Bowman Consulting Group Ltd. [BWMN] Filings

10-Q 1 bwmn-20230630.htm 10-Q bwmn-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________________

FORM 10-Q

_____________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-40371

_____________________________________________

BOWMAN CONSULTING GROUP LTD.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________________


Delaware			54-1762351
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

12355 Sunrise Valley Drive, Suite 520 Reston, Virginia			20191
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (703) 464-1000

_____________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BWMN

The Nasdaq Global 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. Yes x No o

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). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	x
Emerging growth company	x

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ o No x

As of August 8, 2023, the registrant had 14,602,711 shares of common stock outstanding.

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Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 3 0 , 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 3 0 , 2023 and June 3 0 , 2022	2
	Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 3 0 , 2023 and June 3 0 , 2022	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 3 0 , 2023 and June 3 0 , 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
	Signatures	52

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except per share data)


	June 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current Assets
Cash and equivalents	$	9,746	$	13,282
Accounts receivable, net	81,874		64,443
Contract assets	26,050		16,321
Notes receivable - officers, employees, affiliates, current portion	938		1,016
Prepaid and other current assets	11,723		7,068
Total current assets	130,331		102,130
Non-Current Assets
Property and equipment, net	26,874		25,104
Operating lease, right-of-use assets	39,476		30,264
Goodwill	77,106		53,210
Notes receivable	903		903
Notes receivable - officers, employees, affiliates, less current portion	1,387		1,417
Other intangible assets, net	39,763		27,950
Deferred tax asset, net	21,098		13,759
Other assets	1,082		1,020
Total Assets	$	338,020	$	255,757
LIABILITIES AND EQUITY
Current Liabilities
Revolving Credit Facility	$	21,189	$	–
Accounts payable and accrued liabilities	32,878		40,293
Contract liabilities	10,046		6,370
Notes payable, current portion	12,438		10,168
Operating lease obligation, current portion	8,153		6,949
Finance lease obligation, current portion	6,001		5,297
Total current liabilities	90,705		69,077
Non-Current Liabilities
Other non-current obligations	28,827		356
Notes payable, less current portion	16,734		16,276
Operating lease obligation, less current portion	36,610		28,087
Finance lease obligation, less current portion	14,619		14,254
Pension and post-retirement obligation, less current portion	4,881		4,848
Total liabilities	$	192,376	$	132,898
Shareholders' Equity
Preferred Stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding	$	–	$	–
Common stock, $0.01 par value; 30,000,000 shares authorized; 17,130,179 shares issued and 14,600,293 outstanding, and 15,949,805 shares issued and 13,556,550 outstanding, respectively	171		159
Additional paid-in-capital	189,351		162,922
Accumulated other comprehensive income	557		578
Treasury stock, at cost; 2,529,886 and 2,393,255, respectively	(24,417)		(20,831)
Stock subscription notes receivable	(125)		(173)
Accumulated deficit	(19,893)		(19,796)
Total shareholders' equity	$	145,644	$	122,859
TOTAL LIABILITIES AND EQUITY	$	338,020	$	255,757

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Amounts in thousands except per share data)

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Gross Contract Revenue	$	82,755	$	62,399	$	158,855	$	114,860
Contract costs: (exclusive of depreciation and amortization below)
Direct payroll costs	32,075		25,071		60,919		45,746
Sub-consultants and expenses	8,963		5,983		17,501		10,743
Total contract costs	41,038		31,054		78,420		56,489
Operating Expenses:
Selling, general and administrative	38,340		28,065		71,965		50,868
Depreciation and amortization	4,719		2,823		8,285		5,213
(Gain) on sale	(226)		(27)		(237)		(32)
Total operating expenses	42,833		30,861		80,013		56,049
Income (loss) from operations	(1,116)		484		422		2,322
Other expense	1,143		994		2,358		1,491
Income (loss) before tax expense	(2,259)		(510)		(1,936)		831
Income tax (benefit) expense	(1,625)		(190)		(1,839)		(306)
Net income (loss)	$	(634)	$	(320)	$	(97)	$	1,137
Earnings allocated to non-vested shares	–		–		$	–	$	191
Net income (loss) attributable to common shareholders	$	(634)	$	(320)	$	(97)	$	946
Earnings (loss) per share
Basic	$	(0.05)	$	(0.03)	$	(0.01)	$	0.09
Diluted	$	(0.05)	$	(0.03)	$	(0.01)	$	0.09
Weighted average shares outstanding:
Basic	12,276,173		10,761,172		12,022,550		10,346,089
Diluted	12,276,173		10,761,172		12,022,550		10,427,602

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net Income (loss)	$	(634)	$	(320)	$	(97)	$	1,137
Other comprehensive income (loss)
Pension and post-retirement adjustments	(11)		–		(21)		–
Other comprehensive income (loss)	(11)		–		(21)		–
Income tax provision related to items of other comprehensive income (loss)	–		–		–		–
Other comprehensive income (loss), net of tax	(11)		–		(21)		–
Comprehensive income (loss), net of tax	$	(645)	(320)		$	(118)	1,137

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended June 30, 2023 and 2022

(Amounts in thousands except per share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income		Stock Subscription Notes Receivable		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at March 31, 2022	14,809,363	$	148	$	139,996	(2,247,354)	$	(18,476)	$	–	$	(253)	$	(23,344)	$	98,071
Issuance of new common shares in common stock offering	—	—		—		–	–		–		–		–		—
Issuance of new common shares	476,796	5		7,936		–	–		–		–		–		7,941
Purchase of treasury stock	–	–		–		(91,264)	(1,381)		–		–		–		(1,381)
Issuance of new common shares under stock compensation plan	290,416	3		(3)		–	–		–		–		–		–
Issuance of new common shares under employee stock purchase plan	25,858	–		311		–	–		–		–		–		311
Stock based compensation	–	–		3,799		–	–		–		–		–		3,799
Collection on stock subscription notes receivable	–	–		–		–	–		–		23		–		23
Net loss	–	–		–		–	–		–		–		(320)		(320)
Balance at June 30, 2022	15,602,433	$	156	$	152,039	(2,338,618)	$	(19,857)	$	–	$	(230)	$	(23,664)	$	108,444

Balance at March 31, 2023	16,019,601	$	160	$	167,440	(2,425,755)	$	(21,498)	$	568	$	(151)	$	(19,259)	$	127,260
Issuance of new common shares	504,637	3		14,867		–	–		–		–		–		14,870
Purchase of treasury stock	–	–		–		(104,131)	(2,919)		–		–		–		(2,919)
Issuance of new common shares under stock compensation plan	566,882	6		(6)		–	–		–		–		–		–
Issuance of new common shares under employee stock purchase plan	15,058	–		379		–	–		–		–		–		379
Stock based compensation	–	–		6,337		–	–		–		–		–		6,337
Collections on stock subscription notes receivable	–	–		–		–	–		–		26		–		26
Exercises of conversion feature of convertible note	24,001	2		334		–	–		–		–		–		336
Other comprehensive loss, net of tax	–	–		–		–	–		(11)		–		–		(11)
Net loss	–	–		–		–	–		–		–		(634)		(634)
Balance at June 30, 2023	17,130,179	$	171	$	189,351	(2,529,886)	$	(24,417)	$	557	$	(125)	$	(19,893)	$	145,644

