NV5 Global, Inc.
(NASDAQ: NVEE)
Chairman, CEO, and President: Dickerson Wright
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INTERVIEW TRANSCRIPTS:
WSA: Good day from Wall Street, This is Juan Costello, Senior Analyst at the Wall Street Analyzer. Joining us today is Dickerson Wright, the CEO, President and Chairman of NV5 Global, Inc. The company trades on NASDAQ, ticker symbol is NVEE. Thanks for joining us today Dickerson.
Dickerson: Thank you Juan and good morning everyone. I’m very pleased to speak with you today.
WSA: Always good to have you on. So for some of our listeners that didn’t catch our last interview, can you provide us with a history and overview.
Dickerson: Yeah, sure. We have grown quite a bit since our last interview. We were a very small micro-cap company, went public in 2013 in March, and market cap was about 25 million. We went public at $6 a share with a warrant and the raise was actually under $10 million. And so since then we’ve been very fortunate to have steady progress, and now our market cap is about 375 million since 2013. The stock is trading today at a little under $36 a share, over $35. We’ve succeeded in doing two raises. When we went public, we were under 6 million shares outstanding, now we’re at 10,000,200 shares outstanding, and our earnings per share has increased significantly. I believe it’s around $1.62 on adjusted earnings per share and slightly under that on GAAP, so we’re happy. We’ve grown the company—our revenues at the IPO were around $68 million and now we’re projecting a run rate revenue of over 300 million entering into 2017. Very supportive investors and the market and infrastructure space seems to be moving along very nicely now. So that’s what I’m pleased to report.
WSA: Great. Please bring us up to speed on some of your recent news, including quarterly results and your JBA Consulting Engineers acquisition.
Dickerson: Okay, great, yes. We wish our business was linear where we could just have the foresight to predict revenue quarter by quarter. Unfortunately our clients look at longer term contracts and so sometimes contracts are subject to delay, sometimes contracts get accelerated. So in this case, we had a very strong quarter. Our quarter was year-over-year significantly up over 2015 same time. We had organic growth quarter-over-quarter but we watched through significant project delays in the New Jersey – the political impasse in the New Jersey transit authority where there was a gas tax increase that finally went into law and those projects are starting in the fourth quarter.
We also had some erosion in our pipeline business, which we now have converted from fewer staffing inspection business to more of a compliance business and in pipeline integrity business. And this is really following and supporting the new federal mandate of the PIPES Act. So having said that, still a strong quarter, still growth in earnings per share, still growth in revenue, still organic growth quarter-over-quarter and even with the delays in the projects we had organic growth for the quarter of 1% but if those projects would have continued on just in a normal [progression] without being delayed, our organic growth would have been 8%.
Speaking of JBA, very exciting acquisition for us; we have as you know, Juan, we have five verticals of service. Our universe is really doing well in each of those five verticals that’s why we are called NV5. There’s no magic to it. It could be NV27 if we feel we have the leadership and the market opportunity to be in another service vertical. But one of those five verticals is energy. And our energy is not dependent on energy production. It is more inside the building envelope and is dependent on energy updates, standby power. And we’re in the Pentagon right now; we’ve been embedded there for years. We’re in five embassies around the world through the acquisition of Sebesta. So now the acquisition of JBA is truly a leading edge mechanical electrical plumbing design firm specializing in fire safety and noise acoustics and anything in the hospitality industry that is not dependent on new construction so to speak. It’s really dependent on advanced updates in energy.
So JBA has a very long-term successful office in Hong Kong and Macau, and they’re in Las Vegas with the casinos projects bringing us worldwide. So we love that business because it is not construction cycle dependent but it’s constant input in energy efficiency and it will transport or be a platform for our other services—environmental services when we look at building, we’re always looking at indoor air quality so that supports the other verticals. Just a comment though on the energy side; we do a tremendous amount of energy work with utilities that produce energy, Sino Gas and Electric, Exxon, Florida Power & Light, many, many power companies in that space. But that’s really handled in our infrastructure vertical. So JBA is real exciting— if you put JBA and Sebesta together, they probably put us in the top ten of mechanical and plumbing companies in the US. So we are very, very pleased with the acquisition.
WSA: Well great. And so what are the key trends that you’re focusing on right now in the sector and how are you continuing to position the company to capitalize.
Dickerson: Well I’ll say this. We’re very pleased to be in the space, we’re in infrastructure. And in fact I got a call from one of our key investment bankers after the election. And he said it sounds like the President Elect said to buy NV5 stock because he really spoke on the need for infrastructure and that’s a space we’re in. We are in with departments of transportation, many municipalities and we’re known in that space of supporting infrastructure. So that of course is very good for us. So, we do have many other service offerings but infrastructure is what leads the other verticals and we want to approach our client at the highest level.
We think the opportunity infrastructure with municipalities is even going to be more opportunistic than just the state transportation or state infrastructure agencies because there will be federal grant money involved. And the local municipalities really do not have on staff the expertise to go after the grants needed, the design boards needed, the request for proposals needed and that’s really a space that we’re in.
The funding in the company is about our balance sheet. We’re fairly unique. We don’t really believe in leverage. We’ve grown from that 68 million to the 300 million run rate in revenue with very little leverage at all. Our enterprise debt is less than 1:1 as you know it very well. And the only debt we have on our balance sheet is acquisition of Sebesta about 16 million. Even after this acquisition of JBA, we still have about 22 million in cash and positive cash flow of about 6 million a quarter in our business. But having said that we did two significant raises of equity in May of last year, 2015, we raised 32 million. And in May of this year, we raised another 51 million putting more stock out there but accretively.
