# Bowman Consulting Group Ltd.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Bowman Consulting Group Ltd.](/companies/bwmn.md) (CIK 1847590)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 16:06 ET
- Period: 2023-09-30
- Accession: 0001628280-23-037343
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1847590/000162828023037343/bwmn-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1847590/000162828023037343/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $94.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $253.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $45.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $124.1m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $41.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $113.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $2.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $3.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$62.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 13,793,120 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 13,437,841 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $12.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $2.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $3.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $14.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $145.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $354.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $98.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $199.8m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $24.3m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $154.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 71,018 characters.

*The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to several factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes, and other uncertainties, as well as those factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report on Form 10-K”) filed with the US Securities and Exchange Commission and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Cautionary Statement about Forward-Looking Statements,” all of which are difficult to predict. Considering these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements, except to the extent required by applicable laws or rules. Unless the context otherwise requires, references to “Bowman,” the “company,” the “Company,” “we,” “us,” and “our” refer to Bowman Consulting Group Ltd., its wholly owned subsidiaries and combined entities under common control, or either or all of them as the context may require.*

### Overview

Bowman is a professional services firm delivering innovative engineering solutions to customers who own, develop and maintain the built environment. We provide planning, engineering, construction management, commissioning, environmental consulting, geospatial, survey, land procurement and other technical services to customers operating in a diverse set of end markets. We work as both a prime and sub-consultant for a broad base of public and private sector customers that generally operate in highly regulated environments.

We have a diversified business that is not dependent on any one service line, geographic region, or end market. We are deliberate in our efforts to balance our sources of revenue and avoid reliance on any one significant customer, service line, geography or end market concentration. Our strategic focus is on penetrating and expanding our presence in markets which best afford us opportunities to secure assignments that provide reoccurring revenue and multi-year engagements thus resulting in dependable and predictable revenue streams and high employee utilization. We limit our exposure to risk by providing professional and related services exclusively. We do not engage in general contracting activities either directly, or through joint ventures, and therefore have no related exposure. We are not a partner in any design-build construction projects. We carry no heavy equipment inventory, and our risk of contract loss is generally limited to time associated with fixed fee professional services assignments.

Gross contract revenue for the three months ended September 30, 2023 and 2022 was $94.4 million and $71.2 million, respectively, representing year over year growth of 32.6%. Gross contract revenue derived from our workforce represented 87.0% and 91.1% of gross contract revenue for the three months ended September 30, 2023 and 2022, respectively (*see Net service billing – non-GAAP below*). Our net income for the three months ended September 30, 2023 and 2022 was $1.2 million and $3.4 million, respectively. Our Adjusted EBITDA for the three months ended September 30, 2023 and 2022 was $15.1 million on net income of $1.2 million and $9.6 million on net income of $3.4 million, respectively. *(see Adjusted EBITDA – non-GAAP below)*

Gross contract revenue for the nine months ended September 30, 2023 and 2022 was $253.3 million and $186.1 million, respectively, representing year over year growth of 36.1%. Gross contract revenue derived from our workforce represented 88.2% and 90.8% of gross contract revenue for the nine months ended September 30, 2023 and 2022, respectively (*see Net service billing – non-GAAP below*). Our net income for the nine months ended September 30, 2023 and 2022 was $1.1 million and $4.5 million, respectively. Our Adjusted EBITDA for the nine months ended September 30, 2023 and 2022 was $35.8 million on net income of $1.1 million and $24.6 million on net income of $4.5 million, respectively. *(see Adjusted EBITDA – non-GAAP below)*

### Subsequent Events

On October 2, 2023, the Company completed the acquisition of substantially all of the assets of Excellence Engineering, LLC pursuant to the Asset Purchase Agreement, dated September 22, 2023 (the “Agreement”), among the Company, Excellence Engineering, LLC, and a key member. The aggregate consideration was approximately $1.1 million which consisted of cash, common stock and promissory note, subject to adjustment. The Agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional purchase price consideration on certain financial performance thresholds.

On October 12, 2023, the Company completed the acquisition of substantially all of the assets of Dennis Corporation pursuant to the Asset Purchase Agreement, dated October 12, 2023 (the “Agreement”), among the Company, Dennis Corporation, and shareholders. The aggregate consideration was approximately $3.7 million which consisted of cash, common stock and promissory note, subject to adjustment.

During the month of October 2023, under the "Stock Repurchase Program" the Company repurchased 28,404 shares of common stock at an average price $25.94 bringing the total shares purchased under this program to 28,704. As of November 7, 2023, the Company has spent a total of $0.7 million and is authorized to spend up to an additional $9.3 million under this program.

### Methods of Evaluation

We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of the information we use to evaluate our operations is financial information that is in accordance with generally accepted accounting principles (GAAP), while other information may be financial in nature and either built upon GAAP results or may not be in accordance with GAAP (Non-GAAP). We use all this information together for planning and monitoring our operations, as well as determining certain management and employee compensation.

The Company operates as a single business segment represented by our core business of providing multi-disciplinary professional engineering solutions to customers. While we evaluate revenue and other key performance indicators relating to various divisions of labor, our leadership neither manages the business nor deliberately allocates resources by service line, geography, or end market. Our financial statements present results as a single operating segment.

### Components of Income and Expense

### Revenue

We generate revenue from services performed by our employees, pass-through fees from sub-consultants, and reimbursable contract costs. On our consolidated financial statements, we report gross revenue, which represents total revenue billed to customers excluding taxes collected from customers. Gross revenue less revenue derived from pass-through sub-consultant fees, reimbursable expenses and other direct expenses represents our net service billing, or that portion of our gross revenue attributable to services performed by our employees. Our peers use the calculation underlying net service billing to normalize peer performance assessments and provide meaningful insight into trends over time. Refer to — *Other Financial Data, Non-GAAP measurements and Key Performance Indicators* below for further discussion of the use of this non-GAAP financial measure.

We generally do not generate profit from the pass-through of sub-consultants and reimbursable expenses. As such, contract profitability is most heavily impacted by the mix of labor utilized to complete the tasks and the efficiency of those resources in completing the tasks. Our largest direct contract cost is consistently our labor. To grow our revenue and maximize overall profitability we carefully monitor and manage our cost of labor and the utilization thereof. Maintaining an optimal level of utilization on a balanced pool of growing labor resources represents our greatest prospect for delivering increasing profitability.

We enter into contracts that contain two types of pricing characteristics:

*Hourly contracts*, also referred to as time and materials, are common for professional and technical consulting assignments both short-term and multi-year in duration. Under these types of contracts, there is no predetermined maximum fee and we generally experience no risk associated with cost overruns. For hourly contracts, we negotiate billing rates and charge our customers based upon the actual hours expended toward a deliverable. These contracts may have not-to-exceed parameters requiring us to receive additional authorizations from our customer to continue working, but we likewise do not have to continue working without assurances of payment for such additional work. Hourly assignments represented approximately $11.4 million and $28.5 million or 12% and 11% of our gross contract revenue for each of the three and nine months ended September 30, 2023, respectively. For each of the three and nine months ended September 30, 2022, hourly assignments represented approximately $4.7 million and $11.5 million or 7% and 6% of our gross contract revenue, respectively.