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2023 and 2022

(Amounts in thousands except per share data)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income		Stock Subscription Notes Receivable		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount				Shares	Amount
Balance at January 1, 2022	13,690,868	$	137	$	120,842	(2,201,289)	$	(17,488)	$	–	$	(277)	$	(24,801)	$	78,413
Issuance of new common shares in common stock offering	1,057,500	11		15,464		–	–		–		–		–		15,475
Issuance of new common shares	486,629	5		8,110		–	–		–		–		–		8,115
Purchase of treasury stock	–	–		–		(137,329)	(2,369)		–		–		–		(2,369)
Issuance of new common shares under stock compensation plan	321,373	3		(3)		–	–		–		–		–		–
Issuance of new common shares under employee stock purchase plan	46,063	–		593		–	–		–		–		–		593
Stock based compensation	–	–		7,025		–	–		–		–		–		7,025
Collection on stock subscription notes receivable	–	–		–		–	–		–		47		–		47
Conversion of redeemable common stock to permanent equity	–	–		8		–	–		–		–		–		8
Net income	–	–		–		–	–		–		–		1,137		1,137
Balance at June 30, 2022	15,602,433	$	156	$	152,039	(2,338,618)	$	(19,857)	$	–	$	(230)	$	(23,664)	$	108,444

Balance at January 1, 2023	15,949,805	$	159	$	162,922	(2,393,255)	$	(20,831)	$	578	$	(173)	$	(19,796)	$	122,859
Issuance of new common shares	504,637	3		14,873		–	–		–		–		–		14,876
Purchase of treasury stock	–	–		–		(136,631)	(3,586)		–		–		–		(3,586)
Issuance of new common shares under stock compensation plan	620,639	6		(6)		–	–		–		–		–		–
Issuance of new common shares under employee stock purchase plan	31,097	1		762		–	–		–		–		–		763
Stock based compensation	–	–		10,466		–	–		–		–		–		10,466
Collections on stock subscription notes receivable	–	–		–		–	–		–		48		–		48
Exercises of conversion feature of convertible note	24,001	2		334		–	–		—		–		–		336
Other comprehensive loss, net of tax	–	–		–		–	–		(21)		–		–		(21)
Net loss	–	–		–		–	–		–		–		(97)		(97)
Balance at June 30, 2023	17,130,179	$	171	$	189,351	(2,529,886)	$	(24,417)	$	557	$	(125)	$	(19,893)	$	145,644

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended June 30,
	2023		2022
Cash Flows from Operating Activities:
Net Income (loss)	$	(97)	$	1,137
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	4,620		3,971
Amortization of intangible assets	3,665		1,241
Gain on sale of assets	(237)		(32)
Bad debt	289		365
Stock based compensation	11,169		7,274
Accretion of discounts on notes payable	264		–
Deferred taxes	(7,339)		–
Deferred rent	–		(237)
Changes in operating assets and liabilities, net of acquisition of businesses
Accounts receivable	(10,885)		(10,254)
Contract assets	(5,267)		(510)
Prepaid expenses and other assets	(4,174)		(5,124)
Accounts payable and accrued expenses	9,535		5,877
Contract liabilities	523		560
Net cash provided by operating activities	2,066		4,268
Cash Flows from Investing Activities:
Purchases of property and equipment	(632)		(368)
Fixed assets converted to lease financing	–		22
Proceeds from sale of assets and disposal of leases	237		32
Payments received under loans to shareholders	108		118
Acquisitions of businesses, net of cash acquired	(15,408)		(7,950)
Collections under stock subscription notes receivable	48		47
Net cash used in investing activities	(15,647)		(8,099)
Cash Flows from Financing Activities:
Proceeds from common stock offering, net of underwriting discounts and commissions and other offering costs	–		15,475
Borrowings under revolving credit facility	21,189		–
Repayments under fixed line of credit	(283)		(365)
Repayment under notes payable	(4,743)		(1,433)
Payments on finance leases	(3,309)		(2,921)
Payments for purchase of treasury stock	(3,586)		(2,368)
Proceeds from issuance of common stock	777		607
Net cash provided by financing activities	10,045		8,995
Net increase (decrease) in cash and cash equivalents	(3,536)		5,164
Cash and cash equivalents, beginning of period	13,282		20,619
Cash and cash equivalents, end of period	$	9,746	$	25,783



Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,547	$	713
Cash paid for income taxes	$	745	383
Non-cash investing and financing activities:
Property and equipment acquired under finance lease	$	(4,385)	$	(4,262)
Issuance of notes payable for acquisitions	$	(7,825)	$	(3,697)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BOWMAN CONSULTING GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Bowman Consulting Group Ltd. (along with its consolidated subsidiaries, “Bowman” or “we” or the “Company”) incorporated in the Commonwealth of Virginia on June 5, 1995 and reincorporated in the State of Delaware on November 13, 2020. Bowman is a professional services firm delivering innovative solutions to the marketplace of customers who own, develop and maintain the built environment. Within that arena, we provide planning, design, engineering, geospatial, survey, construction management, environmental consulting and land procurement services to markets that encompass the buildings in which people live, work and learn in; as well as the systems that provide water, electricity and other vital services, and the roads, bridges, and transportation systems used to get from place to place. We provide services to customers through fixed-price and time-and-material based contracts containing multiple milestones and independently priced deliverables. Typically, contract awards are on a negotiated basis, ranging in value from a few thousand dollars to multiple millions of dollars and can have varying durations depending on the size, scope, and complexity of the project.

The Company’s workforce typically provides the full scope of engineering and other contract services. However, with respect to certain specialty services or other compliance requirements within a particular contract, we may engage third-party sub-consultants. The Company’s headquarters is located in Reston, VA and the Company has over 70 offices throughout the United States and one office in Mexico.

Common Stock Offering

On February 11, 2022, the Company closed on an offering of common stock in which it issued and sold 900,000 shares at an offering price of $16.00 per share, resulting in net proceeds of $13.7 million after deducting underwriting discounts and commissions, but before expenses of the offering.

On February 28, 2022, the underwriters exercised their option to purchase an additional 157,500 shares of the Company’s common stock at an offering price of $16.00 per share, resulting in additional gross proceeds of approximately $2.5 million. After giving effect to this exercise of the overallotment option, the total number of shares sold by the Company in this common stock offering increased to 1,057,500 shares with total gross proceeds of approximately $16.9 million. The exercise of the over-allotment option closed on March 2, 2022, at which time the Company received net proceeds of $2.4 million after underwriting discounts and commissions.

