ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in those forward-looking statements as a result of certain factors, including those described under “Item 1A. Risk Factors.” Dollar amounts presented are in thousands, except per share data or where the context otherwise requires.
Overview
We are a provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, utility services, construction, real estate, and environmental markets. We primarily focus on the following business service verticals: testing, inspection & consulting, infrastructure support services, utility services, buildings & program management, environmental health sciences, and geospatial technology services. Our primary clients include U.S. federal, state, municipal, and local government agencies, and military and defense clients. We also serve quasi-public and private sector clients from the education, healthcare, utility services, and public utilities, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large to small utility service producers.
Although we anticipate public and quasi-public sector clients will represent the majority of our revenues for the foreseeable future, we intend to continue expanding our service offerings to private sector clients. Historically, public and quasi-public sector clients have demonstrated greater resilience during periods of economic downturns, while private sector clients have offered higher gross profit margin opportunities during periods of economic expansion.
Fiscal Year
We operate on a "52/53 week" fiscal year ending on the Saturday closest to December 31st (whether or not in the following calendar year), with interim calendar quarters ending on the Saturday closest to the end of such calendar quarter (whether or not in the following calendar quarter). As a result, fiscal 2020 included 53 weeks compared to fiscal 2019 and 2018, which both included 52 weeks.
Critical Accounting Policies and Estimates
Our critical accounting estimates are those we believe require our most significant judgments about the effect of matters that are inherently uncertain. A discussion of our critical accounting estimates, the underlying judgments and uncertainties used to make them and the likelihood that materially different estimates would be reported under different conditions or using different assumptions is as follows:
Revenue Recognition
On the first day of fiscal year 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective approach to all contracts that were not completed as of the beginning of fiscal year 2018. Topic 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Topic 606 became effective for us in the first quarter of fiscal year 2018. Adoption of Topic 606 did not have an impact on our consolidated net income, financial position, and cash flows; however, it has resulted in expanded disclosures. Revenue from the vast majority of our contracts will continue to be recognized over time because of the continuous transfer of control to the customer. The impact to revenues from adopting Topic 606 for the period ended December 29, 2018 was not material.
To determine the proper revenue recognition method, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services that is not separately identifiable from other promises in the contracts and, therefore, is not distinct.
Our performance obligations are satisfied as work progresses or at a point in time. Gross revenues from services transferred to customers over time accounted for 92%, 90%, and 92% of our revenues during fiscal years 2020, 2019, and 2018,
respectively. For our cost-reimbursable contracts, revenue is recognized over time using direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations because it depicts the transfer of control to the customer which occurs as we incur costs on its contracts. Contract costs include labor, sub-consultant services, and other direct costs. Gross revenue from services transferred to customers at a point in time accounted for 8%, 10%, and 8% of our revenues during fiscal years 2020, 2019, and 2018, respectively. Revenue from these contracts is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the reports and/or analysis performed.
Contract modifications are common in the performance of our contracts. Contracts modified typically result from changes in scope, specifications, design, performance, sites, or period of completion. In most cases, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions are dependent upon the accuracy of a variety of estimates, including engineering progress, achievement of milestones, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates. If estimated total costs on contracts indicate a loss or reduction to the percentage of total contract revenues recognized to date, these losses or reductions are recognized in the period in which the revisions are known. The effect of revisions to revenues, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses and others are recorded on the cumulative catch-up basis in the period in which the revisions are identified and the loss can be reasonably estimated. Such revisions could occur in any reporting period and the effects on the results of operations for that reporting period may be material depending on the size of the project or the adjustment. During fiscal years 2020, 2019, and 2018 the cumulative catch-up adjustment for contract modifications was not material.
Allowance for Doubtful Accounts
We record billed and unbilled receivables net of an allowance for doubtful accounts. The allowance is estimated based on management’s evaluation of the contracts involved and the financial condition of clients. Factors considered include:
•Client type (governmental or private client)
•Historical performance
•Historical collection trends
•General economic conditions
The allowance is increased by our provision for doubtful accounts, which is charged against income. All recoveries on receivables previously charged off are credited to the accounts receivable recovery account and are included in income, while direct charge-offs of receivables are deducted from the allowance. Although we believe the allowance for doubtful accounts is sufficient, a decline in economic conditions could lead to the deterioration in the financial condition of our customers, resulting in an impairment of their ability to make payments, and additional allowances may be required that could materially impact our consolidated results of operations. Trade receivable balances carried by us are comprised of accounts from a diverse client base across a broad range of industries.
Goodwill and Intangible Assets
Goodwill is the excess of consideration paid for an acquired entity over the amounts assigned to assets acquired, including other identifiable intangible assets and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, we perform an assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.
We evaluate goodwill annually for impairment on August 1, or whenever events or changes in circumstances indicate the asset may be impaired, using the quantitative method. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then we may apply a one-step quantitative impairment test. The one-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. We determine fair value through multiple valuation techniques, and weight the results accordingly. We make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. If the carrying value of a reporting unit
exceeds its fair value, we would record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
On August 1, 2020, we conducted our annual impairment tests using the quantitative method of evaluating goodwill. Based on the quantitative analyses, we determined the fair value of each of the reporting units exceeded its carrying value and therefore, there was no goodwill impairment. There were no indicators, events or changes in circumstances that would indicate goodwill impairment for the period from August 2, 2020 through January 2, 2021.
Identifiable intangible assets primarily include customer backlog, customer relationships, trade names, non-compete agreements, and developed technology. Amortizable intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment, if any, is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. There were no indicators, events or changes in circumstances that would indicate intangible assets were impaired during fiscal 2020.
In conjunction with an acquisition of a business, we record identifiable intangible assets acquired at their respective fair values as of the date of acquisition. The corresponding fair value estimates for these assets acquired include projected future cash flows, associated discount rates used to calculate present value, asset life cycles, and customer retention rates. We use an independent valuation specialist to assist in determining the estimated fair values of assets acquired and liabilities assumed. The fair value calculated for intangible assets may change during the finalization of the purchase price allocation due to the estimates and assumptions used in determining their fair value. As a result, we may make adjustments to the provisional amounts recorded for certain items as part of the purchase price allocation subsequent to the acquisition, not to exceed one year after the acquisition date, until the purchase accounting allocation is finalized. During 2020, we finalized the QSI purchase price allocation reported at December 28, 2019 to account for updates to assumptions and estimates related to the fair value of the trade name, customer relationships, and customer backlog. As a result, we determined the QSI trade name is a finite-lived asset that will be amortized over a two-year period and the fair value was decreased by $54,313. Additionally, the fair value of QSI's customer relationships and customer backlog increased $6,605 and $811, respectively.
Recent Acquisitions
The aggregate value of all consideration for our acquisitions consummated during 2020, 2019 and 2018 was approximately $1,949, $369,879, and $95,450, respectively. The net assets acquired during 2020, 2019 and 2018 were $1,511, $166,637 and $51,705, respectively, while the gross revenues associated with these acquisitions (from their respective dates of acquisition) were $851, $42,127 and $33,468, respectively.
2020 Acquisitions
On July 16, 2020, we acquired all of the outstanding equity interests in Mediatech FZ, LLC and Mediatech Information Technology Consultants ("Mediatech"), a technology company providing security, enterprise IT, and building technology solutions in the Middle East and North Africa (MENA) region and South East Asia. Mediatech provides technology design services for the hospitality, industrial, healthcare, commercial, retail, and convention center markets. We acquired Mediatech for an aggregate purchase price of $1,949, including $882 of cash and $500 in promissory note, payable in four equal installments of $125 due on the first, second, third, and fourth anniversaries of the closing date. The purchase price also includes $312 of our common stock payable in four equal installments due at closing and on the first, second and third anniversaries of the closing date. Further, the purchase price includes $255 in additional contingent payments. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Mediatech, we performed a fair value assessment. The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC Topic 805, Business Combinations ("ASC 805"). The Mediatech acquisition will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the acquisition date, including intangible assets, accounts receivable, and certain fixed assets.
2019 Acquisitions
On December 20, 2019 (the "Closing Date"), we acquired all of the outstanding equity interests in Geospatial Holdings, Inc. and its subsidiaries, including Quantum Spatial, Inc. (collectively "QSI"), a full-service geospatial solutions provider serving the North American market. QSI provides data solutions to public and private sector clients that need geospatial intelligence to mitigate risk, plan for growth, better manage resources, and advance scientific understanding. We
acquired QSI in an all-cash transaction for $318,428, which includes excess working capital of $9,034 and closing date cash of approximately $6,894. The purchase price and other related costs associated with the transaction were financed through our amended and restated credit agreement (the "A&R Credit Agreement") with Bank of America, N.A. and the other lenders party thereto. Pursuant to the A&R Credit Agreement, the lenders provided term commitments of $150,000 in the aggregate in a single draw on the Closing Date and revolving commitments totaling $215,000. See Note 11, Notes Payable and Other Obligations, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for further detail on the A&R Credit Agreement. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for QSI, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On November 8, 2019, we acquired from GHD Services, Inc. ("GHD") its assets related to the business for forensics and insurance. The GHD forensics and insurance business provides engineering and environmental claim services for insurance companies, law firms, and litigation support. We acquired GHD for a cash purchase price of $8,300. In order to determine the fair values of tangible and intangible assets required and liabilities assumed for GHD, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On July 2, 2019, we acquired all of the outstanding equity interests in WHPacific, Inc. (“WHPacific”), a provider of design engineering and surveying services serving Washington, Oregon, Idaho, New Mexico, Arizona and California for a cash purchase price of $9,000. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for WHPacific, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On July 1, 2019, we acquired all of the outstanding equity interests in GeoDesign, Inc. ("GeoDesign"), a geotechnical, environmental, geological, mining and pavement engineering company serving Washington, Oregon, and California. The aggregate purchase price was $11,245, including $8,247 of cash, $2,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $500 due on the first, second, third, and fourth anniversaries of July 1, 2019, and $375 of our common stock (4,731 shares) issued at the closing date. The purchase price also includes $425 of our common stock payable on the first and second anniversaries of July 1, 2019. Further, the purchase price includes a $1,500 earn-out of cash, which was recorded at the estimated fair value of $198. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for GeoDesign, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On June 3, 2019, we acquired all of the outstanding equity interests in Alta Environmental, L.P. ("Alta"), a consulting firm specializing in air quality, environmental building sciences, water resources, site assessment and remediation as well as environmental health and safety compliance services. The aggregate purchase price was $6,323, including $4,000 of cash and $2,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $500 due on the first, second, third, and fourth anniversaries of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash, which was recorded at an estimated fair value of $323. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Alta, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On June 3, 2019, we acquired all of the outstanding equity interests in Page One Consultants ("Page One"), a program management and construction quality assurance firm based in Orlando, Florida. The aggregate purchase price was $3,995, including $2,293 of cash, $1,000 in promissory note (bearing interest at 3.0%), payable in three equal installments of $333 due on the first, second, and third anniversaries of June 3, 2019, and $200 of our common stock (2,647 shares) issued at the closing date. The purchase price also includes $200 of our common stock payable on the first anniversary date of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash and stock, which was recorded at an estimated fair value of $302. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Page One, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On March 22, 2019, we acquired all of the outstanding equity interests in the Sextant Group, Inc. ("The Sextant Group"), a national provider of audiovisual, information and communications technology, acoustics consulting, and design services headquartered in Pittsburgh, PA. The Sextant Group provides services throughout the U.S. and is well-known for creating integrated technology solutions for a wide range of public and private sector clients. The aggregate purchase price was $10,501, including $6,501 of cash and $4,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $1,000 due on the first, second, third, and fourth anniversaries of March 22, 2019. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for The Sextant Group, we engaged a third-party independent valuation specialist to assist in the determination of fair values.
On December 31, 2018, we acquired certain assets of Celtic Energy, Inc. ("Celtic"), a nationally recognized energy efficiency consulting firm that specialized in energy efficiency project management and oversight. The aggregate purchase price was $1,881, including $1,000 in cash, $300 in promissory note (bearing interest at 3.0%), payable in three equal
installments of $100 on the first, second, and third anniversaries of December 31, 2018, and $200 of our common stock (3,227 shares) issued at the closing date. The purchase price also includes $200 of our common stock payable on the first anniversary December 31, 2018. Further, the purchase price includes a $200 earn-out of cash, which was recorded at an estimated fair value of $181. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Celtic, we performed a purchase price allocation.
2018 Acquisitions
On November 2, 2018 we acquired CHI Engineering Inc. ("CHI"), an infrastructure engineering firm based in Portsmouth, New Hampshire. CHI is a leading provider of engineering, procurement, and construction management services to the liquefied natural gas (“LNG”), petroleum gas (“LPG”) and Natural Gas industries. CHI’s client base includes the majority of LNG facility owner/operators in the U.S. The aggregate purchase price of this acquisition is up to $53,000, paid with a combination of cash, stock and promissory notes at closing and future cash, stock and note payments.
On August 24, 2018, we acquired all of the outstanding equity interests in CALYX Engineers and Consultants, Inc. ("CALYX"), an infrastructure and transportation firm based in Cary, North Carolina. CALYX provides roadway and structure design, transportation planning, water resources, construction services, utility services, building structure design, land development, traffic services, cultural resources, surveying, and environmental services. CALYX serves both public and private clients, including state departments of transportation, municipalities, developers, higher education, and healthcare systems. The purchase price of this acquisition is $34,000, paid with a combination of cash at closing, stock and future note payments.
On February 2, 2018, we acquired CSA (M&E) Ltd. (“CSA”), a leading provider of Mechanical, Electrical, and Plumbing (MEP) engineering and sustainability consulting services. CSA provides MEP and sustainability services for the retail, education, healthcare, industrial, corporate, hospitality and infrastructure market sectors with offices in Hong Kong, Macau and the UAE. CSA serves private and public sector clients throughout Asia and the Middle East. The purchase price of this acquisition was up to $4,200, paid with a combination of cash at closing, stock and future note payments.
On January 12, 2018, we acquired all of the outstanding equity interest in Butsko Utility Design, Inc. (“Butsko”). Butsko is leading provider of utility planning and design services serving both public and private sector clients through its offices in Southern California and Washington. The purchase price of this acquisition was up to $4,250, paid with a combination of cash at closing, stock and future note payments.
Common Stock offering
On August 9, 2018, we priced an underwritten follow-on offering of 1,270,000 shares of the Company’s common stock (the “2018 Firm Shares”) at an offering price of $79.00 per share. The shares were sold pursuant to an effective registration statement on Form S-3 (Registration No. 333-224392). In addition, a selling stockholder of the Company granted the underwriters of the offering a 30-day option to purchase up to 190,500 shares (the “2018 Option Shares”) of our common stock at the public offering price less the underwriting discount. On August 13, 2018, we closed on the 2018 Firm Shares, for which we received net proceeds of approximately $93,500 after deducting the underwriting discount and estimated offering expenses payable by the Company, and the selling stockholder of the Company closed on the sale of all 2018 Option Shares. We did not receive any proceeds associated with the sale of the 2018 Option Shares by the selling stockholder.
Segments
Effective the beginning of fiscal year 2020, we re-evaluated the structure of our internal organization structure as a result of the 2019 acquisition of QSI. To reflect management's revised perspective, we are now organized into three operating and reportable segments:
•Infrastructure ("INF") – includes our engineering, civil program management, utility services, and construction quality assurance, testing and inspection practices;
•Building, Technology & Sciences ("BTS") – includes our environmental health sciences, buildings and program management, and MEP & technology engineering practices; and
•Geospatial Solutions ("GEO") – includes our geospatial technology services practice.
The GEO segment has been created in order to provide greater visibility regarding the operational and financial performance of QSI. The GEO segment structure is consistent with how we plan and allocate resources, manage our business, and assess our performance. The change in our segment reporting was not material to prior period segment financial results. As
such, prior period segment financial results were not retrospectively revised. The assets of QSI were reallocated from our INF reportable segment to our new GEO reportable segment.
