Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group Second Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Please note that many of the comments made today are considered forward-looking statements under the federal securities laws.
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 to 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 directly comparable GAAP information, the company's earnings, press release, and 8-K filed with the SEC and on the company's investor website at investors.bowman.com. Management will deliver prepared remarks for about 15 minutes, after which we 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 communication, 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 begin your prepared remarks.
Thank you, ma'am. Good morning, and welcome to the Bowman second quarter earnings call. I'm Gary Bowman, the Chairman and Chief Executive Officer of Bowman. I'm joined here this morning by our CFO, Bruce Labovitz. I'm happy that we're able to report on another successful quarter. Before starting, I'd really like to thank everybody on the team here at Bowman for all of the hard work. I'm very proud to lead this team here of committed and talented professionals on our journey as we realize our vision to become a half-billion dollar revenue company. This past quarter was a transition period for us, and with the pace we're running at, sometimes it's hard to believe we've yet to report on a full quarter as a public company.
In May, we took the first step on our journey by completing our IPO, and we immediately redoubled our efforts to increase scale by way of both organic growth and acquisition. In the second quarter, we continued successful execution of our business plan. We delivered record revenue and expanded backlog with a strong pace of new contracts and bookings. More important, our outlook is positive for the remainder of the year and beyond. Bruce will expand on this in a bit. As we mentioned before, one of our primary focuses is margin expansion through scale. We intend to accomplish this through both organic and acquisitive growth. Our first step towards achieving our objective of margin expansion is absorption of the recurring operational costs of being a public company, which we currently estimate to be around $3 million annually.
As we discussed during the roadshow, these incremental costs will be initially dilutive to our margins. Based on recent performance, we forecast that this dilutive impact will be offset once we achieve a net revenue growth of about $20 million over last year. We delivered gross revenue growth of 15% in the second quarter and 13% year-to-date. Far this year, revenue growth has been concentrated in our communities, homes, and buildings market, where we recognized 29% increase in gross revenue. This is consistent with the strong macroeconomic growth trends that we see in residential, commercial, and municipal development. The residential business, which includes multifamily, continues to exhibit an ever-increasing demand for lot inventory.
In the restaurant and convenience store area, our business with clients like Chick-fil-A and Circle K continues to grow robustly as these operators both expand their footprint and reconfigure existing stores to accommodate existing patterns of consumption. The data center market across the country is as strong as we've ever seen it, with Northern Virginia being right here in our backyard, being a region with some of the most rapid expansion and growth of data center facilities in the nation. Our transportation revenue was down 19% year- to- date, largely caused by finishing up two large design projects in Texas last year. Most of this reduction was subconsultant revenue, not net revenue. Government-sponsored transportation assignments represented over 90% of our transportation revenue in both 2020 and 2021. We recently announced a $10 million task order contract with Cook County, Illinois, and we've already gotten to work on this project.
We see growing momentum in the transportation sector, which we attribute largely to recovery from COVID. Many transportation projects that have been slow to get started are now being released with notices to proceed issues. An example of this effect is our City of Chicago $3.7 million Burley Avenue project. We were selected for this project well over a 1 year ago, but our contract and notice to proceed has just been recently awarded. The power and utility revenue remained flat compared to the first half of last year. However, in the second quarter, we saw a 13% year-over-year increase. We believe that the second quarter increase is much more representative of the positive trends we see in our power and utility practice.
We continue to focus on expanding our penetration of the utility market through our infrastructure fortification and support practice, which includes gas pipeline identification and replacement, along with utility undergrounding. We recently received notice of increases in our assignments from NiSource, Florida Power & Light, and Southwest Gas. Furthermore, our business with Peoples Gas is also growing and provides good growth opportunities well into next year. Our emerging markets, which include energy transition, water, wastewater, and mining, had a small decrease in revenue in the first half. The decrease in this market is primarily a result of a reduction in revenue from our largest mining client in Arizona, as the production was slowed last year due to COVID and has just recently begun to ramp back up. Copper prices have rebounded to all-time highs, but the mining operations take time to restart and return to higher production levels.
