NV5 Global’s net income in the first quarter of 2024 fell sharply, primarily due to delays in federal spending associated with negotiations over a federal government funding resolution and the integration of the company’s two most recent acquisitions. But while the company expects to grow its more conventional design services, its style as the “nexus of engineering and technology” seems to be working, and its leaders predict solid profits for the rest of 2024.
The Hollywood, Fla.-based testing, compliance and design consultant reported first-quarter net income of $408,000 on revenue of $213.3 million, compared with $5.9 million in 184 .3 million in the same quarter of 2023.
However, NV5 (NASDAQ-NVEE) says it expects to post gross profit in the 50% range for the year and earnings before interest, taxes, depreciation and amortization (EBITDA) to reach 17%, levels at which other design companies aspire to.
How can you do this? ThThe company has developed its technology services through acquisitions of 62 companies, most of them since 2019, according to information on the company’s website. Through these acquisitions, NV5 has assembled a service mix that includes many specialized and highly technical services with higher margins than more traditional building design and infrastructure services.
The acquisitions were paid for with debt and stock offerings. All acquired companies are rebranded as part of NV5 Global.
While it is still looking to grow its conventional design work, civil, structural and mechanical design and consulting tends to have a lower profit margin, says Jack Cochran, vice president of marketing and investor relations.
The company was ranked No. 22 on ENR’s Top 500 Design Companies, with $934 million in revenue by 2023, about $60 million earned outside the U.S.
CJS Securities senior analyst Christopher Moore told senior executives on NV5’s earnings call that “your business model has certainly been evolving over the last couple of years.”
So far the changes seem to be working. NV5 performs a large amount of work related to data centers and public services, some of them related to supervision and certifications. It has a proprietary algorithm related to part of this work.
Also, about 10 percent of NV5’s revenue comes from software subscriptions, Wright said. And the company has recently strengthened its collection of companies, now up to seven, that perform geospatial services. “We are the largest geospatial data analytics company in the United States,” says Cochran.
For all its focus on acquisitions, half of NV5’s growth over the years has been organic, Cochran says.
High confidence in profits
With its robust markets and government funding now in place, the level of confidence in profits is high.
CFO Edward Codispoti said: “I expect we can get closer to a margin of 17% or so, 17% and change. The first quarter was 13.5%, but I would expect it to be higher “.
Additionally, NV5 forecasts GAAP earnings of $2.87 to $2.93 per share and adjusted earnings per share of more than $5, on revenue of about $942 million. And company executives at the investor conference last month noted that they forecast gross profit for 2024 of $112.8 million, compared with $96 million last year.
Answering a question on last month’s earnings call for investors about the sustainability of the company’s gross margin: revenue minus the direct cost of earning it without other overall company costs.—CEO Wright responded, “I would suspect that number, if you say 53%, we expect our margin to be better than that as we go forward,” as the company integrates its latest acquisitions. CFO Codispoti agreed.
