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EX-32.1 - EXHIBIT 32.1 - NV5 Global, Inc.ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - NV5 Global, Inc.ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - NV5 Global, Inc.ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

 

 

 

FORM 10-Q

 

 

 

 

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

For the quarterly period ended September 30, 2016

 

OR

 

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

For the transition period from                      to                     

 

Commission File Number 001-35849

  

 

 

 

NV5 Global, Inc.

(Exact name of registrant as specified in its charter)

  

 

 

Delaware

45-3458017

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

200 South Park Road, Suite 350

33021

Hollywood, Florida

(Zip Code)

(Address of principal executive offices)

 

 

(954) 495-2112

(Registrant’s telephone number, including area code)

  

 

 

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   ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  

  

  

Large accelerated filer

Accelerated filer

 

  

  

  

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

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

 

As of November 2, 2016, there were 10,395,243 shares outstanding of the registrant’s common stock, $0.01 par value.

 

 
 

 

 

NV5 GLOBAL, INC.

 

INDEX

 

  

  

Page

  

  

  

PART I – FINANCIAL INFORMATION

  

  

  

  

ITEM 1

FINANCIAL STATEMENTS

1

  

  

  

  

Consolidated Balance Sheets (unaudited)

1

  

  

  

  

Consolidated Statements of Net Income and Comprehensive Income (unaudited)

2

  

 

  

  

Consolidated Statement of Changes in Stockholders’ Equity (unaudited)

3

  

 

  

  

Consolidated Statements of Cash Flows (unaudited)

4

  

  

  

  

Notes to Consolidated Financial Statements (unaudited)

6

  

  

  

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

23

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

36

ITEM 4

CONTROLS AND PROCEDURES

36

  

  

  

  

  

  

PART II – OTHER INFORMATION

  

  

  

  

ITEM 1

LEGAL PROCEEDINGS

37

ITEM 1A

RISK FACTORS

37

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

37

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

37

ITEM 4

MINE SAFETY DISCLOSURES

37

ITEM 5

OTHER INFORMATION

38

ITEM 6

EXHIBITS

38

 

 

 

SIGNATURES

39

  

 
 

 

  

PART I – FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS.

 

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share data)

 

 

 

   

September 30, 2016

   

December 31, 2015

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 53,066     $ 23,476  

Accounts receivable, net of allowance for doubtful accounts of $1,895 and $1,536 as of September 30, 2016 and December 31, 2015, respectively

    64,102       47,747  

Prepaid expenses and other current assets

    1,195       1,092  

Deferred income tax assets

    1,496       1,440  

Total current assets

    119,859       73,755  

Property and equipment, net

    3,762       3,091  

Intangible assets, net

    22,740       12,367  

Goodwill

    37,472       21,679  

Other assets

    1,014       877  

Total Assets

  $ 184,847     $ 111,769  
                 

Liabilities and Stockholders’ Equity

               

Current liabilities:

               

Accounts payable

  $ 11,632     $ 6,658  

Accrued liabilities

    13,013       9,564  

Income taxes payable

    755       813  

Billings in excess of costs and estimated earnings on uncompleted contracts

    215       293  

Client deposits

    109       110  

Current portion of contingent consideration

    442       458  

Current portion of notes payable and other obligations

    6,192       4,347  

Total current liabilities

    32,358       22,243  

Contingent consideration, less current portion

    467       821  

Notes payable and other obligations, less current portion

    9,963       6,360  

Deferred income tax liabilities

    1,727       1,582  

Total liabilities

    44,515       31,006  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding

    -       -  

Common stock, $0.01 par value; 45,000,000 shares authorized, 10,394,283 and 8,124,627 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

    104       81  

Additional paid-in capital

    113,488       62,260  

Retained earnings

    26,740       18,422  

Total stockholders’ equity

    140,332       80,763  

Total liabilities and stockholders’ equity

  $ 184,847     $ 111,769  

 

 See accompanying notes to consolidated financial statements (unaudited).

 

 
1

 

 

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands, except share data)

 

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Gross revenues

  $ 60,091     $ 48,701     $ 160,888     $ 112,335  
                                 

Direct costs:

                               

Salaries and wages

    20,274       16,856       53,744       39,122  

Sub-consultant services

    8,854       6,859       22,246       15,306  

Other direct costs

    3,307       3,455       8,209       8,120  
                                 

Total direct costs

    32,435       27,170       84,199       62,548  
                                 

Gross Profit

    27,656       21,531       76,689       49,787  
                                 

Operating Expenses:

                               

Salaries and wages, payroll taxes and benefits

    14,096       10,549       40,575       25,258  

General and administrative

    4,415       3,422       12,640       9,162  

Facilities and facilities related

    2,066       1,565       5,803       3,429  

Depreciation and amortization

    1,604       1,048       4,285       2,446  
                                 

Total operating expenses

    22,181       16,584       63,303       40,295  
                                 

Income from operations

    5,475       4,947       13,386       9,492  
                                 

Other expense:

                               

Interest expense

    (81 )     (78 )     (221 )     (180 )
                                 

Total other expense

    (81 )     (78 )     (221 )     (180 )
                                 

Income before income tax expense

    5,394       4,869       13,165       9,312  

Income tax expense

    (1,990 )     (1,867 )     (4,847 )     (3,492 )

Net income

  $ 3,404     $ 3,002     $ 8,318     $ 5,820  
                                 

Earnings per share:

                               

Basic

  $ 0.34     $ 0.40     $ 0.94     $ 0.90  

Diluted

  $ 0.33     $ 0.38     $ 0.90     $ 0.84  
                                 

Weighted average common shares outstanding:

                               

Basic

    9,941,517       7,516,063       8,826,090       6,454,158  

Diluted

    10,353,793       7,943,131       9,215,365       6,945,274  

 

 See accompanying notes to consolidated financial statements (unaudited).

  

 
2

 

  

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)

 

  

   

Common Stock

   

Additional

Paid-In

   

Retained

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Total

 

Balance, December 31, 2015

    8,124,627     $ 81     $ 62,260     $ 18,422     $ 80,763  
                                         

Stock compensation

    -       -       1,704       -       1,704  

Restricted stock issuance, net

    123,333       1       (1 )     -       -  

Proceeds from secondary offering, net of costs

    1,955,000       20       47,127       -       47,147  

Proceeds from exercise of unit warrant

    140,000       2       1,006       -       1,008  

Stock issuance for acquisitions

    42,368       -       1,075       -       1,075  

Tax benefit from stock based compensation

    -       -       155       -       155  

Payment of contingent consideration with common stock

    8,955       -       162       -       162  

Net income

    -       -       -       8,318       8,318  

Balance, September 30, 2016

    10,394,283     $ 104     $ 113,488     $ 26,740     $ 140,332  

 

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 
3

 

 

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

  

      Nine Months Ended  
   

September 30, 2016

   

September 30, 2015

 

Cash Flows From Operating Activities:

               

Net income

  $ 8,318     $ 5,820  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    4,285       2,446  

Provision for doubtful accounts

    246       263  

Stock compensation

    1,704       1,229  

Change in fair value of contingent consideration

    88       72  

Loss on disposal of leasehold improvements

    2       -  

Excess tax benefit from stock based compensation

    (155 )     (1,536 )

Deferred income taxes

    88       383  

Changes in operating assets and liabilities, net of impact of acquisitions:

               

Accounts receivable

    (7,795 )     (10,122 )

Prepaid expenses and other assets

    372       427  

Accounts payable

    2,892       (2,016 )

Accrued liabilities

    476       1,933  

Income taxes payable

    96       967  

Billings in excess of costs and estimated earnings on uncompleted contracts

    (78 )     (221 )

Client deposits

    147       (13 )

Net cash provided by (used in) operating activities

    10,686       (368 )
                 

Cash Flows From Investing Activities:

               

Cash paid for acquisitions

    (24,388 )     (10,427 )

Purchase of property and equipment

    (566 )     (428 )

Net cash used in investing activities

    (24,954 )     (10,855 )
                 

Cash Flows From Financing Activities:

               

Proceeds from secondary offerimg

    51,319       32,068  

Payments of secondary offering costs

    (4,172 )     (2,649 )

Exercise of warrants costs

    -       (217 )

Payments on notes payable

    (4,156 )     (7,660 )

Payments of contingent consideration

    (296 )     (533 )

Excess tax benefit from stock based compensation

    155       1,536  

Payments on stock repurchase obligation

    -       (935 )

Proceeds from exercise of unit warrant

    1,008       3,186  

Net cash provided by financing activities

    43,858       24,796  
                 
                 

Net increase in Cash and Cash Equivalents

    29,590       13,573  

Cash and cash equivalents – beginning of period

    23,476       6,872  

Cash and cash equivalents – end of period

  $ 53,066     $ 20,445  

 

See accompanying notes to consolidated financial statements (unaudited).

