Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 823K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
11: R1 Cover HTML 76K
12: R2 Consolidated Balance Sheets HTML 127K
13: R3 Consolidated Balance Sheets (Parentheticals) HTML 39K
14: R4 Consolidated Statements of Net Income and HTML 105K
Comprehensive Income
15: R5 Consolidated Statements of Changes in HTML 85K
Stockholders? Equity
16: R6 Consolidated Statements of Cash Flows HTML 126K
17: R7 Organization and Nature of Business Operations HTML 36K
18: R8 Summary of Significant Accounting Policies HTML 35K
19: R9 Recent Accounting Pronouncements HTML 34K
20: R10 Earnings per Share HTML 40K
21: R11 Business Acquisitions HTML 69K
22: R12 Billed and Unbilled Receivables HTML 33K
23: R13 Property and Equipment, net HTML 33K
24: R14 Goodwill and Intangible Assets HTML 61K
25: R15 Accrued Liabilities HTML 34K
26: R16 Notes Payable and Other Obligations HTML 50K
27: R17 Contingent Consideration HTML 33K
28: R18 Commitments and Contingencies HTML 25K
29: R19 Stock-Based Compensation HTML 32K
30: R20 Income Taxes HTML 28K
31: R21 Reportable Segments HTML 192K
32: R22 Leases HTML 172K
33: R23 Summary of Significant Accounting Policies HTML 44K
(Policies)
34: R24 Earnings per Share (Tables) HTML 37K
35: R25 Business Acquisitions (Tables) HTML 70K
36: R26 Billed and Unbilled Receivables (Tables) HTML 33K
37: R27 Property and Equipment, net (Tables) HTML 32K
38: R28 Goodwill and Intangible Assets (Tables) HTML 63K
39: R29 Accrued Liabilities (Tables) HTML 34K
40: R30 Notes Payable and Other Obligations (Tables) HTML 45K
41: R31 Contingent Consideration (Tables) HTML 33K
42: R32 Stock-Based Compensation (Tables) HTML 30K
43: R33 Reportable Segments (Tables) HTML 194K
44: R34 Leases (Tables) HTML 115K
45: R35 Summary of Significant Accounting Policies - HTML 34K
Revenue Recognition (Details)
46: R36 Summary of Significant Accounting Policies - HTML 26K
Leases (Details)
47: R37 Earnings per Share - Narrative (Details) HTML 41K
48: R38 Earnings Per Share - Schedule of Earnings Per HTML 46K
Share, Basic and Diluted (Details)
49: R39 Business Acquisitions - Narrative (Details) HTML 48K
50: R40 Business Acquisitions - Summary of the Fair Values HTML 80K
of Assets Acquired and Liabilities Assumed
(Details)
51: R41 Business Acquisitions - Results of Operations From HTML 26K
any Business Acquired (Details)
52: R42 Business Acquisitions - Pro Forma Consolidated HTML 32K
Results of Operations (Details)
53: R43 Billed and Unbilled Receivables (Details) HTML 36K
54: R44 Property and Equipment, net (Details) HTML 39K
55: R45 Property and Equipment, net - Narrative (Details) HTML 26K
56: R46 Goodwill and Intangible Assets - Schedule of HTML 37K
Goodwill (Details)
57: R47 Goodwill and Intangible Assets - Narrative HTML 32K
(Details)
58: R48 Goodwill and Intangible Assets - Schedule of HTML 57K
Finite-Lived Intangible Assets (Details)
59: R49 Accrued Liabilities (Details) HTML 43K
60: R50 Notes Payable and Other Obligations - Summary of HTML 42K
Notes Payable and Other Obligations (Details)
61: R51 Notes Payable and Other Obligations - Long-term HTML 42K
Debt Maturity Schedule (Details)
62: R52 Notes Payable and Other Obligations - Narrative HTML 63K
(Details)
63: R53 Contingent Consideration (Details) HTML 35K
64: R54 Stock-Based Compensation - Narrative (Details) HTML 47K
65: R55 Stock-Based Compensation - Restricted Stock Awards HTML 46K
(Details)
66: R56 Income Taxes (Details) HTML 26K
67: R57 Reportable Segments - Narrative (Details) HTML 26K
68: R58 Reportable Segments - Summarized Financial HTML 52K
Information (Details)
69: R59 Reportable Segments - Revenue From Contracts With HTML 47K
Customers by Geographic Location (Details)
70: R60 Reportable Segments - Revenue by Customer Type HTML 47K
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72: R62 Leases - Schedule of Supplemental Balance Sheet HTML 63K
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76: R66 Leases - Schedule of Maturities of Lease HTML 61K
Liabilities (Details)
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Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, $0.01 par value
iNVEE
iThe NASDAQ Stock Market
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
Filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
Billings
in excess of costs and estimated earnings on uncompleted contracts
i16,730
i24,962
Client
deposits
i620
i380
Current portion of contingent consideration
i3,406
i1,334
Current
portion of notes payable and other obligations
i17,526
i24,196
Total
current liabilities
i135,805
i136,186
Contingent
consideration, less current portion
i1,531
i1,066
Other
long-term liabilities
i40,410
i38,737
Notes
payable and other obligations, less current portion
i149,862
i283,326
Deferred
income tax liabilities, net
i29,154
i27,791
Total
liabilities
i356,762
i487,106
Commitments
and contingencies
i
i
Stockholders’
equity:
Preferred stock, $ii0.01/
par value; ii5,000,000/ shares
authorized, iiiino///
shares issued and outstanding
i—
i—
Common
stock, $ii0.01/ par value; ii45,000,000/
shares authorized, ii15,401,051/ and ii13,270,131/
shares issued and outstanding as of October 2, 2021 and January 2, 2021, respectively
i154
i133
Additional
paid-in capital
i446,612
i268,271
Retained
earnings
i157,356
i125,665
Total
stockholders’ equity
i604,122
i394,069
Total
liabilities and stockholders’ equity
$
i960,884
$
i881,175
See
accompanying notes to consolidated financial statements (unaudited).