*Lump sum contracts*, also referred to as fixed fee, typically require the performance of some, or all, of the obligations under the contract for a specified amount, subject to price adjustments only if the scope of the project changes or unforeseen requirements arise. Our fixed fee contracts generally include a specific scope of work and defined deliverables. Lump sum contracts can involve both hourly and fixed fee tasks. Most of our assignments are lump sum in nature representing approximately $83.0 million and $224.8 million or 88% and 89% of our gross contract revenue for the three and nine months ended September 30, 2023, respectively. For each of the three and nine months ended September 30, 2022, assignments that are lump sum in nature represented approximately $66.5 million and $174.6 million or 93% and 94% of our gross contract revenue, respectively. Recognizing revenue from lump sum assignments requires management estimates of both total contract value when there are contingent compensation elements of the fee arrangement and expected cost at completion. We closely monitor our progress to completion and adjust our estimates when necessary. We do not recognize revenue from work that is performed at risk with no documented customer commitment.

### Contract Costs

Contract costs consists of direct payroll costs, sub-consultant costs and other direct expenses exclusive of depreciation and amortization.

Direct payroll costs represent the portion of salaries and wages incurred in connection with the production of deliverables under customer assignments and contracts. Direct payroll costs include allocated fringe costs (i.e. health benefits, employer payroll taxes, and retirement plan contributions), paid leave and incentive compensation.

Sub-consultants and direct expenses include both sub-consultants and other outside costs associated with performance under our contracts. Sub-consultant and direct costs are generally reimbursable by our customers under the terms of our contracts.

Performance under our contracts does not involve significant machinery or other long term depreciable assets. Most of the equipment we employ involves desktop computers and other shared ordinary course IT equipment. We present direct costs exclusive of depreciation and amortization and as such we do not present gross profit on our consolidated financial statements.

### Operating Expense

Operating expenses consists of selling, general and administrative costs, non-cash stock compensation, depreciation and amortization and settlements and other non-core expenses.

Selling, general and administrative expenses represent corporate and other general overhead expenses, salaries and wages not allocated to customer projects including management and administrative personnel costs, incentive compensation, personal leave, office lease and occupancy costs, legal, professional and accounting fees.

Non-cash stock compensation represents the expenses incurred with respect to shares and options issued by the Company, both vested and unvested, to employees as long-term incentives. Non-cash stock compensation cost will be the grant date fair value of the awards, or the Black-Sholes-Merton value of stock options on the grant date, recognized ratably over the vesting periods of each award. Future non-cash stock compensation expense for unvested shares is the cumulative total of the unvested portion of all issued and outstanding awards and their individual grant date fair values. Stock awards will continue to be an important part of our long-term retention and rewards philosophy.

Depreciation and amortization represent the depreciation and amortization expense of our property and general IT equipment, capital lease assets, tenant improvements and intangible assets.

(Gain) loss on sale represents gains or losses inclusive of foreign exchange and accumulated depreciation recapture resulting from the disposal of an asset upon the sale or retirement of such asset.

### Other (Income) Expense

Other (income) expense consists of other non-operating and non-core expenses, including transaction related costs associated with acquisitions.

### Tax Expense

Income tax (benefit) expense, current and deferred, includes estimated federal, state and local tax expense associated with our net income, as apportioned to the states in which we operate. Estimates of our tax expense include both current and deferred tax expense along with all available tax incentives and credits.

### Other Financial Data, Non-GAAP Measurements and Key Performance Indicators

### Backlog

We measure the value of our undelivered gross revenue in real time to calculate our backlog and predict future revenue. Backlog includes awarded, contracted, and otherwise secured commitments along with revenue we expect to realize over time for predictable long-term and reoccurring assignments. We report backlog quarterly as of the end of the last day of the reporting period. We use backlog to predict revenue growth and anticipate appropriate future staffing needs. Backlog definitions and methods of calculation vary within our industry. As such, backlog is not a reliable metric on which to evaluate us relative to our peers. Backlog neither derives from, nor reconciles to, any GAAP results.

### Net Service Billing

In the normal course of providing services to our customers, we routinely subcontract services and incur direct third-party contract expenses that may or may not be reimbursable and may or may not be billed to customers with mark-up. Gross revenue less revenue derived from pass-through sub-consultant fees and reimbursable expenses represents our net service billing, which is a non-GAAP financial measure, or that portion of our gross contract revenue attributable to services performed by our employees. Because the ratio of sub-contractor and direct expense costs to gross billing varies between contracts, gross revenue is not necessarily indicative of trends in our business. As a professional services company, we believe that metrics derived from net service billings more accurately demonstrate the productivity and profitability of our workforce. Our industry uses the calculation of net service billing to normalize peer performance assessments and provide meaningful insight into trends over time.

### Adjusted EBITDA

We view Adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of normalized performance. We define Adjusted EBITDA as net income before interest expense, income taxes and depreciation and amortization, plus discontinued expenses, non-core legal settlements and other costs not in the ordinary course of business, non-cash stock-based compensation, and other acquisition related adjustments such as professional fees, fair value adjustments and working capital adjustments. Our peers may define Adjusted EBITDA differently.

### Adjusted EBITDA Margin, net

Adjusted EBITDA Margin, net, which is a non-GAAP financial measure, represents Adjusted EBITDA, as defined above, as a percentage of net service billings, as defined above.

### Results of Operations

### Combined results of operations

The following represents our condensed consolidated results of operations for periods indicated (in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross contract revenue | $94,434 | $71,246 | $253,290 | $186,105 |
| Contract costs (exclusive of depreciation and amortization) | 45,693 | 33,984 | 124,098 | 90,439 |
| Operating expense | 46,125 | 35,043 | 126,155 | 91,125 |
| Income from operations | 2,616 | 2,219 | 3,037 | 4,541 |
| Other expense | 1,495 | 595 | 3,852 | 2,086 |
| Income tax expense (benefit) | (62) | (1,773) | (1,901) | (2,079) |
| Net income | $1,183 | $3,397 | $1,086 | $4,534 |
| Net margin | 1.3% | 4.8% | 0.4% | 2.4% |
| Other financial information 1 |  |  |  |  |
| Net service billing | $82,124 | $64,903 | $223,479 | $169,019 |
| Adjusted EBITDA | 15,057 | 9,624 | 35,783 | 24,606 |
| Adjusted EBITDA margin, net | 18.3% | 14.8% | 16.0% | 14.6% |

1*Represents non-GAAP financial measures. See Other Financial Information and Non-GAAP key performance indicators below.*

### Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

#### Gross Contract Revenue

Gross contract revenue for the three months ended September 30, 2023, increased $23.2 million or 32.6% to $94.4 million as compared to $71.2 million for the three months ended September 30, 2022. For the three months ended September 30, 2023, gross contract revenue attributable to work performed by our workforce increased $17.2 million, or 26.5% to $82.1 million or 87.0% of gross contract revenue as compared to $64.9 million or 91.1% for the three months ended September 30, 2022 (*see Net service billing – non-GAAP*). Of the $23.2 million increase in gross contract revenue during the three months ended September 30, 2023, acquisitions represented $15.3 million of the increase. To evaluate the Company’s growth, revenue from acquisitions is treated as acquired for a period of four quarters post-closing, after which it is considered organic. For each measurement and comparison period, historical balances of acquired and organic revenue bases are adjusted to reflect revenue accordingly.

