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's 2nd 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.
Please note that many of the comments made today are considered forward looking statements under 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 ks 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 and A from the webcast attending. 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. Welcome to the Bowman Second Quarter Earnings Call. I'm Jerry Bowman, the Chairman and CEO of Bowman. I'm joined here this morning by our CFO, Bruce Abramovitz.
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 $500,000,000 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 Q2, 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 of 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 $3,000,000 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 $20,000,000 over last year. We delivered gross revenue growth of 15% in the 2nd quarter and 13% year to date.
So far this year revenue growth has been concentrated in our communities, homes and buildings market where we've 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 AAA and Triple 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 expansion and growth of data center facilities in the nation.
The transportation revenue was down 19% year to date, largely caused by finishing up 2 large project 2 large design projects in Texas last year. Most of this reduction was subconsultant revenue, not net revenue. Government sponsored transportation assignments represented about over 9% of our transportation revenue in both 2020 2021. We recently announced $10,000,000 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 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 $3,700,000 Burleigh Avenue project. We were selected for this project well over a 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 Q2, we saw a 13% increase year over year increase.
We believe that the 2nd quarter increase is much more representative of the positive trends we see in our power 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 increasing our assignments from NiSource, Florida Power and 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, waste Water 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. The mining operations take time to restart and return to higher production levels. We've recently received significant new orders from North Sarco and Freeport McMoran and we anticipate significantly higher mining related revenue in the second half of twenty twenty one. The water resources market is a very important component of our growth in M and A strategy and modest growth in this area set similar to reduced revenue in mining.
I'm happy to announce the recent hiring of James Briesak and his staff to help expand our water research practice out west. We're excited to have Briezak and Associates portfolio experience to ours. In the energy transition space, We're focused on solar and microgrids as key areas of growth, and we're experiencing an uptick in request for proposals related to microgrid design. We have an ongoing project with UC Berkeley to help develop a financial calculator for a neighborhood microgrid, and 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 area M and 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 While many of McFarland Dyer's core services overlap hours 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 as these services in markets south of Charleston.
Therefore, we see here opportunity for revenue synergy from day 1. Bruce is going to go into and 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 and A opportunities is robust with firm sizes ranging from around $2,000,000 to $15,000,000 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 acquisition to deliver 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 electrical engineering, water resources, energy efficiency, utility services and transportation and other energy related services. Given our current liquidity, we're confident we have capital necessary to close on a meaningful number of the accretive acquisitions that are in our pipeline. Now I'm going to turn it over to Bruce to discuss our results, then I'll come back with a few thoughts regarding the pending 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 quarter results in the press release last night.
So I'm only going to focus on items that warrant additional explanation. I'm going to start with a discussion of results and margins, then talk a bit about equity, equity compensation, talk about credit facilities, M and A and then close with guidance. Gross revenue for the Q2 was $26,500,000 up 15% over last year and year to date gross revenue was $68,000,000 which is up 13% over last year. These increases include acquired revenue of $2,600,000 for the 2nd quarter and $4,500,000 year to date. Net service billing, which we also refer to as net revenue, was up was $32,500,000 or up We're producing more of our revenue in house and that's a positive.
Adjusted EBITDA was 4,200,000 and $8,300,000 for the 2nd quarter year to date, representing a 12.9% and 13.5% adjusted EBITDA margin net, respectively. The reduced margin in the 2nd quarter is a 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 development as opposed to gross revenue. We focus on gross margin net and SG and 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 2nd quarter, our gross margin net was 57% year to date 56%. It's up around 1 percentage point each from 56.55 for the 2nd quarter year to date last year. Improvement of gross margin nets 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 not typically also not typically affected by market mix. SGA, on the other hand, is impacted by our transition to being a public company. SG SG and A as a percentage of net revenue was 53% for the quarter and 49% year to date. This compares to 44% for 2nd quarter and 47 year to date last year. So we're up 9 percentage points in the quarter and just under 2 percentage points year to date compared to last year.