We've recently received significant new orders from ASARCO and Freeport-McMoRan, we anticipate significantly higher mining-related revenue in the second half of 2021. The water resources market is a very important component of our growth and M&A strategy, modest growth in this area helped to offset some of the reduced revenue in mining. I'm happy to announce the recent hiring of Jim Brezack and his staff to help expand our water resource practice out west. We're excited to add Brezack and Associates' portfolio of experience to ours. In the energy transition space, we're focused on solar and microgrids as key areas of growth, we're experiencing an uptick in requests for proposals related to microgrid design. We have an ongoing project with UC Berkeley to help develop a financial calculator for a neighborhood microgrid, we hope this can lead to a large-scale program.
Super optimistic about our prospects to grow our energy transition practice over the next couple of years. In the area of M&A, we recently closed on the acquisition of McFarland-Dyer & Associates in Atlanta. This is our first acquisition as a public company. McFarland-Dyer is about a 30-person firm located in the greater Atlanta area. Prior to this acquisition, Bowman already had a small Atlanta presence in Alpharetta. While many of McFarland-Dyer's core services overlap ours on a national basis, they immediately fill a void of dedicated survey, landscape architecture, and land planning resources in the Southeast. Before this acquisition, we generally subcontracted out these services in markets south of Charleston. Therefore, we see here opportunity for revenue synergy from day one. Bruce is going to go into some further detail regarding the economics of the transaction.
I fully expect McFarland-Dyer to be the first of several acquisitions we'll make over the remainder of this year. Our pipeline of M&A opportunities is robust, with firm sizes ranging from around $2 million-$15 million and over in revenue. Some of the prospects are in overlapping markets. Some are in markets we've expressly identified as areas for targeted growth. In all cases, the acquisitions will deliver an assembled workforce of skilled professionals that we can immediately utilize post-closing. Our guiding principles for acquisition include revenue synergies and post-deal organic growth, strong management teams committed to long-term success, diversification via geographic, market sector, or service line, and attractive valuations. The firms we're currently underwriting focus on general civil engineering, land planning, mechanical and electrical engineering, water resources, energy efficiency, utility services and transportation, and other energy-related services.
Given our current liquidity, we're confident we have the capital necessary to close on a meaningful number of the accretive acquisitions that are in our pipeline. I'm going to turn it over to Bruce to discuss our results. I'll come back with a few thoughts regarding the impending infrastructure bill before turning it over for questions. Bruce?
Sure. Thanks, Gary. Thanks, everybody, for joining the call. We've provided a good deal of information regarding our second quarter results in the press release last night. I'm only going to focus on items that warrant additional explanation. I'm going to start with a discussion of results and margins. Talk a bit about equity compensation. Talk about credit facilities, M&A. Close with guidance. Gross revenue for the second quarter was $26.5 million, up 15% over last year. Year-to-date gross revenue was $68 million, which is up 13% over last year. These increases include acquired revenue of $2.6 million for the second quarter and $4.5 million year-to-date. Net service billing, which we also refer to as net revenue, was $32.5 million, or up 20% from the second quarter, and $61.3 million or 18% year-to-date.
Net revenue growth outpacing gross revenue growth means not only we're growing, but we're producing more of our revenue in-house, and that's a positive. Adjusted EBITDA was $4.2 million and $8.3 million for the second quarter and year to date, representing a 12.9% and 13.5% adjusted EBITDA margin net respectively. The reduced margin in the second quarter is in large part the result of investing in growth and the costs of being a public company. Since net revenue is really the driver of profitability at Bowman as opposed to gross revenue, we focus on gross margin, net and SG&A as a percentage of net revenue as indicators of profitability. Both would be considered non-GAAP results. Let's start with gross margin, net. For the second quarter, our gross margin, net was 57%, and year to date it's 56%.