For additional information regarding our reportable segments, see Note 18, Reportable Segments, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has significantly impacted global stock markets and economies. We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our customers and employees. Some of our services were affected, primarily our real estate transactional services and hospitality-related services. In particular, due to COVID-19 restrictions, some of our casino and hotel projects have been delayed. As U.S. and international economies begin to reopen and with a vaccine underway we expect demand for these services to return, but we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position, or cash flows. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. We intend to continue to monitor the impact of COVID-19 pandemic on our business closely.
Components of Income and Expense
Revenues
We enter into contracts with our clients that contain two principal types of pricing provisions, representing a percentage of total revenue as shown below:
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2020
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2019
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2018
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Cost Reimbursable
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92%
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90%
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92%
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Fixed-unit Price
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8%
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10%
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8%
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Cost-reimbursable contracts. Cost-reimbursable contracts consist of the following:
•Time and materials contracts are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have an initial not-to-exceed or guaranteed maximum price provision.
•Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. Under these type contracts, we charge clients for its costs, including both direct and indirect costs, plus a negotiated fee. The total estimated cost plus the negotiated fee represents the total contract value.
•Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of our lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables. In most cases, we can bill additional fees if the construction schedule is modified and lengthened.
Fixed-unit price contracts. Fixed-unit price contracts consist of the following:
•Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed.
Revenues from engineering services are recognized in accordance with the accrual basis of accounting. Revenues under cost-reimbursable contracts are recognized when services are performed or on the percentage-of-completion method. Revenues recognized on the percentage-of-completion method are generally measured by the direct costs incurred to date as compared to estimated costs incurred and represents approximately 45%, 31%, and 22% of revenues recognized during 2020, 2019 and 2018, respectively. Revenues from fixed-unit price contracts are recognized at a point in time.
Direct Costs of Revenues
Direct costs of revenues consist of the following in connection with fee generating projects:
•Technical and non-technical salaries and wages
•Production expenses, including depreciation
•Sub-consultant services
Operating Expenses
Operating expenses are expensed as incurred and include the following:
•Marketing expenses
•Management and administrative personnel costs
•Payroll taxes, bonuses and employee benefits
•Portion of salaries and wages not allocated to direct costs of revenues
•Facility costs
•Depreciation and amortization
•Professional services, legal and accounting fees, and administrative operating costs
RESULTS OF OPERATIONS
Consolidated Results of Operations
The following table represents our condensed results of operations for the periods indicated (dollars in thousands):
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Fiscal Years Ended
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January 2, 2021
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December 28, 2019
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December 29, 2018
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Gross revenues
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$
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659,296
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$
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508,938
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$
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418,081
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Direct costs
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324,758
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263,556
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216,677
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Gross profit
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334,538
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245,382
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201,404
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Operating expenses
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290,389
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214,175
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165,719
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Income from operations
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44,149
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31,207
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35,685
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Interest expense
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(15,181)
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(2,275)
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(1,966)
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Income tax expense
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(7,950)
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(5,176)
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(6,863)
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Net income
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$
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21,018
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$
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23,756
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$
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26,856
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Fiscal year ended January 2, 2021 compared to fiscal year ended December 28, 2019
Gross Revenues
Our consolidated gross revenues increased by $150,358, or 30% in 2020 compared to 2019. The increase in gross revenue was primarily due to incremental gross revenues from QSI of $145,047, incremental gross revenues from other acquisitions completed since the beginning of 2019 of $33,329, and an increase in our infrastructure support services of $2,542. The increase in our infrastructure support services was primarily due to increases in our power delivery services of $9,358, partially offset by decreases in our northeast infrastructure services of $4,447 and a decrease in our liquefied natural gas business $876. These increases were partially offset by a decrease in our real estate transactional services and hospitality-related services of $13,439, decreases from our mechanical, electric, and plumbing (MEP) services of $6,741, decreases in our radiation & occupational safety program of $3,696, and a decrease in our pipeline inspection services of $3,099, primarily as a result of the COVID-19 pandemic.
Gross Profit
As a percentage of gross revenues, our gross profit margin was 50.7% and 48.2% in 2020 and 2019, respectively. The increase in gross profit margin was primarily due to a change in our mix of business resulting from the QSI acquisition. As a percentage of gross revenues, direct salaries and wages decreased 3.2%, primarily as a result of our mix of work performed. This decrease was partially offset by an increase in sub-consultant services as a percentage of gross revenues of 0.7%, primarily as a result of our mix of work performed. Other direct costs remained flat year-over-year as a percentage of gross revenues.
Operating expenses
Our operating expenses increased $76,214, or 36% in 2020 compared to 2019. The increase in operating expenses primarily resulted from increased payroll and performance-based compensation costs of $48,258, including stock-based compensation of $14,955 during 2020 compared to $10,430 in 2019, increased general and administrative costs of $7,558, an increase in facilities and facilities related expense of $4,135, an increase in intangible asset amortization expense of $14,108, and an increase in depreciation expense of $2,156, primarily as a result of our acquisitions.
Interest Expense
Our interest expense increased $12,906 in fiscal 2020 compared to 2019. The increase in interest expense primarily resulted from the increased level of indebtedness associated with the QSI acquisition.
Income taxes
Our consolidated effective income tax rate was 27.4% and 17.8% in 2020 and 2019, respectively. The higher effective income tax rate is primarily due to a decrease in excess tax benefits from stock-based payments in 2020 as compared to 2019. See Note 17, Income Taxes, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further detail of income tax expense.
Net income
Our net income decreased $2,738, or 12% compared to 2019 primarily as a result of the increase in our amortization expense driven by our 2019 acquisitions. Our gross profit increased $89,156 primarily due to our 2019 acquisitions. This increase was offset by increases in payroll and performance-based compensation costs of $48,258, general and administrative costs of $7,558, facilities and facilities related expense of $4,135, intangible asset amortization expense of $14,108, depreciation expense of $5,565, and interest expense of $12,906, which were also driven by acquisitions.
For comparison of 2019 to 2018, see "Results of Operations - Consolidated Results of Operations" under Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 28, 2019 filed with the SEC on February 26, 2020, which discussion is expressly incorporated herein by reference thereto.
Segment Results of Operations
The following tables set forth summarize financial information concerning our reportable segments (dollars in thousands):
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Fiscal Years Ended
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January 2, 2021
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December 28, 2019
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December 29, 2018
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Gross revenues
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INF
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$
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352,965
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$
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331,161
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$
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254,723
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BTS
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157,432
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177,777
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163,358
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GEO
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148,899
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—
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—
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Total gross revenues
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$
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659,296
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$
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508,938
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$
|
418,081
|
|
|
|
|
|
|
|
Segment income before taxes
|
|
|
|
|
|
INF
|
$
|
62,574
|
|
|
$
|
54,583
|
|
|
$
|
43,832
|
|
BTS
|
$
|
21,091
|
|
|
$
|
28,138
|
|
|
$
|
26,656
|
|
GEO
|
$
|
30,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For additional information regarding our reportable segments, see Note 18, Reportable Segments, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Fiscal year ended January 2, 2021 compared to fiscal year ended December 28, 2019
INF Segment.
Our gross revenues from INF increased $21,804, or 7%, in 2020 compared to 2019. The increase in gross revenues was primarily due to incremental revenue of $27,964 from acquisitions completed since the beginning of fiscal 2019 and increases in our infrastructure support services of $2,542. These increases were partially offset by a decrease in our pipeline inspection services of $3,099.
Segment Income before Taxes from INF increased $7,991, or 15%, in 2020 compared to 2019. The increase was primarily due to incremental gross revenues from acquisitions completed since the beginning of fiscal 2019.
BTS Segment.
Our gross revenues from BTS decreased $20,345, or 11%, in 2020 compared to 2019. The decrease in gross revenues was primarily due to decreases in our real estate transactional services and hospitality-related services of $13,439, decreases in our MEP services of $6,741, and decreases in our radiation & occupational safety program of $3,696 primarily as a result of the COVID-19 pandemic. These decreases were partially offset by incremental gross revenues of $5,365 from acquisitions completed since the beginning of 2019.
Segment Income before Taxes from BTS decreased $7,047, or 25%, in 2020 compared to 2019. The decrease was due to lower gross revenues primarily as a result of the COVID-19 pandemic.
GEO Segment.
Our gross revenues from GEO was $148,899 in 2020. Gross revenues were primarily derived from public and quasi-public sector clients, which contributed $101,456 of gross revenues. Private sector clients contributed gross revenues of $47,443 in 2020.
Segment Income before Taxes from GEO was $30,013 in 2020.
For comparison of 2019 to 2018, see "Results of Operations - Segment Results of Operations" under Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 28, 2019 filed with the SEC on February 26, 2020, which discussion is expressly incorporated herein by reference thereto.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, borrowing capacity under our Senior Credit Facility, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition expenditures. We believe our sources of liquidity, including cash flow from operations, existing cash and cash equivalents and borrowing capacity under our Senior Credit Facility will be sufficient to meet our projected cash requirements for at least the next twelve months. We will monitor our capital requirements thereafter to ensure our needs are in line with available capital resources.
Operating activities
Net cash provided by operating activities was $96,009 in 2020 compared to $39,900 in 2019. The increase was a result of the growth in our revenues primarily driven by our acquisitions and changes in our working capital. The changes in our working capital primarily resulted from increased advanced billings of $25,981 primarily related to liquefied natural gas projects, increased accrued liabilities and accounts payable of $5,283 related to timing of payments, and a decrease of $8,279 in prepaid expenses and other assets primarily as a result of decreased prepaid insurance of $4,372, decreased prepaid income taxes of $2,342, and a decrease in other receivables of $2,298. These increases were partially offset by $4,929 as a result of increased billed and unbilled receivables primarily related to our growth in revenues during 2020.
Investing activities
During 2020 and 2019, net cash used in investing activities totaled $9,067 and $351,000, respectively. The decrease in cash used in investing activities was primarily a result of decreased acquisition activity, partially offset by an increase in purchases of property and equipment in 2020 of $7,230. The increase in purchases of property and equipment was primarily a result of the acquisition of QSI which typically requires proportionally larger amounts of capital expenditures than our other businesses.
Financing activities
Cash flows used in financing activities in 2020 was $53,858 compared to net cash provided by financing activities of $302,186 in 2019. The change was primarily due to decreased borrowings from our Senior Credit Facility in 2020 compared to 2019. In 2019, we borrowed $330,457 from our Senior Credit Facility primarily to fund the December 2019 QSI acquisition. As a result, we had an increase of $26,625 in principal payments related to our Senior Credit Facility in 2020 compared to 2019.
For comparison of 2019 to 2018 cash flows, see "Liquidity and Capital Resources - Cash Flows” under Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 28, 2019 filed with the SEC on February 26, 2020, which discussions are expressly incorporated herein by reference thereto.
Financing
Senior Credit Facility
On December 20, 2019 (the "Closing Date"), we amended and restated our Credit Agreement (the "A&R Credit Agreement"), dated December 7, 2016, as amended on December 20, 2018, with Bank of America, N.A. ("Bank of America"), as administrative agent, swingline lender and letter of credit issuer, the other lenders party thereto, and certain of our subsidiaries as guarantors. Pursuant to the A&R Credit Agreement, the lenders provided term commitments of $150,000 in the aggregate in a single draw on the Closing Date to fund the acquisition of QSI and various costs and expenses relating thereto and revolving commitments totaling $215,000 in the aggregate. The revolving commitment is available through December 20, 2024 (the "Maturity Date"), at which time the term commitments and revolving commitments will be due and payable in full. An aggregate amount of $320,500 was drawn under the A&R Credit Agreement on the Closing Date to fund the QSI acquisition and repay previously existing borrowings. Borrowings under the A&R Credit Agreement are secured by a first priority lien on substantially all of our assets. The A&R Credit Agreement also includes an accordion feature permitting us to request an increase in either the term facility or the revolver facility under the A&R Credit Agreement by an additional amount of up to $100,000 in the aggregate.
Borrowings under the term facility amortize at the rate of 5.0% per annum for the first two years of the facility and thereafter at the rate of 7.5% per annum until the Maturity Date.
On May 5, 2020 (the "Amendment Closing Date"), in response to the COVID-19 pandemic, we entered into an amendment to the A&R Credit Agreement (the "Amended A&R Credit Agreement") to amend the financial covenants that requires us to maintain a consolidated leverage ratio (the ratio of the our pro forma consolidated funded indebtedness to our pro forma consolidated EBITDA for the most recently completed measurement period). The amended consolidated leverage ratio requirements are as follows:
|
|
|
|
|
|
Measurement Period Ending
|
Maximum Consolidated Leverage Ratio
|
Amendment Closing Date through June 27, 2020
|
4.50 to 1.00
|
June 28, 2020 through October 3, 2020
|
5.00 to 1.00
|
October 4, 2020 through January 2, 2021
|
5.25 to 1.00
|
January 3, 2021 and April 3, 2021
|
4.75 to 1.00
|
April 4, 2021 and July 3, 2021
|
4.00 to 1.00
|
July 4, 2021 and thereafter
|
3.50 to 1.00
|
These financial covenants also require us to maintain a consolidated fixed charge coverage ratio of no less than 1.20 to 1.00 as of the end of any measurement period. As of January 2, 2021, we were in compliance with the financial covenants.
The Amended A&R Credit Agreement also amended pricing terms which remain variable and tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable margin or a base rate denominated in U.S. dollars. Interest rates remain subject to change based on our consolidated leverage ratio. As of January 2, 2021, our interest rate was 2.8%.
The Amended A&R Credit Agreement contains covenants that may have the effect of limiting our ability to, among other things, merge with or acquire other entities, enter into a transaction resulting in a Change in Control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, or engage in new lines of business or sell a substantial part of their assets. The Amended A&R Credit Agreement also contains customary events of default, including (but not limited to) a default in the payment of principal or, following an applicable grace period, interest, breaches of our covenants or warranties under the Amended A&R Credit Agreement, payment default or acceleration of certain indebtedness, certain events of bankruptcy, insolvency or liquidation, certain judgments or uninsured losses, changes in control and certain liabilities related to ERISA based plans.
The Amended A&R Credit Agreement limits the payment of cash dividends (together with certain other payments that would constitute a "Restricted Payment" within the meaning of the Amended A&R Credit Agreement and generally including dividends, stock repurchases and certain other payments in respect to warrants, options, and other rights to acquire equity securities) to no more than $10,000 in any fiscal year, so long as no default shall exist at the time of or arise as a result from such payment.
Total debt issuance costs incurred and capitalized in connection with the issuance of the Amended A&R Credit Agreement were $4,123. Total amortization of debt issuance costs was $896 and $131 during 2020 and 2019, respectively.
Other Obligations
On July 16, 2020, we acquired Mediatech. The purchase price allowed for the payment of $230 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable in three equal annual installments. At January 2, 2021, the outstanding balance on this obligation was $230.
On July 1, 2019, we acquired GeoDesign. The purchase price allowed for the payment of $425 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable on the first and second anniversary of July 1, 2019. The outstanding balance on this obligation was $44 and $382 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, we acquired Page One. The purchase price allowed for the payment of $200 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable on the first anniversary of June 3, 2019. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $181.
On December 31, 2018, we acquired certain assets of Celtic. The purchase price allowed for the payment of $200 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable on the first anniversary of
December 31, 2018. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $181.
On November 2, 2018, we acquired CHI. The purchase price allowed for the payment of $3,000 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable in three equal annual installments. The outstanding balance on this obligation was $877 and $1,754 as of January 2, 2021 and December 28, 2019, respectively.
On February 2, 2018, we acquired CSA. The purchase price allowed for the payment of $250 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $111.
On January 12, 2018, we acquired all of the outstanding equity interest in Butsko. The purchase price allowed for the payment of $600 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $267.
Uncollateralized Promissory Notes
Only July 16, 2020, we acquired Mediatech. The purchase price included an uncollateralized $500 promissory note ("Mediatech Note") payable in four equal annual installments. The outstanding balance of the Mediatech Note was $500 as of January 2, 2021.