Note 1 – iOrganization
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 applications & software
Fiscal Year
The Company operates on a "52/53 week" fiscal year ending on the Saturday closest to the calendar quarter end, and fiscal 2021 contains 52 weeks compared to fiscal 2020, which contained 53 weeks. As a result, the third quarter of fiscal 2021 ended October
2, 2021 included 13 weeks compared to the third quarter of fiscal 2020 ended October 3, 2020, which included 14 weeks.
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 Geospatial segment, 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, real estate transactional services have recovered, however 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 –iSummary of Significant Accounting Policies
i
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 (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting of interim financial information. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited interim consolidated financial statements of the
Company contain all adjustments necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended January 2, 2021 (the “2020 Form 10-K”). The results of operations and cash flows for the interim periods presented are not necessarily indicative of the results to be expected for any future interim period or for the full 2021 fiscal year.
i
Performance
Obligations
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 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.
As of October 2, 2021, the Company had $i740,043
of remaining performance obligations, of which $i613,813 is expected to be recognized over the next i12 months and the majority
of the balance over the next i24 months. Contracts for which work authorizations have been received are included in performance obligations. Most of the Company's government 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.
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. 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. Revenue recognized that was included in the contract liability balance at the beginning of the fiscal year was $i524
and $i23,882 for the three and nine months ended October 2, 2021.
i
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.
Goodwill is required to be evaluated for impairment on an annual basis 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 has elected to perform its annual goodwill impairment
review as of August 1 of each year. The Company conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.
As of August 1, 2021, the Company conducted its annual impairment tests using the quantitative method of evaluating goodwill. Based on the quantitative analyses the Company determined the fair value of each of the reporting units exceeded its carrying value. Therefore, the goodwill was not impaired and the Company did not recognize an impairment
charge relating to goodwill as of August 1, 2021. Furthermore, there were no indicators, events or changes in circumstances that would indicate goodwill was impaired during the period from August 2, 2021 through October 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, 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. There were no indicators, events or changes in circumstances that would indicate intangible assets were impaired during the nine months ended October 2, 2021.
See Note 8, Goodwill and Intangible Assets, for further information on goodwill and identified intangibles.
There have been no material changes in the
Company's significant accounting policies described in the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended January 2, 2021.
Note 3 – iiRecent
Accounting Pronouncements/
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 applied this guidance to its Second A&R Credit Agreement and there was no impact to its financial statements as a result.
Note 4 –iEarnings
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 for the nine months ended October 2,
2021 and October 3, 2020 exclude i767,622 and i806,457
non-vested restricted shares, respectively. During the three and nine months ended October 2, 2021, there were i11,081 and i6,612
weighted average securities which are not included in the calculation of diluted weighted average shares outstanding because their impact is anti-dilutive or their performance conditions have not been met. During the three and nine months ended October 3, 2020, there were i32,859 and i72,634
weighted average securities which are not included in the calculation of diluted weighted average shares outstanding because their impact is anti-dilutive.
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:
Effect
of dilutive non-vested restricted shares and units
i451,892
i269,713
i497,287
i267,130
Effect
of issuable shares related to acquisitions
i24,145
i45,604
i26,024
i54,529
Diluted
weighted average shares outstanding
i15,069,660
i12,749,917
i14,486,683
i12,650,107
/
Secondary
Offering
On March 10, 2021, the Company priced an underwritten public offering of i1,612,903 shares of its common stock (the "Firm Shares") at a price of $i93.00
per share. The shares were sold pursuant to an effective registration statement on Form S-3 (Registration No. 333-237167). In addition, the Company also granted the underwriters a i30-day option to purchase i241,935
additional shares (the "Option Shares") of its common stock at the public offering price. On March 15, 2021, the Company closed on the Firm Shares, for which it received net proceeds of approximately $i140,642 after deducting the underwriting discount and estimated offering expenses payable by the Company.