Changes in gross contract revenue disaggregated between our core and emerging end markets were as follows (in thousands other than percentages):

| Consolidated Gross Contract Revenue | For the Three Months Ended September 30, 2023 | %GCR | 2022 | %GCR | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Building Infrastructure | $51,909 | 55.0% | $44,765 | 62.8% | $7,144 | 16.0% |
| Transportation | 19,769 | 20.9% | 13,218 | 18.6% | 6,551 | 49.6% |
| Power & Utilities | 18,586 | 19.7% | 8,809 | 12.4% | 9,777 | 111.0% |
| Other Emerging Markets 1 | 4,170 | 4.4% | 4,454 | 6.2% | (284) | (6.4)% |
| **Total:** | **$94,434** | **100.0%** | **$71,246** | **100.0%** | **$23,188** | **32.5%** |
| Organic | $79,003 | 83.7% | $71,078 | 99.8% | $7,925 | 11.1% |
| Acquired 2 | 15,431 | 16.3% | 168 | 0.2% | 15,263 | n/a |
| **Total:** | **$94,434** | **100.0%** | **$71,246** | **100.0%** | **$23,188** | **32.5%** |

1Represents mining, water resources and other. Effective December 31, 2022, we reclassified renewables as power & utilities. For the three months ended September 30, 2022, $1.9 million of renewables revenue was reclassified accordingly for consistency.

2After four quarters post-closing, acquired revenue is reclassified as organic; this results in a change from previously reported numbers.

For the three months ended September 30, 2023, gross contract revenue from our building infrastructure market increased $7.1 million or 16.0% as compared to the three months ended September 30, 2022. Building Infrastructure includes commercial, municipal and residential infrastructure. The increase in building infrastructure revenue is the result of organic growth and acquisitions. Within the building infrastructure market, 34.4% of gross contract revenue was derived from residential activities, 50.7% from commercial activities including in-building services, aviation related work, and 14.9% from municipal activities. Within residential, 7.1% of gross contract revenue was derived from for-sale homebuilding activity, 42.7% from residential multi-family and 50.2% from mixed use projects. While the homebuilding market shows signs of weakness, for-sale residential services represented 2.4% of our total gross contract revenue for the three months ended September 30, 2023. We continue to experience strong demand for our building infrastructure services and maintain a positive outlook on this market and expect it to represent most of our gross revenue for the remainder of 2023. We continue to experience strength in markets including data centers, quick serve restaurants, industrial distribution facilities, schools, and build-for-rent communities.

For the three months ended September 30, 2023, revenue from transportation increased $6.5 million or 49.6% as compared to the three months ended September 30, 2022. The increase was principally attributable to the acquisition of McMahon Associates, Inc. Contract awards in transportation, such as *Cook County DOT, Illinois DOT, and Illinois Tollway Authority* along with clients such as *TXDOT, MassDOT and PennDOT* added through various acquisitions are beginning to generate meaningful new transportation revenue. We expect to continue to increase our transportation revenue and improve the diversification of our revenue. We believe the transportation market continues to present significant opportunity for future growth and we remain committed to investing in leadership, technical expertise, business development and acquisitions for this market.

With the convergence of renewable energy with traditional transmission infrastructure and the continued growth we are projecting in the clean energy transition, we are now consolidating renewable energy into the power and utilities category of our revenue mix and have adjusted historical balances accordingly. We will continue to disclose the impact of renewables as a part of the power and utilities market. Adjusted for the change, for the three months ended September 30, 2023, revenue from power and utilities increased $9.8 million or 111.0% as compared to the three months ended September 30, 2022. Renewable energy and energy transition represented approximately $0.7 million and $1.8 million of the adjusted power and utilities revenue for the three months ended September 30, 2023 and 2022, respectively. Including the recent acquisition of Richter, the additional increase in gross contract revenue from the power and utilities market is principally attributable to increased revenue associated with the expansion of a multi-year utility undergrounding assignment in Florida, along with additional increases derived from gas pipeline and electric transmission projects nationally. The power and utilities market continues to experience increasing infrastructure investment as changing weather patterns, energy transition mandates and other safety initiatives positively impact demand for the services we provide. Based on recent increases in program commitments within the gas pipeline replacement market, we believe trends in power and utilities provide meaningful opportunity for continued growth and we are committed to investing resources accordingly.

Our other emerging markets consist of mining, water resources, and other natural resources services. Adjusted for the change, for the three months ended September 30, 2023, revenue from emerging markets decreased $0.3 million or (6.4%) as compared to the three months ended September 30, 2022. Gross contract revenue in our emerging markets was 42.5% from mining activities where we have specialized in copper mining and 57.2% from water resources activities. Scarcities in water resources and the increasing need for water management gives us confidence that we will be able to increase revenue accordingly. With recent and future acquisitions, we expect to experience continued growth from investment in renewable energy and energy transition.

For the three months ended September 30, 2023 and 2022, public sector customers, defined as direct contracts with municipalities, public agencies, or governmental authorities, represented 14.8% and 17.5% of our gross contract revenue, respectively. This does not include work done indirectly on public sector projects. Gross contract revenue from projects for public sector clients are included in the end market most aligned with work performed.

#### Contract costs (exclusive of depreciation and amortization)

Total contract costs, exclusive of depreciation and amortization, increased $11.7 million or 34.4% to $45.7 million for the three months ended September 30, 2023, as compared to $34.0 million for the three months ended September 30, 2022. For the three months ended September 30, 2023 and 2022, total contract costs represented 48.4% and 47.7% of total contract revenue, respectively. For the three months ended September 30, 2023 and 2022 total contract costs represented 55.6% and 52.4% of revenue attributable to our workforce, respectively (see *Net Service Billing).*

Direct payroll costs increased $5.8 million or 21.0% to $33.4 million for the three months ended September 30, 2023, as compared to $27.6 million for the three months ended September 30, 2022. Direct payroll accounted for 73.1% of total contract costs for the three months ended September 30, 2023, a decrease of 8.3 percentage points as compared to 81.3% for the three months ended September 30, 2022.