Deferred offering costs consist primarily of accounting, legal and other fees related to the common stock offering. Prior to the offering, all deferred offering costs were capitalized within prepaid and other current assets in the consolidated balance sheet. No deferred offering costs were capitalized in the consolidated balance sheet as of June 30, 2023.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in shareholders’ equity and cash flows. The results of operations for the current period are not necessarily indicative of the results for the full year or the results for any future periods.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 15, 2023.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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2. Significant Accounting Policies

The following is a summary of the significant accounting policies and principles used in the preparation of the condensed consolidated financial statements:

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is either not an emerging growth company or, an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

Revenue Recognition

As discussed in Note 1, the Company provides a variety of engineering and related professional services to customers located throughout the United States. The Company enters into agreements with clients that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services transfer to the customer. It is customary practice for the Company to have written agreements with its customers and revenue on oral or implied arrangements is generally not recognized. The Company recognizes revenue based on the consideration specified in the applicable agreement. Excluded from the transaction price are amounts collected on behalf of third parties for sales and similar taxes.

Long-term contracts typically contain billing terms that provide for invoicing once a month and payment on a net 30-day basis. Exceptions to monthly billing terms are to ensure that the Company performs satisfactorily rather than representing a significant financing component. For example, fixed price contracts may provide for milestone billings based upon the attainment of specific project objectives to ensure the Company meets its contractual requirements rather than having billing monthly. Additionally, contracts may include retentions or holdbacks paid at the end of a project to ensure that Company meets the contract requirements. The Company does not assess whether a contract contains a significant financing component if the Company expects, at contract inception, that the period between payment by the customer and the transfer of promised services to the customer will be less than one year.

As a professional services engineering firm, the Company generally recognizes revenue over time as control transfers to a customer based upon the extent of progress towards satisfaction of the performance obligation.

For services delivered under fixed price contracts, the Company uses the ratio of actual costs incurred to total estimated costs since costs incurred (an input method) which represents a reasonable measure of progress towards the satisfaction of a performance in order to estimate the portion of revenue earned. This method faithfully depicts the transfer of value to the customer when the Company is satisfying a performance obligation that entails a number of interrelated tasks or activities for a combined output that requires the Company to coordinate the work of employees and sub-consultants. Contract costs typically include direct labor, subcontract and consultant costs, materials and indirect costs related to contract performance. Changes in estimated costs to complete these obligations result in adjustments to revenue on a cumulative catch-up basis, which causes the effect of revised estimates to be recognized in the current period. Changes in estimates can routinely occur over the contract term for a variety of reasons including, changes in scope, unanticipated costs, delays or favorable or unfavorable progress than original expectations. In situations where the estimated costs to perform exceeds the consideration to be received, the Company accrues the entire estimated loss during the period the loss becomes known.

When a performance obligation is billed using a time-and-material type contract, the Company measures its progress to complete based upon the hours incurred for the period times contractually agreed upon billing rates plus any materials delivered or consumed in the project. When applicable, the Company will recognize revenue under these contracts as invoiced under the practical expedient.

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In certain situations, it is possible that two or more contracts should be combined and accounted for as a single contract, or a single contract should be accounted for as multiple performance obligations. This requires significant judgment and could impact the amount and timing of revenue recognition. Such determinations are made using management’s best estimate and knowledge of contracts and related performance obligations.

The Company’s contracts may contain variable consideration in the form of unpriced or pending change orders or claims that either increase or decrease the contract price. Variable consideration is generally estimated using the expected value method but may from time to time be estimated using the most likely amount method depending on the circumstance. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends.

The Company recognizes claims against vendors, sub-consultants, and others as a reduction in costs when the contract establishes enforceability, and the amounts of recovery are reasonably estimable and probable. Reduction in costs are recognized at the lesser of the amount management expects to recover or costs incurred.

Contract related assets and liabilities are classified as current assets and current liabilities. Significant balance sheet accounts related to the revenue cycle are as follows:

Accounts receivables, net:

Accounts receivable, net (contract receivables) includes amounts billed under the contract terms. The amounts are stated at their net realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated number of receivables that will not be collected. The Company considers several factors in its estimate of the allowance, including knowledge of a client’s financial condition, its historical collection experience, and other factors relevant to assessing the collectability of such receivables.

Contract Assets:

Contract Assets are recorded when progress to completion revenue earned on contracts exceeds amounts billed under the contract. It may also include contract retainages that can be billed once contract stipulations are satisfied.

Contract Liabilities:

Contract Liabilities are recorded when amounts billed under a contract exceeds the progress to completion revenue earned under the contract.

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 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates and assumptions that were used.

Concentration of Credit Risk and other Concentrations

The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and accounts receivable.

Cash balances at various times during the year may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash deposits are held in institutions whose credit ratings are monitored by management, and the Company has not incurred any losses related to such deposits.

The Company can, at times, be subject to a concentration of credit risk with respect to outstanding accounts receivable. However, the Company believes no such concentration existed during the six months ended June 30, 2023, or the year ended December 31, 2022. The Company’s customers are located throughout the United States. Although the Company generally grants credit without collateral, management believes that its contract acceptance, billing, and collection policies are adequate to minimize material credit risk. Also, for non-governmental customers, the Company can often place mechanics liens against the real property associated with the contract in the event of non-payment.

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Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides the framework for measuring and reporting financial assets and liabilities at fair value. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The codification establishes a three-level disclosure hierarchy to indicate the level of judgment used to estimate fair value measurements:

Level 1: Quoted prices in active markets for identical assets or liabilities as of the reporting date;

Level 2: 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; and inputs other than quoted prices (such as interest rate and yield curves);

Level 3: Uses inputs that are unobservable, supported by little or no market activity and reflect significant management judgment.

As of June 30, 2023 and December 31, 2022:

•The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short duration of these instruments;

•The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local financial institutions for arrangements with similar terms to industry peers with comparable credit characteristics. Accordingly, the debt obligations involve Level 2 fair value inputs;

•The liability related to shares subject to repurchase was recognized at fair value using Level 1 inputs as there is an active market for the Company’s publicly traded stock. There was no remaining liability as of December 31, 2022. For further discussion, see Note 15, Employee Stock Purchase and Stock Incentive Plans.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events recognized in the consolidated financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates expected to apply when the differences settle or become realized. Valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable or recoverable in the future. As of June 30, 2023, no valuation allowances are required, and all deferred tax assets are realizable.

The Company assesses uncertain tax positions to determine whether the position will more likely than not be sustained upon examination by the Internal Revenue Service or other taxing authorities. If the Company cannot reach a more-likely-than-not determination, no benefit is recorded. If the Company determines that the tax position is more likely than not to be sustained, the Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the TCJA, we have established a $20.6 million uncertain tax position related to capitalized and amortizable research and development ("R&D") costs as of period ended June 30, 2023.