On April 13, 2021, the underwriters exercised the Option Shares and the Company received net proceeds of $i21,150 after deducting the underwriting discount and estimated offering expenses payable by the Company.
Note5– iBusiness Acquisitions
2021 Acquisitions
The Company has completed ifive
acquisitions during 2021 which are not material individually or in the aggregate. The aggregate purchase price of all ifive acquisitions is $i43,777,
including $i24,476 of cash, $i10,680 of promissory notes, $i5,145
of the Company's common stock, and potential earn-outs of up to $i23,900 payable in cash and stock, which was recorded at an estimated fair value of $i3,476.
An option-based model was used to determine the fair value of the earn-outs, which is a generally accepted valuation technique that embodies all significant assumption types. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company engaged an independent third-party valuation specialist to assist in the determination of fair values. The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The 2021 acquisitions 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.
2020 Acquisitions
The
Company completed ione acquisition during 2020 which was not material. The aggregate purchase price was $i1,949,
including $i882 of cash, $i500 in a promissory note, $i312
of the Company's common stock, and $i255 in additional contingent payments. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed the Company performed a fair value assessment.
The following table summarizes the fair values of the assets acquired and liabilities
assumed as of the acquisition date for the acquisitions closed during the nine months ended October 2, 2021 and the fiscal year ended January 2, 2021:
Excess
consideration over the amounts assigned to the net assets acquired (Goodwill)
$
i22,318
$
i524
/
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 8, Goodwill and Intangible Assets, for further information on fair value adjustments to goodwill and identified intangibles.
i
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 the three and nine months ended October 2, 2021.
The following table presents the unaudited, pro forma consolidated results of operations (in thousands, except per share amounts) for the three and nine months ended October 2, 2021 and October 3, 2020 as if the acquisitions had occurred at the beginning of fiscal year 2020. The pro forma information provided below is compiled from the pre-acquisition financial information and includes pro forma adjustments for amortization
expense, adjustments to certain expenses, and the income tax impact of these adjustments. iThe pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of these acquisitions actually been acquired at the beginning of fiscal year 2020 or (ii) future results of operations:
Depreciation
expense was $i2,974 and $i8,413 for the three and nine months ended October 2, 2021, respectively, of which $i1,353
and $i3,633 was included in other direct costs for the three and nine months ended October 2, 2021. Depreciation expense was $i2,786 and $i8,212
for the three and nine months ended October 3, 2020, respectively, of which $i1,215 and $i3,394 was included in other direct costs for the three and nine months ended October 3,
2020, respectively.
During
the nine months ended October 2, 2021, the Company recorded goodwill related to acquisitions of $i22,318 and a purchase price allocation adjustment of $i86
that increased goodwill for the acquisition related to fiscal 2020.
(1)
Amortized on a straight-line basis over estimated lives (i5 to i12 years)
(2) Amortized on a straight-line basis over their estimated lives (i1
to i3 years)
(3) Amortized on a straight-line basis over their estimated lives (i1 to i5
years)
(4) Amortized on a straight-line basis over their contractual lives (i2 to i5 years)
(5) Amortized on a straight-line basis over their
estimated lives (i5 to i7 years)
/
Amortization expense
was $i8,487 and $i24,984 during the three and nine months ended October 2, 2021, respectively, and
$i8,615 and $i26,468 during the three and nine months ended October 3, 2020, respectively.
Current
portion of notes payable and other obligations
i17,526
i24,196
Notes
payable and other obligations, less current portion
$
i149,862
$
i283,326
/
As
of October 2, 2021 and January 2, 2021, 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.
i
Future contractual maturities of long-term debt as of October 2, 2021 are as follows:
Fiscal
year
Amount
Remainder of 2021
$
i9,025
2022
i12,466
2023
i6,081
2024
i3,196
2025
i710
2026
and thereafter
i139,407
Total
$
i170,885
/
SeniorCredit Facility
On August 13, 2021 (the "Closing Date"), the Company amended and restated its Credit Agreement (The "Second A&R Credit Agreement"), originally dated December 7, 2016 and as amended to the Closing Date, 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 Company's subsidiaries as guarantors. Pursuant to the Second A&R Credit Agreement, the previously drawn term commitments of $i150,000
and revolving commitments totaling $i215,000 in the aggregate were converted into revolving commitments totaling $i400,000
in the aggregate. These revolving commitments are available through August 13, 2026 (the "Maturity Date") and an aggregate amount of approximately $i138,750 was drawn under the Second A&R Credit Amendment on the Closing Date to repay previously existing borrowings under the term and revolving facilities prior to such amendment and restatement. The Second A&R Credit Agreement also includes an accordion feature permitting the
Company to request an increase in the revolving facility under the Second A&R Credit Agreement by an additional amount of up to $i200,000 in the aggregate.
Borrowings under the Second A&R Credit Agreement bear interest at variable rates which are, at the Company's option, 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 the Company's consolidated leverage ratio. As of October 2, 2021the Company's interest rate was i1.1%.