 

 
4

 

 

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

   

Nine Months Ended

 
   

September 30, 2016

   

September 30, 2015

 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 255     $ 164  

Cash paid for income taxes

  $ 4,642     $ 2,114  
                 

Non-cash investing and financing activities:

               

Contingent consideration (earn-out)

  $ -     $ 1,307  

Notes payable and other obligations for acquisitions

  $ 9,333     $ 9,250  

Stock issuance for acquisitions

  $ 1,075     $ 900  

Payment of contingent consideration with common stock

  $ 162     $ 100  

 

 

 

See accompanying notes to consolidated financial statements (unaudited).

 

 
5

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

  

 

Note 1 - Organization and Nature of Business Operations

 

Business

 

NV5 Global, Inc. and its subsidiaries (collectively, the “Company” or “NV5 Global”) is a provider of professional and technical engineering and consulting solutions to public and private sector clients in the infrastructure, energy, construction, real estate and environmental markets, operating through a network of 72 offices in 26 states in the United States and internationally in Macau, Shanghai, Hong Kong and Vietnam. 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, planning, design, consulting, permitting, inspection and field supervision, management oversight, forensic engineering, litigation support, condition assessment and compliance certification.

 

 

Equity Transactions

 

Secondary offering

 

On May 13, 2016, the Company priced a secondary offering of 1,700,000 shares of the Company’s common stock (the “Firm Shares”). Each share was sold at an offering price of $26.25 per share. The shares sold were registered under the Securities Act of 1933, as amended (the “Securities Act”), on an effective registration statement on Form S-3 (Registration No. 333-206644) pursuant to the Securities Act. In addition, the Company granted the underwriters of this secondary offering a 30-day option to purchase an additional 255,000 shares (the “Option Shares”) of common stock to cover over-allotments. On May 18, 2016, the Company closed on the Firm Shares, for which we received net proceeds of approximately $41,000 after deducting the underwriting discount and estimated offering expenses payable by the Company and issued 1,700,000 shares. On June 3, 2016, the Company closed on the full exercise of the Option Shares by the underwriters of the secondary offering with respect to an additional 255,000 shares of its common stock, for which we received net proceeds of approximately $6,200 after deducting the underwriters’ discount.

 

Warrant exercise

 

In conjunction with the Company’s initial public offering on March 26, 2013, the underwriter received a warrant to acquire up to 140,000 units at an exercise price of $7.80 per unit (“Unit Warrant”).  Each of these units consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price of $7.80 per share, which warrant expires on March 27, 2018. On March 23, 2016, the underwriter paid $1,008 to the Company to initiate the exercise of the Unit Warrant.  On March 29, 2016, the Company delivered 140,000 shares of common stock to the underwriter, and, on May 5, 2016, the Company completed the exercise of the Unit Warrant by delivery of the warrant. 

 

  

Note 2 - Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) 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 omitted. The consolidated financial statements include the accounts of NV5 Global, Inc. and those of its wholly owned 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 (consisting of only normal recurring 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 financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The accompanying consolidated balance sheet as of December 31, 2015 has been derived from those financial statements. 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 2016 fiscal year.

 

 
6

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on management’s most recent assessment of underlying facts and circumstances using the most recent information available. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.

 

Estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in the consolidated financial statements relate to the fair value estimates used in accounting for business combinations including the valuation of identifiable intangible assets and contingent consideration, fair value estimates in determining the fair value of its reporting units for goodwill impairment assessment, revenue recognition on the percentage-of-completion method, allowances for uncollectible accounts and provision for income taxes.

 

 

Concentration of Credit Risk

 

 Trade receivable balances carried by the Company are comprised of accounts from a diverse client base across a broad range of industries and are not collateralized. However, approximately 35% and 43% of the Company’s gross revenues for the nine months ended September 30, 2016 and 2015, respectively, are from California-based projects. The Company does not have any client representing more than 10% of gross revenues during the nine months ended September 30, 2016 and 2015. Approximately 50% and 63% of the Company’s accounts receivable as of September 30, 2016 and December 31, 2015, respectively, are from government and government-related contracts. Management continually evaluates the creditworthiness of these and future clients and provides for bad debt reserves as necessary.

 

 

Fair Value of Financial Instruments

 

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company considers cash and cash equivalents, accounts receivable, accounts payable, income taxes payable, accrued liabilities and debt obligations to meet the definition of financial instruments. As of September 30, 2016 and December 31, 2015, the carrying amount of cash and cash equivalents, accounts receivable, accounts payable, income taxes payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

 

 
7

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 

The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. The allocation of the purchase price to identifiable intangible assets (customer relationships, customer backlog, trade name and non-compete) is based on valuations performed to determine the fair values of such assets as of the acquisition dates. The Company engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities assumed for the 2016 and 2015 acquisitions, other than Allwyn and Weir acquisitions which was prepared internally. The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.  The Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the consolidated balance sheet. Changes in the estimated fair value of contingent earn-out payments are included in General and Administrative expenses on the Consolidated Statements of Net Income and Comprehensive Income.

 

Several factors are considered when determining contingent consideration liabilities as part of the purchase price, including whether (i) the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (ii) the former owners of the acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of other key employees.  The contingent earn-out payments are not affected by employment termination.

 

We review and re-assess the estimated fair value of contingent consideration liabilities on a quarterly basis, and the updated fair value could differ materially from the initial estimates.  Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.

 

The Company measures contingent consideration recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified within Level 3, as defined in the accounting guidance. The Company uses a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration liabilities on the acquisition date and at each reporting period. The significant unobservable inputs used in the fair value measurements are projections over the earn-out period, and the probability outcome percentages that are assigned to each scenario. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and amount paid will be recorded in earnings (see Note 10).

 

 

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 performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. 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. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. The Company has elected to perform its annual goodwill impairment review on August 1 of each year. The Company historically conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.

 

 
8

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

      Identifiable intangible assets primarily include customer backlog, customer relationships, trade names and non-compete agreements. 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.

 

See Note 7 for further information on goodwill and identified intangibles.

 

 

Earnings Per Share

 

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. 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. In accordance with the FASB ASC 260, Earnings per Share, 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 three and nine months ended September 30, 2016 and 2015 exclude 434,082 and 411,893 non-vested restricted shares, respectively, issued since 2010. These non-vested restricted shares are not included in basic earnings per share until the vesting requirement is met. The weighted average number of shares outstanding in calculating diluted earnings per share for the three and nine months ended September 30, 2016 and 2015 includes, if outstanding, non-vested restricted shares and units, issuable shares related to acquisitions, and the shares and warrants associated with the Company’s initial public offering. In calculating diluted earnings per share for the three and nine months ended September 30, 2016 and 2015, there were no potentially anti-dilutive securities.

 

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 nine months ended September 30, 2016 and 2015:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 

Numerator:

                               

Net income – basic and diluted

  $ 3,404     $ 3,002     $ 8,318     $ 5,820  
                                 

Denominator:

                               

Basic weighted average shares outstanding

    9,941,517       7,516,063       8,826,090       6,454,158  

Effect of dilutive non-vested restricted shares and units

    203,997       314,930       209,032       379,429  

Effect of issuable shares related to acquisitions

    102,810       18,205       55,551       11,723  

Effect of warrants

    105,469       93,933       124,692       99,964  

Diluted weighted average shares outstanding

    10,353,793       7,943,131       9,215,365       6,945,274  

 

 

Note 3 – Recent Accounting Pronouncements

 

In March 2016, FASB issued Accounting Standards Update 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the requirements of ASU 2016-09 and have not yet determined its impact on our consolidated financial statements.

 

 
9

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 

In February 2016, FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this accounting standard update are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2018. We are currently evaluating the requirements of ASU 2016-02 and have not yet determined its impact on our consolidated financial statements.

 

In November 2015, FASB issued ASU 2015-17— Balance Sheet Classification of Deferred Taxes. As part of FASB's accounting simplification initiative, ASU 2015-17 removes the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Instead, the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for entities for fiscal years beginning after December 15, 2016, with prospective or retrospective application to all periods presented. Early application is permitted. The Company does not expect the impact of this ASU to be material to its consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU was originally effective for annual reporting periods beginning after December 15, 2016 and early adoption is permitted as of the original effective date. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU and management has not yet determined which method it will apply. In July 2015, FASB voted to approve a one-year deferral of the effective date to December 31, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. As a result, ASU 2014-09 will become effective for us in the first quarter of our fiscal year ending December 31, 2018. The Company is currently evaluating the impact of adopting ASU 2014-09 on the Company's consolidated net income, financial position and cash flows.

