Bowman Consulting Group Ltd. Q2 FY2025 earnings call

• The second quarter marked growth due to strong demand in core verticals like Transportation, Renewables, and Energy Transmission. New orders were strong in these areas.
• Record gross contract revenue ($122M), net revenue ($108M), adjusted EBITDA ($20.2M) with 18.7% margin. Adjusted EBITDA margin up 440 basis points YOY and 420 points QOQ.
• Backlog at end of Q2 was nearly $87M, 25% higher YOY and 5% higher QOQ. Balance sheet healthy with low leverage (1.6x trailing 4 quarters adjusted EBITDA).
• Launched Bowman Innovative Growth Fund (BIG Fund) focusing on geolocation, GIS, digital imaging, AI tools to drive innovation and margin expansion.
• Reclassified data centers to Power market sector due to their energy-intensive nature and integration with power infrastructure.
• Impact of One Big Beautiful Bill: reversion to 100% bonus depreciation and elimination of R&D amortization requirements, positively affecting earnings per share.

The second quarter saw 17% increase in gross contract revenue and 15% increase in net service billing. Organic net service billing growth was over 8%. Adjusted EBITDA grew almost 51%. Vertical-wise, organic growth rates were: Transportation at 21%, Natural Resources & Imaging at 19%, Power Utilities and Energy at 5%, and Building Infrastructure at 4%. Revenue composition evolved with Transportation broken down into ports, harbors, mass transit; Natural Resources & Imaging had ~50% public funded digital ortho imaging for federal customers; Power Utilities and Energy included power transmission with recent wins; Building Infrastructure saw market rebound with wins in retail and residential segments.

• Raised 2025 full year guidance for net revenues to $430 million to $442 million and adjusted EBITDA to $71 million to $77 million.
• Mid-year projected adjusted EBITDA margin of 17%, expecting second half average margin over 17%.
• Anticipate similar growth pattern to last year with momentum building in second and third quarters, accelerating midyear and leveling in fourth quarter.

• Uncertainties associated with forward-looking statements.
• Labor cost inflation which could impact margins.
• Macro-economic factors that might affect revenue growth and margin expansion.
• Risks related to execution of innovation initiatives and realizing expected returns from the BIG Fund.

Q: Talk about Transportation segment growth, areas of strength, and pipeline.

A: Significant synergies from acquisitions and public spending, with wins in construction management, engineering services, bridge renewal, highway design, and strong backlog.

Q: Color on Power and Utilities, energy transmission business size and outlook.

A: Energy transmission is a significant part of the Power and Energy segment, with geospatial group wins and acquisition of Surdex enabling growth in power transmission work.

Q: On operating leverage, operational capacity and investment needs.

A: Managing labor to meet demand, investing in innovation for technology-enabled services to leverage workforce into higher return multiples.

Q: On margins in second half, considering macro environment.

A: Quarterly margins vary with revenue and labor timing; confident of higher collective margin in second half than first half despite labor inflation impacts.

Q: Time lines for BIG Fund deployment.

A: Opportunistically open-ended, with investment committee assessing ideas, funding pilot programs in various groups, expecting returns over time.

Q: M&A pace, impact on organic business and future plan.

A: M&A pace ebbed, allowing focus on organic growth and efficiencies; will continue to be acquisitive with larger, less frequent deals.

Q: Stock-based comp change, impact on income statement and employees.

A: Restructured stock-based comp to realign, still committed to aligned employees, with focus on balancing non-cash and cash components.

Q: Update on Building Infrastructure Group and reshoring impact.

A: Building Infrastructure market rebounded, with reshoring expected to be a tailwind in the long run, though not immediate.

Q: Bidding on larger contracts and future trend.

A: As company grows into new markets, bidding on and winning larger projects, with average contract size expected to increase.

Q: BIG Fund and recurring revenue potential.

A: BIG Fund aims to create recurring revenue streams by moving from CapEx to Opex mindset for customers.

Q: Impact of One Big Beautiful Bill on customers' project pipelines and operations.

A: Accelerated depreciation affects investment decisions, calms uncertainty, and may accelerate renewable energy permitting activity.

Q: Driving growth in Natural Resources and runway.

A: Growth driven by acquisition of Surdex and allocation of new services, with strong growth in high-altitude orthoimagery, photogrammetry, and work for Department of Agriculture programs, with remaining runway in related segments.