It's up around 1 percentage point each from 56% and 55% for the second quarter and year- to- date last year. The improvement of gross margin, net's derived from increased efficiency of direct labor, meaning a combination of higher multipliers and increased utilization. Gross margins generally independent of our status as a private or public company. It's also not typically affected by market mix. SG&A on the other hand, is impacted by our transition to being a public company. SG&A as a percentage of net revenue was 53% for the quarter and 49% year to date. This compares to 44% for second quarter and 47% year to date last year. We're up 9 percentage points in the quarter and just under 2 percentage points year to date compared to last year.
In the second quarter, in connection with our IPO, we had a bit over $1.4 million of one-time transaction expenses included in SG&A. Roughly 4% of net revenue or nearly half the increase. Adjusted to exclude these costs, SG&A as a percentage of net revenue was 49% for the three months ended June 30, 2021. We believe second quarter exclusive of the $1.4 million of one-time IPO costs is representative of baseline SG&A costs as a public company. We believe there's margin expansion to be created through a progressively increasing divergence between the rate of growth of net revenue and that of SG&A. Sales for the second quarter, also referred to as bookings, again outpaced revenue resulting in backlog on June 30 of $124 million, up $8 million from $116 million on March 31 and $11 million year-to-date.
We've seen no abatement in the pace of sales activity so far during the third quarter. Total stock-based compensation was $1.6 million for the quarter and $2.7 million year to date. This is up as would be expected from last year. Of the $2.7 million year to date, roughly $2.4 million is related to pre-IPO grants and grants disclosed in the S-1 in connection with the IPO. For the remainder of the year, we anticipate non-cash stock comp expense of approximately $5.3 million for a total 2021 non-cash stock comp expense of roughly $8 million. Of the $8 million, approximately $6.8 million will be associated with pre-IPO grants and grants disclosed in the S-1 in connection with the IPO.
It's approximately $21 million of future expense to be realized in connection with these grants, with approximately $8 million next year, $7 million in 2023, $5 million in 2024, the remainder in 2025. You'll see this chart in the 10-Q when it's filed. Our equity incentive plan was initially funded with 2.9 million shares, but as disclosed in the S-1, we used 1.5 million in connection with the IPO, leaving 1.4 million shares for future issuance. Beginning next year, we expect to reach an annual run rate of roughly 4% of outstanding shares for incentive compensation. Today we have a total outstanding share count of approximately 11.1 million shares, which includes all unvested shares and the shares recently issued in connection with the McFarland-Dyer acquisition. Our weighted average shares outstanding will take some time to catch up. As such, EPS this quarter is a bit inconsistent with reality.
At the end of July, we successfully renewed our revolving credit facility with Bank of America. While there were certainly changes to the terms, none of them were particularly material. We kept the line fixed at $17 million. We established SOFR as a replacement for LIBOR and reduced the spread slightly. As of today, we have $17 million available under the line. Combined with our cash balance, we have over $50 million of capital available. On the M&A front, on August 3rd, we closed on the acquisition of McFarland Dyer & Associates. Total consideration was $4.7 million, which included $700,000 of contingent purchase price. The purchase price included 32,000 shares of common stock that are restricted for a period of one year and $1.3 million of seller notes.
We estimate the multiple for this acquisition would be between 4.7x and 5.7x, depending on the ultimate contingent consideration at the end of the period. In the press release, we initiated 2021 guidance of $125 million-$130 million of net revenue and $15 million-$15.6 million of adjusted EBITDA. This implies a 12% adjusted EBITDA margin for the year with a net revenue range of $63 million-$68 million for the second half and adjusted EBITDA range of $6.7 million-$7.3 million. This does not include any acquisitions in our pipeline that may close through the remainder of the year. We generally experience a modest dip in fourth quarter revenue, so we would expect the remainder of the year to be a bit skewed to the third quarter, but not by a wide margin.
Reduction in margin this year over last is related to the absorption of investments in growth and public company costs. We're confident that we will reverse the trend in 2022. We'll begin talking in more depth about 2022 on our third quarter call in November. We now turn the call back over to Gary and look forward to rejoining you for Q&A.