The Second A&R Credit Agreement contains financial covenants that require NV5 Global to
maintain a consolidated net leverage ratio (the ratio of the Company's pro forma consolidated net funded indebtedness to the Company's pro forma consolidated EBITDA for the most recently completed measurement period) of no greater than i4.00 to 1.00.
These financial covenants also require the
Company to maintain a consolidated fixed charge coverage ratio of no less than i1.10 to 1.00 as of the end of any measurement period. As of October 2, 2021, the Company was in compliance with the financial covenants.
The Second 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 Second 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 Second 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
Second 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 Second 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), unless the Consolidated Leverage Ratio would be less than i3.25 to 1.00 and available liquidity (defined as unrestricted, domestically held cash plus revolver availability)
would be at least $i30,000, in each case after giving effect to such payment.
Total debt issuance costs incurred and capitalized in connection with the issuance of the Second A&R Credit Agreement were $i3,617.
Total amortization of debt issuance costs was $i571 and $i1,024 during the three and nine months ended October 2, 2021, respectively, and $i227
and $i669 during the three and nine months ended October 3, 2020, respectively.
Increase
of liability related to re-measurement of fair value
(i67)
i—
Total
contingent consideration, end of the period
i4,937
i2,400
Current
portion of contingent consideration
i3,406
i1,334
Contingent
consideration, less current portion
$
i1,531
$
i1,066
/
Note12– iCommitments 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.
Note13– iStock-Based
Compensation
In October 2011, our 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. We 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 October 2, 2021, i641,307
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) i3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by our Board of Directors. The restricted shares of common stock granted generally provide for service-based vesting after two to ifour
years following the grant date.
i
The following summarizes the activity of restricted stock awards during the nine months ended October 2, 2021:
Number
of Unvested Restricted Shares of Common Stock and Restricted Stock Units
Stock-based
compensation expense relating to restricted stock awards during the three and nine months ended October 2, 2021 was $i4,297 and $i12,087,
respectively, and $i4,020 and $i10,900 during the three and nine months ended October 3,
2020, respectively. Approximately $i32,395 of deferred compensation, which is expected to be recognized over the remaining weighted
average vesting period of i1.8 years, is unrecognized at
October 2, 2021. The total fair value of restricted shares vested during the nine months ended October 2, 2021 and October 3, 2020 was $i20,376 and $i8,837,
respectively.
Note14– iIncome Taxes
As of October 2, 2021 and January 2, 2021, the Company had net deferred
income tax liabilities of $i29,154 and $i27,791, respectively. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments
where we have a future obligation for tax purposes.
The Company's effective income tax rate was i28.1% and i24.0%
during the three and nine months ended October 2, 2021, respectively, and i26.2% and i27.4% during the three and
nine months ended October 3, 2020, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate in 2021 was primarily due to the recognition of tax expense resulting from the reduction of federal tax credits recorded in the third quarter and the recognition of excess tax benefits from stock-based payments in the second quarter. The difference between the effective income tax rate and the combined statutory federal and state income tax rate in 2020 was primarily due to the recognition of tax expense from stock-based payments in the second quarter.
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. Fiscal years 2012 through 2020 are considered open tax years in the State of California and 2018 through 2020 in the U.S. federal jurisdiction and other state and foreign jurisdictions. It is not expected that there will be a significant change in the unrecognized tax benefits within the next 12 months.
Note15– iReportable
Segments
The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting” (“Topic No. 280”). The Company's Chief Executive Officer, who is the chief operating decision maker ("CODM"), organized the Company into iithree/
operating and reportable segments: 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 and program management, and MEP & technology practices; and Geospatial Solutions ("GEO"), which includes the Company's geospatial solution practices. The prior period results of the Company's INF and GEO reportable segments were adjusted to include the results of Skyscene, LLC ("Skyscene")
in the Company's GEO reportable segment. The adjustment to the INF and GEO segments was not material to prior period segment financial results.
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. iThe following tables set forth summarized financial information concerning our reportable segments:
(1)
Includes amortization of intangibles of $i8,487 and $i24,984 for the three and nine months ended October 2,
2021, respectively, and $i8,615 and $i26,468 for the three and nine months ended October 3, 2020,
respectively.
Upon adoption of Topic 606, the Company disaggregates its gross revenues from contracts with customers by geographic location, customer-type and contract-type for each of our 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. iGross
revenue, classified by the major geographic areas in which the Company's customers were located, were as follows:
The
Company primarily leases property under operating leases and has isix equipment operating leases for aircrafts used by the operations of QSI. The Company's property operating leases consist of various office facilities. The Company uses a portfolio approach to account for such leases due to the similarities in characteristics and apply 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 i12 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 ione 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.
Current
portion of notes payable and other obligations
(i1,302)
(i1,321)
Noncurrent
Operating
Other
long-term liabilities
(i33,710)
(i32,290)
Finance
Notes
payable and other obligations, less current portion
(i1,130)
(i1,673)
Total
lease liabilities
$
(i49,123)
$
(i48,445)
(1)
At October 2, 2021, operating right of-use lease assets and finance lease assets are recorded net of accumulated amortization of $i27,014 and $i3,326,
respectively. At January 2, 2021, operating right-of-use lease assets and finance lease assets are recorded net of accumulated amortization of $i19,096 and $i2,499,
respectively.