 

 

Note 4 – Business Acquisitions

 

On September 12, 2016, the Company acquired certain assets of Weir Environmental, L.L.C. (“Weir”), a New Orleans, Louisiana-based emergency remediation and environmental assessment firm. Weir also provides residential and commercial property loss consulting services. The purchase price of this acquisition was $1,000 including $300 in cash, $500 promissory note (bearing interest at 3.0%), payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition (see Note 9) and $200 of the Company’s common stock (6,140 shares) as of the closing date of the acquisition.

 

On May 20, 2016, the Company acquired Dade Moeller & Associates, Inc., a North Carolina corporation ("Dade Moeller"). Dade Moeller provides professional services in radiation protection, health physics, and worker safety to government and commercial facilities.  Dade Moeller's technical expertise includes radiation protection, industrial hygiene and safety, environmental services and laboratory consulting.  This acquisition expanded the Company’s environmental, health and safety services and allows the Company to offer these services on a broader scale within its existing network. The purchase price of this acquisition was $20,000 including $10,000 in cash, $6,000 in promissory notes (bearing interest at 3.5%), payable in four installments of $1,500, due on the first, second, third and fourth anniversaries of May 20, 2016, the effective date of the acquisition (see Note 9), $1,000 of the Company’s common stock (36,261 shares) as of the closing date of the acquisition, and $3,000 in stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Dade Moeller, we engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities, however as of the date of this report, the valuation was not final. We expect to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter of 2016.

 

 
10

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

On February 1, 2016, the Company acquired Sebesta, Inc. (“Sebesta”), a St. Paul, Minnesota-based mechanical, electrical and plumbing (“MEP”) engineering and energy management company. Primary clients include federal and state governments, power and utility companies, and major educational, healthcare, industrial and commercial property owners throughout the United States. The purchase price of this acquisition was $14,000 paid from cash on hand. This acquisition expanded the Company’s MEP engineering and energy and allows the Company to offer these services on a broader scale within its existing network. In addition, this acquisition strengthens the Company’s geographic diversification and allows the Company to continue expanding its national footprint. In order to ultimately determine the fair values of tangible and intangible assets acquired and liabilities assumed for Sebesta, we engaged a third-party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities.

 

On July 1, 2015, the Company acquired all of the outstanding equity interests of the RBA, a New Jersey based infrastructure engineering firm focused on the provision of transportation engineering, planning, and construction inspection, environmental engineering, civil engineering, surveying, and architecture services to public and private clients throughout the East Coast. The purchase price of up to $13,000 included $8,000 in cash, less $1,900 held back to cover liabilities associated with RBA’s deferred compensation plan which was paid to the RBA stockholders in July 2015, $4,000 promissory notes (bearing interest at the rate of 3.0% per annum), payable in four installments of $1,000, due on the first, second, third and fourth anniversaries of July 1, 2015, the effective date of the acquisition (see Note 9). The purchase price also included a non-interest bearing earn-out of up to $1,000 payable in cash or the Company’s common stock, subject to the achievement of certain agreed upon financial metrics for the years ended 2016 and 2017. The earn-out of $1,000 is non-interest bearing and was recorded at its estimated fair value of $406, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. As of September 30, 2016 and December 31, 2015, the fair value of this contingent consideration is approximately $533 and $446, respectively. Furthermore, at closing the Company assumed and paid off approximately $4,000 of RBA’s indebtedness.

 

On June 24, 2015, the Company acquired certain assets of Allwyn, an environmental services firm based in Phoenix, Arizona, that specializes in environmental assessment, radon mitigation, NEPA planning and permitting, NQA-1 compliance, geotechnical engineering, construction materials testing and inspection, and water resources projects. The purchase price of up to $1,300 included up to $800 in cash and a $500 promissory note (bearing interest at 3.5%), payable in three installments of $167, due on the first, second and third anniversaries of June 24, 2015, the effective date of the acquisition (see Note 9). 

 

On April 22, 2015, the Company acquired all of the outstanding equity interests of Mendoza, a San Francisco based program management firm, with seven offices throughout California, that specializes in the provision of construction program consulting services to public and private clients in the transportation and clean water/wastewater industries. The purchase price of up to $4,000 included up to $500 in cash, a $3,000 short-term promissory note, based on the collection of acquired accounts receivable and work in process, payable within one year, and a $500 promissory note (bearing interest at 3%), payable in two installments of $250, due on the first and second anniversaries of April 22, 2015, the effective date of the acquisition (see Note 9).

 

On January 30, 2015, the Company acquired all of the outstanding equity interests of Joslin, Lesser & Associates, Inc. (“JLA”), a program management and owner’s representation consulting firm that primarily services government owned facilities and public K through 12 school districts in the Boston, MA area. The purchase price of up to $5,500 included $2,250 in cash, a $1,250 promissory note (bearing interest at 3.5%), payable in four installments of $313, due on the first, second, third, and fourth anniversaries of January 30, 2015, the effective date of the acquisition (see Note 9), and $1,000 of the Company’s common stock (89,968 shares) as of the closing date of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $1,000 payable in cash, notes and the Company’s common stock, subject to the achievement of certain agreed upon metrics for calendar year 2015. The earn-out of $1,000 is non-interest bearing and was recorded at its estimated fair value of $901, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual. As of September 30, 2016 and December 31, 2015, this contingent consideration was $375 and $500, respectively.

 

 
11

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date for the acquisitions closed during 2016 and final fair values of the assets acquired and liabilities assumed as of the acquisition dates for the acquisitions closed during 2015:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 
                 

Cash

  $ 1     $ 1,033  

Accounts receivable

    8,807       16,050  

Property and equipment

    1,315       793  

Prepaid expenses

    474       457  

Other assets

    286       118  

Intangible assets:

               

Customer relationships

    10,669       5,833  

Trade name

    1,119       1,035  

Customer backlog

    1,663       1,510  

Non-compete

    224       613  

Favorable (unfavorable) lease

    (225 )     778  

Total Assets

    24,333       28,220  

Liabilities

    (5,328 )     (13,521 )

Deferred tax liabilities

    -       (2,238 )

Net assets acquired

    19,005       12,461  
                 

Consideration paid (Cash, Notes and/or stock)

    34,798       21,691  

Contingent earn-out liability (Cash and stock)

    -       1,307  

Total Consideration

    34,798       22,998  

Excess consideration over the amounts assigned to the net assets acquired (Goodwill)

  $ 15,793     $ 10,537  

 

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. The goodwill acquired during the nine months ended September 30, 2016 was assigned to the program management (the “PM”) reportable segment. Goodwill of approximately $15,199 is expected to be deductible for income tax purposes for the 2016 acquisitions.  

 

The consolidated financial statements of the Company for the three and nine months ended September 30, 2016 include the results of operations from the businesses acquired during 2016 from its date of acquisition to September 30, 2016. For the three and nine months ended September 30, 2016, the results include gross revenues of $12,363 and $27,481, respectively, and pre-tax income of approximately $1,108 and $2,560, respectively. The consolidated financial statements of the Company for the three and nine months ended September 30, 2015 include the results of operations from the businesses acquired during 2015 from their respective dates of acquisition to September 30, 2015. For the three and nine months ended September 30, 2015, the results include gross revenues of approximately $16,504 and $22,630, respectively and pre-tax income of $2,147 and $3,659, respectively. Included in general and administrative expense for the three and nine months ended September 30, 2016 is $8 and $439, respectively, of acquisition-related costs pertaining to the Company’s acquisition activities.

 

 
12

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

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 September 30, 2016 and 2015 as if the RBA, Sebesta and Dade Moeller acquisitions had occurred as of January 1, 2015. The pro forma information provided below is compiled from the financial statements of these acquisitions and includes pro forma adjustments for amortization expense, reduction in certain expenses and the income tax impact of these adjustments. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had these acquisitions operations actually been acquired on January 1, 2015; or (ii) future results of operations:

 

   

For the three months ended

   

For the nine months ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2016

   

2015

   

2016

   

2015

 

Gross revenues

  $ 60,091     $ 62,357     $ 172,777     $ 170,835  

Net income

  $ 3,404     $ 3,090     $ 8,508     $ 6,232  

Basic earnings per share

  $ 0.35     $ 0.44     $ 0.97     $ 0.97  

Diluted earnings per share

  $ 0.33     $ 0.41     $ 0.92     $ 0.90  

 

The Company determined that the Weir acquisition does not constitute a significant business combination individually. Therefore, pro forma financial statements are not required to be disclosed.