Direct labor, the component of direct payroll costs associated with the cost of labor relating to work performed on contracts increased $4.4 million or 21.0% to $25.4 million for the three months ended September 30, 2023 as compared to $21.0 million for the three months ended September 30, 2022. The increase in direct labor is primarily due to an increase in staffing to accommodate growth. For the three months ended September 30, 2023 and 2022, direct labor costs represented 26.9% and 29.5% of gross contract revenue, respectively and represented 30.9% and 32.4% of the revenue attributable to our workforce, respectively.

Other direct payroll costs, the component of direct payroll costs associated with fringe and incentive compensation (cash and non-cash) increased by $1.3 million or 19.4% to $8.0 million as compared to $6.7 million. This increase includes a $1.0 million increase in payroll taxes and health care as well as a $0.3 million increase in personal leave, primarily due to the increase in overall labor.

Sub-consultants and other direct expenses increased $6.0 million or 95.2% to $12.3 million for the three months ended September 30, 2023 as compared to $6.3 million for the three months ended September 30, 2022. For the three months ended September 30, 2023 and 2022, sub-consultant and other direct expenses represented 13.0% and 8.9% of gross contract revenue, respectively. This increase is not indicative of an anticipated long-term shift in the composition of our gross contract revenue, and we expect to experience periodic volatility in concentration of sub-consultant utilization.

#### Operating Expense

Total operating expense increased $11.1 million or 31.7% to $46.1 million for the three months ended September 30, 2023 as compared to $35.0 million for the three months ended September 30, 2022.

Selling, general and administrative expenses increased $9.8 million or 30.7% to $41.7 million for the three months ended September 30, 2023, as compared to $31.9 million for the three months ended September 30, 2022. Indirect labor increased $4.7 million or 32.6% to $19.1 million as compared to $14.4 million primarily due to an increase in staffing to accommodate growth. General overhead increased $2.7 million or 25.7% to $13.2 million as compared to $10.5 million due to increased costs associated with the overall growth of the company. Non-cash stock compensation increased $2.1 million or 72.4% to $5.0 million as compared to $2.9 million as several new stock awards were granted to Company leadership as well as employees in connection with acquisitions.

Depreciation and amortization increased $1.4 million or 45.2% to $4.5 million for the three months ended September 30, 2023 as compared to $3.1 million for the three months ended September 30, 2022. This increase is primarily due to an increase in leased assets and intangible assets. We continue to increase the use of our finance lease facility as we continue to grow. Intangible assets have increased due to multiple acquisitions throughout 2023. Gains on the sale of certain IT equipment and automobiles increased $0.1 million for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

#### Other (Income) Expense

Other expense increased by $0.9 million to $1.5 million of expense for the three months ended September 30, 2023 as compared to $0.6 million for the three months ended September 30, 2022. This increase is primarily attributable to an increase in interest expense of $1.0 million due to an increase in finance leases.

#### Income Tax (Benefit) Expense

Income tax benefit for the three months ended September 30, 2023, decreased $1.7 million to a $0.1 million benefit, as compared to $1.8 million benefit for the three months ended September 30, 2022, see note 2, *Income Taxes.* Our effective tax rate for the three months ended September 30, 2023, is (5.5)% as compared to (36.8)% for the three months ended September 30, 2022. Unlike previous reporting periods, for this reporting period the income tax provision was computed on a year-to-date final results basis since it provided a more reliable estimate, see note 2, *Income Taxes.*

#### Income (Loss) Before Tax and Net Income)

Income before tax decreased by $0.5 million for the three months ended September 30, 2023, to $1.1 million of income compared to $1.6 million for the three months ended September 30, 2022. Net income decreased by $2.2 million to $1.2 million for the three months ended September 30, 2023, as compared to $3.4 million for the three months ended September 30, 2022.

### Other financial information and Non-GAAP key performance indicators

#### Net service billing (non-GAAP)

Net service billing increased $17.2 million or 26.5% to $82.1 million for the three months ended September 30, 2023, as compared to $64.9 million for the three months ended September 30, 2022. Net service billing reconciles to gross contract revenue as follows (in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Gross contract revenue | $94,434 | $71,246 |
| Less: sub-consultants and other direct expenses | 12,310 | 6,343 |
| Net service billing | $82,124 | $64,903 |

Net service billing as a percentage of gross contract revenue decreased 4.1% for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

Because sub-consultants and reimbursable expenses are most often pass-through items with little or no mark-up, they generally have a dilutive effect on gross, operating, and net margins while having little accretive effect on profitability. As such, where possible, we focus our resources and business development efforts principally on increasing revenue derived from our own workforce. Management primarily focuses its internal performance metrics on net service billing.

#### Adjusted EBITDA (non-GAAP)

Adjusted EBITDA increased $5.4 million or 56.5% to $15.1 million for the three months ended September 30, 2023 as compared to $9.6 million for the three months ended September 30, 2022. Adjusted EBITDA reconciles to net income as follows (in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net Service Billing | $82,124 | $64,903 | $17,221 | 26.5% |
| Net Income | $1,183 | $3,397 | $(2,214) | (65.2)% |
| + interest expense | 1,538 | 538 | 1,000 | 185.9% |
| + depreciation & amortization | 4,500 | 3,138 | 1,362 | 43.4% |
| + tax expense | (62) | (1,773) | 1,711 | (96.5)% |
| EBITDA | $7,159 | $5,300 | $1,859 | 35.1% |
| + non-cash stock compensation | 7,158 | 4,214 | 2,944 | 69.9% |
| + transaction related expenses | 63 | – | 63 | 100.0% |
| + settlements and other non-core expenses | 560 | – | 560 | 100.0% |
| + acquisition expenses | 117 | 110 | 7 | 6.4% |
| Adjusted EBITDA | $15,057 | $9,624 | $5,433 | 56.5% |
| Adjusted EBITDA margin, net | 18.3% | 14.8% |  |  |

For the three months ended September 30, 2023 and 2022, Adjusted EBITDA includes add backs of $7.2 million and $4.2 million, respectively, relating to non-cash stock compensation expenses resulting from the vesting of restricted stock awards. For the three months ended September 30, 2023 and 2022, Adjusted EBITDA also includes $0.1 million and $0.1 million, respectively, relating to non-reocurring acquisition expenses such as professional fees, fair value adjustments and working capital adjustments. For the three months ended September 30, 2023, Adjusted EBITDA includes add backs of $0.6 million of legal settlement and severance expenses.