Thank you, Bruce. I'd like to take just a moment here to address the $1 trillion federal infrastructure bill passed the Senate earlier this week. We're encouraged that this bill appears to have bipartisan support and will continue to monitor its progress. We expect to benefit from the ultimate passage of this bill given that the major components focus on areas that overlap our core business including improvements to roads and bridges, transit, electric grid, and all manner of water resources.
While we certainly expect to see an uptick in opportunities if this bill is ultimately adopted into law, our recent revenue and billings growth, as well as our growth in the backlog, demonstrate there's plenty of runway ahead of us without additional legislation, and we're excited about our near-term prospects as we continue to pursue our long-term growth strategy. I want to close again where I started. Thank everybody here on the Bowman team, their dedication to the company, their commitment to our clients, and the service to the communities which we operate. Now we'll turn the call back over to the operator for Q&A.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Brent Thielman with D.A. Davidson.
Hi. Thanks. Good morning. Congrats on a great quarter.
Thank you, Brent. Good morning.
The communities, homes, and buildings vertical, obviously fantastic growth there. I suspect residential is a big piece of that, but was hoping maybe you could dive into some of those pieces on the commercial portion. I think trying to get a sense of what might be transitory. You've talked about reconfiguring some of your customers' facilities related to COVID. Does some of that pass or is that continuing at a pretty rapid pace? Just wanting to get a sense of what that commercial portion is contributing to that segment.
It's roughly half and half residential, half commercial. Commercial being a lot of the data centers, probably largely, and a big portion of that, the restaurants, the C-stores, and so forth. Your question about is the increase in C-store, is there a transitory element to it because of reconfiguration? That aspect of that market is certainly somewhat transitory. It will go away over time. It'll have a pretty long shelf life because there are a lot of facilities that are being retrofitted over a long time. We came into COVID with some pretty robust new store growth in that area, and we still see robust new store growth. We really don't expect any transitory effect of, I'll say, the reconfiguration of drive-thru lanes and so forth to materially negatively affect that market in the near future.
Yeah. It actually, in both the second quarter and year to date, commercial increase outpaced residential just marginally. We definitely see a lot of strength there. That market, when one thing comes, another thing goes, another goes, another comes. This is where we are in this moment. This is what they're spending money on.
Okay. That's helpful. The transportation piece, appreciate the opening commentary, just some of the year-on-year comparable headwinds you have. Is that to say, as we work through the second half of the year, you're expecting sort of acceleration in that vertical?
I'd say for the rest of this year, I have the modest acceleration. Yes to the acceleration. What we're seeing is that that market probably as much, if not more so than any market that we are in, was slowed down by COVID. It was slowed down by just the necessity for the government agencies to approve notices to proceed. That slowed down much more than any other market that we were in. Maybe the mining market.
That's loosening up, so we're seeing a return to normalcy as far as notices to proceed, and we're seeing robust activity in transportation at its core.
Historically, I'd say transportation tends to have the highest ratio of sub work in it of the markets that we're in. When we talk about growth changes, as Gary mentioned, it's not always necessarily that we're losing net out of a reduction in transportation revenue. That's one thing that we'll try to maybe focus in on a little more as we talk about transportation in the future.
Okay. Any updates in terms of the power and utilities group? There's a lot of excitement out there, and maybe some opportunities in the stimulus as well. Just in terms of some new multi-year contracts you're pursuing, just wanted to get a sense what you're seeing out there in terms of new prospects in that vertical.
Down in Florida, we're looking to, in the 4th quarter, pick up a new client on undergrounding. Our NiSource work, as we've gotten notices from NiSource that they're increasing the pace of activity. Our Peoples Gas work, we've gotten notices from Peoples Gas about increases in activity there. We're certainly out shaking the branches for new clients. Lots of opportunities there. The market's robust.
Okay. Maybe just lastly, Bruce, I know you've had some extraordinary costs here in the first half. Maybe thoughts on operating cash flow as we work through the second half of the year?
Yeah. We're certainly in a growth mode. As we're investing in working capital and in growing, we're consuming cash, both operating and investing. I think that we'll probably see similar trend through the remainder of this year. In terms of not necessarily generating large excesses of operating cash flow, and then as margins expand next year and we settle into larger growth, progressively seeing that improve over the course of next year.
