Bowman Consulting Group Ltd. Q3 FY2025 earnings call

• The third quarter marked a milestone as Bowman surpassed a $500 million annualized gross revenue pace.
• Delivered 11% year-over-year growth in both gross and net revenue and a 7.6% growth in adjusted EBITDA while maintaining healthy cash flow generation and a solid balance sheet.
• Backlog grew nearly 18% year-over-year to $448 million.
• Investments in innovation via the BIG Fund, including advancing AI-enabled asset control kits and other technology-related initiatives.
• Completed upgrade of accounting and enterprise management platform.
• Enactment of OB3 led to release of deferred tax assets and reduction of tax accruals.

For the third quarter, absolute revenue growth was broad-based. Transportation saw a 20% increase, Power, Utilities & Energy had a 17% increase, Building Infrastructure grew 8%, and Natural Resources & Imaging saw a slight decline. In terms of backlog contribution, Building Infrastructure accounted for 38%, Transportation 30%, Power and Utilities 23%, and Natural Resources & Imaging 9%. Organic net revenue growth for the quarter was 6.6%, with Building Infrastructure growing 6%, Transportation up 10%, Power and Utilities up 13%, and Natural Resources & Imaging up around 1%. Gross margins by vertical in the third quarter were 56% for Building Infrastructure and Power and Utilities, 57% for Natural Resources & Imaging, and 46% for Transportation.

• Reaffirmed full-year 2025 guidance.
• Initiated 2026 guidance: net revenue between $465 million and $480 million and an adjusted EBITDA margin between 17% and 17.5%.

• Government shutdown causing delays in project progression and invoicing collections within select federally supported programs.
• Labor market challenges in hiring qualified staff.
• Competitive pressure from larger specialty contractors offering total solutions packages.

Q: Some of the larger specialty contractors have mentioned total solutions packages. Do you see this creating competitive pressure in your data center business?

A: No, I don't think that that's going to impede on any of the work that we do. I think it's similar to any trends in design build or that don't necessarily compete with other industries. I think it's a big market. And even when firms offer complete solutions, they end up subcontracting a good portion of that to specialized contractors like us anyway. So I don't think that's a real threat.

Q: On M&A, are there specific service lines or regions where you still see gaps relative to your growth objectives?

A: Yes. We're really focused on some of these markets that we've been focused on expanding into for years now, especially transportation, certainly power and energy and data centers and also water-related opportunities as they come along. No specific regions we're focused on. We find the, I'd say, usual suspects appealing Texas, California, the Southeast, but we're not particularly focused on any particular region in the U.S.

Q: It looks like the fourth quarter guidance here for '25 is implying a bit of a revenue acceleration to something in the double digits. Bruce, I was just wondering if you could comment on which end markets you think will pick up the growth rate here as you move into fourth quarter and what gives you confidence in that?

A: The pick up is a couple of days' worth of work. It's not -- I don't know that I would necessarily say it's anything extraordinary. We think that across the board, we've got a healthy backlog of work that's making its way through. Sales are strong and a lot of the sales have been strong in what we consider to be shorter-term turn contracts, areas we can earn revenue relatively quickly. So we have a good sense that with what would be a couple of days' worth of improvement in the fourth quarter, we can grow revenue.

Q: As it relates to data centers, can you talk a bit about bidding opportunities and how you see that progressing sort of in 2026 versus maybe 2025 and 2024?

A: Yes. Alex, it's certainly tailwinds in that market. So there are continuing greater number of opportunities. The facilities are getting larger. Really as the data centers, we've spoken to this is, with AI as opposed to before the lack of being critical to be located proximate to fiber just provides a lot more opportunities for data centers spread out across the country. We're seeing lots of drivers to locate data centers near natural gas to power them. And our acquisition of e3i, as an example, just has expanded our network. So that in itself expands our opportunities.

Q: Maybe first on Building Infrastructure. Can you kind of talk about how you're thinking about growth in that segment in 2026?

A: Well, the -- nice thing about our business is the skill set that we apply to Building Infrastructure is transferable to many of our other markets. So we do move that labor around readily. We're seeing with the interest rate decline, we're seeing projects come off the shelf earlier in the year and was a little more localized geographically. As we come into the end of the year here, we're seeing it more broadly across the geographies that we're located in. So we're probably looking at in 2026, maybe as we allocate labor, I would bet the directionality would be some labor allocated toward the Building Infrastructure as opposed to away from it.

Q: I wanted to dive into a specific segment of the backlog. If you look at power and utilities, it looks like it's on a trajectory to double from where it was in the middle of 2024. Where are you seeing the strongest backlog growth there? And is this the segment that you're most focused on for M&A?

A: We're seeing it certainly in the linear projects, the transmission corridors -- we've included data centers in there now. So our data center activity certainly is growing that. Is it -- I wouldn't say it is the primary focus of M&A, but it is one of a couple of primary power and utilities, energy, certainly transportation if I pick areas that we're really focused on and the opportunities that really -- we find exciting.

Q: Just a quick question on some of the comments you made about hiring. So you guys are -- said you're in hiring mode. And then I just wanted to sort of understand with some project delays and this growth that you're experiencing, how would you characterize sort of the growth cadence in 2026 versus previous year?

A: I think one thing we're hoping for, for next year, the first half of this year was a relatively chaotic time with a lot of disruption associated with uncertainty around tariffs and other economic issues. And so I think that, that stifled the first half a little bit. So hopefully, ex that factor, we'll see a little bit more balanced growth first quarter, second quarter of next year into third and kind of through the end of the year. So I think our cycles are relatively the same. Hopefully, there'll be maybe a little bit more calm with rates lower and some of the transition issues behind us.