The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in income in the period that includes the enactment date. The Company’s effective tax rate for the six months ended June 30, 2023 and 2022 was 95.0% and (37.9)%, respectively. The change in the Company’s effective tax rate is predominantly due to changes in the estimated annual effective tax rate. The most prominent factors include an increase in projected R&D credits generated for 2023, a change in the projected limitations of the deductible executive compensation, and an overall reduction in forecasted income for 2023 relative to 2022. With respect to the projected R&D credit, the Company anticipates the 2023 generated R&D credit to be $3.8 million as of June 30, 2023, as compared to the projected R&D credit to be generated for fiscal year 2022 was $2.0 million as of June 30, 2022. Similarly, the Company anticipates the annual projected limitation

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on the deductibility of executive compensation to be $9.8 million for 2023 as compared to $3.7 million for 2022. These factors as well as the forecasted change in book income predominantly resulted in the change in the estimated annual effective tax rate.

Furthermore, the Company also recognized net discrete benefits of $1.6 million for the six months ended June 30, 2023, as compared to net discrete benefit of $0.5 million for the six months ended June 30, 2022. The discrete benefits are predominantly the result of a windfall tax benefit for restricted stock awards and other non-recurring adjustments. More specifically, the windfall tax adjustment for restricted stock awards recognized at a value higher than the grant date fair value is $2.0 million for the six months ended June 30, 2023, and $0.5 million for the six months ended June 30, 2022. In addition, the Company recognized a one-time adjustment to the state income taxes payable, resulting in $0.2 million net discrete expense. These factors increased the rate by 82.6% and reduced the rate by 57.3% for the quarters ended June 30, 2023, and June 30, 2022, respectively.

For year ended December 31, 2022, the Company filed Form 3115, Application for Change in Accounting Method, with the Internal Revenue Service requesting to change its method of deducting stock-based compensation expense from an impermissible method to a permissible method; on July 27, 2022, the Form 3115 was approved by the Internal Revenue Service, which resulted in a reversal of a $1.9 million uncertain tax position to a deferred tax liability. In addition, the Company recorded a $0.4 million uncertain tax position during the year ended December 31, 2022, related to the annual limitation on the deductibility of executive compensation claimed on a prior period U.S. federal income tax return.

The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. Based on the timing of the filing of certain tax returns, the Company’s federal income tax returns for tax years 2019 and thereafter remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.

Segments

The Company operates in one segment based upon the financial information used by its chief operating decision maker in evaluating the financial performance of its business and allocating resources. The single segment represents the Company’s core business of providing engineering and related professional services to its customers.

Recently Issued Accounting Guidance

Accounting guidance recently adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) to replace the incurred loss impairment methodology under U.S. GAAP. 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 will require 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, and require a loss be incurred before it is recognized. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The new standard will apply to accounts receivable, notes, and other financial instruments. This standard is effective for the Company beginning January 1, 2023. Adoption of ASU 2016-13 will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company adopted the new guidance starting January 1, 2023. The impact of this ASU is reflected in the consolidated financial statements and was not material.

The Company does not believe that any recently issued standards other than those noted above would have a material effect on its consolidated financial statements.

3. Earnings per Share

Basic earnings per share is calculated by dividing net income attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the three and six months ended June 30, 2023 and 2022. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were either exercised or converted into common stock or resulted in the issuance of common stock that would share in the earnings of the Company. The dilutive effect of options is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of shares to be purchased under the Company’s Employee

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Stock Purchase Plan is reflected in diluted earnings per share by the weighted-average number of shares outstanding that would have been outstanding during the period. The dilutive effect of convertible debt is reflected in diluted earnings per share by application of the if-converted method. The Company uses the two-class method to determine earnings per share.

For calculating basic earnings per share, for the three and six months ended June 30, 2023, the weighted average number of shares outstanding exclude 1,871,892 and 1,811,416 non-vested restricted shares and 8,566 and 9,125 unexercised substantive options. The computation of diluted earnings per share for the three and six months ended June 30, 2023 did not assume the effect of restricted shares or substantive options because the effects were antidilutive.

For calculating basic earnings per share, for the three and six months ended June 30, 2022, the weighted average number of shares outstanding exclude 2,073,783 and 2,077,218 non-vested restricted shares and 13,448 and 14,013 unexercised substantive options. The computation of diluted earnings per share for the three and six months ended June 30, 2022 did not assume the effect of restricted shares or substantive options because the effects were antidilutive.

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 for the three and six months ended June 30, 2023 and 2022 (in thousands, except share data):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Numerator
Net income (loss)	$	(634)	$	(320)	$	(97)	$	1,137
Earnings allocated to non-vested shares	–		–		–		191
Subtotal	$	(634)	$	(320)	$	(97)	$	946
Denominator
Weighted average common shares outstanding	12,276,173		10,761,172		12,022,550		10,346,089
Effect of dilutive nominal options	–		–		–		–
Effect of dilutive contingently earned shares	–		–		–		81,513
Dilutive average shares outstanding	12,276,173		10,761,172		12,022,550		10,427,602
Basic earnings per share	$	(0.05)	$	(0.03)	$	(0.01)	$	0.09
Dilutive earnings per share	$	(0.05)	$	(0.03)	$	(0.01)	$	0.09

4. Acquisitions

Business Combinations

McMahon Associates, Inc.

In the second quarter of 2022, the Company signed a purchase agreement to acquire McMahon Associates, Inc. (“McMahon”), with an effective date of May 4, 2022. McMahon is a company that specializes in transportation planning and engineering based in Fort Washington, PA. The Company paid total consideration of $18.2 million, which was comprised of 476,796 shares of common stock, at $16.64 per share, for a total of $7.9 million, plus $10.3 million in cash, two promissory notes and assumed liabilities. The shares are subject to a six-month lock-up. The first and second promissory notes bears a simple interest rate fixed at 3.50%. The first promissory note has equal quarterly payments beginning on August 4, 2022 and ending May 4, 2025.The second promissory note was payable in one installment of principal and interest on March 15, 2023. For tax purposes, the acquisition is treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase price allocation consists primarily of goodwill. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The purchase price allocation has been completed and the amounts are deemed final.

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The following summarizes the final calculations of the fair values of McMahon’s assets acquired and liabilities assumed as of the acquisition date (in thousands):


	June 30, 2023
Total Purchase Price	$	18,189
Purchase Price Allocation:
Accounts Receivable, net	8,456
Contract assets	1,017
Prepaid and other current assets	291
Property and equipment, net	949
Intangible assets	3,392
Other assets	96
Notes receivable - officers, employees, affiliates, current portion	19
Accounts payable and accrued liabilities, current portion	(3,688)
Contract liabilities	(841)
Finance leases - non-current	(134)
Post-retirement obligations, less current portion	(5,782)
Total identifiable assets	$	3,775
Goodwill	14,414
Net assets acquired	$	18,189

For the six months ended June 30, 2023, the Company recorded no measurement period adjustments.