/
iSupplemental balance sheet information related to the Company's operating and finance leases is as follows:
iiAs
of October 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
Remainder of 2021
$
i3,870
$
i477
2022
i13,784
i1,131
2023
i11,308
i715
2024
i8,595
i295
2025
i6,212
i80
Thereafter
i7,287
i19
Total
lease payments
i51,056
i2,717
Less:
Interest
(i4,365)
(i285)
Present
value of lease liabilities
$
i46,691
$
i2,432
22
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the financial condition and results of operations of NV5 Global, Inc. and its subsidiaries (collectively, the “Company,”“we,”“our,”“us,”or “NV5 Global”) should be read in conjunction with the financial statements included elsewhere in this Quarterly Report and the audited financial statements for the year ended January 2, 2021, included in our Annual Report on Form 10-K. This Quarterly Report contains, in addition to unaudited historical information, forward-looking statements, which involve risk and uncertainties. The words
“believe,”“expect,”“estimate,”“may,”“will,”“could,”“plan,” or “continue,” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from the results those anticipated in such forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, those discussed under the headings “Risk Factors” in our Annual Report on Form 10-K forthe year ended January 2, 2021and this Quarterly Report on Form 10-Q, if any. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update
any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q.Amounts presentedarein thousands, except per share data.
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.
Fiscal Year
We operate on a "52/53 week" fiscal year ending on the Saturday closest to the calendar quarter end, and fiscal 2021 contains 52 weeks compared to fiscal 2020, which contained 53 weeks. As a result, the third quarter of fiscal 2021 ended October
2, 2021 included 13 weeks compared to the third quarter of fiscal 2020 ended October 3, 2020, which included 14 weeks.
Recent Acquisitions
We have completed five acquisitions during 2021 which are not material individually or in the aggregate. The aggregate purchase price of all five acquisitions is $43,777, including $24,476 of cash, $10,680 of promissory notes, $5,145 of our common stock, and potential earn-outs of up to $23,900 payable in cash and stock, which was recorded at an estimated fair value of $3,476. An option-based model was used to determine the fair value of the earn-outs, which is a generally accepted valuation technique that embodies all significant assumption types. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, we an independent third-party valuation
specialist to assist in the determination of fair values. The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The 2021 acquisitions 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.
Secondary Offering
On March 10, 2021, we priced an underwritten public offering of 1,612,903 shares of our common stock (the "Firm Shares") at a price of $93.00 per share. The shares were sold pursuant to an effective registration statement on Form S-3 (Registration No. 333-237167).
In addition, we also granted the underwriters a 30-day option to purchase 241,935 additional shares (the "Option Shares") of our common stock at the public offering price. On March 15, 2021, we closed on the Firm Shares, for which we received net proceeds of approximately $140,642 after deducting the underwriting discount and estimated offering expenses payable by us. On April 13, 2021, the underwriters exercised the Option Shares and we received net proceeds of $21,150 after deducting the underwriting discount and estimated offering expenses payable by us.
23
Segments
Our operations are 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 practices; and
•Geospatial Solutions ("GEO")– includes our geospatial solution practices.
The prior period results of our INF and GEO reportable segments were adjusted to include
the results of Skyscene in our GEO reportable segment. The adjustment to the INF and GEO segments was not material to prior period segment financial results. For additional information regarding our reportable segments, see Note 15, Reportable Segments, of the Notes to Consolidated Financial Statements included elsewhere herein.
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 have been affected, primarily our Geospatial segment, 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, our real estate transactional services have recovered, however 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.
Critical Accounting Policies and Estimates
For
a discussion of our critical accounting estimates, see Management’s Discussion and Analysis of Financial Condition and Results of Operations that is included in the 2020 Form 10-K.
Results of Operations
Consolidated Results of Operations
The following table represents our condensed results of operations for the periods indicated (dollars in thousands):
Our consolidated gross revenues increased by $15,604, or 9.2%, for the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The increase in gross revenues was primarily due to incremental revenues of $9,004 from acquisitions completed since the third quarter of 2020 and increases in real estate transactional services of $7,806 and power delivery and utility services of $4,242. These increases were partially offset by decreases in our geospatial solution services of $1,435 and infrastructure of $1,713. We believe the decreases were primarily a result of contract delays in our geospatial services and the third quarter of 2021 having one less week compared to the third quarter
of 2020.
Gross Profit
As a percentage of gross revenues, our gross profit margin was 49.5% and 51.1% for the three months ended October 2, 2021 and October 3, 2020, respectively. The decrease in gross profit margin was primarily due to a change in the mix of work performed, as power delivery and utility services and real estate transactional services tend to be lower margin than geospatial services. As a percentage of gross revenues, other direct costs and sub-consultant services increased 0.8% and 4.0%, respectively. These increases were partially offset by decreases in direct salaries and wages as a percentage of gross revenues of 3.2%.
