewables practice. We're gonna continue to focus on growing that by acquisition, so we've really continued our commitment to growing that. On the mining front, we're looking at several relatively smaller but meaningful acquisitions, and our paradigm is expanding on that.
We've been in the mining business some 10 years in Arizona. It's copper mining, and our paradigm is expanding to include, I'll say, mining/quarrying with aggregates kind of expand it to an infrastructure play to serve the highway and infrastructure market. That market is on fire with the infrastructure bill.
You know, more broadly speaking, can you talk about inflation risk and in particular, obviously, labor inflation, and how quickly you can react to that and pass that along to be able to keep your margin profile fairly consistent?
Yeah. It's a great question, Alex. Just like I was anticipating, like I told Brent this morning, anticipating that this morning. So far so good. The way I look at that is as I, you know. I started my professional career when Paul Volcker was chairman of the Fed.
I think that none of us, none of us who are in the professional world today really have experienced inflation as professionals, we all kind of feel our way through it. I just said this a little bit before. So far, we are finding that our clients are expecting price increases from us. They're getting hit from all sides, so they are not that resistant to it.
It's new for our folks to push that. Like I say, we're coaching them to do it. They're going out and they're being, I'll say, appropriately aggressive about pushing the pricing. They're learning that the market is receptive to it, so it's kind of new to everybody.
So we are finding that we are able to increase our pricing to be able to keep up with our demands to increase the cost of labor. So far so good. Like I said, we continue to feel our way through it. We are optimistic and confident we're gonna be able to continue to navigate through it. We don't have any meaningful contracts that are so, that are old enough that we're, you know, out of the money on, you know, on labor.
Right.
I mean, we're not locked in, and we don't have these kinds of contracts that, you know, five years ago we set rates and had no escalators in it. Part of the benefit of kind of the term of our business right now.
Yeah.
-is that we are in a somewhat real-time pricing environment for a lot of the work that we do.
Then, Bruce, can you talk about rising interest rates and sort of how you think about that as it relates to your capital structure moving forward?
Right. You know, as it stands today, you know, we're fairly low leverage. You know, interest rates aren't necessarily, you know, consuming a lot of change in rates. You know, interest carry is not consuming a lot of capital here.
We think that, you know, the next, you know, in our near future, you know, as we grow, you know, debt will be a component of what we do, but we're not necessarily looking to lock in a large amount of capital today that we have to carry for a period when we don't really necessarily need it imminently.
I think, you know, rate movements long term are just gonna be a cost of playing for us. We'll sort of deal with rates when we need more capital. I don't think it's gonna be so highly leveraged ever that, you know, it is a huge negative drag on the capital structure here. Does that address what you're looking for?
It sure does. Great answer. Thank you very much.
All right. Thanks, Alex.
Thanks, Alex.
Thank you. We now have a follow-up from Brent Thielman of D.A. Davidson. Your line is now open.
Hey, thanks, guys. Just one more on the cash flow. It was particularly solid this quarter. Maybe just your thoughts on how that flows, Bruce, through the rest of the year.
Yeah. I think we're reaching a stride there. You know, again, our operating cash flow we believe is gonna be strong. We still consume cash for investment activity and for we probably won't be generating necessarily.
We've done the financing activity you know earlier this year. Certainly one of the things that you know we see over time here and the impact of the growth is that it generates cash. Sort of back to Alex's question of kind of how do we see interest rates affecting the business.
You know, we're looking for the growth to start generating more free cash flow that can be used for investment in additional growth. You know, I think we have solid trajectory this quarter for cash flow and, you know, expect that we can turn our Adjusted EBITDA into cash at, you know, pretty healthy rates going forward.
Okay, great. Thank you.
Thank you.
Thank you. There are no further questions at this time. Mr. Bowman, I turn the conference call back over to you.
Thank you, Candice. We'll wrap it up this morning. Thank you everybody for listening in, and thanks, Brent and Alex, for thoughtful questions and appreciate everybody being on the call. Thanks to all the Bowman employees for all the hard work and all the investors for the faith you put in us. I'm just not complacent. You know, work hard to build value here. Good morning, everyone. Thanks, operator. That's it.
That now concludes today's conference call. You may now disconnect your lines. Have a great day.