In the Q2, in connection with our IPO, we had a bit over $1,400,000 of one time transaction expenses included in SG and A, roughly 4% of net revenue or nearly half the increase. Adjusted to exclude these costs, SG G and A as a percentage of net revenue was 49% for the 3 months ended June 30, 2021. We believe second quarter exclusive of the $1,400,000 of one time IPO costs. He is representative of baseline SG and A costs as a public company. We believe there is margin expansion to be created through a progressively increasing divergence between the rate of growth of net revenue and that of SG and A.
Sales for the Q2, also referred to as bookings, again outpaced revenue resulting in backlog on June 30 of $124,000,000 up $8,000,000 from $116,000,000 on March 31, and $11,000,000 year to date. And we've seen no abatement in the pace of sales activity so far during the Q3. Total Stock based compensation was $1,600,000 for the quarter $2,700,000 year to date. This is up as would be expected from last year. Of the $2,700,000 year to date, roughly $2,400,000 is related to pre IPO grants and grants disclosed in the S-one in connection with the IPO.
For the remainder of the year, we anticipate non cash stock comp expense of approximately $5,300,000 for a total 2021 non cash stock comp expense of roughly $8,000,000 Of the $8,000,000 approximately $6,800,000 will be associated with pre IPO grants and grants disclosed in the Eslon in connection with the IPO. Approximately $21,000,000 of future expense to be realized in connection with these grants, approximately $8,000,000 next year, $7,000,000 in 2023, dollars 5,000,000,000 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 2,900,000 shares, but as disclosed in the S-one, we used 1,500,000 in connection with the IPO, leaving 1,400,000 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 11,100,000 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. And 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 $17,000,000 We established SOFR as a replacement for LIBOR and reduced the spread slightly. As of today, we have $17,000,000 available under the line. Combined with our cash balance, we have over $50,000,000 of capital available. On the M and A front, on August 3rd, we closed on the acquisition of McFarland Dyer and Associates. Total consideration was $4,700,000 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 1 year and $1,300,000 of seller notes. We estimate the multiple for this acquisition would be between 4.75.7 depending on the ultimate contingent consideration at the end of the period. In the press release, we initiated 2021 guidance of $125,000,000 to $130,000,000 of net revenue and $15,000,000 to $15,600,000 of adjusted EBITDA. Supplies a 12% adjusted EBITDA margin for the year with a net revenue range of $63,000,000 to $68,000,000 for the second half and adjusted EBITDA range of $6,700,000 to $7,300,000 This does not include any acquisitions in our pipeline that may close through the remainder of the year. We generally experienced a modest dip in 4th quarter revenue, so we would expect the remainder of the year to be a bit skewed to the 3rd 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 and our Q3 call in November. I'll now turn the call back over to Gary and look forward to rejoining you for Q and A. Thank you, Bruce.
I'd like to take just a moment here to address the $1,000,000,000 federal infrastructure bill passed to the Senate earlier this week. We're encouraged that this bill appears to have bipartisan support and we'll 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, and 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 as this bill is ultimately adopting the law, our recent revenue and billings growth Well, as our growth in the backlog demonstrates there's plenty of runway ahead of us with 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 you, everybody here on the Bowman team, their dedication to the company, their commitment to our clients and the service to communities which we operate. And now I'll turn the call back over to the operator for Q and
A. Thank you. And 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, Brad. Good morning.
The Communities, Homes and Buildings vertical, obviously, fantastic growth there. Suspect residential is a big piece of that. I was hoping maybe you can dive into some of those pieces on the commercial portion. I think trying to get a sense of what might be transitory, you talked about reconfiguring some of your customers' facilities related to COVID, to some of that pass or is that continuing at a pretty rapid pace? Just wanted to get a sense of what that commercial portions contributed to that segment?
It's roughly half and half residential, half commercial, commercial being large for data centers and what probably largely and a big portion of that, the restaurants and C stores and so forth. So your question about is the increase in C store, is there a transitory element to it Because of reconfiguration, that aspect of that market Yes, it is certainly somewhat transitory. It will go away over time. It will have a You'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.