 

 

 Note 5 – Accounts Receivable, net

 

Accounts receivable, net, consists of the following:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 
                 

Billed

  $ 40,616     $ 32,806  

Unbilled

    24,861       15,678  

Contract retentions

    520       799  
                 
      65,997       49,283  

Less: allowance for doubtful accounts

    (1,895 )     (1,536 )

Accounts receivable, net

  $ 64,102     $ 47,747  

 

Billed accounts receivable represents amounts billed to clients that remain uncollected as of the balance sheet date. Unbilled accounts receivable represents recognized amounts pending billing pursuant to contract terms or accounts billed after period end, and are expected to be billed and collected within the next 12 months.

 

 
13

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

Note 6 – Property and Equipment, net

 

Property and equipment, net, consists of the following:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 
                 

Office furniture and equipment

  $ 1,328     $ 459  

Computer equipment

    3,612       3,165  

Survey and field equipment

    1,468       1,265  

Leasehold improvements

    1,568       1,165  
      7,976       6,054  

Accumulated depreciation

    (4,214 )     (2,963 )

Property and equipment – net

  $ 3,762     $ 3,091  

 

Depreciation expense was $416 and $257 for the three months ended September 30, 2016 and 2015, respectively, and $1,208 and $569 for the nine months ended September 30, 2016 and 2015, respectively.

 

 

 Note 7 – Goodwill and Intangible Assets

 

 

Goodwill

 

On August 1, 2016, 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, 2016. There were no indicators, events or changes in circumstances that would indicate goodwill was impaired during the period from August 2, 2016 through September 30, 2016.

 

The table set forth below shows the change in goodwill during the nine months ended September 30, 2016:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 

Balance as of the beginning of the year

  $ 21,679     $ 11,142  

Acquisitions

    15,793       10,537  

Balance as of the end of the period

  $ 37,472     $ 21,679  

 

Intangible Assets

 

Intangible assets, net, as of September 30, 2016 and December 31, 2015 consist of the following:

 

   

September 30, 2016

   

December 31, 2015

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Amount

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Amount

 

Customer relationships

  $ 23,282     $ (5,064 )   $ 18,218     $ 12,614     $ (3,643 )   $ 8,971  

Trade name

    3,382       (2,379 )     1,003       2,262       (1,626 )     636  

Customer backlog

    4,372       (2,028 )     2,344       2,709       (1,420 )     1,289  

Favorable lease

    553       (84 )     469       778       (44 )     734  

Non-compete

    1,510       (804 )     706       1,286       (549 )     737  

Total

  $ 33,099     $ (10,359 )   $ 22,740     $ 19,649     $ (7,282 )   $ 12,367  

 

Trade names are amortized on a straight-line basis over their estimated lives ranging from 1 to 3 years. Customer backlog and customer relationships are amortized on a straight-lines basis over estimated lives ranging from 1 to 9 years. Non-compete agreements are amortized on a straight-line basis over their contractual lives ranging from 4 to 5 years. Favorable lease is amortized on a straight-line basis over the remaining lease term of 9 years.

 

 
14

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

Amortization expense was $1,189 and $791 for the three months ended September 30, 2016 and 2015, respectively, and $3,077 and $1,877 for the nine months ended September 30, 2016 and 2015, respectively.

 

As of September 30, 2016, the future estimated aggregate amortization related to intangible assets is as follows:

 

Period ending September 30,

 
         

2017

  $ 4,488  

2018

    3,097  

2019

    2,768  

2020

    2,270  

2021

    1,979  

Thereafter

    8,138  

Total

  $ 22,740  

 

Note 8 – Accrued Liabilities

 

Accrued liabilities consist of the following:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 

Deferred rent

  $ 688     $ 615  

Payroll and related taxes

    2,334       3,131  

Professional liability reserve

    155       216  

Benefits

    1,303       639  

Accrued vacation

    5,029       2,994  

Other

    3,504       1,969  

Total

  $ 13,013     $ 9,564  

 

 

  Note 9 – Notes Payable and Other Obligations

 

Notes payable and other obligations consists of the following:

 

    September 30,     December 31,  
   

2016

   

2015

 
                 

Note Payable

  $ 397     $ 754  

Other Obligations

    2,733       -  

Uncollateralized promisory notes

    13,025       9,953  

Total Notes Payable and Other Obligations

    16,155       10,707  

Current portion of notes payable and other obligations

    (6,192 )     (4,347 )

Notes payable and other obligations, less current portion

  $ 9,963     $ 6,360  

 

 

 
15

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

 Credit Facility

 

On January 31, 2014, the Company entered into a Business Loan Agreement with Western Alliance Bank, an Arizona corporation (“Western Alliance”), as lender, which was amended on September 3, 2014 and provides for a two-year, $8,000 revolving credit facility (the “Credit Facility”). On July 20, 2015, the Company amended the Credit Facility to add additional subsidiary guarantors, establish a within-line facility of up to $1,000 for the issuance of standby letters of credit and extend the maturity date of the Credit Facility to May 31, 2016 from January 31, 2016. The interest rate was prime rate plus 0.50%, with a minimum of 3.75%. The Credit Facility contained certain financial covenants, including an annual maximum debt to tangible net worth ratio of 3.0:1.0 as of December 31, 2014 and for each annual period ending on the last day of each fiscal year thereafter. In addition, the Credit Facility contained an annual minimum debt service coverage ratio equal to 1.5:1.0 for each annual period ending on the last day of the fiscal year beginning December 31, 2013. The Credit Facility also contained financial reporting covenant provisions and other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type. The Credit Facility was guaranteed by the Company’s wholly-owned subsidiaries: (i) NV5 Holdings, (ii) NV5, Inc. (iii) NV5, LLC, (iv) JLA, and (v) RBA. As of September 30, 2016 and December 31, 2015, the Company was in compliance with the financial and reporting covenants. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Credit Facility was $0. Standby letters of credit outstanding were $146 as of September 30, 2016 and December 31, 2015.

 

 

Note Payable

 

The note held by the seller of Nolte Associates Inc. (the “Nolte Note”) is currently outstanding with a maturity date of July 29, 2017. The Nolte Note bears interest at the prime rate plus 1%, subject to a maximum rate of 7.0%. As of September 30, 2016 and December 31, 2015, the actual interest rate was 4.25%. Under the terms of the Nolte Note, as amended, the Company pays quarterly principal installments of approximately $100 plus interest. The Nolte Note is unsecured. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Nolte Note was approximately $397 and $754, respectively.

 

Other Obligations

 

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price allowed for the payment of $3,000 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016.

 

 

Uncollateralized Promissory Notes

 

On September 12, 2016, the Company acquired certain assets of Weir. The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the “Weir Note”) payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition. The outstanding balance of the Weir Note was $500 and $0 as of September 30, 2016 and December 31, 2015, respectively.

 

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the “Dade Moeller Notes”) payable in four equal payments of $1,500 each due on the first, second, third, and fourth anniversaries of May 20, 2016, the effective date of the acquisition. The outstanding balance of the Dade Moeller Notes was approximately $6,000 and $0 as of September 30, 2016 and December 31, 2015, respectively.

 

On July 1, 2015, the Company acquired all of the outstanding equity interests of RBA. The purchase price included an aggregate of $4,000 of uncollateralized promissory notes bearing interest at 3.0% (the “RBA Notes”) payable in four equal payments of $1,000 each due on the first, second, third, and fourth anniversaries of July 1, 2015, the effective date of the acquisition. The outstanding balance of the RBA Notes was $3,000 and $4,000 as of September 30, 2016 and December 31, 2015, respectively.

 

 
16

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

On June 24, 2015, the Company acquired certain assets of Allwyn Priorities, LLC. (“Allwyn”). The purchase price included an uncollateralized $500 promissory note bearing interest at 3.5% (the “Allwyn Note”) that is payable in three equal payments of $167 each due on the first, second and third anniversaries of June 24, 2015, the effective date of the acquisition. The outstanding balance of the Allwyn Note was $333 and $500 as of September 30, 2016 and December 31, 2015, respectively.

 

On April 22, 2015, the Company acquired all of the outstanding equity interests of Richard J. Mendoza, Inc. (“Mendoza”). The purchase price included an uncollateralized $3,000 short-term promissory note, based on the collection of acquired accounts receivable and work in process, payable within one year, and an uncollateralized $500 promissory note bearing interest at 3% (the “Mendoza Note”) that is payable in two equal payments of $250 each due on the first and second anniversaries of April 22, 2015, the effective date of the acquisition. The outstanding balance of the short-term promissory note was $0 and $278 as of September 30, 2016 and December 31, 2015, respectively, and for the Mendoza Note was $250 and $500 as of September 30, 2016 and December 31, 2015, respectively.

 

On January 30, 2015, the Company acquired all of the outstanding equity interests of JLA. The purchase price included an uncollateralized $1,250 promissory note bearing interest at 3.5% (the “JLA Note”) that is payable in four equal payments of $313 each due on the first, second, third, and fourth anniversaries of January 30, 2015, the effective date of the acquisition. The outstanding balance of the JLA Note was $938 and $1,250 as of September 30, 2016 and December 31, 2015, respectively.