On July 1, 2019, we acquired GeoDesign. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% ("GeoDesign Note") and payable in four equal annual installments. The outstanding balance of the GeoDesign Note was $1,500 and $2,000 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, we acquired Alta. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% ("Alta Note") and payable in four equal annual installments. The outstanding balance of the Alta Note was $1,500 and $2,000 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, we acquired Page One. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% ("Page One Note") and payable in three equal annual installments. The outstanding balance of the Page One Note was $700 and $1,000 as of January 2, 2021 and December 28, 2019, respectively.
On March 22, 2019, we acquired The Sextant Group. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 4.0% ("The Sextant Group Note") and payable in four equal annual installments. The outstanding balance of The Sextant Group Note was $3,000 and $3,140 as of January 2, 2021 and December 28, 2019, respectively.
On December 31, 2018, we acquired certain assets of Celtic. The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the "Celtic Note") payable in three equal annual installments. The outstanding balance of the Celtic Note was $100 and $300 as of January 2, 2021 and December 28, 2019, respectively.
On November 2, 2018, we acquired CHI. The purchase price included an uncollateralized $15,000 promissory note bearing interest at 3.0% (the "CHI Note") payable in four equal annual installments. The outstanding balance of the CHI Note was $7,500 and $11,250 as of January 2, 2021 and December 28, 2019, respectively.
On August 24, 2018, we acquired CALYX. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 3.75% payable in four equal annual installments of $1,000. The outstanding balance of the CALYX Note was $2,000 and $3,000 as of January 2, 2021 and December 28, 2019, respectively.
On February 2, 2018, we acquired CSA. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the "CSA Note") payable in four equal annual installments of $150. The outstanding balance of the CSA Note was $300 and $450 as of January 2, 2021 and December 28, 2019, respectively.
On January 12, 2018, we acquired all of the outstanding equity interest in Butsko. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% (the "Butsko Note") payable in four equal annual installments
of $250. The outstanding balance of the Butsko Note was $500 and $750 as of January 2, 2021 and December 28, 2019, respectively.
On September 6, 2017, we acquired all of the outstanding interests in Marron and Associates, Inc. ("Marron"). The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the "Marron Note") payable in three equal annual installments of $100. There was no outstanding balance on the Marron Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Marron Note was $100.
On June 6, 2017, we acquired all of the outstanding equity interest in Richard D. Kimball Co. ("RDK"). The purchase price included an uncollateralized $5,500 promissory note bearing interest at 3.0% (the "RDK Note") payable in four equal annual installments of $1,375. The outstanding balance of the RDK Note was $1,375 and $2,750 as of January 2, 2021 and December 28, 2019, respectively.
On May 4, 2017, we acquired all of the outstanding equity interest in Holdrege & Kull, Consulting Engineers and Geologists ("H&K"). The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the "H&K Note") payable in four equal annual installments of $150. The outstanding balance of the H&K Note was $150 and $300 as of January 2, 2021 and December 28, 2019, respectively.
On May 1, 2017, we acquired all of the outstanding equity interest in Lochrane Engineering Incorporated ("Lochrane"). The purchase price included an uncollateralized $1,650 promissory note bearing interest at 3.0% (the "Lochrane Note") payable in four equal annual installments of $413. The outstanding balance of the Lochrane Note was $413 and $825 as of January 2, 2021 and December 28, 2019, respectively.
On December 6, 2016, we acquired all of the outstanding interests of CivilSource, Inc. ("CivilSource"). The purchase price included an uncollateralized $3,500 promissory note bearing interest at 3.0% (the "CivilSource Note") payable in four equal annual installments of $875. There was no outstanding balance on the CivilSource Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the CivilSource note was $1,502.
On November 30, 2016, we acquired all of the outstanding interests of Hanna Engineering, Inc. ("Hanna"). The purchase price included an uncollateralized $2,700 promissory note bearing interest at 3.0% (the "Hanna Note") payable in four equal annual installments of $675. The outstanding balance of the Hanna Note was $430 and $675 as of January 2, 2021 and December 28, 2019, respectively.
On October 26, 2016, we acquired all of the outstanding interests of J.B.A. Consulting Engineers, Inc. ("JBA"). The purchase price included an uncollateralized $7,000 promissory note bearing interest at 3.0% (the "JBA Note") payable in five equal annual installments of $1,400. The outstanding balance of the JBA Note was $3,011 and $4,163 as of January 2, 2021 and December 28, 2019, respectively.
On September 12, 2016, we acquired certain assets of Weir Environmental, L.L.C. ("Weir"). The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the "Weir Note") payable in four equal annual installments of $125. There was no outstanding balance on the Weir Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Weir Note was $125.
On May 20, 2016, we acquired all of the outstanding equity interests of Dade Moeller & Associates, Inc. ("Dade Moeller"). The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the "Dade Moeller Notes") payable in four equal annual installments of $1,500. There was no outstanding balance on the Dade Moeller Notes as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Date Moeller Notes was $1,497.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of January 2, 2021 and December 28, 2019.
Effects of Inflation
Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of January 2, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by fiscal period
|
|
Total
|
|
Less than 1
Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5
Years
|
Notes Payable and Other Obligations
|
$
|
308,158
|
|
|
$
|
23,690
|
|
|
$
|
32,387
|
|
|
$
|
252,081
|
|
|
$
|
—
|
|
Interest payments(1)
|
14,133
|
|
|
3,846
|
|
|
7,064
|
|
|
3,223
|
|
|
—
|
|
Contingent consideration obligations
|
2,400
|
|
|
1,334
|
|
|
1,066
|
|
|
—
|
|
|
—
|
|
Finance lease obligations
|
3,393
|
|
|
1,416
|
|
|
1,744
|
|
|
233
|
|
|
—
|
|
Operating lease obligations
|
50,014
|
|
|
14,597
|
|
|
19,508
|
|
|
10,095
|
|
|
5,814
|
|
Other long-term liabilities(2)
|
10,923
|
|
|
5,580
|
|
|
5,343
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
389,021
|
|
|
$
|
50,463
|
|
|
$
|
67,112
|
|
|
$
|
265,632
|
|
|
$
|
5,814
|
|
(1) Interest consists of remaining interest payments on our term loan. The amount of interest calculated for purposes of this table were based upon rates as of January 2, 2021.
(2) Other long-term liabilities consist of payroll tax deferrals associated with the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which we expect to be paid in fiscal 2021 and fiscal 2022.
Our accrued liabilities in the consolidated balance sheet include unrecognized tax benefits. As of January 2, 2021, we had unrecognized tax benefits of $1,022. At this time, we are unable to make a reasonably reliable estimate of the timing of settlements in individual years in connection with unrecognized tax benefit; therefore, such amounts are not included in the above table.
Recently Issued Accounting Pronouncements
For information on recently issued accounting pronouncements, see Note 3, Recently Issued Accounting Pronouncements, of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Audited Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of NV5 Global, Inc.
Hollywood, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NV5 Global, Inc. and subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, the related consolidated statements of net income and comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended January 2, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for leases as of the first day of fiscal year 2019 due to the adoption of Accounting Standards Codification (ASC) 842, Leases. The Company adopted ASC 842 using the modified retrospective approach and elected not to adjust comparative periods.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Percentage of Completion – Refer to Note 2 of the Financial Statements
Critical Audit Matter Description
The Company recognizes lump-sum contract revenue over the contract term (“over time”) as the work progresses, which is as services are rendered, because transfer of control to the customer is continuous. The Company’s revenues from lump-sum
contracts are recognized on the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated costs. The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total costs and profit for each performance obligation. Direct costs are recognized as incurred, and revenues are determined by adding a proportionate amount of the estimated profit to the amount reported as direct costs. For the year ended January 2, 2021, revenue was $659.3 million, of which approximately $297 million relates to lump-sum contracts.
We identified revenue on certain long-term lump-sum contracts as a critical audit matter because of the judgments necessary for management to estimate total costs and profit in order to recognize revenue for certain lump-sum contracts. This required extensive audit effort due to the long-term nature of certain lump-sum contracts and required a high degree of auditor judgment when performing audit procedures to audit management’s estimates of total costs and profit and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and profit for each performance obligation used to recognize revenue for certain long-term lump-sum contracts included the following, among others:
•We tested the effectiveness of controls over lump-sum contract revenue, including management’s controls over the estimates of total costs and profit for performance obligations.
•We selected certain long-term lump-sum contracts and performed the following:
–Evaluated whether the contracts were properly included in management’s calculation of lump-sum contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation.
–Compared the revenue recognized to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.
–Tested management’s identification of distinct performance obligations by evaluating whether the underlying services were highly interdependent and interrelated.
–Tested the accuracy and completeness of the costs incurred to date for each performance obligation.
–Evaluated the estimates of total cost and profit by:
•Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s finance managers, project managers and engineers, and comparing the estimates to management’s work plans, project budgets, and change orders, as applicable.
•Comparing hours incurred subsequent to fiscal year end to the remaining hours management estimated as of fiscal year end.
•Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.
–Tested the mathematical accuracy of management’s calculation of revenue for each performance obligation.
•We evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and profits to management’s historical estimates for performance obligations that have been fulfilled.
/s/ Deloitte & Touche LLP
Miami, Florida
March 3, 2021
We have served as the Company’s auditor since 2015.
NV5 Global, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
64,909
|
|
|
$
|
31,825
|
|
Billed receivables, net
|
142,705
|
|
|
131,041
|
|
Unbilled receivables, net
|
74,458
|
|
|
79,428
|
|
Prepaid expenses and other current assets
|
6,804
|
|
|
8,906
|
|
Total current assets
|
288,876
|
|
|
251,200
|
|
Property and equipment, net
|
27,011
|
|
|
25,733
|
|
Right-of-use lease assets, net
|
43,607
|
|
|
46,313
|
|
Intangible assets, net
|
174,931
|
|
|
255,961
|
|
Goodwill
|
343,796
|
|
|
309,216
|
|
Other assets
|
2,954
|
|
|
4,714
|
|
Total Assets
|
$
|
881,175
|
|
|
$
|
893,137
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
39,989
|
|
|
$
|
36,116
|
|
Accrued liabilities
|
45,325
|
|
|
47,432
|
|
|
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
24,962
|
|
|
3,303
|
|
Client deposits
|
380
|
|
|
221
|
|
Current portion of contingent consideration
|
1,334
|
|
|
1,954
|
|
Current portion of notes payable and other obligations
|
24,196
|
|
|
25,332
|
|
Total current liabilities
|
136,186
|
|
|
114,358
|
|
Contingent consideration, less current portion
|
1,066
|
|
|
2,048
|
|
Other long-term liabilities
|
38,737
|
|
|
34,573
|
|
Notes payable and other obligations, less current portion
|
283,326
|
|
|
332,854
|
|
Deferred income tax liabilities, net
|
27,791
|
|
|
53,341
|
|
Total liabilities
|
487,106
|
|
|
537,174
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 45,000,000 shares authorized, 13,270,131 and 12,852,357 shares issued and outstanding as of January 2, 2021 and December 28, 2019, respectively
|
133
|
|
|
129
|
|
Additional paid-in capital
|
268,271
|
|
|
251,187
|
|
Retained earnings
|
125,665
|
|
|
104,647
|
|
Total stockholders’ equity
|
394,069
|
|
|
355,963
|
|
Total liabilities and stockholders’ equity
|
$
|
881,175
|
|
|
$
|
893,137
|
|
See accompanying notes to consolidated financial statements.
NV5 Global, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Gross revenues
|
$
|
659,296
|
|
|
$
|
508,938
|
|
|
$
|
418,081
|
|
|
|
|
|
|
|
Direct costs:
|
|
|
|
|
|
Salaries and wages
|
176,865
|
|
|
153,023
|
|
|
132,922
|
|
Sub-consultant services
|
107,602
|
|
|
79,598
|
|
|
62,218
|
|
Other direct costs
|
40,291
|
|
|
30,935
|
|
|
21,537
|
|
Total direct costs
|
324,758
|
|
|
263,556
|
|
|
216,677
|
|
|
|
|
|
|
|
Gross profit
|
334,538
|
|
|
245,382
|
|
|
201,404
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Salaries and wages, payroll taxes and benefits
|
176,816
|
|
|
128,558
|
|
|
102,221
|
|
General and administrative
|
50,214
|
|
|
42,656
|
|
|
31,713
|
|
Facilities and facilities related
|
21,280
|
|
|
17,145
|
|
|
14,401
|
|
Depreciation and amortization
|
42,079
|
|
|
25,816
|
|
|
17,384
|
|
Total operating expenses
|
290,389
|
|
|
214,175
|
|
|
165,719
|
|
|
|
|
|
|
|
Income from operations
|
44,149
|
|
|
31,207
|
|
|
35,685
|
|
|
|
|
|
|
|
Interest expense
|
(15,181)
|
|
|
(2,275)
|
|
|
(1,966)
|
|
|
|
|
|
|
|
Income before income tax expense
|
28,968
|
|
|
28,932
|
|
|
33,719
|
|
Income tax expense
|
(7,950)
|
|
|
(5,176)
|
|
|
(6,863)
|
|
Net income and comprehensive income
|
$
|
21,018
|
|
|
$
|
23,756
|
|
|
$
|
26,856
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
1.70
|
|
|
$
|
1.96
|
|
|
$
|
2.44
|
|
Diluted
|
$
|
1.65
|
|
|
$
|
1.90
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
12,362,786
|
|
|
12,116,185
|
|
|
10,991,124
|
|
Diluted
|
12,713,075
|
|
|
12,513,034
|
|
|
11,506,466
|
|
See accompanying notes to consolidated financial statements.
NV5 Global, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In
Capital
|
|
Retained
Earnings
|
|
Total
|
|
Shares
|
|
Amount
|
|
|
|
Balance, December 30, 2017
|
10,834,770
|
|
|
$
|
108
|
|
|
$
|
125,954
|
|
|
$
|
54,035
|
|
|
$
|
180,097
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
6,697
|
|
|
—
|
|
|
6,697
|
|
Restricted stock issuance, net
|
172,820
|
|
|
2
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
Stock issuance for acquisitions
|
133,121
|
|
|
1
|
|
|
9,329
|
|
|
—
|
|
|
9,330
|
|
Proceeds from secondary offering, net of costs
|
1,270,000
|
|
|
13
|
|
|
93,456
|
|
|
—
|
|
|
93,469
|
|
Proceeds from exercise of warrants, net of costs
|
140,000
|
|
|
2
|
|
|
1,091
|
|
|
—
|
|
|
1,093
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
26,856
|
|
|
26,856
|
|
Balance, December 29, 2018
|
12,550,711
|
|
|
126
|
|
|
236,525
|
|
|
80,891
|
|
|
317,542
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
10,430
|
|
|
—
|
|
|
10,430
|
|
Restricted stock issuance, net
|
234,805
|
|
|
2
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
Stock issuance for acquisitions
|
55,656
|
|
|
1
|
|
|
3,510
|
|
|
—
|
|
|
3,511
|
|
Payment of contingent consideration with common stock
|
11,185
|
|
|
—
|
|
|
724
|
|
|
—
|
|
|
724
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
23,756
|
|
|
23,756
|
|
Balance, December 28, 2019
|
12,852,357
|
|
|
129
|
|
|
251,187
|
|
|
104,647
|
|
|
355,963
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
14,955
|
|
|
—
|
|
|
14,955
|
|
Restricted stock issuance, net
|
373,684
|
|
|
4
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
Stock issuance for acquisitions
|
38,846
|
|
|
—
|
|
|
1,855
|
|
|
—
|
|
|
1,855
|
|
Payment of contingent consideration with common stock
|
5,244
|
|
|
—
|
|
|
278
|
|
|
—
|
|
|
278
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
21,018
|
|
|
21,018
|
|
Balance, January 2, 2021
|
13,270,131
|
|
|
$
|
133
|
|
|
$
|
268,271
|
|
|
$
|
125,665
|
|
|
$
|
394,069
|
|
See accompanying notes to consolidated financial statements.