The consolidated financial statements of the Company include the results of operations since the date the business was acquired. The following table presents the results of operations of the acquired business for the three and six months ended June 30, 2023 (in thousands):


	For the Three Months Ended June 30, 2023		For the Six Months Ended June 30, 2023
Gross Contract Revenue	$	9,569	$	19,983
Pre-tax Net Income	$	328	$	1,626

The following table presents the unaudited, pro forma consolidated results of operations for the year ended December 31, 2022 and December 31, 2021, respectively, assuming that the McMahon acquisition described above occurred at January 1, 2021. These unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):


	For the Year Ended
	December 31, 2022		December 31, 2021
Gross Contract Revenue	$	273,924	$	183,595
Net Income	$	5,948	$	2,164

The pro forma information provided is compiled from the pre-acquisition financial information and includes pro forma adjustments to reflect additional amortization that would have been expensed assuming the respective assets had been acquired as of January 1, 2021. These results include additional non-cash stock compensation expense assuming acquired employees who received stock grants received those grants on January 1, 2021 and reflect the income tax effect of pro forma adjustments based on the statutory rate of 28.9%.

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Project Design Consultants, LLC.

In the third quarter of 2022, the Company signed a purchase agreement to acquire Project Design Consultants, LLC (“PDC”), with an effective date of July 15, 2022. PDC is a civil engineering and land surveying firm based in San Diego, CA. The Company paid total consideration of $14.2 million, which was comprised of cash, two promissory notes, a convertible note and assumed liabilities. The two promissory notes bear a simple interest rate fixed at 4.75%. The first promissory note is payable in equal quarterly payments of principal and interest beginning on October 15, 2022 and ending July 15, 2025 .The second promissory note is payable in two installments of principal and interest due on March 15, 2023 and on the first anniversary of the closing date. The convertible note bears simple interest fixed at 4.75% and is convertible into shares of common stock at any time, at a conversion price of $14.00 per share. Subject to the exercise of the conversion, the convertible note will have quarterly payments of principal, interest or both beginning October 2022 and ending April 2027. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The following summarizes the preliminary calculations of the fair values of PDC assets acquired and liabilities assumed as of the acquisition date (in thousands):


	June 30, 2023
Total Purchase Price	$	14,178
Purchase Price Allocation:
Accounts receivable	2,199
Contract assets	926
Prepaid and other current assets	161
Property and equipment, net	489
Intangible assets	10,344
Accounts payable and accrued liabilities, current portion	(1,118)
Contract liabilities	(1,362)
Other non-current obligations	(273)
Finance leases - non-current	36
Total identifiable assets	$	11,402
Goodwill	2,776
Net assets acquired	$	14,178

For the three months ended June 30, 2023, the Company recorded no measurement period adjustments.

The purchase price allocation consists primarily of goodwill and intangible assets and is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of PDC’s assets acquired and liabilities assumed. The Company is still in the process of finalizing the valuation of intangible assets. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Identified intangible assets are comprised of customer relationships and contract rights for a total amount of $10.3 million, to be amortized over estimated useful lives of 10 years and 3 years, respectively.

The consolidated financial statements of the Company include the results of operations since the date the business was acquired. The following table presents the results of operations of the acquired business from the date of acquisition for the three and six months ended June 30, 2023 (in thousands):

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	For the Three Months Ended June 30, 2023		For the Six Months Ended June 30, 2023
Gross Contract Revenue	$	3,727	$	6,833
Pre-tax Net Income	$	1,478	$	2,117

Anchor Consultants, LLC.

In the third quarter of 2022, the Company signed a purchase agreement to acquire Anchor Consultants, LLC (“Anchor”), with an effective date of August 26, 2022. Anchor is an engineering firm based in Chadds Ford, PA specializing in the planning, permitting, design and construction management of infrastructure that forms the waterfront of the nation’s inland waterways. The Company paid total consideration of $4.0 million, which was comprised of cash, promissory notes, a convertible note and assumed liabilities. The promissory note bears a simple interest rate fixed at 5.50% with equal quarterly payments beginning on November 26, 2022 and ending on August 26, 2025. The convertible note bears a simple interest rate fixed at 5.50% and is convertible into shares of common stock at anytime at a conversion price of $18.00 per share. Subject to the exercise of the conversion, the convertible note has quarterly payments of principal, interest or both beginning November 2022 and ending May 2027. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase price allocation consists primarily of goodwill and intangible assets, in the amount of $4.0 million, and is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of Anchor’s assets acquired and liabilities assumed. The Company is still in the process of finalizing the valuation of intangible assets. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

SEI Engineering, LLC

In the fourth quarter of 2022, the Company signed a purchase agreement to acquire SEI Engineering, LLC (“SEI”), with an effective date of November 2, 2022. SEI is a professional firm based in Paonia, CO. The Company paid total consideration of $0.8 million, which was comprised of $0.4 million in cash, two promissory notes, and assumed liabilities. The two promissory notes bears a simple interest rate fixed at 6.25%. The first promissory note is payable in equal quarterly payments of principal and interest beginning on February 4, 2023 and ending November 4, 2025. The second promissory note was payable in one installment of principal and interest due on March 15, 2023. For tax purposes, the acquisition will be treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase price allocation consists primarily of goodwill, and is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of SEI’s assets acquired and liabilities assumed. The Company is still in the process of finalizing the valuation of intangible assets. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Spatial Acuity, LLC

In the fourth quarter of 2022, the Company signed a purchase agreement to acquire Spatial Acuity, LLC (“Spatial”), with an effective date of November 2, 2022. Spatial is a professional firm based in Austin, TX. The Company paid total consideration of $4.1 million, which was comprised of 134,042 shares of common stock, at $15.15 per share, for a total of $2.0 million, plus $2.1 million in cash, two promissory notes, and assumed liabilities. The shares are subject to a six-month lock-up. The two promissory notes bears a simple interest rate fixed at 6.25%. The first promissory note is payable in equal quarterly payments of principal and interest beginning on February 4, 2023 and ending November 4, 2025. The second promissory note was payable in one installment of principal and interest due on March 15, 2023. For tax purposes, the

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acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration up to $3.0 million in the form of the Company's common stock, cash and a non-negotiable promissory note, based on certain financial performance thresholds measured quarterly from January 1, 2023 through June 30, 2025. Contingent liability of $0.5 million was recorded as of June 30, 2023. The Company will continue to evaluate its estimated liability to the contingent consideration and adjust the balance as necessary.

The purchase price allocation consists primarily of goodwill and is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of assets acquired and liabilities assumed. The Company is still in the process of finalizing the valuation of intangible assets. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

H2H Geoscience Engineering, PLLC

In the fourth quarter of 2022, the Company signed a purchase agreement to acquire H2H Geoscience Engineering, PLLC (“H2H”), with an effective date of December 2, 2022. H2H is a professional firm based in Troy, NY. The Company paid total consideration of $3.7 million, which was comprised of $1.4 million in cash, a promissory note, a convertible note and assumed liabilities. The promissory note bears a simple interest rate fixed at 7.00%. The promissory note is payable in equal quarterly payments of principal and interest beginning on March 2, 2023 and ending December 2, 2024. The convertible note bears simple interest fixed at 7.00% and is convertible into shares of common stock at any time, at a conversion price of $18.00 per share. Subject to the exercise of the conversion, the convertible note has quarterly payments of principal, interest or both beginning December 2, 2024 and ending September 2, 2027. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

For the six months ended June 30, 2023, the Company recorded measurement period adjustment of $49,000 to accounts payable with a corresponding adjustment to goodwill. The change did not result in a change to operating income.