 

On November 3, 2014, the Company acquired certain assets of the Buric Companies. The purchase price included an uncollateralized, 3% interest bearing promissory note in the aggregate principal amount of $300 (the “Buric Note”). The note is payable in three equal payments of $100 due on the first, second and third anniversaries of November 3, 2014, the effective date of the acquisition. The carrying value of the Buric Note was approximately $200 as of September 30, 2016 and December 31, 2015.

 

On June 30, 2014, the Company acquired certain assets of Owner’s Representative Services, Inc. (“ORSI”). The purchase price included an uncollateralized non-interest bearing promissory note in the aggregate principal amount of $450 (the “ORSI Note”) for which the Company has imputed interest at a rate of 3.75%. This note is payable in two equal payments of $225 due on the first and second anniversaries of June 30, 2014, the effective date of the acquisition. The carrying value of the ORSI Note was $0 and $225 as of September 30, 2016 and December 31, 2015, respectively.

 

On March 21, 2014, the Company acquired all of the outstanding equity interests of NV5, LLC (formerly known as AK Environmental, LLC.). The purchase price included an uncollateralized $3,000 promissory note bearing interest at 3.0% (the “AK Note”) that is payable in three equal payments of $1,000 each due on the first, second and third anniversaries of March 21, 2014, the effective date of the acquisition. The outstanding balance of the AK Note was $1,000 and $2,000 as of September 30, 2016 and December 31, 2015, respectively.

 

On January 31, 2014, the Company acquired certain assets of Air Quality Consulting Inc. (“AQC”). The purchase price included an uncollateralized non-interest bearing promissory note in the aggregate principal amount of $300 (the “AQC Note”) for which the Company has imputed interest at a rate of 3.75%. This note is payable in two equal payments of $150 each, due on the first and second anniversaries of January 31, 2014, the effective date of the acquisition. As of September 30, 2016 and December 31, 2015, the carrying value of the AQC Note was $0 and $150, respectively.

 

On April 30, 2013, the Company acquired certain assets and assumed certain liabilities of Consilium Partners. The purchase price included an uncollateralized promissory note in the aggregate principal amount of $200, bearing interest at 4.0%, payable in three equal payments of approximately $67 each, and due on the first, second and third anniversaries of April 30, 2013, the effective date of the acquisition. The outstanding balance of this note was approximately $0 and $67 as of September 30, 2016 and December 31, 2015, respectively.

 

 
17

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

      Future contractual maturities of long-term debt as of September 30, 2016, are as follows:

 

Period ending September 30,

 
         

2017

  $ 6,192  

2018

    4,440  

2019

    3,901  

2020

    1,622  

Total

  $ 16,155  

 

 

As of September 30, 2016 and December 31, 2015, 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.

 

 

Note 10 – Contingent Consideration

 

The following table summarizes the changes in the carrying value of estimated contingent consideration:

 

   

September 30,

   

December 31,

 
   

2016

   

2015

 
                 

Contingent consideration, beginning of the year

  $ 1,279     $ 941  

Additions for acquisitions

    -       1,306  

Reduction of liability for payments made

    (458 )     (633 )

Increase (reduction) of liability related to re-measurement of fair value

    88       (335 )

Total contingent consideration, end of the period

    909       1,279  

Current portion if contingent consideration

    (442 )     (458 )

Contingent consideration, less current portion

  $ 467     $ 821  

 

 Note 11 – Commitments and Contingencies

 

Litigation, Claims and Assessments

 

The Company is subject to certain claims and lawsuits typically filed against the engineering, consulting and construction profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

 

The Company’s office leases are classified as operating leases and rent expense is included in facilities and facilities related expense in the Company’s consolidated statements of net income and comprehensive income. Some lease terms include rent and other concessions and rent escalation clauses which are included in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The variance of rent expense recognized from the amounts contractually due pursuant to the underlying leases is included in accrued liabilities in the Company’s consolidated balance sheets.

 

 
18

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

Note 12 – Stock-Based Compensation

 

In October 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan, which was subsequently amended and restated in March 2013 (as amended, the “2011 Equity Plan”). The 2011 Equity Plan provides directors, executive officers, and other employees of the Company with additional incentives by allowing them to acquire ownership interest in the business and, as a result, encouraging them to contribute to the Company’s success. The Company may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As of September 30, 2016, 685,115 shares of common stock are authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, by an amount equal to the smaller of (i) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Company’s Board of Directors. The restricted shares of common stock granted generally provide for service-based vesting after two to four years following the grant date. A summary of the changes in unvested shares of the restricted stock during the year ended September 30, 2016 is presented below.

 

The following table summarizes the status of restricted stock awards as of September 30, 2016 and December 31, 2015, and changes during 2016:

 

   

Number of Unvested Restricted Shares of

Common Stock and

Restricted Stock

Units

   

Weighted Average

Grant Date Fair

Value

 
                 

Unvested shares as of January 1, 2016

    430,816     $ 13.08  

Granted

    132,048     $ 23.98  

Vested

    (99,972 )   $ 8.12  

Forfeited

    (15,590 )   $ 16.83  

Unvested shares as of September 30, 2016

    447,302     $ 17.35  

 

Share-based compensation expense relating to restricted stock awards during the three months ended September 30, 2016 and 2015 was $655 and $563, respectively, and for the nine months ended September 30, 2016 and 2015 was $1,704 and $1,229, respectively. Approximately $4,852 of deferred compensation, which is expected to be recognized over the remaining weighted average vesting period of 2.2 years, is unrecognized at September 30, 2016.

 

 

Note 13 – Income Taxes

 

As of September 30, 2016 and December 31, 2015, the Company had net current deferred income tax assets of $1,446 and $1,440, respectively, and non-current deferred tax liabilities of $1,727 and $1,582, respectively. No valuation allowance against the Company’s net deferred income tax assets is needed as of September 30, 2016 and December 31, 2015 as it is more-likely-than-not that the positions will be realized upon settlement. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where the Company has a future obligation for tax purposes. During the three and nine months ended September 30, 2016, the Company did not record any deferred tax assets or liabilities in conjunction with the purchase price allocation of acquisitions as a result of the intangibles acquired.

 

The Company’s consolidated effective income tax rate was 36.9% and 36.8% for the three and nine months ended September 30, 2016, respectively. The Company’s consolidated effective income tax rate was 38.3% and 37.5% for the three and nine months ended September 30, 2015, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate of approximately 39.0% is principally due to the federal domestic production activities deduction.

 

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”) is challenging the use of certain research and development tax credits generated and included on the tax returns of an acquired company for the years 2005 to 2009. Fiscal years 2005 through 2015 are considered open tax years in the State of California and 2012 through 2015 in the U.S. federal jurisdiction and other state jurisdictions.

 

 
19

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

 At September 30, 2016 and December 31, 2015, the Company had $570 of unrecognized tax benefits. Included in the balance of unrecognized tax benefits at September 30, 2016 and December 31, 2015 were $570 of tax benefits that, if recognized, would affect our effective tax rate. It is not expected that there will be a significant change in the unrecognized tax benefits in the next 12 months.

 

 

Note 14 – Reportable Segments

 

The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting” (“Topic No. 280”). As of September 30, 2016, the Company continues to report based on the following reportable segments:

 

Infrastructure, engineering and support services (INF): The INF reportable segment provides to clients a broad array of services in the area of engineering, design and support services; and energy services.

 

Construction quality assurance (CQA): The CQA reportable segment provides construction inspection; geotechnical and engineering services; construction claims and litigation services; and environmental quality testing services.

 

Program management services (PM): The PM reportable segment provides program management for transportation and vertical construction projects including construction management. Also currently included in PM are 2016 acquisitions of Sebesta and Dade Moeller.

 

        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. We account for inter-segment revenues and transfers as if the sales and transfers were to third parties. All significant intercompany balances and transactions are eliminated in consolidation.

 

 
20

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

 

The following tables set forth summarized financial information concerning our reportable segments. Prior period segment financial information presented has been recast to reflect the reporting structure as evaluated during the fourth quarter of 2015:

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30

   

September 30

   

September 30

   

September 30

 
                         
   

2016

   

2015

   

2016

   

2015

 

Gross revenues

                               

INF

  $ 27,837     $ 27,012     $ 79,435     $ 61,231  

CQA

    8,279       8,635       23,569       21,310  

PM

    25,443       13,275       61,535       30,828  

Elimination of inter- segment revenues

    (1,468 )     (221 )     (3,651 )     (1,034 )

Total gross revenues

  $ 60,091     $ 48,701     $ 160,888     $ 112,335  
                                 
                                 

Income before taxes

                               

INF

  $ 3,745     $ 3,645     $ 11,243     $ 7,564  

CQA

    1,617       1,769       4,153       3,791  

PM

    4,407       2,676       9,887       6,912  

Total Segment income before taxes

    9,769       8,090       25,283       18,267  

Corporate (1)

    (4,375 )     (3,221 )     (12,118 )     (8,955 )

Total income before taxes

  $ 5,394     $ 4,869     $ 13,165     $ 9,312  

 

 

(1)

Includes amortization of intangibles of $1,189 and $791 for the three months ended September 30, 2016 and 2015 respectively, and $3,077 and $1,877 for the nine months ended September 30, 2016 and 2015. respectively.