Operating expenses
Our operating
expenses increased $354, or 0.5%, for the three months ended October 2, 2021 compared to the three months ended October 3, 2020. Expenses overall remained at similar levels to prior year as we benefited from scale.
Interest Expense
Our interest expense decreased $2,256 for the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The decrease in interest expense primarily resulted from the pay down of our Senior Credit Facility indebtedness and a lower interest rate.
Income taxes
Our effective income tax rate was 28.1%
and 26.2% for the three months ended October 2, 2021 and October 3, 2020, respectively. The increase in the effective tax rate was primarily the result of additional tax expense resulting from the reduction of federal tax credits of $452 during the three months ended October 2, 2021.
Net income
Our net income increased $4,819, or 62.1%, for three months ended October 2, 2021 compared to three months ended October 3, 2020. The increase was primarily a result of an increase in gross profit of $5,066 and a decrease in interest expense of $2,256, partially offset by a higher effective income tax rate.
Our consolidated gross revenues increased by $20,033, or 4.0%, for the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The increase in gross revenues was primarily due to increases in our power delivery and utility services of $23,322, incremental revenue of $20,133 from acquisitions completed since the beginning of fiscal 2020, and increases in real estate transactional services of $13,747. These increases were partially offset by decreases in our geospatial solution services of $17,711, infrastructure of $6,661, energy and technology
services of $3,870, and hospitality-related services of $2,694. We believe the decreases were primarily a result of COVID-19 and contract delays in our geospatial services.
Gross Profit
As a percentage of gross revenues, our gross profit margin was 50.5% and 51.1% for the nine months ended October 2, 2021 and October 3, 2020, respectively. The decrease in gross profit margin was primarily due to a change in the mix of work performed, as power delivery and utility services and real estate transactional services tend to be lower margin than geospatial services. As a percentage of gross revenues, other direct costs and sub-consultant services increased 1.3% and 1.4%, respectively. These increases
were partially offset by decreases in direct salaries and wages as a percentage of gross revenues of 2.1%.
25
Operating expenses
Our operating expenses decreased $5,418, or 2.5%, for the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The decrease in operating expenses primarily resulted from reduced labor costs of $1,695 and decreased intangible asset amortization expense of $1,484. The decrease in labor costs was primarily driven by a decrease in employees as compared to the prior year period, primarily driven by the COVID-19 pandemic.
Interest
Expense
Our interest expense decreased $6,559 for the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The decrease in interest expense primarily resulted from the pay down of our Senior Credit Facility indebtedness and a lower interest rate.
Income taxes
Our effective income tax rate was 24.0% and 27.4% for the nine months ended October 2, 2021 and October 3, 2020, respectively. The decrease in the effective rate was primarily the result of increased excess tax benefits from stock-based payments of $1,440, partially offset by tax expense resulting from the reduction of federal
tax credits of $452 during the nine months ended October 2, 2021. The increase in excess tax benefits from stock-based payments resulted from the increase in our stock price.
Net income
Our net income increased $15,246, or 92.7%, for nine months ended October 2, 2021 compared to nine months ended October 3, 2020. The increase was primarily a result of an increase in gross profit of $7,059 and a decrease in interest expense of $6,559.
Segment Results of Operations
The following tables set forth summarized financial information concerning our reportable segments (dollars in thousands):
For
additional information regarding our reportable segments, see Note 15, Reportable Segments, of the notes to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Our gross revenues from INF increased $4,672, or 4.9%, during the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The increase in gross revenues is due to increases in our power delivery and utility services
of $4,242.
26
Segment Income before Taxes from INF decreased $1,854, or 9.5%, during the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The decrease was primarily due to decreased gross margins as a result of a change in the mix of work performed.
BTSSegment
Our gross revenues from BTS increased $11,520, or 28.9%, during the three months ended October 2, 2021 compared to the three months ended October 3,
2020. The increase in gross revenues was due to increases in our real estate transactional services of $7,806 and incremental revenues of $6,413 from acquisitions completed since the third quarter of 2020.
Segment Income before Taxes from BTS increased $4,355, or 73.3% during the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The increase was primarily due to increased gross revenues.
GEO Segment
Our gross revenues from GEO decreased $588, or 1.7%, during the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The decrease was primarily a result of contract
delays associated with the COVID-19 pandemic.
Segment Income before Taxes from GEO increased $1,478, or 18.5%, during the three months ended October 2, 2021 compared to the three months ended October 3, 2020. The increase was primarily due to increased gross margins and decreased operating expenses. The decrease in operating expenses was primarily due to reduced labor costs driven by a decrease in employees as compared to the prior year period, primarily driven by the COVID-19 pandemic.
Our
gross revenues from INF increased $19,138, or 7.2%, during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The increase in gross revenues is due to increases in our power delivery and utility services of $23,322 and incremental gross revenues of $4,231 from acquisitions completed since the beginning of fiscal 2020. These increases were partially offset by decreases in gross revenues from infrastructure of $6,661.