Pursuant to the accounting for business combinations, we have up to one year from the date of closing to finalize the purchase accounting for an acquisition. From time to time, adjustments are made which impact the treatment of assets, liabilities and expenses associated with acquisitions. Non-reocurring costs specifically allocatable to an acquisition are treated as add-backs to adjusted EBITDA in the period recognized.

#### Adjusted EBITDA Margin, net (non-GAAP)

Adjusted EBITDA Margin, net represents Adjusted EBITDA (as defined above) as a percentage of net service billing (as defined above). For the three months ended September 30, 2023 and 2022, Adjusted EBITDA Margin, net was 18.3% and 14.8% respectively.

### Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

#### Gross Contract Revenue

Gross contract revenue for the nine months ended September 30, 2023, increased $67.2 million or 36.1% to $253.3 million as compared to $186.1 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, gross contract revenue attributable to work performed by our workforce increased $54.5 million, or 32.2% to $223.5 million or 88.2% of gross contract revenue as compared to $169.0 million or 90.8% of gross contract revenue for the nine months ended September 30, 2022 (*see Net service billing – non-GAAP*). Of the $67.2 million increase in gross contract revenue during the nine months ended September 30, 2023, acquisitions represented $26.9 million of the increase. To evaluate the Company’s growth, revenue from acquisitions is treated as acquired for a period of four quarters post-closing, after which it is considered organic. For each measurement and comparison period, historical balances of acquired and organic revenue bases are adjusted to reflect revenue accordingly.

Changes in gross contract revenue disaggregated between our core and emerging end markets were as follows (in thousands other than percentages):

| Consolidated Gross Contract Revenue | For the Nine Months Ended September 30, 2023 | %GCR | 2022 | %GCR | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Building Infrastructure | $144,862 | 57.2% | $126,093 | 67.8% | $18,769 | 14.9% |
| Transportation | 51,658 | 20.4% | 26,464 | 14.2% | 25,194 | 95.2% |
| Power & Utilities | 47,481 | 18.7% | 24,370 | 13.1% | 23,111 | 94.8% |
| Other Emerging Markets 1 | 9,289 | 3.7% | 9,178 | 4.9% | 111 | 1.2% |
| **Total:** | **$253,290** | **100.0%** | **$186,105** | **100.0%** | **$67,185** | **36.1%** |
| Organic | $226,240 | 89.3% | $185,937 | 99.9% | $40,303 | 21.7% |
| Acquired 2 | 27,050 | 10.7% | 168 | 0.1% | 26,882 | n/a |
| **Total:** | **$253,290** | **100.0%** | **$186,105** | **100.0%** | **$67,185** | **36.1%** |

1Represents mining, water resources and other. Effective December 31, 2022, we reclassified renewables as power & utilities. For the nine months ended September 30, 2022, $4.4 million of renewables revenue was reclassified accordingly for consistency.

2After four quarters post-closing, acquired revenue is reclassified as organic; this results in a change from previously reported numbers.

For the nine months ended September 30, 2023, gross contract revenue from our building infrastructure market increased $18.8 million or 14.9% as compared to the nine months ended September 30, 2022. Building Infrastructure includes commercial, municipal and residential infrastructure. The increase in building infrastructure revenue is the result of organic growth and acquisitions. Within the building infrastructure market, 38.3% of gross contract revenue was derived from residential activities, 47.7% from commercial activities including in-building services, aviation related work, and 14.0% from municipal activities. Within residential, 9.2% of gross contract revenue was derived from for-sale homebuilding activity, 44.3% from residential multi-family and 46.5% from mixed use projects. While the homebuilding market shows signs of weakness, for-sale residential services represented just 3.5% of our total gross contract revenue for six months ended September 30, 2023. We continue to experience strong demand for our building infrastructure services and maintain a positive outlook on this market and expect it to represent most of our gross revenue for the remainder of 2023. We continue to experience strength in markets including data centers, quick serve restaurants, industrial distribution facilities, schools, and build-for-rent communities.

For the nine months ended September 30, 2023, revenue from transportation increased $25.2 million or 95.2% as compared to the nine months ended September 30, 2022. The increase was principally attributable to the acquisition of McMahon Associates, Inc. Contract awards in transportation, such as Cook County DOT, Illinois DOT, and Illinois Tollway Authority along with clients such as TXDOT, MassDOT and PennDOT added through various acquisitions are beginning to generate meaningful new transportation revenue. We expect to continue to increase our transportation revenue and improve the diversification of our revenue. We believe the transportation market continues to present significant opportunity for future growth and we remain committed to investing in leadership, technical expertise, business development and acquisitions for this market.

With the convergence of renewable energy with traditional transmission infrastructure and the continued growth we are projecting in the clean energy transition, we are now consolidating renewable energy into the power and utilities category of our revenue mix and have adjusted historical balances accordingly. We will continue to disclose the impact of renewables as a part of the power and utilities market. Adjusted for the change, for the nine months ended September 30, 2023, revenue from power and utilities increased $23.1million or 94.8% as compared to the nine months ended September 30, 2022. Renewable energy and energy transition represented approximately $8.4 million and $4.2 million of the adjusted power and utilities revenue for the nine months ended September 30, 2023 and 2022, respectively. Including the recent acquisition of Richter, the additional increase in gross contract revenue from the power and utilities market is principally attributable to increased revenue associated with the expansion of a multi-year utility undergrounding assignment in Florida, along with additional increases derived from gas pipeline and electric transmission projects nationally. The power and utilities market continues to experience increasing infrastructure investment as changing weather patterns, energy transition mandates and other safety initiatives positively impact demand for the services we provide. Based on recent increases in program commitments within the gas pipeline replacement market, we believe trends in power and utilities provide meaningful opportunity for continued growth and we are committed to investing resources accordingly.

Our other emerging markets consist of mining, water resources, and other natural resources services. Adjusted for the change, for the nine months ended September 30, 2023, revenue from emerging markets increased $0.1 million or 1.2% as compared to the nine months ended September 30, 2022. Gross contract revenue in our emerging markets was 52.6% from mining activities where we have specialized in copper mining and 47.2% from water resources activities. Scarcities in water resources and the increasing need for water management gives us confidence that we will be able to increase revenue accordingly. With recent and future acquisitions, we expect to experience continued growth from investment in renewable energy and energy transition.

For the nine months ended September 30, 2023 and 2022, public sector customers, defined as direct contracts with municipalities, public agencies, or governmental authorities, represented 12.8% and 11.1% of our gross contract revenue, respectively. This increase is principally attributable to our acquisition program. This does not include work done indirectly on public sector projects. Gross contract revenue from projects for public sector clients are included in the end market most aligned with work performed.