NV5 Global, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
21,018
|
|
|
$
|
23,756
|
|
|
$
|
26,856
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
45,488
|
|
|
25,816
|
|
|
17,384
|
|
Non-cash lease expense
|
9,469
|
|
|
9,410
|
|
|
—
|
|
Provision for doubtful accounts
|
4,311
|
|
|
1,239
|
|
|
797
|
|
Stock-based compensation
|
14,955
|
|
|
10,430
|
|
|
6,697
|
|
Change in fair value of contingent consideration
|
—
|
|
|
(216)
|
|
|
424
|
|
(Gain) loss on disposals of property and equipment
|
(462)
|
|
|
21
|
|
|
26
|
|
Deferred income taxes
|
(13,064)
|
|
|
(6,634)
|
|
|
(3,585)
|
|
Amortization of debt issuance costs
|
896
|
|
|
131
|
|
|
—
|
|
Changes in operating assets and liabilities, net of impact of acquisitions:
|
|
|
|
|
|
Billed receivables
|
(13,592)
|
|
|
5,140
|
|
|
(8,662)
|
|
Unbilled receivables
|
1,996
|
|
|
(11,807)
|
|
|
(2,813)
|
|
Prepaid expenses and other assets
|
4,680
|
|
|
(3,599)
|
|
|
(109)
|
|
Accounts payable
|
3,367
|
|
|
534
|
|
|
398
|
|
Accrued liabilities
|
(4,865)
|
|
|
(7,315)
|
|
|
(2,984)
|
|
Income taxes payable
|
—
|
|
|
(2,697)
|
|
|
(3,405)
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
21,659
|
|
|
(4,322)
|
|
|
3,964
|
|
Deposits
|
153
|
|
|
13
|
|
|
11
|
|
Net cash provided by operating activities
|
96,009
|
|
|
39,900
|
|
|
34,999
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Cash paid for acquisitions (net of cash received from acquisitions)
|
(882)
|
|
|
(348,375)
|
|
|
(58,155)
|
|
Proceeds from sale of assets
|
1,670
|
|
|
—
|
|
|
—
|
|
Purchase of property and equipment
|
(9,855)
|
|
|
(2,625)
|
|
|
(2,203)
|
|
Net cash used in investing activities
|
(9,067)
|
|
|
(351,000)
|
|
|
(60,358)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings from Senior Credit Facility
|
—
|
|
|
330,457
|
|
|
—
|
|
Proceeds from common stock offering
|
—
|
|
|
—
|
|
|
100,330
|
|
Proceeds from exercise of warrant
|
—
|
|
|
—
|
|
|
1,093
|
|
Payments of borrowings from Senior Credit Facility
|
(36,625)
|
|
|
(10,000)
|
|
|
(36,500)
|
|
Payments on notes payable
|
(15,207)
|
|
|
(13,393)
|
|
|
(9,741)
|
|
Payments of contingent consideration
|
(1,579)
|
|
|
(1,202)
|
|
|
(728)
|
|
Payments of common stock offering costs
|
—
|
|
|
—
|
|
|
(6,861)
|
|
Payments of debt issuance costs
|
(447)
|
|
|
(3,676)
|
|
|
(246)
|
|
Net cash (used in) provided by financing activities
|
(53,858)
|
|
|
302,186
|
|
|
47,347
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
33,084
|
|
|
(8,914)
|
|
|
21,988
|
|
Cash and cash equivalents – beginning of period
|
31,825
|
|
|
40,739
|
|
|
18,751
|
|
Cash and cash equivalents – end of period
|
$
|
64,909
|
|
|
$
|
31,825
|
|
|
$
|
40,739
|
|
See accompanying notes to consolidated financial statements.
NV5 Global, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
15,623
|
|
|
$
|
1,218
|
|
|
$
|
1,895
|
|
Cash paid for income taxes
|
$
|
19,748
|
|
|
$
|
16,215
|
|
|
$
|
13,634
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Contingent consideration (earn-out)
|
$
|
255
|
|
|
$
|
1,641
|
|
|
$
|
3,112
|
|
Notes payable and other obligations issued for acquisitions
|
$
|
500
|
|
|
$
|
10,044
|
|
|
$
|
23,987
|
|
Stock issuance for acquisitions
|
$
|
1,855
|
|
|
$
|
3,511
|
|
|
$
|
9,330
|
|
Finance leases
|
$
|
1,244
|
|
|
$
|
1,084
|
|
|
$
|
2,884
|
|
Payment of contingent consideration and other obligations with common stock
|
$
|
278
|
|
|
$
|
724
|
|
|
$
|
—
|
|
See accompanying notes to consolidated financial statements.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Note 1 – Organization and Nature of Business Operations
Business
NV5 Global, Inc. and its subsidiaries (collectively, the “Company” or “NV5 Global”) is a provider of professional and technical engineering and consulting solutions to public and private sector clients in the infrastructure, utility services, construction, real estate, and environmental markets, operating nationwide and abroad. The Company’s clients include the U.S. federal, state and local governments, and the private sector. NV5 Global provides a wide range of services, including, but not limited to:
|
|
|
|
|
|
|
|
|
|
|
|
●
|
Utility services
|
●
|
MEP & technology engineering
|
●
|
LNG services
|
●
|
Commissioning
|
●
|
Engineering
|
●
|
Program management
|
●
|
Civil program management
|
●
|
Environmental health & safety
|
●
|
Surveying
|
●
|
Real estate transaction services
|
●
|
Testing, inspection, & consulting (TIC)
|
●
|
Energy efficiency services
|
●
|
Code compliance consulting
|
●
|
3D geospatial data modeling
|
●
|
Forensic engineering
|
●
|
Environmental & natural resources
|
●
|
Litigation support
|
●
|
Robotic survey solutions
|
●
|
Ecological studies
|
●
|
Geospatial data application & software
|
Impact of COVID-19 on Our Business
The COVID-19 pandemic has significantly impacted global stock markets and economies. The Company is closely monitoring the impact of the outbreak of COVID-19 on all aspects of its business, including how it will impact the Company's customers and employees. Some of the Company's services were affected, primarily its real estate transactional services and hospitality-related services. In particular, due to COVID-19 restrictions, some of the Company's casino and hotel projects have been delayed. As U.S. and international economies begin to reopen and with a vaccine underway the Company expects demand for these services to return, but the Company is unable to predict the ultimate impact that it may have on its business, future results of operations, financial position, or cash flows. The extent to which the Company's operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. The Company intends to continue to monitor the impact of COVID-19 pandemic on its business closely.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Fiscal Year
Effective March 7, 2017, the Audit Committee of our Board of Directors and the Board of Directors approved a change in our fiscal year-end and financial accounting cycle. Beginning January 1, 2017, the Company commenced reporting its financial results on a 52/53 week fiscal year ending on the Saturday closest to December 31st (whether or not in the following calendar year), with interim calendar quarters ending on the Saturday closest to the end of such calendar quarter
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(whether or not in the following calendar quarter). As a result, fiscal 2020 included 53 weeks compared to fiscal 2019 and 2018, which both included 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on management’s most recent assessment of underlying facts and circumstances using the most recent information available. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.
Estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in the consolidated financial statements include the following:
•Fair value estimates used in accounting for business combinations including the valuation of identifiable intangible assets and contingent consideration
•Fair value estimates in determining the fair value of our reporting units for goodwill impairment assessment
•Revenue recognition over time
•Allowances for uncollectible accounts
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with financial institutions and investments in high quality overnight money market funds, all of which have maturities of three months or less when purchased. The Company from time to time may be exposed to credit risk with its bank deposits in excess of the Federal Deposit Insurance Corporation insurance limits and with uninsured money market investments. Management believes cash and cash equivalent balances are not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Concentration of Credit Risk
Trade receivable balances carried by the Company are comprised of accounts from a diverse client base across a broad range of industries and are not collateralized. However, 28%, 27% and 30% of the Company’s gross revenues for fiscal years 2020, 2019, and 2018, respectively, are from California-based projects. The Company did not have any clients representing more than 10% of our gross revenues during 2020, 2019 or 2018. During fiscal years 2020, 2019, and 2018 approximately 68%, 68% and 67%, respectively, of our gross revenues was attributable to the public and quasi-public sector. Management continually evaluates the creditworthiness of these and future clients and provides for bad debt reserves as necessary.
Fair Value of Financial Instruments
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:
Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.
Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The Company considers cash and cash equivalents, accounts receivable, accounts payable, income taxes payable, accrued liabilities and debt obligations to meet the definition of financial instruments. As of January 2, 2021 and December 28,
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
2019, the carrying amount of cash and cash equivalents, accounts receivable, accounts payable, income taxes payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.
The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. The allocation of the purchase price to identifiable intangible assets is based on valuations performed to determine the fair values of such assets as of the acquisition dates. Generally, the Company engages a third-party independent valuation specialist to assist in management’s determination of fair values of tangible and intangible assets acquired and liabilities assumed. The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. The Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the consolidated balance sheet. Changes in the estimated fair value of contingent earn-out payments are included in General and Administrative expenses on the Consolidated Statements of Net Income and Comprehensive Income.
Several factors are considered when determining contingent consideration liabilities as part of the purchase price, including whether (i) the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (ii) the former owners of the acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of other key employees. The contingent earn-out payments are not affected by employment termination.
The Company reviews and re-assesses the estimated fair value of contingent consideration liabilities on a quarterly basis, and the updated fair value could differ from the initial estimates. The Company measures contingent consideration recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The Company uses a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration liabilities on the acquisition date and at each reporting period. The significant unobservable inputs used in the fair value measurements are projections over the earn-out period, and the probability outcome percentages that are assigned to each scenario. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and amount paid will be recorded in earnings. See Note 12, Contingent Consideration, for additional information regarding contingent considerations.
Property and Equipment
Property and equipment is stated at cost. Property and equipment acquired in a business combination is stated at fair value at the acquisition date. The Company capitalizes the cost of improvements to property and equipment that increase the value or extend the useful lives of the assets. Normal repair and maintenance costs are expensed as incurred. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets. Leasehold
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining terms of the related lease agreement.
|
|
|
|
|
|
|
|
|
Asset
|
|
Depreciation Period (in years)
|
Office furniture and equipment
|
|
4
|
Computer equipment
|
|
3
|
Survey and field equipment
|
|
5
|
Leasehold improvements
|
|
Lesser of the estimated useful lives or remaining term of the lease
|
Property and equipment balances are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. During fiscal years 2020, 2019 and 2018, no impairment charge relating to property and equipment was recognized.
Goodwill and Intangible Assets
Goodwill is the excess of consideration paid for an acquired entity over the amounts assigned to assets acquired, including other identifiable intangible assets and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.
The Company evaluates goodwill annually for impairment on August 1 or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then the Company may apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company determines fair value through multiple valuation techniques, and weights the results accordingly. NV5 Global is required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. The Company conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.
Identifiable intangible assets primarily include customer backlog, customer relationships, trade names, non-compete agreements, and developed technology. Amortizable intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment, if any, is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model.
During fiscal years 2020, 2019 and 2018, no impairment charge relating to goodwill and intangible assets was recognized. See Note 9, Goodwill and Intangible Assets, for further information on goodwill and identified intangibles.
Revenue Recognition
On the first day of fiscal year 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective approach to all contracts that were not completed as of the beginning of fiscal year 2018. We utilize the contract method, which allows companies to account for contracts on a contract by contract basis. For our time and materials contracts, we apply the as-invoiced practical expedient, which permits us to recognize revenue as the right to invoice for services performed. The new standard did not materially affect our consolidated net income, financial position, or cash flows.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
To determine the proper revenue recognition method, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services that is not separately identifiable from other promises in the contracts and, therefore, is not distinct.
The Company’s performance obligations are satisfied as work progresses or at a point in time. Revenue on the Company's cost-reimbursable contracts is recognized over time using direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations because it depicts the transfer of control to the customer. Contract costs include labor, sub-consultant services, and other direct costs. Gross revenues from services transferred to customers over time accounted for 92%, 90%, and 92% of the Company’s revenues during fiscal years 2020, 2019 and 2018, respectively.
Gross revenue from services transferred to customers at a point in time is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the reports and/or analysis performed. Gross revenue from services transferred to customers at a point in time accounted for 8%, 10%, and 8% of the Company’s revenues during fiscal years 2020, 2019 and 2018, respectively.
As of January 2, 2021, the Company had $575,052 of remaining performance obligations, of which $489,009 is expected to be recognized over the next 12 months and the majority of the balance over the next 24 months. Contracts for which work authorizations have been received are included in performance obligations. Most of the Company's contracts are multi-year contracts for which funding is appropriated on an annual basis, therefore performance obligations include only those amounts that have been funded and authorized and does not reflect the full amounts the Company may receive over the term of such contracts. In the case of non-government contracts and project awards, performance obligations include future revenue at contract or customary rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, the Company includes revenue from such contracts in performance obligations to the extent of the remaining estimated amount.
Contract modifications are common in the performance of our contracts. Contracts modified typically result from changes in scope, specifications, design, performance, sites, or period of completion. In most cases, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions are dependent upon the accuracy of a variety of estimates, including engineering progress, achievement of milestones, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates. If estimated total costs on contracts indicate a loss or reduction to the percentage of total contract revenues recognized to date, these losses or reductions are recognized in the period in which the revisions are known. The effect of revisions to revenues, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses and others are recorded on the cumulative catch-up basis in the period in which the revisions are identified and the loss can be reasonably estimated. Such revisions could occur in any reporting period and the effects on the results of operations for that reporting period may be material depending on the size of the project or the adjustment. During fiscal years 2020, 2019, and 2018 the cumulative catch-up adjustment for contract modifications was not material.
A significant amount of the Company’s revenues are derived under multi-year contracts. The Company enters into contracts with its clients that contain two principal types of pricing provisions: cost-reimbursable and fixed-unit price. The majority of the Company’s contracts are cost-reimbursable contracts that fall under the low-risk subcategory of time and materials contracts.
Cost-reimbursable contracts consist of the following:
•Time and materials contracts, which are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, the Company negotiates hourly billing rates and charges the clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have an initial not-to-exceed or guaranteed maximum price provision.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
•Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. Under these types of contracts, the Company charges clients for its costs, including both direct and indirect costs, plus a negotiated fee. The total estimated cost plus the negotiated fee represents the total contract value.
•Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of the Company’s lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables. In most cases, we can bill additional fees if the construction schedule is modified and lengthened.
Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed.
Federal Acquisition Regulations (“FAR”), which are applicable to the Company’s federal government contracts and may be incorporated in local and state agency contracts, limit the recovery of certain specified indirect costs on contracts. Cost-plus contracts covered by FAR or certain state and local agencies also may require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) on the Consolidated Balance Sheet.
Billed receivables, net represents amounts billed to clients that remain uncollected as of the balance sheet date. The amounts are stated at their estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is estimated based on management’s evaluation of the contracts involved and the financial condition of clients. Factors the Company considers include, but are not limited to:
•Client type (governmental or commercial client)
•Historical performance
•Historical collection trends
•General economic conditions
Billed receivables are generally collected within less than 12 months. The allowance is increased by the Company’s provision for doubtful accounts which is charged against income. All recoveries on receivables previously charged off are included in income, while direct charge-offs of receivables are deducted from the allowance.
Unbilled receivables, net represents recognized amounts pending billing pursuant to contract terms or accounts billed after period end, and are expected to be billed and collected within the next 12 months. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Unbilled receivables (contract assets) are generally classified as current.
In certain circumstances, the contract may allow for billing terms that result in the cumulative amounts billed in excess of revenues recognized. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts as of the reporting date. This liability is generally classified as current. During fiscal 2020, the Company performed services and recognized $3,235 of revenue related to its contract liabilities that existed as of December 28, 2019.
Advertising
Advertising costs are charged to expense in the period incurred and amounted to $940, $939 and $1,019 during fiscal years 2020, 2019 and 2018, respectively, which are included in General and Administrative Expenses on the accompanying Consolidated Statements of Net Income and Comprehensive Income.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic No. 740 “Income Taxes” (“Topic No. 740”). Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the Company’s deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the Company operates. Management periodically assesses the need for a valuation allowance based on the Company’s current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
The Company recognizes the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the uncertain tax position guidance to all tax positions for which the statute of limitations remains open. The Company’s policy is to classify interest and penalties as income tax expense.