 

Note 15 – Subsequent Events

 

On October 26, 2016, the Company acquired all of the outstanding equity interests of the JBA Consulting Engineers, Inc. (“JBA”), a Las Vegas, Nevada-based MEP engineering, acoustics, technology, and fire protection consulting firm. The acquisition of JBA will expand and strengthen the Company’s existing energy and environmental platform by introducing our professionals to new clients and making new services available to our existing clients. The purchase price of this acquisition was $23,000 including $12,000 in cash paid at closing, $7,000 in promissory notes (bearing interest at 3.5%), payable in five installments of $1,400, due on the first, second, third, fourth and fifth anniversaries of October 26, 2016, the effective date of the acquisition, $1,400 of the Company’s common stock (44,947 shares) as of the closing date of the acquisition, $2,600 in stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two installments of $1,300, due on the first and second anniversaries of October 26, 2016, and an undertaking to issue by January 24, 2017, an equivalent number of shares of restricted common stock equal to an aggregate of $2,000, to be granted to certain key employees of JBA selected in the Company’s sole discretion and vesting over a period of four years.

 

Under the acquisition method of accounting, the Company will recognize the assets acquired and the liabilities assumed at their fair values and will record an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company expects goodwill will be recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and the amount attributable to the reputation of the businesses acquired, the workforce in place and the synergies to be achieved from these acquisitions. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed, the Company will engage a third party independent valuation specialist to assist in the determination of fair values of tangible and intangible assets acquired and liabilities of JBA. The initial accounting for this acquisition is incomplete at this time due to the recent closing of this transaction. The Company expects to establish a preliminary purchase price allocation with respect to this transaction by the end of the fourth quarter of 2016.

 

 
21

 

 

NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data) 

 

On October 14, 2016, NV5 Global, Inc. (the “Company”) entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”). Pursuant to the Commitment Letter, Bank of America has agreed to be the sole administrative agent for a five-year $80,000 Senior Secured Revolving Credit Facility (“Senior Credit Facility”) to the Company and has committed to lend to the Company all of the Senior Credit Facility, subject to certain terms and conditions. MLPFS has undertaken to act as sole lead arranger and sole book manager for the Senior Credit Facility and to use its best efforts to form a syndicate of financial institutions for the Senior Credit Facility (including Bank of America). In addition, the Senior Credit Facility will include an accordion feature permitting the Company to request an increase in the Senior Credit Facility by an additional amount of up to $60,000. The Senior Credit Facility will include a $5,000 sublimit for the issuance of standby letters of credit and a $15,000 sublimit for swingline loans. The proceeds of the Senior Credit Facility are intended to be used (i) to finance permitted acquisitions, (ii) for capital expenditures, and (iii) for general corporate purposes. The Company will pay customary fees, costs and expenses in connection with obtaining the Senior Credit Facility. The Commitment Letter expires on November 30, 2016, unless definitive documentation for the Senior Credit Facility is executed and delivered prior to such date.

 

 
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” 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 December 31, 2015, included in our Annual Report on Form 10-K (File No. 001-35849). This Quarterly Report on Form 10-Q 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 for the year ended December 31, 2015 and 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 presented are in 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, energy, construction, real estate, and environmental markets. We primarily focus on five business verticals - construction quality assurance, infrastructure, energy, program management, and environmental solutions. 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, energy, and public utilities, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large to small energy producers.

 

 

Recent Acquisition, Developments and Challenges

 

 Acquisitions.

 

On October 26, 2016, we acquired all of the outstanding equity interests of the JBA Consulting Engineers, Inc. (“JBA”), a Las Vegas, Nevada-based MEP engineering, acoustics, technology, and fire protection consulting firm. We believe that the acquisition of JBA will expand and strengthen our existing energy and environmental platform by introducing our professionals to new clients and making new services available to our existing clients. The purchase price of this acquisition was $23,000 including $12,000 in cash paid at closing, $7,000 in promissory notes (bearing interest at 3.5%), payable in five installments of $1,400, due on the first, second, third, fourth and fifth anniversaries of October 26, 2016, the effective date of the acquisition, $1,400 of the Company’s common stock (44,947 shares) as of the closing date of the acquisition, $2,600 in stock or a combination of cash and shares of our common stock, at our discretion, payable in two installments of $1,300, due on the first and second anniversaries of October 26, 2016, and an undertaking to issue by January 24, 2017, an equivalent number of shares of restricted common stock equal to an aggregate of $2,000, to be granted to certain key employees of JBA selected in our sole discretion and vesting over a period of four years.

 

On September 12, 2016, we acquired certain assets of Weir Environmental, L.L.C. (“Weir”), a New Orleans, Louisiana-based emergency remediation and environmental assessment firm. Weir also provides residential and commercial property loss consulting services. The purchase price of this acquisition was $1,000 including $300 in cash, $500 promissory note (bearing interest at 3.0%), payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition and $200 of our common stock (6,140 shares) as of the closing date of the acquisition.

 

On February 1, 2016, we acquired Sebesta, Inc. (“Sebesta”), a St. Paul, Minnesota-based mechanical, electrical and plumbing (“MEP”) engineering and energy management company. Primary clients include federal and state governments, power and utility companies, and major educational, healthcare, industrial and commercial property owners throughout the United States. The purchase price of this acquisition was $14,000 paid from cash on hand.

 

 
23

 

 

On May 20, 2016, we closed on the acquisition of Dade Moeller & Associates, Inc. (“Dade Moeller”), a Richland, Washington-based environmental health and safety firm. Dade Moeller specializes in the provision of radiation exposure and protection services as well as nuclear safety and industrial hygiene analyses, a discipline in which they have built a significant federal government client base. The purchase price of this acquisition was $20,000 including $10,000 in cash, $6,000 in promissory notes (bearing interest at 3.0%), payable in four installments of $1,500, due on the first, second, third and fourth anniversaries of May 20, 2016, the effective date of the acquisition, $1,000 of our common stock (36,261 shares) as of the closing date of the acquisition, and $3,000 in shares of our stock or a combination of cash and shares of our stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016.

 

 

Equity Transactions.

 

On May 13, 2016, we priced a secondary offering of 1,700,000 shares of our common stock (the “Firm Shares”). Each share was sold at an offering price of $26.25 per share. The shares sold were registered under the Securities Act of 1933, as amended (the “Securities Act”), on an effective registration statement on Form S-3 (Registration No. 333-206644) pursuant to the Securities Act. In addition, we granted the underwriters of this secondary offering a 30-day option to purchase an additional 255,000 shares (the “Option Shares”) of common stock to cover over-allotments. On May 18, 2016, we closed on the Firm Shares for which we received net proceeds of approximately $41,000 after deducting the underwriting discount and estimated offering expenses payable by us and issued 1,700,000 shares. On June 3, 2016, we closed on the full exercise of the Option Shares by the underwriters of the secondary offering with respect to an additional 255,000 shares of our common stock, for which we received net proceeds of approximately $6,200 after deducting the underwriters discount.

 

Warrant exercise.

 

In conjunction with the Company’s initial public offering on March 26, 2013, the underwriter received a warrant to acquire up to 140,000 units at an exercise price of $7.80 per unit (“Unit Warrant”).  Each of these units consisted of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price of $7.80 per share, which warrant expires on March 27, 2018. On March 23, 2016, the underwriter paid $1,008 to the Company to initiate the exercise of the Unit Warrant.  On March 29, 2016, the Company delivered 140,000 shares of common stock to the underwriter, and, on May 5, 2016, the Company completed the exercise of the Unit Warrant by delivery of the warrant. 

 

Tax credit.

 

The California Franchise Tax Board (“CFTB”) is challenging the use of certain research and development tax credits generated and included on the tax returns of an acquired company for the years 2005 to 2009. Fiscal years 2005 through 2015 are considered open tax years in the State of California and 2012 through 2015 in the U.S. federal jurisdiction and other state jurisdictions. At September 30, 2016 and December 31, 2015, the Company had $570 of unrecognized tax benefits.

 

 Backlog.  