#### Contract costs (exclusive of depreciation and amortization)

Total contract costs, exclusive of depreciation and amortization, increased $33.7 million or 37.3% to $124.1 million for the nine months ended September 30, 2023, as compared to $90.4 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, total contract costs represented 49.0% and 48.6% of total contract revenue, respectively. For the nine months ended September 30, 2023 and 2022 total contract costs represented 55.5% and 53.5% of revenue attributable to our workforce, respectively (see *Net Service Billing).*

Direct payroll costs increased $20.9 million or 28.5% to $94.3 million for the nine months ended September 30, 2023, as compared to $73.4 million for the nine months ended September 30, 2022. Direct payroll accounted for 76.0% of total contract costs for the nine months ended September 30, 2023, a decrease of 5.1 percentage points as compared to 81.1% for the nine months ended September 30, 2022.

Direct labor, the component of direct payroll costs associated with the cost of labor relating to work performed on contracts increased $16.4 million or 30.3% to $70.6 million for the nine months ended September 30, 2023 as compared to $54.2 million for the nine months ended September 30, 2022. The increase in direct labor is primarily due to an increase in staffing to accommodate growth. For the nine months ended September 30, 2023 and 2022, direct labor costs represented 27.9% and 29.1% of gross contract revenue, respectively and represented 31.6% and 32.1% of the revenue attributable to our workforce, respectively.

Other direct payroll costs, the component of direct payroll costs associated with fringe and incentive compensation (cash and non-cash) increased by $4.5 million or 23.4% to $23.7 million as compared to $19.2 million. This increase includes a $2.4 million increase in fringe benefits primarily due to the increase in overall labor. This increase also includes $2.1 million in increased non-cash compensation expense as several new stock awards were granted to management as well as employees in connection with acquisitions.

Sub-consultants and other direct expenses increased $12.7 million or 74.3% to $29.8 million for the nine months ended September 30, 2023 as compared to $17.1 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, sub-consultant and other direct expenses represented 11.8% and 9.2% of gross contract revenue, respectively. This increase is not indicative of an anticipated long-term shift in the composition of our gross contract revenue, and we expect to experience periodic volatility in concentration of sub-consultant utilization.

#### Operating Expense

Total operating expense increased $35.1 million or 38.5% to $126.2 million for the nine months ended September 30, 2023 as compared to $91.1 million for the nine months ended September 30, 2022.

Selling, general and administrative expenses increased $30.9 million or 37.3% to $113.7 million for the nine months ended September 30, 2023, as compared to $82.8 million for the nine months ended September 30, 2022. Indirect labor increased $15.8 million or 45.4% to $50.6 million as compared to $34.8 million primarily due to an increase in staffing to accommodate growth. General overhead increased $8.3 million or 29.0% to $36.9 million as compared to $28.6 million due to increased costs associated with the overall growth of the company. Non-cash stock compensation increased $4.7 million or 56.6% to $13.0 million as compared to $8.3 million as several new stock awards were granted to Company leadership as well as employees in connection with acquisitions.

Depreciation and amortization increased $4.4 million or 52.4% to $12.8 million for the nine months ended September 30, 2023 as compared to $8.4 million for the nine months ended September 30, 2022. This increase is primarily due to an increase in leased assets and intangible assets. We continue to increase the use of our finance lease facility as we continue to grow. Intangible assets have increased due to multiple acquisitions throughout 2023. Gains on the sale of certain IT equipment and automobiles increased $0.3 million for the nine months ended September 30, 2023.

#### Other (Income) Expense

Other expense increased by $1.8 million to $3.9 million of expense for the nine months ended September 30, 2023 as compared to $2.1 million for the nine months ended September 30, 2022. This increase is primarily attributable to an increase in interest expense due to an increase in finance leases, acquisitions and the line of credit.

#### Income Tax (Benefit) Expense

Income tax benefit for the nine months ended September 30, 2023, decreased $0.2 million to a $1.9 million benefit, as compared to $2.1 million benefit for the nine months ended September 30, 2022, see note 2, *Income Taxes.* Our effective tax rate for the nine months ended September 30, 2023, is 233.3% as compared to (84.7%) for the nine months ended September 30, 2022. Unlike previous reporting periods, for this reporting period the income tax provision was computed on a year-to-date final results basis since it provided a more reliable estimate, see note 2, *Income Taxes.*

#### Income (Loss) Before Tax and Net Income

Loss before tax increased by $3.3 million for the nine months ended September 30, 2023, to $0.8 million of loss compared to $2.5 million income for the nine months ended September 30, 2022. Net income decreased by $3.4 million to $1.1 million for the nine months ended September 30, 2023, as compared to $4.5 million for the nine months ended September 30, 2022.

### Other financial information and Non-GAAP key performance indicators

#### Net service billing (non-GAAP)

Net service billing increased $54.5 million or 32.2% to $223.5 million for the nine months ended September 30, 2023, as compared to $169.0 million for the nine months ended September 30, 2022. Net service billing reconciles to gross contract revenue as follows (in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Gross contract revenue | $253,290 | $186,105 |
| Less: sub-consultants and other direct expenses | 29,811 | 17,086 |
| Net service billing | $223,479 | $169,019 |

Net service billing as a percentage of gross contract revenue decreased 2.6% for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

Because sub-consultants and reimbursable expenses are most often pass-through items with little or no mark-up, they generally have a dilutive effect on gross, operating, and net margins while having little accretive effect on profitability. As such, where possible, we focus our resources and business development efforts principally on increasing revenue derived from our own workforce. Management primarily focuses its internal performance metrics on net service billing.

#### Adjusted EBITDA (non-GAAP)

Adjusted EBITDA increased $11.2 million or 45.4% to $35.8 million for the nine months ended September 30, 2023 as compared to $24.6 million for the nine months ended September 30, 2022. Adjusted EBITDA reconciles to net income as follows (in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net Service Billing | $223,479 | $169,019 | $54,460 | 32.2% |
| Net Income | $1,086 | $4,534 | $(3,448) | (76.0)% |
| + interest expense | 3,545 | 1,223 | 2,322 | 189.9% |
| + depreciation & amortization | 12,785 | 8,350 | 4,435 | 53.1% |
| + tax expense | (1,901) | (2,079) | 178 | (8.6)% |
| EBITDA | $15,515 | $12,028 | $3,487 | 29.0% |
| + non-cash stock compensation | 18,480 | 11,487 | 6,993 | 60.9% |
| + transaction related expenses | 186 | – | 186 | 100.0% |
| + settlements and other non-core expenses | 674 | 215 | 459 | 213.5% |
| + acquisition expenses | 928 | 876 | 52 | 5.9% |
| Adjusted EBITDA | $35,783 | $24,606 | $11,177 | 45.4% |
| Adjusted EBITDA margin, net | 16.0% | 14.6% |  |  |

For the nine months ended September 30, 2023 and 2022, Adjusted EBITDA includes add backs of $18.5 million and $11.5 million, respectively, relating to non-cash stock compensation expenses resulting from the vesting of restricted stock awards. For the nine months ended September 30, 2023, Adjusted EBITDA includes $1.6 million relating to legal settlement, severance expenses and non-reocurring acquisition expenses such as professional fees, fair value adjustments and working capital adjustments. For the nine months ended September 30, 2022, Adjusted EBITDA also includes $1.1 million relating to non-recurring acquisition expense and legal settlement.