So we really don't expect any temporary effect of, I'll say, the reconfiguration of drive thru lanes and so forth to materially May the effect that market in the near future. Yes. It actually in both the Q2 year to date, commercial increase outpaced residential just marginally. And so we definitely see a lot of strength there That market when one thing comes, another thing goes, another goes, another comes. So this is where we are in this moment.
This is what they're
Okay. That's helpful. The transportation piece, per shift, the commentary or the opening commentary, just some of the year on year comparable headwinds you have. I mean, it's not 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 a modest acceleration. Yes, the acceleration. What we're seeing is 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 for the necessity for the government agencies to approve notices to proceed. So that just That slowed down much more than any other market that we were in, maybe the mining market.
But 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 core. Historically, I'd say transportation tends to have the highest ratio of sub work in it of the markets that we're in. So 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. So Yes.
One thing that we'll try to maybe focusing on a little more as we talk about transportation in the future.
Okay. And any updates in terms of the Power and Utilities Group? I mean, there's a lot of excitement about there out there and Maybe some opportunities in the stimulus as well. Just in terms of some new multiyear contracts you're pursuing, just wanted to get a What you're seeing out there in terms of new prospects in that vertical?
Down in Florida, We're looking to in the Q4 pick up a new client on undergrounding. We are our NiSource work as we've gotten notices from NiSource that They're increasing the pace of activity. People's gas work, we've gotten notices from people's gas, about increases in activity there. We're certainly shaking the branches for new clients and lots of opportunities there. The market is 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?
Yes, we're certainly in a growth mode. So as we're investing in working capital and 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 start as margins expand next year and settle into Larger growth, we are progressively seeing that improve over the course of next year.
Okay. Okay. Thank you. I'll pass it on.
Your next question is from the 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, Joe. You're welcome. A couple of
quick questions here. First on end markets, the residential market homebuilders 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 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 was no. I'm not taking it. It's mostly canceling that. And obviously, I think it's fairly obvious that we've gotten to near with our business. That portion of that business that we serve is getting out in front of supplying that pipeline, doing the entitlement work, the design work and so forth.
And That appetite just continues to be voracious. The appetite for the end product is voracious. But 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. I think that market has been behind the curve for probably the last 5 years, at least In terms of building enough supply for demand, I think there's probably still a little of pain from last recession. And so there's plenty of demand pent up.
So 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. But 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.
So we our backyard, as we said in the prepared remarks where Bruce and I are sitting in our headquarters here in Northern Virginia. It's kind of And Vicky, this term is kind of ground 0 for data centers and maybe as well some other things. But So our data center work, we got involved in it 5, 6, 7 years ago serving Northern Virginia. We've expanded Chicago, Dallas, Phoenix area. I'm sure I'm leaving some out there.
So we have and that is an area where we're really discreet about who we'll work 4, that's an area where we're really down to confidentiality. But The clients, we are expanding our client base and through several of our M and A prospects. We're looking at expanding the services that we'll be able to provide to that market and looking to expand in some other geographies to expand the footprint that we serve that market. To your maybe your base question is, do we see Any slowdown in that market? And the answer to that is no.
Should be We've been working in the residential market as long as we've been in business. So 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 have a thing of of the continued potential in that market. The data center market just continues to grow
And then last end market transportation. Clearly transportation is in the headlines with progress in DC. 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 and A activity. And whereas right now, The following day, I'll be an example, dollars 4,000,000 or $5,000,000 company. Over the rest of this year, we'll generally see acquisitions, I'll say, in that size range that might be more representative. And we may even have one this year, but there's several really good prospects.
And when we make acquisitions in the transportation market, the sizes will be multiples of that. So That's how we're going to accelerate and really accelerate our presence in that market is by M and A. We will not get there organically. This is for all of our organic growth efforts into transportation. Simply, this wouldn't get where we should be and need to be and will be.
Very helpful. That's all I've got. Thanks, guys. Great quarter.
And there are no further questions at this time. Mr. Bowman or Mr. Lebovitz, I'll turn the call back over to you.
Thanks, operator. Thank you everybody for being on the call this morning and All that are 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 3 months and hopefully and 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.