 

As of September 30, 2016, we had approximately $205,000 of gross revenue backlog expected to be recognized over the next 12 months compared to gross revenue backlog of approximately $155,300 as of December 31, 2015. We include in backlog only those contracts for which funding has been provided and work authorizations have been received. We cannot guarantee that the revenue projected in our backlog will be realized or, if realized, will result in profits. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in our backlog. For example, certain of our contracts with the U.S. federal government and other clients are terminable at the discretion of the client, with or without cause. These types of backlog reductions could adversely affect our revenue and margins. Accordingly, our backlog as of any particular date is an uncertain indicator of our future earnings.

 

Most of our government contracts are multi-year contracts for which funding are appropriated on an annual basis. With respect to such government contracts, our backlog includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. In the case of non-government contracts, our backlog includes future revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in backlog to the extent of the remaining estimated amount. We calculate backlog without regard to possible project reductions or expansions or potential cancellations until such changes or cancellations occur.

 

 
24

 

 

Backlog is expressed in terms of gross revenue and, therefore, may include significant estimated amounts of third-party or pass-through costs to subcontractors and other parties. Moreover, our backlog for the period beyond 12 months may be subject to variations from year-to-year as existing contracts are completed, delayed, or renewed or new contracts are awarded, delayed, or cancelled. As a result, we believe that year-to-year comparisons of the portion of backlog expected to be performed more than one year in the future are difficult to assess and not necessarily indicative of future revenues or profitability. Because backlog is not a defined accounting term, our computation of backlog may not necessarily be comparable to that of our industry peers.

 

 Segments.  

 

As of September 30, 2016, we continue to report based on the following reportable segments:

 

Infrastructure, engineering and support services (INF): The INF reportable segment provides to clients a broad array of services in the area of engineering, design and support services; and energy services.

 

Construction quality assurance (CQA): The CQA reportable segment provides construction inspection; geotechnical and engineering services; construction claims and litigation services; and environmental quality testing services.

 

Program management services (PM): The PM reportable segment provides program management for transportation and vertical construction projects including construction management. Also currently included in PM are 2016 acquisitions of Sebesta and Dade Moeller.

 

Components of Income and Expense

 

Revenues

 

 We enter into contracts with our clients that contain two principal types of pricing provisions: cost-reimbursable and fixed-price. The majority of our contracts are cost-reimbursable contracts that fall under the relatively low-risk subcategory of time and materials contracts.

 

Cost-reimbursable contracts. Cost-reimbursable contracts consist of two similar contract types: time and materials contracts and cost-plus contracts.

 

 

Time and materials contracts are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have a fixed-price element in the form of an initial not-to-exceed or guaranteed maximum price provision.

 

 

Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. These contracts provide for reimbursement of the actual costs and overhead (predetermined rates) we incur, plus a predetermined fee. Under some cost-plus contracts, our fee may be based on quality, schedule, and other performance factors.

 

 

For the nine months ended September 30, 2016 and 2015, cost-reimbursable contracts represented approximately 86% and 93%, respectively, of our total revenues.

 

Fixed-price contracts.

 

Fixed-price contracts also consist of two contract types: lump-sum contracts and fixed-unit price contracts.

 

 

• 

Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of our lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables.

 

• 

Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed.

 

 
25

 

 

For the nine months ended September 30, 2016 and 2015, fixed-price contracts represented approximately 14% and 7%, respectively, of our total revenues.

 

Revenues from engineering services are recognized in accordance with the accrual basis of accounting. Revenues under cost-reimbursable contracts are recognized when services are performed and revenues from fixed-price contracts are recognized on the percentage-of-completion method, generally measured by the direct costs incurred to date as compared to the estimated total direct costs for each contract.

 

      Direct Costs of Revenues

 

Direct costs of revenues consist primarily of that portion of technical and non-technical salaries and wages incurred in connection with fee generating projects. Direct costs of revenues also include production expenses, sub-consultant services, and other expenses that are incurred in connection with our fee generating projects. Direct costs of revenues exclude that portion of technical and non-technical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. Additionally, payroll taxes, bonuses, and employee benefit costs for all of our personnel, facilities costs, and depreciation and amortization are included in operating expenses since no allocation of these costs is made to direct costs of revenues. We expense direct costs of revenues when incurred.

 

Operating Expenses

 

Operating expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of revenues for those employees who provide our services. Operating expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees, and administrative operating costs. We expense operating costs when incurred.

 

 

 Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)

 

 

We are an emerging growth company within the meaning of the rules under the Securities Act, and could remain for up to five years. We will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. The JOBS Act also permits us, as an “emerging growth company,” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by issuers. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

Critical Accounting Policies and Estimates

 

 

The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements. Our estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in our consolidated financial statements relate to the fair value estimates used in accounting for business combinations including the valuation of identifiable intangible assets and contingent consideration, fair value estimates in determining the fair value of its reporting units for goodwill impairment assessment, revenue recognition on the percentage-of-completion method, allowances for uncollectible accounts and provision for income taxes. During the nine months ended September 30, 2016, we did not experience any significant changes in estimates or judgments inherent in the preparation of our consolidated financial statements. A summary of our significant accounting policies is contained in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 
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Results of Operations

 

 

Consolidated Results of Operations

 

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

 

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Gross revenues

  $ 60,091     $ 48,701     $ 160,888     $ 112,335  

Less sub-consultant services and other direct costs

    (12,161 )     (10,314 )     (30,455 )     (23,426 )
                                 

Net revenues (1)

    47,930       38,387       130,433       88,909  

Direct salary and wages costs

    (20,274 )     (16,856 )     (53,744 )     (39,122 )
                                 

Gross profit

    27,656       21,531       76,689       49,787  
                                 

Operating expenses

    22,181       16,584       63,303       40,295  
                                 

Income from operations

    5,475       4,947       13,386       9,492  
                                 

Other expense (net)

    (81 )     (78 )     (221 )     (180 )
                                 

Income tax expense

    (1,990 )     (1,867 )     (4,847 )     (3,492 )
                                 

Net income

  $ 3,404     $ 3,002     $ 8,318     $ 5,820  

___________________________________________________

 

(1)

Net Revenues is not a measure of financial performance under GAAP. Gross revenues include sub-consultant costs and other direct costs which are generally pass-through costs. The Company believes that Net Revenues, which is a non-GAAP financial measure commonly used in our industry, which enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

 

 

Three and Nine Months Ended September 30, 2016 compared to the Three and Nine Months Ended September 30, 2015

 

Gross and Net Revenues.

 

Our consolidated gross revenues increased approximately $11,390 and $48,553 or approximately 23.4% and 43.2%, for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. Our consolidated net revenues increased approximately $9,543 and $41,524 or approximately 24.9% and 46.7%, for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. The increases in gross and net revenues are due primarily to organic growth from our existing platform as well as the contribution from various acquisitions completed in 2015 and the nine months ended September 30, 2016. The increase in gross revenues for the three and nine months ended September 30, 2016, includes gross revenues of $12,363 and $27,363, respectively, related to acquisitions closed during 2016. The increase in net revenues for the three and nine months ended September 30, 2016, includes net revenues of $11,398 and $24,945, respectively, related to acquisitions closed during 2016. Also contributing to the increases in net revenues for the nine months ended September 30, 2016 is an increased utilization of our billable employees and reduction of sub-consultants used to perform services in 2016. The growth in revenues was primarily attributable to increases in energy distribution services; construction materials testing and engineering services; and program and construction management services. However, the increases in gross and net revenues during the three and nine months ended September 30, 2016 were partially offset by reductions in revenues related to the short-term project delays in from infrastructure projects and slowdown in our pipeline transmission business. We are currently unaware of any long-term delays in current projects and therefore are not anticipating such to influence future revenues. Such revenues could be affected by changes in economic conditions and the impact thereof on our public and quasi-public sector funded projects.

 

 
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Gross Profit.

 

As a percentage of gross revenues, our gross profit margin was 46.0% and 44.2%, for the three months ended September 30, 2016 and 2015, respectively. As a percentage of gross revenues, our gross profit margin was 47.7% and 44.3%, for the nine months ended September 30, 2016 and 2015, respectively. The improved gross profit margins were due primarily to reduction of sub-consultants used to perform services. Gross profit includes direct costs of contracts such as direct labor and all costs incurred in connection with and directly for the benefit of client contracts. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors, including the amount of sub-consultant costs we incur during a period. On those projects where we are responsible for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both gross revenues and costs. To the extent that we incur a significant amount of pass-through costs in a period, our direct costs of contracts are likely to increase as well.

 

 

Operating expenses.