Note 3 – Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Goodwill and Intangible Assets
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This ASU eliminates Step 2 of the goodwill impairment test and simplifies how the amount of an impairment loss is determined. The update is effective for public companies in the beginning of fiscal year 2020 and shall be applied on a prospective basis. The Company adopted this ASU at the beginning of fiscal year 2020. The Company has determined there were no changes to its financial statements as a result of the adoption.
Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"). This ASU introduces a new accounting model, the Current Expected Credit Losses model ("CECL"), which could result in earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model requires the Company to use a forward-looking expected credit loss impairment methodology for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard also applies to receivables arising from revenue transactions such as contract assets and accounts receivable and is effective for fiscal years beginning after December 15, 2019. The Company adopted this ASU at the beginning of fiscal year 2020. The standard was applied prospectively and did not materially impact the consolidated financial statements.
Leases
In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02") which is intended to increase transparency and comparability of accounting for lease transactions. For all leases with terms greater than 12 months, the new guidance requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet and to disclose qualitative and quantitative information about lease transactions. The new standard maintains a distinction between finance leases and operating leases. As a result, the effect of the new guidance on leases in the statement of operations and statement of cash flow is largely unchanged.
The Company adopted ASU No. 2016-02 as of the first day of the fiscal year 2019 using the modified retrospective approach and elected not to adjust comparative periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which permits the Company not to reassess under the new
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
standard its prior conclusions about lease identification, lease classification, and the initial direct costs. The Company elected the practical expedient to keep leases with an initial term of 12 months or less off the balance sheet and the practical expedient to account for non-lease components in a contract as part of a single lease component. Lease payments are recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of additional right-of-use lease assets and lease liabilities of $34,186 and $34,965, respectively, as of the first day of the fiscal year 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows. Additionally, there was no cumulative effect of adoption on retained earnings in the Statement of Changes in Stockholders' Equity.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"). This ASU provides optional expedients and exceptions to the current guidance on contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is currently evaluating the impact this new guidance may have on its consolidated financial statements.
Note 4 – Earnings per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period, excluding unvested restricted shares. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The effect of potentially dilutive securities is not considered during periods of loss or if the effect is anti-dilutive.
The weighted average number of shares outstanding in calculating basic earnings per share during fiscal years 2020, 2019 and 2018 exclude 763,183, 642,677 and 614,911 non-vested restricted shares, respectively. During fiscal 2020, there were 12,588 weighted average securities which are not included in the calculation of diluted weighted average shares outstanding because their impact is anti-dilutive. There were no potentially anti-dilutive securities during fiscal years 2019 and 2018.
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share during fiscal years 2020, 2019 and 2018:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Fiscal Years Ended
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|
January 2, 2021
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|
December 28, 2019
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|
December 29, 2018
|
Numerator:
|
|
|
|
|
|
Net income – basic and diluted
|
$
|
21,018
|
|
|
$
|
23,756
|
|
|
$
|
26,856
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
12,362,786
|
|
|
12,116,185
|
|
|
10,991,124
|
|
Effect of dilutive non-vested restricted shares and units
|
303,622
|
|
|
319,674
|
|
|
401,726
|
|
Effect of issuable shares related to acquisitions
|
46,667
|
|
|
77,175
|
|
|
87,713
|
|
Effect of warrants
|
—
|
|
|
—
|
|
|
25,903
|
|
Diluted weighted average shares outstanding
|
12,713,075
|
|
|
12,513,034
|
|
|
11,506,466
|
|
Note 5 – Stockholders' Equity
Warrant exercise
In conjunction with the Company’s initial public offering on March 26, 2013, the underwriter received a warrant to acquire up to 140,000 units (“Unit Warrant”). On March 23, 2016, the underwriter paid $1,008 to the Company to exercise the Unit Warrant. Each of the units delivered upon exercise consisted of one share of the Company’s common stock and one
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
warrant to purchase one share of the Company’s common stock at an exercise price of $7.80 per share (“Warrant”), which warrant expired on March 27, 2018. On March 19, 2018, the underwriter paid $1,093 to the Company to exercise the Warrant. On March 21, 2018, the Company delivered 140,000 shares of common stock to the underwriter.
Common Stock offering
On August 9, 2018, the Company priced an underwritten follow-on offering of 1,270,000 shares of the Company’s common stock (the “2018 Firm Shares”) at an offering price of $79.00 per share. The shares were sold pursuant to an effective registration statement on Form S-3 (Registration No. 333-224392). In addition, a selling stockholder of the Company granted the underwriters of the offering a 30-day option to purchase up to 190,500 shares (the “2018 Option Shares”) of the Company’s common stock at the public offering price less the underwriting discount. On August 13, 2018, the Company closed on the 2018 Firm Shares, for which we received net proceeds of $93,469 after deducting the underwriting discount and estimated offering expenses payable by the Company, and the selling stockholder of the Company closed on the sale of all 2018 Option Shares. The Company did not receive any proceeds associated with the sale of the 2018 Option Shares by the selling stockholder.
Note 6 – Business Acquisitions
2020 Acquisitions
On July 16, 2020, the Company acquired all of the outstanding equity interests in Mediatech FZ, LLC and Mediatech Information Technology Consultants ("Mediatech"), a technology company providing security, enterprise IT, and building technology solutions in the Middle East and North Africa (MENA) region and South East Asia. Mediatech provides technology design services for the hospitality, industrial, healthcare, commercial, retail, and convention center markets. The Company acquired Mediatech for an aggregate purchase price of $1,949, including $882 of cash and $500 in promissory note, payable in four equal installments of $125 due on the first, second, third, and fourth anniversaries of the closing date. The purchase price also includes $312 of the Company's common stock payable in four equal installments due at closing and on the first, second and third anniversaries of the closing date. Further, the purchase price includes $255 in additional contingent payments. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Mediatech, the Company performed a fair value assessment. The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC Topic 805, Business Combinations ("ASC 805"). The Mediatech acquisition will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the acquisition date, including intangible assets, accounts receivable, and certain fixed assets.
2019 Acquisitions
On December 20, 2019 (the "Closing Date"), the Company acquired all of the outstanding equity interests in Geospatial Holdings, Inc. and its subsidiaries, including Quantum Spatial, Inc. (collectively "QSI"), a full-service geospatial solutions provider serving the North American market. QSI provides data solutions to public and private sector clients that need geospatial intelligence to mitigate risk, plan for growth, better manage resources, and advance scientific understanding. NV5 Global acquired QSI in an all-cash transaction for $318,428, which includes excess working capital of $9,034 and closing date cash of approximately $6,894. The purchase price and other related costs associated with the transaction were financed through the Company's amended and restated credit agreement (the "A&R Credit Agreement") with Bank of America, N.A. and the other lenders party thereto. Pursuant to the A&R Credit Agreement, the lenders provided term commitments of $150,000 in the aggregate in a single draw on the Closing Date and revolving commitments totaling $215,000. See Note 11, Notes Payable and Other Obligations, for further detail on the A&R Credit Agreement. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for QSI, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On November 8, 2019, the Company acquired from GHD Services, Inc. ("GHD") its assets related to the business for forensics and insurance. The GHD forensics and insurance business provides engineering and environmental claim services for insurance companies, law firms, and litigation support. The Company acquired GHD for a cash purchase price of $8,300. In order to determine the fair values of tangible and intangible assets required and liabilities assumed for GHD, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
On July 2, 2019, the Company acquired all of the outstanding equity interests in WHPacific, Inc. (“WHPacific”), a provider of design engineering and surveying services serving Washington, Oregon, Idaho, New Mexico, Arizona and California for a cash purchase price of $9,000. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for WHPacific, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On July 1, 2019, the Company acquired all of the outstanding equity interests in GeoDesign, Inc. ("GeoDesign"), a geotechnical, environmental, geological, mining and pavement engineering company serving Washington, Oregon, and California. The aggregate purchase price was $11,245, including $8,247 of cash, $2,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $500 due on the first, second, third, and fourth anniversaries of July 1, 2019, and $375 of the Company's common stock (4,731 shares) issued at the closing date. The purchase price also includes $425 of the Company's common stock payable on the first and second anniversaries of July 1, 2019. Further, the purchase price includes a $1,500 earn-out of cash, which was recorded at the estimated fair value of $198. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for GeoDesign, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On June 3, 2019, the Company acquired all of the outstanding equity interests in Alta Environmental, L.P. ("Alta"), a consulting firm specializing in air quality, environmental building sciences, water resources, site assessment and remediation as well as environmental health and safety compliance services. The aggregate purchase price was $6,323, including $4,000 of cash and $2,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $500 due on the first, second, third, and fourth anniversaries of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash, which was recorded at an estimated fair value of $323. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Alta, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On June 3, 2019, the Company acquired all of the outstanding equity interests in Page One Consultants ("Page One"), a program management and construction quality assurance firm based in Orlando, Florida. The aggregate purchase price was $3,995, including $2,293 of cash, $1,000 in promissory note (bearing interest at 3.0%), payable in three equal installments of $333 due on the first, second, and third anniversaries of June 3, 2019, and $200 of the Company's common stock (2,647 shares) issued at the closing date. The purchase price also includes $200 of the Company's common stock payable on the first anniversary date of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash and stock, which was recorded at an estimated fair value of $302. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Page One, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On March 22, 2019, the Company acquired all of the outstanding equity interests in the Sextant Group, Inc. ("The Sextant Group"), a national provider of audiovisual, information and communications technology, acoustics consulting, and design services headquartered in Pittsburgh, PA. The Sextant Group provides services throughout the U.S. and is well-known for creating integrated technology solutions for a wide range of public and private sector clients. The aggregate purchase price was $10,501, including $6,501 of cash and $4,000 in promissory note (bearing interest at 4.0%), payable in four equal installments of $1,000 due on the first, second, third, and fourth anniversaries of March 22, 2019. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for The Sextant Group, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On December 31, 2018, the Company acquired certain assets of Celtic Energy, Inc. ("Celtic"), a nationally recognized energy efficiency consulting firm that specialized in energy efficiency project management and oversight. The aggregate purchase price was $1,881, including $1,000 in cash, $300 in promissory note (bearing interest at 3.0%), payable in three equal installments of $100 on the first, second, and third anniversaries of December 31, 2018, and $200 of the Company's common stock (3,227 shares) issued at the closing date. The purchase price also includes $200 of the Company's common stock payable on the first anniversary December 31, 2018. Further, the purchase price includes a $200 earn-out of cash, which was recorded at an estimated fair value of $181. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Celtic, the Company performed a purchase price allocation.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
2018 Acquisitions
On November 2, 2018 the Company acquired CHI Engineering, Inc. (“CHI”), an infrastructure engineering firm based in Portsmouth, New Hampshire. CHI is a leading provider of engineering, procurement, and construction management services to the liquefied natural gas (“LNG”), petroleum gas (“LPG”) and Natural Gas industries. CHI’s client base includes the majority of LNG facility owner/operators in the U.S. The aggregate purchase price of this acquisition is up to $53,000, including $30,000 in cash, $15,000 in promissory notes (bearing interest at 3.0%), payable in four equal installments of $3,750 on the first, second, third and fourth anniversaries of November 2, 2018 and $3,000 of the Company’s common stock (36,729 shares) issued at the closing date. In July 2019, the Company received $2,360 from the sellers of CHI, as a working capital adjustment which was recorded as a reduction of the purchase price paid for the acquisition of CHI. The purchase price also includes $3,000 of the Company’s common stock payable in three installments of $1,000, due on the first, second and third anniversaries of November 2, 2018. The purchase price also includes a $2,000 earn-out of cash (at a 3.0% interest rate which begins to accrue on January 1, 2020), which was recorded at its estimated fair value of $1,547, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to related party individuals who became employees of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CHI, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On August 24, 2018, the Company acquired all of the outstanding equity interests in CALYX Engineers and Consultants, Inc. ("CALYX"), an infrastructure and transportation firm based in Cary, North Carolina. CALYX provides roadway and structure design, transportation planning, water resources, construction services, utility services, building structure design, land development, traffic services, cultural resources, surveying, and environmental services. CALYX serves both public and private clients, including state departments of transportation, municipalities, developers, higher education, and healthcare systems. The acquisition of CALYX will expand our infrastructure engineering service in the southeast United States. The purchase price of this acquisition is $34,000, subject to customary closing working capital adjustments, including $25,000 in cash, $4,000 in promissory notes (bearing interest at 3.75%), payable in four installments of $1,000, due on the first, second, third and fourth anniversaries of August 24, 2018, $3,000 of the Company’s common stock (36,379 shares) as of the closing date of the acquisition, and $2,000 in cash payable within 120 days of the closing date. The note is due to related party individuals who became employees of the Company. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CALYX, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On February 2, 2018, the Company acquired CSA (M&E) Ltd. (“CSA”), a leading provider of Mechanical, Electrical, and Plumbing (MEP) engineering and sustainability consulting services. CSA provides MEP and sustainability services for the retail, education, healthcare, industrial, corporate, hospitality and infrastructure market sectors with offices in Hong Kong, Macau and the UAE. CSA serves private and public sector clients throughout Asia and the Middle East. The purchase price of this acquisition was up to $4,200, including $2,000 in cash; $600 in promissory notes (bearing interest at 3.0%), payable in four installments of $150, due on the first, second, third and fourth anniversaries of February 2, 2018, the effective date of the acquisition; and $150 of the Company’s common stock (2,993 shares) issued as of the closing date. The purchase price also includes $250 of the Company’s common stock payable in two installments of $125, due on the first and second anniversaries of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $1,200 payable in cash and stock, subject to the achievement of certain agreed upon financial metrics for fiscal year 2018. The earn-out of $1,200 is non-interest bearing and was recorded at its estimated fair value of $899, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual who became an employee of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CSA, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko Utility Design, Inc. (“Butsko”). Butsko is leading provider of utility planning and design services serving both public and private sector clients through its offices in Southern California and Washington. The purchase price of this acquisition was up to $4,250, including $1,500 in cash; $1,000 in promissory notes (bearing interest at 3.0%), payable in four installments of $250, due on the first, second, third and fourth anniversaries of January 12, 2018, the effective date of the acquisition; and $300 of the Company’s common stock (5,630 shares) issued as of the closing date. The purchase price also includes $600 of the Company’s common stock payable in two installments of $300, due on the first and second anniversaries of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $850 payable in cash and stock, subject to the achievement of certain agreed
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
upon financial metrics for fiscal year 2018. The earn-out of $850 is non-interest bearing and was recorded at its estimated fair value of $666, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual who became an employee of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Butsko, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition dates for acquisitions closed during fiscal years 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total
|
|
QSI
|
|
Other
|
|
Total
|
Cash
|
$
|
—
|
|
|
$
|
6,894
|
|
|
$
|
75
|
|
|
$
|
6,969
|
|
Billed and unbilled receivables, net
|
1,439
|
|
|
42,523
|
|
|
18,726
|
|
|
61,249
|
|
Right-of-use assets
|
—
|
|
|
6,131
|
|
|
—
|
|
|
6,131
|
|
Property and equipment
|
28
|
|
|
15,718
|
|
|
2,163
|
|
|
17,881
|
|
Prepaid expenses
|
33
|
|
|
2,612
|
|
|
997
|
|
|
3,609
|
|
Other assets
|
28
|
|
|
2,075
|
|
|
1,048
|
|
|
3,123
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Customer relationships
|
237
|
|
|
71,314
|
|
|
10,541
|
|
|
81,855
|
|
Trade name
|
30
|
|
|
4,234
|
|
|
1,365
|
|
|
5,599
|
|
Customer backlog
|
56
|
|
|
7,646
|
|
|
1,409
|
|
|
9,055
|
|
Developed technology
|
—
|
|
|
32,944
|
|
|
—
|
|
|
32,944
|
|
Other
|
5
|
|
|
—
|
|
|
814
|
|
|
814
|
|
Total Assets
|
$
|
1,856
|
|
|
$
|
192,091
|
|
|
$
|
37,138
|
|
|
$
|
229,229
|
|
Liabilities
|
(345)
|
|
|
(23,698)
|
|
|
(8,222)
|
|
|
(31,920)
|
|
Deferred tax liabilities
|
—
|
|
|
(27,221)
|
|
|
(3,451)
|
|
|
(30,672)
|
|
Net assets acquired
|
$
|
1,511
|
|
|
$
|
141,172
|
|
|
$
|
25,465
|
|
|
$
|
166,637
|
|
|
|
|
|
|
|
|
|
Consideration paid (Cash, Notes and/or stock)
|
$
|
1,694
|
|
|
$
|
318,428
|
|
|
$
|
50,447
|
|
|
$
|
368,875
|
|
Contingent earn-out liability (Cash and stock)
|
255
|
|
|
—
|
|
|
1,004
|
|
|
1,004
|
|
Total Consideration
|
$
|
1,949
|
|
|
$
|
318,428
|
|
|
$
|
51,451
|
|
|
$
|
369,879
|
|
Excess consideration over the amounts assigned to the net assets acquired (Goodwill)
|
$
|
438
|
|
|
$
|
177,256
|
|
|
$
|
25,986
|
|
|
$
|
203,242
|
|
Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from these acquisitions. See Note 9, Goodwill and Intangible Assets, for further information on fair value adjustments to goodwill and identified intangible assets.