Pursuant to the accounting for business combinations, we have up to one year from the date of closing to finalize the purchase accounting for an acquisition. From time to time, adjustments are made which impact the treatment of assets, liabilities and expenses associated with acquisitions. Non-reocurring costs specifically allocatable to an acquisition are treated as add-backs to adjusted EBITDA in the period recognized.

#### Adjusted EBITDA Margin, net (non-GAAP)

Adjusted EBITDA Margin, net represents Adjusted EBITDA (as defined above) as a percentage of net service billing (as defined above). For the nine months ended September 30, 2023 and 2022, Adjusted EBITDA Margin, net was 16.0% and 14.6% respectively.

### Backlog (other key performance metrics)

#### Backlog (other key performance metrics)

Our backlog increased $55.4 million or 22.8% to $298.8 million during the nine months ended September 30, 2023, as compared to $243.4 million at December 31, 2022. Our backlog increased $68.4 million or 29.7% as compared to

$230.4 million at September 30, 2022. At September 30, 2023 and December 31, 2022 our backlog was comprised as follows:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Building Infrastructure | 54% | 51% |
| Transportation | 25% | 31% |
| Power & Utilities | 19% | 13% |
| Other Emerging Markets | 2% | 5% |

### Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, borrowing capacity under our Revolving Credit Facility, lease financing, proceeds from stock sales and other structured debt securities. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, acquisitions, and acquisition related payments. On September 30, 2023, we maintained a $70.0 million Revolving Credit Facility with Bank of America, our primary lender. Under the terms of our credit facility, available cash in our primary operating account sweeps against the outstanding balance every evening. Our cash on hand therefore generally consists of petty cash and other non-operating funds not included in the nightly sweep. Our cash on hand increased by $1.1 million at September 30, 2023 as compared to December 31, 2022.

On August 2, 2023, the Company and certain of its subsidiaries, as guarantors, entered into a First Amendment to the Amended and Restated Credit Agreement dated as of November 11, 2022 with Bank of America, N.A. (the "Amended and Restated Agreement"). The First Amendment increased the maximum principal amount of the Revolving Credit Facility to $70 million, is secured by all the assets of the Company and the subsidiary guarantors and extended the maturity date of the Revolving Credit Facility to July 31, 2025. Under the Amended and Restated Agreement, the Company is required to comply with certain covenants, including covenant on indebtedness, investments, liens and restricted payments, as well as maintain certain financial covenants, including a fixed charge coverage ratio and leverage ratio of debt to EBITDA (as defined in the Amended and Restated Agreement).

We regularly monitor our capital requirements and believe our sources of liquidity, including cash flow from operations, existing cash, and borrowing availability under our credit and lease facilities will be sufficient to fund our projected cash requirements and strategic initiatives for the next year. To the extent we experience any potential liquidity or capital shortfalls relating to growth and acquisition, we currently expect to rely on debt financing to meet those shortfalls. We use our equity as a component of consideration in acquisitions. In addition, depending on market conditions, we may opportunistically access the public debts and equity markets.

We are actively pursuing acquisitions as part of our strategic growth initiative. At any given time, we are assessing multiple opportunities at varying stages of due diligence. These acquisition opportunities range in size, timing of closing, valuation, and composition of consideration. In connection with acquisitions, we use a combination of cash, bank financing, seller financing, and equity to satisfy the purchase price. Currently, we have several acquisitions under consideration. There can be no assurance that any opportunity in the process of being reviewed will close but we expect over time to utilize a meaningful portion of our current liquidity and capital resources for acquisitions.

On November 10, 2022, our board of directors authorized a program, to spend up to $10.0 million for the repurchase of our common stock. The common stock may be purchased from time to time depending upon market conditions and may be purchased in the open market and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. As of September 30, 2023, we have repurchased 300 shares of our common stock under this authorization.

### Cash Flows

The following table summarizes our cash flows for the periods presented:

| Condensed Consolidated Statements of Cash Flows (amounts in thousands) | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $12,271 | $12,170 |
| Net cash used in investing activities | (16,999) | (15,231) |
| Net cash provided by financing activities | 5,877 | 6,286 |
| Change in cash, cash equivalents and restricted cash | 1,149 | 3,225 |
| Cash and cash equivalents, end of period | 14,431 | 23,844 |

### Operating Activities

During the nine months ended September 30, 2023, net cash provided by operating activities was $12.3 million, which primarily consisted of $1.1 million net income, adjusted for stock-based compensation expense of $18.3 million, depreciation and amortization expense of $12.8 million, and deferred taxes of ($11.1) million, offset by a net cash outflow of ($9.5) million from changes in operating assets and liabilities. Cash provided by operating activities before changes in operating assets and liabilities was $21.8 million. We believe this is significant given our high rate of growth. The net outflow from changes in operating assets and liabilities was primarily due to a $14.6 million increase in accounts receivable, a $4.4 million increase in prepaid expenses and other assets, and $10.3 million increase in contract assets and liabilities, partially offset by a $19.8 million increase in accounts payable and accrued expenses.

During the nine months ended September 30, 2022, net cash provided by operating activities was $12.2 million, which primarily consisted of our $4.5 million net profit, adjusted for stock-based compensation expense of $11.5 million, and depreciation and amortization expense of $8.4 million, offset by a net cash outflow of $11.5 million from changes in operating assets and liabilities. Cash provided by operating activities before changes in operating assets and liabilities was $23.7 million. We believe this is significant given our high rate of growth. The net outflow from changes in operating assets and liabilities was primarily due to a $12.4 million increase in accounts receivable resulting from increased billing to our clients, and a $4.4 million increase in prepaid expenses and other assets, partially offset by a $5.1 million increase in accounts payable and accrued expenses.

### Investing Activities

Net cash used in investing activities increased by $1.8 million to $17.0 million for the nine months ended September 30, 2023 as compared to $15.2 million for the nine months ended September 30, 2022. The increase in net cash used for investing is primarily attributable to acquisitions that occurred in the first half of 2023.

### Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2023 was $5.9 million compared to $6.3 million for the nine months ended September 30, 2022, an increase of $0.4 million. The increase in net cash provided by financing is primarily attributable to the $22.4 million proceeds from the Revolving Credit Facility offset by an increase in repayments of notes payable of ($8.7) million during the nine months ended September 30, 2023, compared to the $15.5 million from our common stock offering net of underwriting discounts commissions and other offering costs during the nine months ended September 30, 2022.