The Company has not completed its final assessment of the fair values of H2H’s assets acquired and liabilities assumed. The Company is still in the process of finalizing the valuation of intangible assets. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Richter & Associates, Inc.

In the second quarter of 2023, the Company signed a purchase agreement to acquire Richter & Associates, Inc. (“Richter”), with an effective date of April 3, 2023. Richter is a professional firm based in Rockville, MD. The Company paid total consideration of $5.4 million which was comprised of 75,784 shares of common stock, at $29.00 per share, for a total of $2.2 million, plus $3.2 million in cash, promissory note and assumed liabilities. The shares are subject to a six-month lock-up. The promissory note bears a simple interest rate fixed at 11.00%. The promissory note is payable in equal quarterly payments of principal and interest beginning on July 3, 2023 and ending April 3, 2025. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase price allocation consists primarily of goodwill and intangible assets in the amount of $3.2 million. This is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

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The Company has not completed its final assessment of the fair values of Richter’s assets acquired and liabilities assumed. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill and intangible assets.

Fisher Engineering, Inc.

In the second quarter of 2023, the Company signed a purchase agreement to acquire Fisher Engineering, Inc. (“Fisher”), with an effective date of May 12, 2023. Fisher is a professional firm with offices throughout the United States. The Company paid total consideration of $5.2 million which was comprised of 31,521 shares of common stock, at $27.66 per share, for a total of $0.9 million, plus $4.3 million in cash, promissory note and assumed liabilities. The shares are subject to a six-month lock-up. The promissory note bears a simple interest rate fixed at 8.25%. The promissory note is payable in equal quarterly payments of principal and interest beginning on August 12, 2023 and ending May 12, 2026. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration up to $2.0 million in the form of cash and a promissory note, based on certain financial performance thresholds measured yearly from May 1, 2023 through April 30, 2026. Contingent liability of $1.8 million was recorded as of June 30, 2023. The Company will continue to evaluate its estimated liability to the contingent consideration and adjust the balance as necessary.

The purchase price allocation consists primarily of goodwill of $4.2 million. This is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of Fisher’s assets acquired and liabilities assumed. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill and intangible assets.

Hole Montes, Inc.

In the second quarter of 2023, the Company signed a purchase agreement to acquire Hole Montes, Inc. (“Hole Montes”), with an effective date of May 16, 2023. Hole Montes is a professional firm based in Naples and Fort Myers, FL. The Company paid total consideration of $7.4 million, which was comprised of 129,221 shares of common stock, at $27.60 per share, for a total of $3.6 million, plus $3.8 million in cash, two promissory notes, and assumed liabilities. The shares are subject to a six-month lock-up. The two promissory notes bears a simple interest rate fixed at 8.25%. The first promissory note is payable in equal quarterly payments of principal and interest beginning on August 16, 2023 and ending November 16, 2025. The second promissory note will be payable in one installment of principal and interest due on March 1, 2024. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration up to $0.9 million in the form of the Company's common stock, cash and a non-negotiable promissory note, based on certain financial performance thresholds measured quarterly from April 1, 2023 through September 30, 2024. Contingent liability of $0.9 million was recorded as of June 30, 2023. The Company will continue to evaluate its estimated liability to the contingent consideration and adjust the balance as necessary.

The Company has not completed its final assessment of the fair values of Hole Montes’ assets acquired and liabilities assumed. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill and intangible assets.

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MTX Surveying, LLC

In the second quarter of 2023, the Company signed a purchase agreement to acquire MTX Surveying, LLC (“MTX”), with an effective date of June 2, 2023. MTX is a professional firm based in Marshall, TX. The Company paid total consideration of $11.7 million, which was comprised of 143,333 shares of common stock, at $28.09 per share, for a total of $4.0 million, plus $7.7 million in cash, promissory note, and assumed liabilities. The shares are subject to a six-month lock-up. The promissory note bears a simple interest rate fixed at 5.00%. The promissory note is payable in equal quarterly payments of principal and interest beginning on September 2, 2023 and ending June 2, 2026. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration up to $3.0 million in the form of the Company's common stock, cash and a non-negotiable promissory note, based on certain financial performance thresholds measured quarterly from July 1, 2023 through December 31, 2024. Contingent liability of $3.0 million was recorded as of June 30, 2023. The Company will continue to evaluate its estimated liability to the contingent consideration and adjust the balance as necessary.

The purchase price allocation consists primarily of goodwill of $8.1 million. This is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

The Company has not completed its final assessment of the fair values of MTX’s assets acquired and liabilities assumed. The final purchase allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill and intangible assets.

Advanced Applied Engineering, Inc. dba Infrastructure Engineers

In the second quarter of 2023, the Company signed a purchase agreement to acquire Advanced Applied Engineering, Inc. (“Infrastructure”), with an effective date of June 12, 2023. Infrastructure is a professional firm based in Brea, CA. The Company paid total consideration of $8.5 million, which was comprised of 141,794 shares of common stock, at $29.81 per share, for a total of $4.2 million, plus $4.3 million in cash, promissory note, and assumed liabilities. The shares are subject to a six-month lock-up. The promissory note bears a simple interest rate fixed at 8.25%. The promissory note is payable in equal quarterly payments of principal and interest beginning on September 12, 2023 and ending December 12, 2024. For tax purposes, the acquisition was treated as an asset acquisition, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting.

The purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration up to $1.5 million in the form of the Company's common stock and a non-negotiable promissory note, based on certain financial performance thresholds measured quarterly from July 1, 2023 through December 31, 2024. Contingent liability of $1.5 million was recorded as of June 30, 2023. The Company will continue to evaluate its estimated liability to the contingent consideration and adjust the balance as necessary.

The purchase price allocation consists primarily of goodwill of $6.5 million. This is based upon preliminary information that is subject to change when additional information is obtained. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

Results from Acquisitions

The condensed 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 business acquired from their respective dates of acquisition for the three and six months ended June 30, 2023 (in thousands):

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	For the Three Months Ended June 30, 2023		For the Six Months Ended June 30, 2023
Gross Contract Revenue1	$	5,769	$	5,769
Pre-tax Net Income	$	1,940	$	1,940

1 Gross contract revenue includes adjustments as required by ASC 606, Revenue from Contracts with Customers based on opening balance sheet provided by the acquired companies. There is no assurance these adjustments will be consistent in future periods. Opening balance sheet balances are subject to adjustment prior to being finalized.

The following table presents the unaudited, pro forma condensed consolidated results of operations for the three and six months ended June 30, 2023 and June 30, 2022 assuming that the companies acquired in the second quarter of 2023, described above, occurred on January 1, 2022. The unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):


	For the Six Months Ended June 30, 2023
	2023		2022
Gross Contract Revenue2	$	182,656	$	135,669
Pre-tax Net Income (loss)	$	3,402	$	(94)

2 Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contract with Customers, as it is impracticable to obtain the historical information necessary to apply this accounting standard. The historical estimates required to be able to accurately determine the percent complete accounting on the contracts that comprise the revenue is not available for the required periods.