The consolidated financial statements of the Company include the results of operations from any business acquired from their respective dates of acquisition. The following table presents the results of operations of businesses acquired from their respective dates of acquisition for fiscal years 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Gross revenues
|
$
|
42,127
|
|
|
$
|
33,468
|
|
Income before income taxes
|
$
|
3,170
|
|
|
$
|
6,677
|
|
The revenue and earnings of Mediatech have been included in the Company's results since the acquisition date and are not material to the Company's consolidated financial statements and have not been presented. General and administrative
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
expense for fiscal years 2020, 2019 and 2018 included $856, $1,492 and $1,267, respectively, of acquisition-related costs pertaining to the Company’s acquisition activities.
The following table presents the unaudited, pro forma consolidated results of operations (in thousands, except per share amounts) for fiscal years 2019 and 2018 as if the acquisitions of CHI, CALYX, The Sextant Group, Page One, Alta, WHPacific, GeoDesign, GHD, and QSI had occurred at the beginning of fiscal year 2018. The pro forma information provided below is compiled from the pre-acquisition financial statements of CHI, CALYX, The Sextant Group, Page One, Alta, WHPacific, GeoDesign, GHD, and QSI and includes pro forma adjustments for amortization expense, adjustments to certain expenses, and the income tax impact of these adjustments. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been if the acquisitions and related financing transactions had occurred on the date assumed, nor are they indicative of future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
2019
|
|
2018
|
Gross revenues
|
$
|
677,109
|
|
|
$
|
689,580
|
|
Net income
|
$
|
16,728
|
|
|
$
|
20,805
|
|
Basic earnings per share
|
$
|
1.38
|
|
|
$
|
1.88
|
|
Diluted earnings per share
|
$
|
1.34
|
|
|
$
|
1.80
|
|
Pro forma results for 2019 were adjusted to exclude acquisition-related costs incurred by NV5 Global and QSI. Adjustments were also made to adjust amortization of intangible assets to reflect fair value of identified assets acquired, to record the effects of extinguishing the debt of QSI and replacing it with the debt of NV5 Global, and to record the income tax effect of these adjustments. Adjustments were made to the 2018 pro forma results to adjust amortization of intangible assets to reflect fair value of identified assets acquired, to record the effect of extinguishing the debt of QSI and replacing it with the debt of NV5 Global, and to record the income tax effect of these adjustments.
All other acquisitions were not material to the Company’s consolidated financial statements both individually and in the aggregate.
Note 7 – Billed and Unbilled Receivables
Billed and Unbilled Receivables consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Billed receivables
|
$
|
149,233
|
|
|
$
|
134,900
|
|
Less: allowance for doubtful accounts
|
(6,528)
|
|
|
(3,860)
|
|
Billed receivables, net
|
$
|
142,705
|
|
|
$
|
131,041
|
|
|
|
|
|
Unbilled receivables
|
$
|
76,609
|
|
|
$
|
80,639
|
|
Less: allowance for doubtful accounts
|
(2,151)
|
|
|
(1,211)
|
|
Unbilled receivables, net
|
$
|
74,458
|
|
|
$
|
79,428
|
|
Activity in the allowance for doubtful accounts consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Balance as of the beginning of the year
|
$
|
5,071
|
|
|
$
|
4,546
|
|
Provision for doubtful accounts
|
4,311
|
|
|
1,239
|
|
Write-offs of uncollectible accounts
|
(703)
|
|
|
(714)
|
|
Balance as of the end of the year
|
$
|
8,679
|
|
|
$
|
5,071
|
|
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Note 8 – Property and Equipment, net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Office furniture and equipment
|
$
|
3,782
|
|
|
$
|
4,198
|
|
Computer equipment
|
15,597
|
|
|
10,704
|
|
Survey and field equipment
|
22,866
|
|
|
24,165
|
|
Leasehold improvements
|
6,322
|
|
|
6,266
|
|
Total
|
48,567
|
|
|
45,333
|
|
Less: accumulated depreciation
|
(21,556)
|
|
|
(19,600)
|
|
Property and equipment, net
|
$
|
27,011
|
|
|
$
|
25,733
|
|
Depreciation expense for fiscal year 2020 was $10,892, of which $4,510 was included in other direct costs. Depreciation expense for fiscal years 2019 and 2018 was $5,327 and $4,331, respectively.
Note 9 – Goodwill and Intangible Assets
Goodwill
As discussed in Note 18, Reportable Segments, the Company's chief operating decision maker ("CODM"), re-evaluated the structure of the Company's internal organization as a result of the 2019 acquisition of QSI, which resulted in certain changes to the Company's operating and reportable segments. Effective the beginning of fiscal year 2020, the goodwill of QSI and Skyscene were reallocated from the Company's INF reportable segment to the Company's new GEO reportable segment. The changes in the carrying value by reportable segment for the fiscal years 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
December 28, 2019
|
|
Acquisitions
|
|
Adjustments
|
|
January 2, 2021
|
INF
|
$
|
231,255
|
|
|
$
|
—
|
|
|
$
|
(143,922)
|
|
|
$
|
87,333
|
|
BTS
|
77,961
|
|
|
438
|
|
|
449
|
|
|
78,848
|
|
GEO
|
—
|
|
|
—
|
|
|
177,615
|
|
|
177,615
|
|
Total
|
$
|
309,216
|
|
|
$
|
438
|
|
|
$
|
34,142
|
|
|
$
|
343,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
December 29, 2018
|
|
Acquisitions
|
|
Adjustments
|
|
December 28, 2019
|
INF
|
$
|
69,255
|
|
|
$
|
162,814
|
|
|
$
|
(814)
|
|
|
$
|
231,255
|
|
BTS
|
71,675
|
|
|
6,286
|
|
|
—
|
|
|
77,961
|
|
Total
|
$
|
140,930
|
|
|
$
|
169,100
|
|
|
$
|
(814)
|
|
|
$
|
309,216
|
|
Goodwill of $9,574 from acquisitions in 2019 is expected to be deductible for income tax purposes. During 2020, the Company recorded purchase price allocation adjustments of $31,895, $1,107, $420, $266, and $30 that increased goodwill for the acquisitions of QSI, WHP, The Sextant Group, GHD, and Alta, respectively, and a working capital adjustment of $424 for QSI which was recorded as an increase to goodwill and the purchase price paid for the acquisition. The $31,895 increase to goodwill related to the QSI acquisition included a decrease to the fair value of the trade name of $54,313, which was partially offset by increases to the fair value of customer relationships, customer backlog, property and equipment, and other assets of $6,605, $811, $2,093, and $758, respectively, and a decrease to deferred tax liabilities of $12,151. During 2019, the Company received $2,360 from the sellers of CHI as a working capital adjustment which was recorded as a reduction of goodwill and the purchase price paid for the acquisition of CHI. In addition, during 2019 there were fair value adjustments that increased goodwill by $1,546.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Intangible assets
Intangible assets, net, at January 2, 2021 and December 28, 2019 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships(1)
|
$
|
183,048
|
|
|
$
|
(46,506)
|
|
|
$
|
136,542
|
|
|
$
|
176,088
|
|
|
$
|
(29,198)
|
|
|
$
|
146,890
|
|
Trade name(2)
|
14,517
|
|
|
(12,099)
|
|
|
2,418
|
|
|
10,253
|
|
|
(8,593)
|
|
|
1,660
|
|
Customer backlog(3)
|
25,111
|
|
|
(19,709)
|
|
|
5,402
|
|
|
24,198
|
|
|
(12,435)
|
|
|
11,763
|
|
Non-compete(4)
|
9,373
|
|
|
(6,909)
|
|
|
2,464
|
|
|
9,369
|
|
|
(5,105)
|
|
|
4,264
|
|
Developed technology(5)
|
32,944
|
|
|
(4,839)
|
|
|
28,105
|
|
|
32,944
|
|
|
(106)
|
|
|
32,838
|
|
Total finite-lived intangible assets
|
264,993
|
|
|
(90,062)
|
|
|
174,931
|
|
|
252,851
|
|
|
(55,436)
|
|
|
197,415
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
QSI trade name
|
—
|
|
|
—
|
|
|
—
|
|
|
58,546
|
|
|
—
|
|
|
58,546
|
|
Total indefinite-lived intangible assets
|
—
|
|
|
—
|
|
|
—
|
|
|
58,546
|
|
|
—
|
|
|
58,546
|
|
Total intangible assets
|
$
|
264,993
|
|
|
$
|
(90,062)
|
|
|
$
|
174,931
|
|
|
$
|
311,397
|
|
|
$
|
(55,436)
|
|
|
$
|
255,961
|
|
(1) Amortized on a straight-line basis over estimated lives (1 to 12 years)
(2) Amortized on a straight-line basis over their estimated lives (1 to 3 years)
(3) Amortized on a straight-line basis over their estimated lives (1 to 5 years)
(4) Amortized on a straight-line basis over their contractual lives (2 to 5 years)
(5) Amortized on a straight-line basis over their estimated lives (5 to 7 years)
The following table summarizes the weighted average useful lives of definite-lived intangible assets acquired during 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Customer relationships
|
10.0
|
|
10.7
|
Trade name
|
1.5
|
|
2.0
|
Customer backlog
|
1.5
|
|
2.0
|
Developed technology
|
—
|
|
|
7.0
|
Non-compete
|
2.0
|
|
3.2
|
During fiscal 2020, the Company finalized the QSI purchase price allocation reported at December 28, 2019 to account for updates to assumptions and estimates related to the fair value of the trade name, customer relationships, and customer backlog. As a result, the Company determined the QSI trade name is a finite-lived asset that will be amortized over a two-year period and the fair value was decreased by $54,313. Additionally, the fair value of customer relationships and customer backlog increased $6,605 and $811, respectively. These changes resulted in a corresponding adjustment to deferred tax liabilities of $12,151. Amortization expense for fiscal years 2020, 2019 and 2018 was $34,596, $20,488 and $13,052 respectively.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
As of January 2, 2021, the future estimated aggregate amortization related to finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
|
|
|
|
|
|
|
Amount
|
2021
|
$
|
30,119
|
|
2022
|
23,201
|
|
2023
|
22,078
|
|
2024
|
21,784
|
|
2025
|
21,286
|
|
Thereafter
|
56,463
|
|
Total
|
$
|
174,931
|
|
Note 10 – Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Current portion of lease liability
|
$
|
13,161
|
|
|
$
|
13,108
|
|
Accrued vacation
|
11,998
|
|
|
10,048
|
|
Payroll and related taxes
|
10,744
|
|
|
12,146
|
|
Benefits
|
4,764
|
|
|
4,637
|
|
Accrued operating expenses
|
2,792
|
|
|
4,574
|
|
Professional liability reserve
|
949
|
|
|
1,083
|
|
Accrued interest expense
|
506
|
|
|
949
|
|
Other
|
411
|
|
|
887
|
|
Total
|
$
|
45,325
|
|
|
$
|
47,432
|
|
Note 11 – Notes Payable and Other Obligations
Notes payable and other obligations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Senior credit facility
|
$
|
283,832
|
|
|
$
|
320,457
|
|
Uncollateralized promissory notes
|
23,175
|
|
|
36,217
|
|
Finance leases
|
2,994
|
|
|
2,707
|
|
Other obligations
|
1,151
|
|
|
2,884
|
|
Debt issuance costs, net of amortization
|
(3,630)
|
|
|
(4,078)
|
|
Total Notes Payable and Other Obligations
|
307,522
|
|
|
358,187
|
|
Current portion of notes payable and other obligations
|
(24,196)
|
|
|
(25,332)
|
|
Notes payable and other obligations, less current portion
|
$
|
283,326
|
|
|
$
|
332,854
|
|
As of January 2, 2021 and December 28, 2019, the carrying amount of debt obligations approximates their fair values based on Level 2 inputs as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.
Senior Credit Facility
On December 20, 2019 (the "Closing Date"), the Company amended and restated its Credit Agreement (the "A&R Credit Agreement"), dated December 7, 2016, as amended on December 20, 2018, with Bank of America, N.A. ("Bank of America"), as administrative agent, swingline lender and letter of credit issuer, the other lenders party thereto, and certain of the
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Company's subsidiaries as guarantors. Pursuant to the A&R Credit Agreement, the lenders provided term commitments of $150,000 in the aggregate in a single draw on the Closing Date to fund the acquisition of QSI and various costs and expenses relating thereto and revolving commitments totaling $215,000 in the aggregate. The revolving commitment is available through December 20, 2024 (the "Maturity Date"), at which time the term commitments and revolving commitments will be due and payable in full. An aggregate amount of $320,500 was drawn under the A&R Credit Agreement on the Closing Date to fund the QSI acquisition and repay previously existing borrowings. Borrowings under the A&R Credit Agreement are secured by a first priority lien on substantially all of the assets of the Company. The A&R Credit Agreement also includes an accordion feature permitting the Company to request an increase in either the term facility or the revolver facility under the A&R Credit Agreement by an additional amount of up to $100,000 in the aggregate.
Borrowings under the term facility amortize at the rate of 5.0% per annum for the first two years of the facility and thereafter at the rate of 7.5% per annum until the Maturity Date.
On May 5, 2020 (the "Amendment Closing Date"), in response to the COVID-19 pandemic, the Company entered into an amendment to the A&R Credit Agreement (the "Amended A&R Credit Agreement") to amend the financial covenants that requires NV5 Global to maintain a consolidated leverage ratio (the ratio of the Company's pro forma consolidated funded indebtedness to the Company's pro forma consolidated EBITDA for the most recently completed measurement period). The amended consolidated leverage ratio requirements are as follows:
|
|
|
|
|
|
Measurement Period Ending
|
Maximum Consolidated Leverage Ratio
|
Amendment Closing Date through June 27, 2020
|
4.50 to 1.00
|
June 28, 2020 through October 3, 2020
|
5.00 to 1.00
|
October 4, 2020 through January 2, 2021
|
5.25 to 1.00
|
January 3, 2021 and April 3, 2021
|
4.75 to 1.00
|
April 4, 2021 and July 3, 2021
|
4.00 to 1.00
|
July 4, 2021 and thereafter
|
3.50 to 1.00
|
These financial covenants also require the Company to maintain a consolidated fixed charge coverage ratio of no less than 1.20 to 1.00 as of the end of any measurement period. As of January 2, 2021, the Company was in compliance with the financial covenants.
