Zweig Group believes that tracking and reporting on the financial standing of some of the industry’s leading, publicly traded firms, will allow our readers to have another digestible form of information that will equip them with a greater understanding of the state of the industry. This monthly report, the Zweig Index, will examine 11 of the AEC industry’s leading firms on a monthly basis. This month we're focusing on NV5.
Nv5 (NVEE) is the eighth largest firm by market capitalization on the Zweig Index. NV5 is a leading provider of technology, conformity assessment, and consulting solutions for public and private sector clients supporting infrastructure, utility, and building assets and systems. With more than 3,600 employees, Nv5 allocates its revenue between infrastructure (50 percent); building, tech, and sciences (30 percent); and geospatial solutions (20 percent). The company serves a diverse clientele, including federal, state, and local government agencies, private corporations, public utilities, and institutional clients.
*Share price in USD as of April 17, 2023.
Financial highlights as of FYE 2022 ($USD):
- Gross revenue from $706 million to $786 million (+11.3 percent). The average 2022 gross revenue growth across all firms on the Zweig Index was 16.9 percent.
- Net service revenue increased from $581 million to $633 million (+8.8 percent). The average 2022 NSR growth for firms on the Zweig index was 19.9 percent.
- Adjusted EBITDA from continuing operations increased from $133 million to $135 million, which is 21.4 percent of NSR. The average adjusted EBITDA margin of firms on the Zweig Index has been 14.7 percent of net service revenue in 2022.
- 96 percent of the firm’s 2022 total revenue was from the U.S while the other 4 percent was international. Most of the international projects are located in Asia and tend to be data centers.
- The firm currently has roughly $800 million worth of backlog entering 2023, a 15 percent increase from the prior year and equates to 11.6 months of work for its current labor force.
Balance sheet ($USD):
- The firm’s cash and cash equivalents accounts decreased 19.7 percent, from $48 million to $38 million, though its current ratio is at a strong 1.8x. The Zweig Index average for 2022 was 1.5x.
- Quick ratio (cash + receivables / current liabilities) decreased slightly from 1.8x to 1.7x. However, this is still higher than the average quick ratio of 1.2x for all firms.
- Debt to equity ratio decreased from 0.21 in 2021 to 0.08 in 2022. This is equal to the index average for debt to equity in 2022.
Valuation metrics:
Enterprise value measures a company's total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt and any cash or cash equivalents on the company's balance sheet. (Note that all estimated enterprise values are as of December 31.)
- Nv5’s EV decreased from $2.2 billion to $2.1 billion – partially due to the slowing down of equities in the past year.
- EV/NSR decreased from 3.8x to 3.3x.
- EV/adjusted EBITDA decreased from 16.6x to 15.3x.
- EV/backlog decreased from 2.9x to 2.7x.
Risks and opportunities:
Opportunities:
- Organic growth drivers:
- Strong backlog entering 2023.
- Geospatial expansion in defense, energy and global warming.
- Accelerating utility investments in reliability and safety.
- Public sector push to speed infrastructure investment.
- Mergers and acquisitions:
- Anticipating best M&A year yet.
- Geospatial expansion.
- Owner representation growth.
- Strong cash flows and cash position.
- Full pipeline of potential opportunities.
- Margin growth:
- Anticipated growth in high-margin businesses.
- Geospatial.
- Clean energy and energy efficiency.
- LNG conversion.
- Utility undergrounding and fire mitigation.
Risks:
- The loss of key personnel or their inability to attract and retain qualified personnel could significantly disrupt our business.
- Demand from state and local government and private clients is cyclical.
- Federal and state budgetary processes and constraints may have a material adverse impact on the firm.
Acquisitions (2019-2022) ($USD)
Summary:
The average 2022 net revenue growth across the Zweig Index was 16.9 percent, and Nv5 saw revenue grow $80 million (+11.3 percent) largely due to building, tech, and sciences segment increasing 25 percent from the prior year. The firm added an additional 200 employees in 2022 and increased net revenue by 8.8 percent. The firm outperformed in terms of profitability with adjusted an EBITDA margin of The industry average margin was 14.7 percent of net revenue.
Nv5 has had several consecutive years of growth and anticipates more to come. Firm leaders note changes in domestic and international economic conditions such as inflation rates, interest rates, taxes rates, recessions, and regulations as potential external factors that could impede growth. With more than 11,400 clients and almost an entire years’ worth of backlog, Nv5 is in a strong position to maintain growth as they continue to expand their offerings into private sectors.