Okay. Thank you. I'll pass it on.
Your next question is in line of Alex Rygiel with B. Riley. Your line is open.
Thank you. Very nice quarter, gentlemen. Congratulations.
Thank you, Alex. Appreciate the note this morning, too.
You're welcome. A couple quick questions here. First on end markets. The residential market home builders have been incredibly busy in the first half of this year. Sounds like they got a little bit behind the curve in developing lots sort of during COVID 2020. Can you talk about that activity level on the residential side? Obviously, it's a little volatile, but have you seen any indications of the strength here diminishing anytime soon?
I can say the quick answer to that is no. We can't assume on that. I think it's fairly obvious to those who have gotten familiar with our business, that portion of the business that we serve is getting out in front of supplying that lot pipeline in the entitlement work, the design work, and so forth, and that appetite, it just continues to be voracious. The appetite for the end product is voracious. Even coming into COVID, there was almost a structural imbalance of supply of lots given the demand, and it's only been exacerbated, which is a good thing for us. That market's been behind the curve for probably the last five years, at least, in terms of building enough supply for demand. There's probably still a little of a pain from last recession. There's plenty of demand pent up.
Turning to the next end market would be data centers. I suspect that your answer is going to be somewhat similar, but I'll let you answer for sure. If you could talk about the diversity of that revenue stream across customers and maybe across geographies, and then take it another level and talk about opportunities to grow with those core customers in the future.
Our backyard, as we said in the prepared remarks, where Bruce and I are sitting, our headquarters here in Northern Virginia, it's kind of, I have to use this term, is kind of ground zero for data centers and maybe as well as some other things. Our data center work, we got involved in it five, six, seven years ago, serving Northern Virginia. We've expanded to Chicago, Dallas, Phoenix area. I'm sure I'm leaving some out there. That is an area where we're really discreet about who we'll work for. That's an area where we're really bound to confidentiality. The clients, we are expanding our client base, and through several of our M&A prospects, we're looking at expanding the services that we'll be able to provide to that market.
Looking to expand into some other geographies to expand the footprint that we serve that market. Maybe your base question is: Do we see any slowdown in that market? The answer to that is no. We've been working the residential market as long as we've been in business. We know that market like the back of our hand, feel a lot better about knowing the fundamentals of that market and what's driving it, and feel a lot more confident. I do, at saying, a bit of the continued potential in that market. The data center market just continues to grow. The fundamentals are there.
Last end market, transportation. Clearly, transportation is in the headlines with progress in D.C. In its aggregates, your transportation business is a little bit underweighted relative to some much larger sort of engineering peers. How do you think about changing your mix of business meaningfully with this very long-term visibility in funding and transportation and the upcycle that's about to start to develop there?
It's a big focus of our M&A activity. Whereas right now, with McFarland-Dyer being an example, $4 million - $5 million company. Over the rest of this year, we'll generally see acquisitions, I'll say, in that size range. That might be more representative. We may even have one this year, but there's several really good prospects. When we make acquisitions in the transportation market, the sizes will be multiples of that. That's how we're going to accelerate and really accelerate our presence in that market, is by M&A. We will not get there organically. If we put all of our organic growth efforts into transportation, simply just wouldn't get where we should be and need to be and will be.
It's very helpful. That's all I've got. Thanks, guys. Great quarter.
Thanks, Alex.
If you would like to ask a question, please press star, then the number one on your telephone keypad. There are no further questions at this time. Mr. Bowman or Mr. Labovitz, I'll turn the call back over to you.
Thanks, operator. Thank you everybody for being on the call this morning, and everyone for your interest, for your investment. For those who are on the team listening in, thanks for all the hard work. We look forward to getting back to you in three months and hopefully, I'm very optimistic for another very good quarter. Excellent.
Thanks everybody. Look forward to talking to people over the course of the next couple of days.
Thank you. This concludes today's conference call. You may now disconnect.