### Credit Facilities and Other Financing

As of September 30, 2023, we maintained a $70.0 million revolving credit facility (the “Revolving Credit Facility”) and two non-revolving credit facilities (“Fixed Line 1” and “Fixed Line 2”) pursuant to an Amended and Restated Credit Agreement (collectively with the Revolving Credit Facility, the “Credit Agreement”) with Bank of America, our primary lender. The Credit Agreement had a maturity date of September 30, 2024. Under the terms of the Revolving Credit Facility, available cash in our primary operating account sweeps against the outstanding balance every evening. As of September 30, 2023, the balance on this Revolving Credit Facility was $22.4 million.

On August 2, 2023, the Company and certain of its subsidiaries, as guarantors, entered into the First to Amended and Restated Agreement. The First Amendment increased the maximum principal amount of the Revolving Credit Facility to $70 million, is secured by all the assets of the Company and the subsidiary guarantors and extended the maturity date of the Revolving Credit Facility to July 31, 2025. Under the Amended and Restated Agreement, the Company is required to comply with certain covenants, including covenant on indebtedness, investments, liens and restricted payments, as well as maintain certain financial covenants, including a fixed charge coverage ratio and leverage ratio of debt to EBITDA (as defined in the Amended and Restated Agreement).

The Credit Agreement is secured by all the assets of the Company and the subsidiary guarantors. Under the Credit Agreement, we are required to comply with certain covenants, including covenants on indebtedness, investments, liens and restricted payments, as well as to maintain certain financial covenants, including a fixed charge coverage ratio and leverage ratio of debt to EBITDA (as defined in the Credit Agreement). At June 30, 2023, we were in compliance with all covenants.

We utilize master lease facilities with Honour Capital LLC (“Honour”) and Enterprise Leasing (“Enterprise”). The Honour Capital lease facility finances our acquisition of IT infrastructure, geospatial and survey equipment, furniture and other long-lived assets. The Enterprise lease facility finances the acquisition of field trucks and other service vehicles. At September 30, 2023, we maintained a fleet of approximately 400 vehicles. All of our leasing facilities allow for both operating and finance leasing. We allocate finance lease payments between amortization and interest. The payment terms on the lease agreements range between 30 and 50 months with payments totaling approximately $0.7 million per month. We utilize a third-party valuation specialist to formulate the incremental borrowing rates for the Company, to calculate the present value on new leases. On October 31, 2022, pursuant to a Bill of Sale among Huntington Technology Finance (“Huntington”), as Seller/Lessor, the Company, as Lessee, and Honour, as Buyer, approximately $9.5 million of equipment leased by the Company and financed by Huntington was purchased by Honour.

We regularly evaluate our options with respect to capital and our requirements for operations and growth. We do not limit our consideration to traditional bank financing, but rather include other structured debt and equity as option for additional capital.

For more information about our credit facilities, see Note 11 – Revolving Credit Facility and Fixed Credit Facilities.

### Registration Statement

We have on file with the Securities and Exchange Commission (the “SEC”) a shelf registration statement on Form S-3, which enables us to issue shares of our common stock and preferred stock, warrants and rights to purchase any of such securities and/or debt securities, either individually or in units, in one or more offerings. We will file a prospectus supplement containing the amount and type of securities each time we issue securities under our shelf registration statement on Form S-3. No securities were issued under this registration statement through the date of this filing.

### Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.

### Critical Accounting Policies and Estimates

We use estimates in the determination of certain financial results. Estimates used in financial reporting utilize only information available to us at the time of formulation. These estimates are subject to change as new information becomes available.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies relating to the use of estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC dated March 15, 2023.

### Cautionary Statement about Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q, contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development and/ or otherwise are not statements of historical fact. In some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should,” “could” or the negative of such terms or similar expressions. The absence of these words does not mean that a statement is not forward-looking. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, our expectations regarding our recent and future acquisitions; our expectations regarding the impact of any completed or planned acquisition; our intentions regarding our growth strategies and investment of resources, including the markets in which we intend to focus our growth initiatives; our expectations regarding trends and opportunities for future growth and expansion, including our projections of growth in energy transitions; our expectations regarding the use of our current liquidity and capital resources for acquisitions; and our belief that our sources of liquidity will be sufficient to fund our projected cash requirements and strategic initiatives for the next year. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in the Risk Factors section of our Annual Report on Form 10-K and throughout this Quarterly Report on Form 10-Q.

These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. Important factors that could cause such differences include:

- our ability to retain the continued service of our key professionals and to identify, hire, retain and utilize additional qualified personnel;
- changes in demand from the clients that we serve;
- any material outbreak or material escalation of international hostilities, including developments in the conflict involving Russia and the Ukraine and the economic consequences of related events such as the imposition of economic sanctions and resulting market volatility;
- changes in general domestic and international economic conditions such as inflation rates, interest rates, tax rates, higher labor and healthcare costs, recessions, and changing government policies, laws and regulations;
- the U.S. government and other governmental and quasi-governmental budgetary and funding approval process;
- our ability to execute our acquisitions strategy, including successful completion of acquisitions and the integration of new acquisitions into our operations and financial reporting;
- the possibility that our contracts may be terminated by our clients;
- our ability to win new contracts and renew existing contracts;
- competitive pressures and trends in our industry and our ability to successfully compete with our competitors;
- our dependence on a limited number of clients;
- our ability to complete projects timely, in accordance with our customers’ expectations, or profitability;
- our ability to successfully manage our growth strategy;
- our ability to raise capital in the future;
- the credit and collection risks associated with our clients;
- our ability to comply with procurement laws and regulations;
- changes in laws, regulations, or policies;
- weather conditions and seasonal revenue fluctuations may adversely impact our financial results;
- the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services;
- our ability to complete our backlog of uncompleted projects as currently projected;
- the risk of employee misconduct or our failure to comply with laws and regulations;
- our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties;
- our need to comply with a number of restrictive covenants and similar provisions in our credit facility that generally limit our ability to (among other things) incur additional indebtedness, create liens, make acquisitions, pay dividends and undergo certain changes in control, which could affect our ability to finance future operations, acquisitions or capital needs;
- significant influence by our principal stockholder and the existence of certain anti-takeover measures in our governing documents; and
- the factors identified in our Annual Report on Form 10-K, including those discussed under the heading “Risk Factors”, and in our other filings with the SEC.

Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except to the extent required by applicable laws or rules. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor of our business or to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

## Market risk

As filed, 191 characters.

As a smaller reporting company, as defined in Rule 12b-2 of the Securities and Exchange Act of 1934 (the “Exchange Act”), we are not required to provide the information required by this item.

## Controls and procedures

As filed, 1,703 characters.

#### Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

#### Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 147 characters.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

Filed Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-037343. Last ingested by Listed: Oct 27, 2026, 16:53 ET. No prices; not investment advice.