The Amended A&R Credit Agreement also amended pricing terms which remain variable and tied to a Eurocurrency rate equal to LIBOR plus an applicable margin or a base rate denominated in U.S. dollars. Interest rates remain subject to change based on the Company's consolidated leverage ratio. As of January 2, 2021 the Company's interest rate was 2.8%.
The Amended A&R Credit Agreement contains covenants that may have the effect of limiting the Company's ability to, among other things, merge with or acquire other entities, enter into a transaction resulting in a Change in Control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, or engage in new lines of business or sell a substantial part of their assets. The Amended A&R Credit Agreement also contains customary events of default, including (but not limited to) a default in the payment of principal or, following an applicable grace period, interest, breaches of the Company's covenants or warranties under the Amended A&R Credit Agreement, payment default or acceleration of certain indebtedness, certain events of bankruptcy, insolvency or liquidation, certain judgments or uninsured losses, changes in control and certain liabilities related to ERISA based plans.
The Amended A&R Credit Agreement limits the payment of cash dividends (together with certain other payments that would constitute a "Restricted Payment" within the meaning of the Amended A&R Credit Agreement and generally including dividends, stock repurchases and certain other payments in respect to warrants, options, and other rights to acquire equity securities) to no more than $10,000 in any fiscal year, so long as no default shall exist at the time of or arise as a result from such payment.
Total debt issuance costs incurred and capitalized in connection with the issuance of the Amended A&R Credit Agreement were $4,123. Total amortization of debt issuance costs was $896 and $131 during 2020 and 2019, respectively.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Other Obligations
On July 16, 2020, the Company acquired Mediatech. The purchase price allowed for the payment of $230 in shares of the Company's stock or a combination of cash and shares of the Company's stock, at its discretion, payable in three equal annual installments. At January 2, 2021, the outstanding balance on this obligation was $230.
On July 1, 2019, the Company acquired GeoDesign. The purchase price allowed for the payment of $425 in shares of the Company's stock or a combination of cash and shares of the Company's stock, at its discretion, payable on the first and second anniversary of July 1, 2019. The outstanding balance on this obligation was $44 and $382 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, the Company acquired Page One. The purchase price allowed for the payment of $200 in shares of the Company's stock or a combination of cash and shares of the Company's stock, at its discretion, payable on the first anniversary of June 3, 2019. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $181.
On December 31, 2018, the Company acquired certain assets of Celtic. The purchase price allowed for the payment of $200 in shares of the Company's stock or a combination of cash and shares of the Company's stock, at its discretion, payable on the first anniversary of December 31, 2018. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $181.
On November 2, 2018, the Company acquired CHI. The purchase price allowed for the payment of $3,000 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at its discretion, payable in three equal annual installments. The outstanding balance on this obligation was $877 and $1,754 as of January 2, 2021 and December 28, 2019, respectively.
On February 2, 2018, the Company acquired CSA. The purchase price allowed for the payment of $250 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at its discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $111.
On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko. The purchase price allowed for the payment of $600 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at its discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of January 2, 2021. At December 28, 2019, the outstanding balance of this obligation was $267.
Uncollateralized Promissory Notes
Only July 16, 2020, the Company acquired Mediatech. The purchase price included an uncollateralized $500 promissory note ("Mediatech Note") payable in four equal annual installments. The outstanding balance of the Mediatech Note was $500 as of January 2, 2021.
On July 1, 2019, the Company acquired GeoDesign. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% ("GeoDesign Note") and payable in four equal annual installments. The outstanding balance of the GeoDesign Note was $1,500 and $2,000 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, the Company acquired Alta. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% ("Alta Note") and payable in four equal annual installments. The outstanding balance of the Alta Note was $1,500 and $2,000 as of January 2, 2021 and December 28, 2019, respectively.
On June 3, 2019, the Company acquired Page One. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% ("Page One Note") and payable in three equal annual installments. The outstanding balance of the Page One Note was $700 and $1,000 as of January 2, 2021 and December 28, 2019, respectively.
On March 22, 2019, the Company acquired The Sextant Group. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 4.0% ("The Sextant Group Note") and payable in four equal annual installments. The
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
outstanding balance of The Sextant Group Note was $3,000 and $3,140 as of January 2, 2021 and December 28, 2019, respectively.
On December 31, 2018, the Company acquired certain assets of Celtic. The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the "Celtic Note") payable in three equal annual installments. The outstanding balance of the Celtic Note was $100 and $300 as of January 2, 2021 and December 28, 2019, respectively.
On November 2, 2018, the Company acquired CHI. The purchase price included an uncollateralized $15,000 promissory note bearing interest at 3.0% (the "CHI Note") payable in four equal annual installments. The outstanding balance of the CHI Note was $7,500 and $11,250 as of January 2, 2021 and December 28, 2019, respectively.
On August 24, 2018, the Company acquired CALYX. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 3.75% payable in four equal annual installments of $1,000. The outstanding balance of the CALYX Note was $2,000 and $3,000 as of January 2, 2021 and December 28, 2019, respectively.
On February 2, 2018, the Company acquired CSA. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the "CSA Note") payable in four equal annual installments of $150. The outstanding balance of the CSA Note was $300 and $450 as of January 2, 2021 and December 28, 2019, respectively.
On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% (the "Butsko Note") payable in four equal annual installments of $250. The outstanding balance of the Butsko Note was $500 and $750 as of January 2, 2021 and December 28, 2019, respectively.
On September 6, 2017, the Company acquired all of the outstanding interests in Marron and Associates, Inc. ("Marron"). The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the "Marron Note") payable in three equal annual installments of $100. There was no outstanding balance on the Marron Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Marron Note was $100.
On June 6, 2017, the Company acquired all of the outstanding equity interest in Richard D. Kimball Co. ("RDK"). The purchase price included an uncollateralized $5,500 promissory note bearing interest at 3.0% (the "RDK Note") payable in four equal annual installments of $1,375. The outstanding balance of the RDK Note was $1,375 and $2,750 as of January 2, 2021 and December 28, 2019, respectively.
On May 4, 2017, the Company acquired all of the outstanding equity interest in Holdrege & Kull, Consulting Engineers and Geologists ("H&K"). The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the "H&K Note") payable in four equal annual installments of $150. The outstanding balance of the H&K Note was $150 and $300 as of January 2, 2021 and December 28, 2019, respectively.
On May 1, 2017, the Company acquired all of the outstanding equity interest in Lochrane Engineering Incorporated ("Lochrane"). The purchase price included an uncollateralized $1,650 promissory note bearing interest at 3.0% (the "Lochrane Note") payable in four equal annual installments of $413. The outstanding balance of the Lochrane Note was $413 and $825 as of January 2, 2021 and December 28, 2019, respectively.
On December 6, 2016, the Company acquired all of the outstanding interests of CivilSource, Inc. ("CivilSource"). The purchase price included an uncollateralized $3,500 promissory note bearing interest at 3.0% (the "CivilSource Note") payable in four equal annual installments of $875. There was no outstanding balance on the CivilSource Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the CivilSource note was $1,502.
On November 30, 2016, the Company acquired all of the outstanding interests of Hanna Engineering, Inc. ("Hanna"). The purchase price included an uncollateralized $2,700 promissory note bearing interest at 3.0% (the "Hanna Note") payable in four equal annual installments of $675. The outstanding balance of the Hanna Note was $430 and $675 as of January 2, 2021 and December 28, 2019, respectively.
On October 26, 2016, the Company acquired all of the outstanding interests of J.B.A. Consulting Engineers, Inc. ("JBA"). The purchase price included an uncollateralized $7,000 promissory note bearing interest at 3.0% (the "JBA Note")
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
payable in five equal annual installments of $1,400. The outstanding balance of the JBA Note was $3,011 and $4,163 as of January 2, 2021 and December 28, 2019, respectively.
On September 12, 2016, the Company acquired certain assets of Weir Environmental, L.L.C. ("Weir"). The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the "Weir Note") payable in four equal annual installments of $125. There was no outstanding balance on the Weir Note as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Weir Note was $125.
On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller & Associates, Inc. ("Dade Moeller"). The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the "Dade Moeller Notes") payable in four equal annual installments of $1,500. There was no outstanding balance on the Dade Moeller Notes as of January 2, 2021. As of December 28, 2019, the outstanding balance of the Date Moeller Notes was $1,497.
Future contractual maturities of long-term debt as of January 2, 2021 are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2021
|
|
$
|
25,012
|
|
2022
|
|
19,909
|
|
2023
|
|
13,969
|
|
2024
|
|
252,257
|
|
2025
|
|
5
|
|
Total
|
|
$
|
311,152
|
|
Note 12 – Contingent Consideration
The following table summarizes the changes in the carrying value of estimated contingent consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Contingent consideration, beginning of the year
|
$
|
4,002
|
|
|
$
|
4,698
|
|
Additions for acquisitions
|
255
|
|
|
1,316
|
|
Reduction of liability for payments made
|
(1,857)
|
|
|
(1,938)
|
|
Decrease of liability related to re-measurement of fair value
|
—
|
|
|
(74)
|
|
Total contingent consideration, end of the period
|
2,400
|
|
|
4,002
|
|
Current portion of contingent consideration
|
(1,334)
|
|
|
(1,954)
|
|
Contingent consideration, less current portion
|
$
|
1,066
|
|
|
$
|
2,048
|
|
Note 13 – Leases
The Company primarily leases property under operating leases and has six equipment operating leases for aircrafts used by the operations of QSI. The Company's property operating leases consist of various office facilities, which it leases from unrelated parties. The Company uses a portfolio approach to account for such leases due to the similarities in characteristics and applies an incremental borrowing rate based on estimates of rates the Company would pay for senior collateralized loans over a similar term. The Company's office leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for lease components (e.g. fixed payments including rent, real estate taxes and common area maintenance costs) as a single lease component. Some of the Company's leases include one or more options to renew the lease term at its sole discretion; however, these are not included in the calculation of its lease liability or ROU lease asset because they are not reasonably certain of exercise.
The Company also leases vehicles through a fleet leasing program. The payments for the vehicles are based on the terms selected. The Company has determined that it is reasonably certain that the leased vehicles will be held beyond the period in which the entire capitalized value of the vehicle has been paid to the lessor. As such, the capitalized value is the delivered price of the vehicle. The Company's vehicle leases are classified as financing leases.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Supplemental balance sheet information related to the Company's operating and finance leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
|
January 2, 2021
|
|
December 28, 2019
|
Assets
|
|
|
|
|
|
|
Operating lease assets
|
|
Right-of-use lease asset, net (1)
|
|
$
|
43,607
|
|
|
$
|
46,313
|
|
Finance lease assets
|
|
Property and equipment, net (1)
|
|
2,946
|
|
|
2,371
|
|
Total leased assets
|
|
|
|
$
|
46,553
|
|
|
$
|
48,685
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Accrued liabilities
|
|
$
|
(13,161)
|
|
|
$
|
(13,108)
|
|
Finance
|
|
Current portion of notes payable and other obligations
|
|
(1,321)
|
|
|
(1,022)
|
|
Noncurrent
|
|
|
|
|
|
|
Operating
|
|
Other long-term liabilities
|
|
(32,290)
|
|
|
(34,573)
|
|
Finance
|
|
Notes payable and other obligations, less current portion
|
|
(1,673)
|
|
|
(1,685)
|
|
Total lease liabilities
|
|
|
|
$
|
(48,445)
|
|
|
$
|
(50,388)
|
|
(1)As of January 2, 2021, operating right of-use lease assets and finance lease assets are recorded net of accumulated amortization of $19,096 and $2,499, respectively. As of December 28, 2019, operating right-of-use lease assets and finance lease assets are recorded net of accumulated amortization of $9,657 and $1,592, respectively.
Supplemental balance sheet information related to the Company's operating and finance leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted - Average Remaining Lease Term (Years)
|
|
January 2, 2021
|
|
December 28, 2019
|
Operating leases
|
|
4.9
|
|
5.0
|
Finance leases
|
|
2.1
|
|
2.8
|
|
|
|
|
|
Weighted - Average Discount Rate
|
|
|
|
|
Operating leases
|
|
4%
|
|
4%
|
Finance leases
|
|
7%
|
|
7%
|
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Supplemental cash flow information related to the Company's operating and finance lease liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Operating cash flows from operating leases
|
|
$
|
13,854
|
|
|
$
|
10,988
|
|
Financing cash flows from finance leases
|
|
$
|
267
|
|
|
$
|
796
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
Operating leases
|
|
$
|
13,427
|
|
|
$
|
20,731
|
|
The following table summarizes the components of lease cost recognized in the consolidated statements of net income and comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
Lease Cost
|
|
Classification
|
|
January 2, 2021
|
|
December 28, 2019
|
Operating lease cost
|
|
Facilities and facilities related
|
|
$
|
15,071
|
|
|
$
|
11,538
|
|
Variable operating lease cost
|
|
Facilities and facilities related
|
|
2,934
|
|
—
|
Finance lease cost
|
|
|
|
|
|
|
Amortization of financing lease assets
|
|
Depreciation and amortization
|
|
1,035
|
|
1,245
|
Interest on lease liabilities
|
|
Interest expense
|
|
121
|
|
|
98
|
|
Total lease cost
|
|
|
|
$
|
19,161
|
|
|
$
|
12,881
|
|
As of January 2, 2021, maturities of the Company's lease liabilities under its long-term operating leases and finance leases for the next five fiscal years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Operating Leases
|
|
Finance Leases
|
2021
|
|
$
|
14,597
|
|
|
$
|
1,416
|
|
2022
|
|
10,975
|
|
|
1,115
|
|
2023
|
|
8,533
|
|
|
629
|
|
2024
|
|
5,936
|
|
|
226
|
|
2025
|
|
4,159
|
|
|
7
|
|
Thereafter
|
|
5,814
|
|
|
—
|
|
Total lease payments
|
|
50,014
|
|
|
3,393
|
|
Less: Interest
|
|
(4,563)
|
|
|
(399)
|
|
Present value of lease liabilities
|
|
$
|
45,451
|
|
|
$
|
2,994
|
|
Note 14 – Commitments and Contingencies
Litigation, Claims and Assessments
The Company is subject to certain claims and lawsuits typically filed against the engineering, consulting and construction profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Note 15 – Stock-Based Compensation
In October 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan, which was subsequently amended and restated in March 2013 (as amended, the “2011 Equity Plan”). The 2011 Equity Plan provides directors, executive officers, and other employees of the Company with additional incentives by allowing them to acquire ownership interest in the business and, as a result, encouraging them to contribute to the Company’s success. The Company may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As of January 2, 2021, 863,340 shares of common stock are authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, by an amount equal to the smaller of (i) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Company’s Board of Directors. The restricted shares of common stock granted generally provide for service-based vesting after two to four years following the grant date.
The following summarizes the activity of restricted stock awards during fiscal years 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Units
|
|
Weighted Average Grant Date Fair Value
|
Unvested shares as of December 30, 2017
|
583,051
|
|
|
$
|
27.13
|
|
Granted
|
187,087
|
|
|
$
|
65.15
|
|
Vested
|
(127,870)
|
|
|
$
|
19.98
|
|
Forfeited
|
(15,357)
|
|
|
$
|
32.14
|
|
Unvested shares as of December 29, 2018
|
626,911
|
|
|
$
|
39.81
|
|
Granted
|
275,220
|
|
|
$
|
70.90
|
|
Vested
|
(207,039)
|
|
|
$
|
20.41
|
|
Forfeited
|
(42,415)
|
|
|
$
|
53.24
|
|
Unvested shares as of December 28, 2019
|
652,677
|
|
|
$
|
58.20
|
|
Granted
|
390,833
|
|
|
$
|
47.00
|
|
Vested
|
(251,178)
|
|
|
$
|
44.95
|
|
Forfeited
|
(22,149)
|
|
|
$
|
64.00
|
|
Unvested shares as of January 2, 2021
|
770,183
|
|
|
$
|
57.20
|
|
Stock-based compensation expense relating to restricted stock awards during fiscal years ended 2020, 2019 and 2018 was $14,955, $10,430 and $6,697, respectively. Approximately $23,104 of deferred compensation, which is expected to be recognized over the remaining weighted average vesting period of 1.65 years, is unrecognized as of January 2, 2021. The total fair value of restricted shares vested during fiscal years 2020, 2019 and 2018 was $12,472, $14,680 and $7,422, respectively.