Segment Income before Taxes from INF increased $5,511, or 11.5%, during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The increase was primarily due to increased gross revenues.
BTSSegment
Our gross revenues from BTS increased $14,194, or 11.9%, during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The increase in gross revenues was due to increases in our real estate transactional services of $13,747 and incremental gross revenues of $11,267 from acquisitions completed since the beginning of fiscal 2020. These increases were partially offset by decreases in our energy and technology services of $3,870 and hospitality-related services of $2,694.
Segment Income before Taxes from BTS increased $7,293, or 43.5% during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020.
The increase was primarily due to increased gross revenues.
GEO Segment
Our gross revenues from GEO decreased $13,299, or 11.8%, during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The decreases were primarily a result of contract delays associated with the COVID-19 pandemic and weather delays during the first quarter of 2021.
Segment Income before Taxes from GEO increased $1,205, or 5.4%, during the nine months ended October 2, 2021 compared to the nine months ended October 3, 2020. The increase
was primarily due to increased gross margins and decreased operating expenses. The decrease in operating expenses was primarily due to reduced labor costs driven by a decrease in employees as compared to the prior year period, primarily driven by the COVID-19 pandemic.
27
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents balances, cash flows 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 flows 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 $78,071 for the nine months ended October 2, 2021, compared to $72,419 during the nine months ended October 3, 2020. The increase was a result of the growth in our net income primarily driven by higher gross revenues and reduction of costs and changes in our working capital. The changes in our working capital
that contributed to increased cash flows were primarily a result of decreased billed receivables of $8,639 driven by increased collections. These increases in cash flows from working capital were partially offset by decreases in advanced billings of $13,939 related to the timing of liquefied natural gas project billing cycles, and an increase of $6,331 in prepaid expenses and other assets primarily as a result of increased prepaid income taxes of $2,646 and increased other receivables of $1,307.
Investing activities
During the nine months ended October 2, 2021 and October 3, 2020, net cash used in investing activities totaled $29,440 and $8,171, respectively. The increase in cash used in investing activities was primarily a result of increased acquisition activity of $22,687, partially
offset by decreases in property and equipment purchases of $1,628.
Financing activities
Net cash flows provided by financing activities totaled $7,857 during the nine months ended October 2, 2021 compared to net cash flows used in financing activities of $32,051 during the nine months ended October 3, 2020. During the nine months ended October 2, 2021 the previously drawn term commitments of $150,000 and revolving commitments totaling $215,000 were converted into revolving commitments totaling $400,000 in the aggregate. An aggregate amount of $138,750 was drawn under the revolving commitment and we used the proceeds along with the $172,500 we received from our common stock public offering to make principal payments
on our Senior Credit Facility of $283,832. We also made common stock public offering cost payments of $10,657 during the nine months ended October 2, 2021.
Financing
SeniorCredit Facility
On August 13, 2021 (the "Closing Date"), we amended and restated our Credit Agreement (the "Second A&R Credit Agreement"), originally dated December 7, 2016 and as amended to the Closing Date, 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 Second A&R Credit Agreement, the previously drawn term commitments of $150,000 and revolving commitments totaling $215,000 in the aggregate were converted into revolving commitments totaling $400,000 in the aggregate. These revolving commitments are available through August 13, 2026 (the "Maturity Date") and an aggregate amount of approximately $138,750 was drawn under the Second A&R Credit Amendment on the Closing Date to repay previously existing borrowings under the term and revolving facilities prior to such amendment and restatement. The Second A&R Credit Agreement also includes an accordion feature permitting us to request an increase in the revolving facility under the Second A&R Credit Agreement by an additional amount of up to $200,000 in the aggregate.
Borrowings under the Second A&R Credit Agreement bear
interest at variable rates which are, at our option, 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 October 2, 2021 our interest rate was 1.1%.
The Second A&R Credit Agreement contains financial covenants that requires us to maintain a consolidated net leverage ratio (the ratio of our pro forma consolidated net funded indebtedness to our pro forma consolidated EBITDA for the most recently completed measurement period) of no greater than 4.00 to 1.00.
28
These financial covenants also
require us to maintain a consolidated fixed charge coverage ratio of no less than 1.10 to 1.00 as of the end of any measurement period. As of October 2, 2021, we were in compliance with the financial covenants.
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), unless the Consolidated Leverage Ratio would be less than 3.25 to 1.00 and available liquidity (defined as unrestricted, domestically held cash plus revolver availability) would be at least $30,000, in each case after giving effect to such payment.
Total
debt issuance costs incurred and capitalized in connection with the issuance of the Amended A&R Credit Agreement were $3,617. Total amortization of debt issuance costs was $571 and $1,024 during the three and nine months ended October 2, 2021, respectively, and $227 and $669 during the three and nine months ended October 3, 2020, respectively.
Other Obligations
We have aggregate obligations related to acquisitions of $8,598, $11,453, $5,440, $2,932, $640, and $640 due in the remainder of fiscal 2021, 2022, 2023, 2024, 2025, and 2026, respectively.