The pro forma information provided is compiled from the pre-acquisition financial information and includes pro forma adjustments to reflect additional depreciation and amortization that would have been expensed assuming the respective assets had been acquired as of January 1, 2022. These results also include additional non-cash stock compensation expense assuming acquired employees who received stock grants received those grants on January 1, 2022.

5. Disaggregation of Revenue and Contract Balances

The Company disaggregates revenues by contract type, see Revenue Recognition in Note 2 for further details. For the three and six months ended June 30, 2023, the Company derived 88.8% and 89.2% of its revenue from contracts classified as lump sum, and 11.2% and 10.8% of its revenue from time and material contracts, respectively. The Company had approximately $234.6 million in remaining performance obligations as of June 30, 2023 of which it expects to recognize approximately 93.9% within the next twelve months and the remaining 6.1% in the next twelve to twenty-four months.

Disaggregated revenues by contract type were as follows (in thousands):


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2023				2022				2023				2022
Fixed fee	$	73,508	88.8	%	$	58,488	93.7	%	$	141,753	89.2	%	$	108,074	94.1	%
Time-and-materials	9,247		11.2	%	3,911		6.3	%	17,102		10.8	%	6,786		5.9	%
Gross contract revenue	$	82,755	100.0	%	$	62,399	100.0	%	$	158,855	100.0	%	$	114,860	100.0	%

The Company recognized $0.2 million and $2.8 million of revenue for the three and six months ended June 30, 2023, respectively, which was included in the contract liabilities balance as of December 31, 2022, and $1.1 million and $2.5 million of revenue for the three and six months ended June 30, 2022, respectively, which was included in the contract liabilities balance as of December 31, 2021.

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6. Contracts in Progress

The following table reflects the calculation of the net balance of contract assets and contract liabilities. Costs and estimated earnings on contracts in progress consist of the following (in thousands):


	June 30, 2023		December 31, 2022
Costs incurred on uncompleted contracts	$	387,057	$	279,173
Estimated contract earnings in excess of costs	404,240		398,791
Estimated contract earnings to date	791,297		677,964
Less: billed to date	(775,293)		(668,013)
Net contract assets	$	16,004	$	9,951

7. Notes Receivable

The Company has unsecured notes receivable from related parties, certain non-executive officers of the Company and an unrelated third party. The following is a summary of these notes receivable (in thousands):


	June 30, 2023		December 31, 2022
Officers, employees and affiliated entities - Interest accrues annually at rates ranging from 0.0% - 5.5%. The notes receivable mature through December 2024.	$	2,325	$	2,433
Unrelated third party - Currently no interest is being accrued on this note. The note receivable matures in December 2023.	903		903
Total:	3,228		3,336
Less: current portion
Officers, employees and affiliates	(938)		(1,016)
Noncurrent portion	$	2,290	$	2,320

Each borrower may prepay all or part of the outstanding balance at any time prior to the date of maturity. During the six months ended June 30, 2023, interest accrued on the notes receivable at the stipulated rates between 0.0% and 5.50%.

8. Property and Equipment, Net

Property and equipment for fixed assets are as follows (in thousands):


	June 30, 2023		December 31, 2022
Computer equipment	$	2,218	$	2,101
Survey equipment	5,409		5,088
Vehicles	1,852		1,032
Furniture and fixtures	2,446		2,398
Leasehold improvements	8,194		7,727
Software	435		316
Fixed assets pending lease financing 1	316		181
Total:	20,870		18,843
Less: accumulated depreciation	(13,506)		(12,319)
Property and Equipment, net of finance leased assets	$	7,364	$	6,524

1assets acquired which will be re-financed under the Company's finance lease facilities

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Depreciation expense for fixed assets for the three and six months ended June 30, 2023 was $0.7 million and $1.2 million, respectively. Depreciation expense for fixed assets for the three and six months ended June 30, 2022 was $0.3 million and $0.6 million, respectively.

Property and equipment for finance leased assets are as follows (in thousands):


	June 30, 2023		December 31, 2022
Equipment	$	17,722	$	16,256
Vehicles	8,838		6,787
Total:	26,560		23,043
Less: accumulated amortization on leased assets	(7,050)		(4,463)
Finance Leased Assets, net	$	19,510	$	18,580

Amortization expense for finance leased assets for the three and six months ended June 30, 2023 was $1.8 million and $3.4 million, respectively. Amortization expense for finance leased assets for the three and six months ended June 30, 2022 was $1.8 million and $3.4 million, respectively.

9. Goodwill

Changes in the carrying amount of goodwill were as follows (in thousands):


	Goodwill
Balance as of December 31, 2022	$	53,210
Goodwill Acquired	23,896
Balance as of June 30, 2023	$	77,106

There were no impairments of goodwill during the periods presented.

10. Intangible Assets

Total intangible assets consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023						December 31, 2022
	Gross Amount		Accumulated Amortization		Net Balance		Gross Amount		Accumulated Amortization		Net Balance
Customer relationships	$	35,909	$	(3,825)	$	32,084	$	23,595	$	(2,330)	$	21,265
Contract rights	10,471		(4,568)		5,903		7,281		(2,416)		4,865
Leasehold	187		(66)		121		187		(48)		139
Domain name	281		–		281		281		–		281
Licensing rights	1,374		–		1,374		1,400		–		1,400
Total	$	48,222	$	(8,459)	$	39,763	$	32,744	$	(4,794)	$	27,950

The domain name and licensing rights acquired for a total of $1.7 million, have indefinite useful lives.

The following table summarizes the weighted average useful lives of intangible assets by asset class used for straight-line expense purposes:


	June 30, 2023	December 31, 2022
Customer relationships	8.10	11.97
Contract rights	1.08	2.47
Leasehold	5.74	8.05

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Amortization expense for the three and six months ended June 30, 2023 was $2.3 million and $3.7 million, respectively. Amortization expense for the three and six months ended June 30, 2022 was $0.8 million and $1.2 million, respectively.

Future amortization for the remainder of 2023 and for the succeeding years is as follows (in thousands):


2023	6,256
2024	7,403
2025	5,930
2026	5,390
2027	2,142
Thereafter	10,987
Total	$	38,108

11. Revolving Credit Facility and Fixed Credit Facilities

The Company has one revolving credit facility (the “Revolving Credit Facility”) and three non-revolving credit facilities (“Fixed Line #1”, " Fixed Line #2” and “Fixed Line #4” collectively, the “Fixed Lines”) with Bank of America, N.A. On June 30, 2023 and June 30, 2022, the interest rate on the Revolving Credit Facility was 9.25% and 2.11%, respectively. All outstanding principal on the Revolving Credit Facility is due on September 30, 2024. On June 30, 2023 and December 31, 2022, there was $21.2 million and no outstanding balance on the Revolving Credit Facility, respectively.