Note 16 – Employee Benefit Plan
The Company sponsors a 401(k) Profit Sharing and Savings Plan (the “401(k) Plan”) for which employees meeting certain age and length of service requirements may contribute up to the defined statutory limit. The 401(k) Plan allows for the Company to make matching and profit sharing contributions in such amounts as may be determined by the Board of Directors. The Company assesses its matching contributions on a quarterly basis based primarily on Company performance in previous periods.
The Company contributed $1,673, $1,323 and $676, respectively, to the 401(k) Plan for fiscal years 2020, 2019 and 2018, respectively.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Note 17 – Income Taxes
Income tax expense for years 2020, 2019 and 2018 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
13,192
|
|
|
$
|
8,059
|
|
|
$
|
7,261
|
|
State
|
7,690
|
|
|
3,800
|
|
|
2,911
|
|
Foreign
|
137
|
|
|
(49)
|
|
|
276
|
|
Total current income tax expense
|
21,019
|
|
|
11,810
|
|
|
10,448
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(10,708)
|
|
|
(5,160)
|
|
|
(2,924)
|
|
State
|
(2,317)
|
|
|
(1,474)
|
|
|
(661)
|
|
Foreign
|
(44)
|
|
|
—
|
|
|
—
|
|
Total deferred income tax (benefit)
|
(13,069)
|
|
|
(6,634)
|
|
|
(3,585)
|
|
|
|
|
.
|
|
|
Total income tax expense
|
$
|
7,950
|
|
|
$
|
5,176
|
|
|
$
|
6,863
|
|
Temporary differences comprising the net deferred income tax liability shown in the Company’s consolidated balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Deferred tax asset:
|
|
|
|
Lease liabilities
|
$
|
11,674
|
|
|
$
|
17,651
|
|
Tax carryforwards
|
6,353
|
|
|
7,767
|
|
Accrued compensation
|
7,704
|
|
|
6,682
|
|
Accrued payroll tax
|
2,853
|
|
|
—
|
|
Allowance for doubtful accounts
|
2,507
|
|
|
1,789
|
|
Other
|
283
|
|
|
327
|
|
Total deferred tax asset
|
$
|
31,374
|
|
|
$
|
34,216
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
Acquired intangibles
|
$
|
(39,148)
|
|
|
$
|
(60,045)
|
|
Right-of-use assets
|
(11,092)
|
|
|
(17,189)
|
|
Depreciation and amortization
|
(6,943)
|
|
|
(6,289)
|
|
Cash to accrual adjustment
|
(1,260)
|
|
|
(2,569)
|
|
Other
|
(722)
|
|
|
(1,465)
|
|
Total deferred tax liability
|
(59,165)
|
|
|
(87,557)
|
|
|
|
|
|
Net deferred tax liability
|
$
|
(27,791)
|
|
|
$
|
(53,341)
|
|
As of January 2, 2021 and December 28, 2019, the Company had net non-current deferred tax liabilities of $27,791 and $53,341, respectively. No valuation allowance against the Company’s deferred income tax assets is needed as of January 2, 2021 and December 28, 2019 as it is more-likely-than-not that the positions will be realized upon settlement. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where the Company has a future obligation for tax purposes. During 2020, the Company recorded a decrease in deferred tax liability of $12,479 related to adjustments to purchase price allocations associated with 2019 acquisitions. During 2019, the Company recorded a deferred tax liability of $43,151, in conjunction with the purchase price allocation of the intangible assets associated with acquisitions.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Total income tax expense was different than the amount computed by applying the Federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Tax at federal statutory rate
|
$
|
6,083
|
|
|
$
|
6,076
|
|
|
$
|
7,081
|
|
State taxes, net of Federal benefit
|
2,653
|
|
|
1,990
|
|
|
1,424
|
|
Stock-based compensation
|
(157)
|
|
|
(2,808)
|
|
|
(1,014)
|
|
Federal and state tax credits
|
(1,544)
|
|
|
(1,247)
|
|
|
(923)
|
|
Changes in unrecognized tax position
|
179
|
|
|
425
|
|
|
111
|
|
|
|
|
|
|
|
Transition tax
|
—
|
|
|
—
|
|
|
110
|
|
Effect of change in income tax rate
|
—
|
|
|
—
|
|
|
31
|
|
Other
|
736
|
|
|
740
|
|
|
43
|
|
Total income tax expense
|
$
|
7,950
|
|
|
$
|
5,176
|
|
|
$
|
6,863
|
|
On December 22, 2017 the Tax Cuts and Jobs Act (“2017 Tax Reform”) was enacted in the United States. Among its many provisions, the 2017 Tax Reform reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. The 2017 Tax Reform required a one-time transition tax on undistributed foreign earnings and created a new provision designed to tax global intangible low-taxed income (“GILTI”). Also, the SEC issued guidance in Staff Accounting Bulletin No. 118 which provided for a measurement period of up to one year after the enactment for companies to complete their accounting for the 2017 Tax Reform. During the fiscal year ended December 29, 2018, the Company recognized a $110 adjustment to the provisional amount recorded as of December 30, 2017.
The Company’s consolidated effective income tax rate was 27.4%, 17.8% and 20.4% for fiscal years 2020, 2019 and 2018, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate in 2019 and 2018 was primarily due to excess tax benefits from stock-based payments and federal credits, offset by other permanent items.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. The California Franchise Tax Board (“CFTB”) challenged research and development tax credits generated for the years 2012 to 2014. During the fourth quarter of 2017, the Company settled with the CFTB and paid $839 for research and development tax credits for the years 2005 through 2011. Fiscal years 2012 through 2020 are considered open tax years in the State of California and 2017 through 2020 in the U.S. federal jurisdiction and other state and foreign jurisdictions. The Company’s 2014 U.S. federal income tax return was reviewed by the Internal Revenue Service and closed with no change during the second quarter of 2018
As of January 2, 2021 and December 29, 2018, the Company had $1,022 and $887, respectively, of gross unrecognized tax benefits, which if recognized, $903 and $769 would affect our effective tax rate. It is not expected that there will be a significant change in the unrecognized tax benefits in the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Balance, beginning of period
|
$
|
887
|
|
|
$
|
548
|
|
|
$
|
437
|
|
Additions based on tax positions related to the current year
|
155
|
|
|
124
|
|
|
45
|
|
Additions for tax positions of prior years
|
30
|
|
|
338
|
|
|
66
|
|
Lapse of statute of limitations
|
(50)
|
|
|
(123)
|
|
|
—
|
|
Reductions for positions of prior years
|
—
|
|
|
—
|
|
|
—
|
|
Settlement
|
—
|
|
|
—
|
|
|
—
|
|
Balance, end of period
|
$
|
1,022
|
|
|
$
|
887
|
|
|
$
|
548
|
|
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related to unrecognized tax benefits in the Consolidated Balance Sheet were $249 and $204 as of January 2, 2021 and December 28, 2019, respectively. An immaterial amount of interest and penalties were recognized in the provision for income taxes during December 29, 2018.
Note 18 – Reportable Segments
Effective the beginning of fiscal year 2020, the Company's Chief Executive Officer, who is the CODM, re-evaluated the structure of the Company's internal organization as a result of the December 2019 acquisition of QSI. To reflect management's revised perspective, the Company is now organized into three operating and reportable segments as follows:
•Infrastructure (INF), which includes the Company's engineering, civil program management, utility services, and construction quality assurance, testing and inspection practices.
•Building, Technology & Sciences (BTS), which includes the Company's environmental, buildings program management, and MEP & technology engineering practices.
•Geospatial Solutions (GEO), which includes the Company's geospatial solution practices.
The GEO segment has been created in order to provide greater visibility regarding the operational and financial performance of the Geospatial business given the recent acquisition of QSI. The GEO segment structure is consistent with how the Company plans and allocates resources, manages its business, and assesses its performance. The change in segment reporting was not material to prior period segment financial results. As such, prior period segment financial results were not retrospectively revised. The assets of QSI and Skyscene were reallocated from the Company's INF reportable segment to the Company's new GEO reportable segment.
The Company evaluates the performance of these reportable segments based on their respective operating income before the effect of amortization expense related to acquisitions and other unallocated corporate expenses. The following tables set forth summarized financial information concerning our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
|
December 29, 2018
|
Gross revenues
|
|
|
|
|
|
INF
|
$
|
352,965
|
|
|
$
|
331,161
|
|
|
$
|
254,723
|
|
BTS
|
157,432
|
|
|
177,777
|
|
|
163,358
|
|
GEO
|
148,899
|
|
|
—
|
|
|
—
|
|
Total gross revenues
|
$
|
659,296
|
|
|
$
|
508,938
|
|
|
$
|
418,081
|
|
|
|
|
|
|
|
Segment income before taxes
|
|
|
|
|
|
INF
|
$
|
62,574
|
|
|
$
|
54,583
|
|
|
$
|
43,832
|
|
BTS
|
21,091
|
|
|
28,138
|
|
|
26,656
|
|
GEO
|
30,013
|
|
|
—
|
|
|
—
|
|
Total Segment income before taxes
|
113,678
|
|
|
82,721
|
|
|
70,488
|
|
Corporate(1)
|
(84,710)
|
|
|
(53,789)
|
|
|
(36,769)
|
|
Total income before taxes
|
$
|
28,968
|
|
|
$
|
28,932
|
|
|
$
|
33,719
|
|
(1) Includes amortization of intangibles of $34,596, $20,488 and $13,052 for the fiscal years ended 2020, 2019 and 2018, respectively.
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Assets
|
|
|
|
INF
|
$
|
252,755
|
|
|
$
|
303,239
|
|
BTS
|
166,939
|
|
|
131,967
|
|
GEO
|
342,052
|
|
|
365,605
|
|
Corporate(1)
|
119,429
|
|
|
92,326
|
|
Total assets
|
$
|
881,175
|
|
|
$
|
893,137
|
|
(1) Corporate assets consist of intercompany eliminations and assets not allocated to segments including cash and cash equivalents and certain other assets.
Subsequent to the issuance of the Company's 2019 financial statements, the disclosure of assets by reportable segment has been restated for the creation of the GEO reportable segment as required by ASC 280, Segment Reporting. Additionally, the previously reported disclosure of assets for the BTS and INF segments as of December 28, 2019 has been revised to reflect an increase in total assets of the BTS reportable segment of $108 million and a decrease in the INF segment of the same amount.
Substantially all of the Company's assets are located in the United States.
The Company disaggregates its gross revenues from contracts with customers by geographic location, customer-type and contract-type for each of its reportable segments. Disaggregated revenues include the elimination of inter-segment revenues which has been allocated to each segment. The Company believes this best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by economic factors. No sales to an individual customer or country other than the United States accounted for more than 10% of gross revenue for fiscal years 2020, 2019 and 2018. Gross revenue, classified by the major geographic areas in which our customers were located, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
United States
|
$
|
352,965
|
|
|
$
|
147,806
|
|
|
$
|
146,511
|
|
|
$
|
647,282
|
|
Foreign
|
—
|
|
|
9,626
|
|
|
2,388
|
|
|
12,014
|
|
Total gross revenues
|
$
|
352,965
|
|
|
$
|
157,432
|
|
|
$
|
148,899
|
|
|
$
|
659,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
United States
|
$
|
331,161
|
|
|
$
|
171,246
|
|
|
$
|
—
|
|
|
$
|
502,407
|
|
Foreign
|
—
|
|
|
6,531
|
|
|
—
|
|
|
6,531
|
|
Total gross revenues
|
$
|
331,161
|
|
|
$
|
177,777
|
|
|
$
|
—
|
|
|
$
|
508,938
|
|
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
United States
|
$
|
254,723
|
|
|
$
|
150,696
|
|
|
$
|
—
|
|
|
$
|
405,419
|
|
Foreign
|
—
|
|
|
12,662
|
|
|
—
|
|
|
12,662
|
|
Total gross revenues
|
$
|
254,723
|
|
|
$
|
163,358
|
|
|
$
|
—
|
|
|
$
|
418,081
|
|
Gross revenue by customer were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Public and quasi-public sector
|
$
|
279,965
|
|
|
$
|
67,434
|
|
|
$
|
101,456
|
|
|
$
|
448,855
|
|
Private sector
|
73,000
|
|
|
89,998
|
|
|
47,443
|
|
|
210,441
|
|
Total gross revenues
|
$
|
352,965
|
|
|
$
|
157,432
|
|
|
$
|
148,899
|
|
|
$
|
659,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Public and quasi-public sector
|
$
|
271,935
|
|
|
$
|
66,544
|
|
|
$
|
—
|
|
|
$
|
338,479
|
|
Private sector
|
59,226
|
|
|
111,233
|
|
|
—
|
|
|
170,459
|
|
Total gross revenues
|
$
|
331,161
|
|
|
$
|
177,777
|
|
|
$
|
—
|
|
|
$
|
508,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Public and quasi-public sector
|
$
|
233,395
|
|
|
$
|
45,393
|
|
|
$
|
—
|
|
|
$
|
278,788
|
|
Private sector
|
21,328
|
|
|
117,965
|
|
|
—
|
|
|
139,293
|
|
Total gross revenues
|
$
|
254,723
|
|
|
$
|
163,358
|
|
|
$
|
—
|
|
|
$
|
418,081
|
|
Gross revenues by contract type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Cost-reimbursable contracts
|
$
|
337,580
|
|
|
$
|
123,135
|
|
|
$
|
148,631
|
|
|
$
|
609,346
|
|
Fixed-unit price contracts
|
15,385
|
|
|
34,297
|
|
|
268
|
|
|
49,950
|
|
Total gross revenues
|
$
|
352,965
|
|
|
$
|
157,432
|
|
|
$
|
148,899
|
|
|
$
|
659,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2019
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Cost-reimbursable contracts
|
$
|
318,112
|
|
|
$
|
139,406
|
|
|
$
|
—
|
|
|
$
|
457,518
|
|
Fixed-unit price contracts
|
13,049
|
|
|
38,371
|
|
|
—
|
|
|
51,420
|
|
Total gross revenues
|
$
|
331,161
|
|
|
$
|
177,777
|
|
|
$
|
—
|
|
|
$
|
508,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2018
|
|
INF
|
|
BTS
|
|
GEO
|
|
Total
|
Cost-reimbursable contracts
|
$
|
254,365
|
|
|
$
|
128,738
|
|
|
$
|
—
|
|
|
$
|
383,103
|
|
Fixed-unit price contracts
|
358
|
|
|
34,620
|
|
|
—
|
|
|
34,978
|
|
Total gross revenues
|
$
|
254,723
|
|
|
$
|
163,358
|
|
|
$
|
—
|
|
|
$
|
418,081
|
|
NV5 Global, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
Note 19 – Subsequent Events
On February 9, 2021 ("IDA Closing Date"), the Company acquired all of the outstanding equity interests in Industrial Design Associates International, IDA Engineering Private Limited, and Industrial Design Associates International PTE. LTD. (collectively "IDA"), an international engineering services consulting company that provides building commissioning and MEP design services to clients throughout Asia and Europe. The aggregate purchase price is up to $2,975, including $1,975 of cash and a $1,000 promissory note, payable in two equal installments of $500 due on each of the sixth month and twelve month anniversaries of the IDA Closing Date.
On February 22, 2021 ("TerraTech Closing Date"), the Company acquired all of the outstanding equity interests in TerraTech Engineers, Inc. ("TerraTech"), a geotechnical engineering, environmental consulting, and materials testing company headquartered in North Carolina. The aggregate purchase price is up to $7,700, including $3,000 of cash, a $3,200 promissory note, payable in five equal installments of $640 due on the first, second, third, fourth and fifth anniversaries of the TerraTech Closing Date, and $1,500 of the Company's common stock payable in three equal installments of $500 due at closing and on the first and second anniversaries of the TerraTech Closing Date.