Recently Issued Accounting Pronouncements
For
information on recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, of the notes to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cautionary Statement about Forward-Looking Statements
Our disclosure and analysis in this Quarterly Report on Form 10-Q, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as
oral forward-looking statements. Forward-looking statements include, statements regarding our “expectations,”“hopes,”“beliefs,”“intentions,” or “strategies” regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. We have tried, wherever possible, to identify such statements by using words such as “anticipate,”“believe,”“expect,”“intend,”“estimate,”“predict,”“project,”“may,”“might,”“should,”“would,”“will,”“likely,”“will likely result,”“continue,”“could,”“future,”“plan,”“possible,”“potential,”“target,”“forecast,”“goal,”“observe,”“seek,”“strategy” and other words and terms
of similar meaning, but the absence of these words does not mean that a statement is not forward looking. The forward-looking statements in this Quarterly Report on Form 10-Q reflect the Company’s current views with respect to future events and financial performance.
Forward-looking statements are not historical factors and should not be read as a guarantee or assurance of future performance or results, and will not necessarily be accurate indications of the times at, or by, or if such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith beliefs, expectations and assumptions as of that time with respect to future events. Because forward-looking statements relate to the future, they are subject to risks and uncertainties that
could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include:
•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
•changes in demand from the local and state government and private clients that we serve;
29
•general economic conditions, nationally and globally, and their effect on the demand and market for our services;
•the U.S.
government and other governmental and quasi-governmental budgetary and funding approval process;
•the ongoing effects of the global COVID-19 pandemic;
•our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business;
•the possibility that our contracts may be terminated by our clients;
•competitive
pressures and trends in our industry and our ability to successfully compete with our competitors;
•our dependence on a limited number of clients;
•our ability to complete projects timely, in accordance with our customers’ expectations, or profitability;
•our ability to successfully manage our growth strategy;
•our ability to raise capital in the future;
•the credit and collection risks associated with our clients;
•our ability to comply with procurement laws and regulations;
•changes in laws,
regulations, or policies;
•the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services;
•our ability to complete our backlog of uncompleted projects as currently projected;
•the risk of employee misconduct or our failure to comply with laws and regulations;
•our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties;
•our need to comply with a number of restrictive covenants and similar
provisions in our senior credit facility that generally limit our ability to (among other things) incur additional indebtedness, create liens, make acquisitions, pay dividends and undergo certain changes in control, which could affect our ability to finance future operations, acquisitions or capital needs;
•significant influence by our principal stockholder and the existence of certain anti-takeover measures in our governing documents; and
•other factors identified throughout this Quarterly Report on Form 10-Q, including those discussed under the headings “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”
The forward-looking statements contained in this report are based on our current expectations
and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, those factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended January 2, 2021. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. You are advised, however, to consult any further disclosures we
make on related subjects in our Form 10-Q, 8-K and 10-K reports filed with the SEC. Our Annual Report on Form 10-K filing for the fiscal year ended January 2, 2021 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995, as amended. Readers can
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find them in “Item 1A. Risk Factors” of that filing and under the same heading of this filing. You may obtain a copy of our Annual Report on Form 10-K through our website, www.nv5.com.
Information contained on our website is not incorporated into this report. In addition to visiting our website, you may read and copy any document we file with the SEC at www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks from transactions that are entered into during the normal course of business. We have not entered into derivative financial instruments for trading purposes. We have no significant market risk exposure
to interest rate changes related to the promissory notes related to acquisitions since these contain fixed interest rates. Our only debt subject to interest rate risk is the Senior Credit Facility which rates are variable, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate denominated in U.S. dollars. Interest rates are subject to change based on our Consolidated Senior Leverage Ratio (as defined in the Credit Agreement). As of October 2, 2021, there was $138,750 outstanding on the Senior Credit Facility. A one percentage point change in the assumed interest rate of the Senior Credit Facility would change our annual interest expense by approximately $1,388 annually.
ITEM 4. CONTROLS
AND PROCEDURES.
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including the Company's Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered
by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There
were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) that occurred during the quarter ended October 2, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, in March 2020 certain employees of the Company began working remotely. As a result of these changes to the working environment, the Company has not identified any material changes in the
Company's internal control over financial reporting. The Company is continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are subject to various legal
proceedings that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.
ITEM 1A.RISK FACTORS.
There have been no material changes to any of the principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended January 2, 2021.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Securities
During the three months ended October 2, 2021, we issued the following securities that were not registered under the Securities Act:
In July 2021, we issued 7,847 shares of our common stock as partial consideration in an acquisition and in September 2021, we issued 6,723 shares of our common stock as partial consideration of another acquisition. These shares were issued in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
In August 2021, we issued 548 shares of our common stock as partial consideration of another acquisition. These shares were issued in reliance upon Section 4(a)(2)
of the Securities Act as a transaction by an issuer not involving a public offering.
** Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