On November 11, 2022, the Company and certain of its subsidiaries, as guarantors, entered into an Amended and Restated Credit Agreement with Bank of America, N.A. (the "Amended and Restated Agreement") as well as an Amended and Restated Pledge and Security Agreement. The Amended and Restated Agreement increased the maximum principal amount of the Revolving Credit Facility to $50 million, is secured by all the assets of the Company and the subsidiary guarantors and has a maturity date of September 30, 2024. Under the Amended and Restated Agreement, the Company is required to comply with certain covenants, including covenant on indebtedness, investments, liens and restricted payments, as well as maintain certain financial covenants, including a fixed charge coverage ratio and leverage ratio of debt to EBITDA (as defined in the Amended and Restated Agreement). On August 2, 2023, subsequent to the reporting period, the Company entered into a First Amendment to the Amended and Restated Credit Agreement whereby the maximum principal amount of the Revolving Credit Facility was increased to $70 million, the term was extended to July 31, 2025, and certain provisions relating to interest rate spreads and used fees were modified (see Footnote 17 - Subsequent Events).

Fixed Line #1 had a maximum advance of $1.0 million and does not allow for re-borrowings and is included in Notes Payable (see Note 12). The Company pays interest on a monthly basis at a rate equal to SOFR Simple APR plus 2.0%. On June 30, 2023 and 2022, the interest rate was 7.06% and 3.51%, respectively. Commencing the earlier of i) the date no remaining amount is available under the Fixed Line or, ii) August 31, 2018, the Company was obligated to pay the then outstanding principal balance in sixty equal monthly installments through maturity in August 2023. On each of June 30, 2023 and December 31, 2022, the outstanding balance on Fixed Line #1 was $49,000 and $0.1 million, respectively.

Fixed Line #2 had a maximum advance of $1.0 million and does not allow for re-borrowings and is included in Notes Payable (see Note 12). Commencing the earlier of i) the date no remaining amount is available under the Fixed Line or, ii) August 31, 2020, the Company was obligated to pay the then outstanding principal balance in sixty equal monthly installments through maturity in September 2025. On each of June 30, 2023 and December 31, 2022, the outstanding balance on Fixed Line #2 was $0.4 million and $0.5 million, respectively.

Facility #4 is a term loan with a principal loan amount of $1.0 million and is included in Notes Payable (see Note 12). The loan was to be repaid over thirty-six equal monthly installments beginning April 13, 2020, through maturity on March 13, 2023. The interest rate on this loan was 3.49%. As of June 30, 2023, Facility #4 was paid in full and there was no outstanding balance.

The Company secures its obligations under the Amended and Restated Agreement with substantially all assets of the Company. Obligations of the Company to certain other shareholders of the Company are subordinated to the Company’s obligations under the Amended and Restated Agreement and Fixed Line loans. The Company must maintain, on a combined basis certain financial covenants defined in the Amended and Restated Agreement.

Tabl e of Contents

Interest expense on the Revolving Credit Facility and Fixed Lines totaled $12,000 and $0.2 million during the three and six months ended June 30, 2023, respectively. Interest expense on the Revolving Credit Facility and Fixed Lines totaled $11,000 and $21,000 during the three and six months ended June 30, 2022, respectively.

12. Notes Payable

Notes payable consist of the following (in thousands):


	June 30, 2023		December 31, 2022
Related parties:
Shareholders - Interest accrues annually at rates ranging from 3.25% - 11.00%. The notes payable mature on various dates through June 2026.	$	15,942	$	11,515
Owners of Acquired Entities - Interest accrues annually at rates ranging from 3.25% - 7.00% annually. The notes payable mature on various dates through October 2024.	6,803		8,134
Convertible Notes Payable - Interest accrues annually at rates ranging from 4.75% - 7.00% annually. The convertible notes payable mature on various dates through May 2027.	6,339		6,675
Unrelated third parties:
Note payable for purchase of software and vehicles	40		55
Note payable for purchase of intangible asset	50		50
Fixed line notes payable - see note 11	491		773
Discounts on notes payable issued as consideration in acquisitions:
Shareholders	(135)		(177)
Owners of acquired entities	(358)		(581)
Total	29,172		26,444
Less: current portion	(12,438)		(10,168)
Noncurrent portion	$	16,734	$	16,276

The Company’s President, Chairman and Chief Executive Officer guarantees certain of the notes payable, and certain of the notes payable are subordinate to the terms of the Credit Agreement disclosed in Note 11.

Interest expense attributable to the notes payable totaled $0.5 million and $0.9 million for the three and six months ended June 30, 2023, respectively. Interest expense attributable to the notes payable totaled $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively.

Future principal payments on notes payable for remainder of 2023 and succeeding years are as follows (in thousands):


2023	$	7,221
2024	11,230
2025	7,105
2026	2,917
2027	1,192
Thereafter	–
Total	$	29,665

Tabl e of Contents

Convertible Notes Payable

In July 2022, the Company issued a $4.0 million 4.75% unsubordinated convertible note with a maturity date in July 2027 as partial consideration for the acquisition of PDC (Note 4). The convertible note is convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $14.00 per share upon proper notice. Subject to the exercise of the conversion, the convertible note is payable in quarterly payments of principal, interest or both beginning in October 2022 and ending in April 2027. At any time, upon ten business days’ notice to the Company, the holders may request that a prepayment of the principal or all or part of a regularly scheduled quarterly payment of the principal be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. If the request is made with respect to a regularly scheduled quarterly payment of principal, then the accrued interest shall be paid in cash. An election was made by the holders, and on April 5, 2023, $0.3 million of the note was converted to 24,001 shares of common stock at $14.00 per share.

In August 2022, the Company issued a $1.1 million 5.50% unsubordinated convertible note with a maturity date in May 2027 as partial consideration for the acquisition of Anchor (Note 4). The convertible note is convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $18.00 per share upon proper notice. Subject to the exercise of the conversion, the convertible note has quarterly payments of principal, interest or both beginning in November 2022 and ending in May 2027. At any time, upon ten business days’ notice to the Company, the holders may request that a prepayment of the principal or all or part of a regularly scheduled quarterly payment of the principal be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. If the request is made with respect to a regularly scheduled quarterly payment of principal, then the accrued interest shall be paid in cash. As of June 30, 2023, there has been no election by the holders to convert any portions of the convertible note to common stock.

In December 2022, the Company issued a $1.6 million 7.00% unsubordinated convertible note with a maturity date in September 2027 as partial consideration for the acquisition of H2H (Note 4). The convertible note will be convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $

Bowman Consulting Group Ltd. [BWMN] Filings
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-15]
10-Q	[2022-11-14]
10-Q	[2022-08-12]
10-Q	[2022-05-12]
10-K	[2022-03-23]
S-1	[2022-02-01]
10-Q	[2021-11-12]
10-Q	[2021-08-12]
10-Q	[2021-06-14]
S-1	[2021-04-06]