So that has also given us the cash for acquisitions and we deployed most of that down to that 21 million or so that I mentioned. But right now and this is newsworthy since we released it, we have entered into an agreement with a financial institution for 140 million dollar line of credit because we believe debt is much better financing than equity. We haven’t used it but it’s an 80 million feature with a 60 million accordion. So we’re well positioned to grow the company significantly past the 300 million because we have a credit vehicle in place now. We’re cash flowing and we really have little debt. We have no operating debt, the only debt we have as I said is through acquisition. So, I always knock on wood which is my head, but I think we’re in very good place right now.
WSA: And what are some of the other key factors, Dickerson, that you feel make NV5 unique from some of the other players in the sector?
Dickerson: Well, what we preach to ourselves and to anyone that will listen, the most important thing and a differentiator for NV5 is to have a very flat organization. We think we can compete with many, many big national players when you put the best person forward in front of the client. So our organization is designed so that our real leaders, the CO who is running each of those verticals, are really the face of the client. We can compete very, very competitively with big national firms in the geographical area where we are because we can put our best people forward. We believe that an organization has to be designed so that it allows our people to do what they do best; meet with the clients, grow the business, add efficiencies and improve the profitability and organic growth above our industry competitors.
And to do that we believe in having an organization that is designed to look outward, look to growth and not to be internalized. So we don’t believe in transformational acquisitions where we’re worried about clients being shared or geographical location is the same where we have to worry about real estate. We have people thinking internally, we want our people thinking externally. So when they think internally, I liken it to—they may say many things but when you make an acquisition and it’s a large acquisition, your real key people that are supporting that integration and supporting that growth, they have a little music playing in their head and they’re waiting for the music to stop and grab that share. And we don’t want that, we don’t want people thinking that they have to worry about where their place is going to be.
So the key to our successes and challenges is keeping our organization flat, make acquisitions that are easily identified as supporting the existing five vertical structures, and to keep the organization from not internalizing over integrations or acquisition. So it’s easier said than done. But our secret is that we’ve had a management team with us for many years, some going over 25 years have been with me. This is the second public company we’ve done together. But the key really is to have that organization that is thinking out there, thinking towards organic growth and thinking of profitability not thinking of “am I going to have a job” and “what is it going to be.” So I think that’s what our challenge is.
WSA: And what are the other main goals and milestones you’re hoping to accomplish over the course of the next 6 to 12 months?
Dickerson: Well, our industry and I think it will improve now because of the infrastructure politics involved. Our industry has had relatively flat organic growth. We are considered by our industry to be a rollup strategy but rollups do not work if it’s on pure financial. So we have to add value and that’s the only reason we will do an acquisition is that we know that we are perceived by the seller to add value and we really see a place for the selling company within our organization. So how do you measure that? We are projecting organic growth between 8% to 10% and we’ve grown organically over 9% since inception and we’re very proud of this, we’re not boastful but we’re proud that we’re able to grow organically while still integrating all of these acquisitions. So we think we’re looking at 8% to 10% organic growth over the next year. And we’re looking at profitability significantly above the upper 5% in our industry. So we projected to the world that we’re going to be 12% to 15% EBITDA on net revenues and that’s significantly above the industry. So that’s where we’re going on operation and we think we’re going to grow significantly by acquisitions also.
WSA: So as far as investors in the financial community are concerned, what are some of your key drivers that you wish perhaps say better understood about the company?
Dickerson: Well, I think in any services, and in particularly our business you’re really betting on the management. And I can tell you this, as we like to say at some of our presentations, “been there done that.” Our management team has been together with processes for the five things that we have in integration which are finance, human resources, risk management, a robust branding IT capability and M&A. This whole team had been with me and been with us together well over 20 years.
So we know the process, we know how fragile of an industry this is and we know that just to stay focused on what we’re doing with our management team—We think that is what investors should be very interested in. And this is not the first time we’ve done it, imagine I think we have some pretty giddy investors that were with us at $6 in the IPO and now kinda had a warrant for free, doubled that and now the stock is trading at $35 a share that’s like a 600% return. But we think that if you look at our EPS, it’s still very modest. So there’s still quite an opportunity for investors. So I think you measure those things by, is the company growing organically, is the company profitable and is the valuation still in reach. And so I think that’s what makes a very good opportunity for our listeners and potential investors.
WSA: Certainly so, once again joining us today is Dickerson Wright, the Chairman, CEO and President of NV5 Global. The company trades on NASDAQ, ticker symbol NVEE. As mentioned they are currently trading at $35.80 a share, market cap is about 370 million and before we conclude, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Dickerson: If you want a company that’s had a track record of growth, in particularly since the time we’ve been public before that. A company whose had—our acquisition person have been us since 1998. We’ve had a record of making acquisitions that we’ve integrated and grown. So if they want a company that is growing organically above the industry, more profitable than the industry and priced at earnings per share still relatively as an opportunity and has gone up 600% in valuation and has gone up five times in market cap just since we went public. I think that we have a clear runway ahead of us for future opportunity and growth. So I think those are the key things, The drivers to watch; organic growth, profitability, and integration of potential acquisitions, and those are the three things that we think we do very well.
WSA: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. And we’d like to thank you for taking the time to join us today Dickerson.
Dickerson: I’d like to give some kudos to your firm and the Analyzer, you remembered us very early on and so I think for your listeners , it underscores the value that the Wall Street Analyzer can bring to your listeners because you’re finding companies [early on] and found us when we were very small and followed us from that point.
WSA: Yeah, I appreciate the feedback and it’s always good to find undiscovered gems and see them take off.
Dickerson: Well, thank you very much for the opportunity today, Juan. We appreciate your continued interest and your listeners’ continued interest in NV5.