 

Our operating expenses increased approximately $5,597 and $23,008, or 33.7% and 57.1%, for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. The increases in operating expenses were due primarily to integration costs from businesses acquired subsequent to September 30, 2015. The increases in operating expenses for the three and nine months ended September 30, 2016, include operating expenses of $5,851 and $13,273, respectively, related to acquisitions closed during 2016. During the three and nine months ended September 30, 2016, acquisition related expenses were approximately $8 and $439, respectively, compared to approximately $327 and $716, during the three and nine months ended September 30, 2015. Also contributing to the increase in operating costs is the increased amortization of intangible assets. During the three and nine months ended September 30, 2016, amortization of intangible assets was approximately $1,189 and $3,077, respectively, compared to $791 and $1,877, during the three and nine months ended September 30, 2015, respectively. Operating expenses typically fluctuate as a result of changes in headcount (both corporate and field locations) and the amount of spending required to support our professional services activities, which normally require additional overhead costs. Therefore, when our professional services revenues increase or decrease, it is not unusual to see a corresponding change in operating expenses.

 

      Income taxes.

 

Our consolidated effective income tax rate was 36.9% and 36.8% for the three and nine months ended September 30, 2016, respectively. Our consolidated effective income tax rate was 38.3% and 37.5% for the three and nine months ended September 30, 2015, respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate of approximately 39.0% is principally due to the federal domestic production activities deduction.

 

 
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Segment Results of Operations

 

The following tables set forth summarized financial information concerning our reportable segments (dollars in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30

   

September 30

   

September 30

   

September 30

 
                         
   

2016

   

2015

   

2016

   

2015

 

Gross revenues

                               

INF

  $ 27,837     $ 27,012     $ 79,435     $ 61,231  

CQA

    8,279       8,635       23,569       21,310  

PM

    25,443       13,275       61,535       30,828  

Elimination of inter- segment revenues

    (1,468 )     (221 )     (3,651 )     (1,034 )

Total gross revenues

  $ 60,091     $ 48,701     $ 160,888     $ 112,335  
                                 
                                 

Income before taxes

                               

INF

  $ 3,745     $ 3,645     $ 11,243     $ 7,564  

CQA

    1,617       1,769       4,153       3,791  

PM

    4,407       2,676       9,887       6,912  

Total Segment income before taxes

    9,769       8,090       25,283       18,267  

Corporate

    (4,375 )     (3,221 )     (12,118 )     (8,955 )

Total income before taxes

  $ 5,394     $ 4,869     $ 13,165     $ 9,312  

 

(1) Includes amortization of intangibles of $1,189 and $791 for the three months ended September 30, 2016 and 2016, respectively, and $3,077 and $1,877 for the nine months ended September 30, 2016 and 2015, respectively.

 

Three and Nine Months Ended September 30, 2016 compared to the Three and Nine Months Ended September 30, 2015

 

Our gross revenues from INF reportable segment increased approximately $825 and $18,204, or 3.1% and 29.7% for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The increase in revenues for the three and nine months ended reflects increases in energy distribution services and transportation services and the acquisition of RBA in 2015, partially offset by reductions in gross revenues related to the slowdown in our pipeline transmission business.

 

Segment Income Before Taxes from INF increased $100 and increased $3,679, or 2.7% and 48.6%, for the three and nine months ended September 30, 2016 compared to the same periods in 2015. These increases were primarily due to increased revenues from organic growth, contributions from acquisitions completed in 2015 for a full period in 2016 as well as a reduction of sub-consultants used to perform services.

 

Our gross revenues from CQA reportable segment decreased approximately $356 and increased $2,259, or 4.3% and 10.6% for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The growth in revenues from CQA was primarily attributable to increases in construction materials testing and engineering services partially offset by reductions in revenues from environmental engineering services.

 

Segment Income Before Taxes from CQA decreased $152 and increased $362, or 8.6% and 9.5%, for the three and nine months ended September 30, 2016 compared to the same periods in 2015. These changes were primarily due to the changes in revenues for the respective periods as well as reductions of sub-consultants used to perform services.

 

 
29

 

 

Our gross revenues from PM reportable segment increased approximately $12,168 and $30,707, or 91.7% and 99.6%, for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The increases during the three and nine months ended September 30, 2016 includes $12,363 and $27,363, respectively, related to acquisitions closed during 2016. Excluding revenues from acquisitions closed during the three and nine months ended September 30, 2016, our revenues from PM decreased approximately $195 and increased $3,226, or 1.5% and 10.5%, for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The growth in revenues from PM was primarily attributable to increases in civil and facilities program management and construction management services, partially offset by reductions during the three months ended September 30, 2016 in revenues from program management services for transportation projects.

 

Segment Income Before Taxes from PM increased $1,731 and $2,975, or 64.7% and 43.0% for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The increase in operating income from PM is primarily due to increased revenues from organic growth and from the contributions from acquisitions completed in 2016.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, lines of credit, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition expenditures. We believe our sources of liquidity, including cash flow from operations, existing cash and cash equivalents, which include proceeds from our initial public offering, proceeds from the exercise of warrants issued in connection therewith, proceeds from our secondary offerings, and borrowing capacity under our 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.

 

We believe our experienced employees and management team are our most valuable resources. Attracting, training, and retaining key personnel have been and will remain critical to our success. To achieve our human capital goals, we intend to remain focused on providing our personnel with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our service offerings.

 

Cash Flows

 

As of September 30, 2016, our cash and cash equivalents totaled $53,066 and accounts receivable, net of allowance for doubtful accounts, totaled $64,102, compared to $23,476 and $47,747, respectively, on December 31, 2015. As of September 30, 2016, our accounts payable and accrued liabilities were $11,632 and $13,013, respectively, compared to $6,658 and $9,564, respectively, on December 31, 2015. Also, as of September 30, 2016, we had notes payable and other obligations and contingent consideration of $16,155 and $908, respectively, compared to $10,707 and $1,279, respectively, on December 31, 2015. Increases in accounts receivable, accounts payable and accrued liabilities is a result of growth of the business and the acquisitions closed in 2016 and 2015.

 

Operating activities.

 

For the nine months ended September 30, 2016, net cash provided by operating activities amounted to $10,686, primarily attributable to net income of $8,318, which included non-cash charges of $5,989 from stock based compensation and depreciation and amortization, and increases of $3,368 in accounts payable and accrued liabilities partially offset by an increase of $7,795 in accounts receivable. During 2016, we made income tax payments of approximately $4,642.   

 

For the nine months ended September 30, 2015, net cash used in operating activities amounted to $368, primarily attributable to net income of $5,820, which included non-cash charges of $3,675 stock based compensation and depreciation and amortization, and decreases of $83 in accounts payable and accrued liabilities partially offset by increases of $10,122 in accounts receivable. During 2015, we made income tax payments of $2,114.   

 

 

Investing activities.

 

For the nine months ended September 30, 2016, net cash used in investing activities amounted to $24,954, primarily resulting from cash used for our acquisitions during 2016 of $24,388 and the purchase of property and equipment of $566 for our ongoing operations.

 

For the nine months ended September 30, 2015, net cash used in investing activities amounted to $10,855, primarily resulting from cash used for our acquisitions during 2015 of $10,427 and the purchase of property and equipment of $428 for our ongoing operations.

 

 
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Financing activities.

 

For the nine months ended September 30, 2016, net cash provided by financing activities amounted to $43,858, primarily due to the net proceeds from the secondary offering of $47,147 and the unit warrant exercise of $1,008 offset by principal repayments of $4,156 towards long-term debt and $296 towards contingent consideration.

 

For the nine months ended September 30, 2015, net cash provided by financing activities amounted to $24,796, primarily due to the proceeds from the secondary offering of $29,419 and the warrant exercise of $3,186 offset by principal repayments of $7,660 towards long-term debt, $533 towards the contingent obligation and $935 in stock repurchase obligations.

 

 

Financing

 

On October 14, 2016, we entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”). Pursuant to the Commitment Letter, Bank of America has agreed to be the sole administrative agent for a five-year $80,000 Senior Secured Revolving Credit Facility (“Senior Credit Facility”) to us and has committed to lend to the Company all of the Senior Credit Facility, subject to certain terms and conditions. Additionally, MLPFS has undertaken to act as sole lead arranger and sole book manager for the Senior Credit Facility and to use its best efforts to form a syndicate of financial institutions for the Senior Credit Facility (including Bank of America) (the “Lenders”). In addition, the Senior Credit Facility will include an accordion feature permitting us to request an increase in the Senior Credit Facility by an additional amount of up to $60,000. The Senior Credit Facility will include a $5,000 sublimit for the issuance of standby letters of credit and a $15,000 sublimit for swingline loans. The proceeds of the Senior Credit Facility are intended to be used (i) to finance permitted acquisitions, (ii) for capital expenditures, and (iii) for general corporate purposes. We will pay customary fees, costs and expenses in connection with obtaining the Senior Credit Facility. The Commitment Letter expires on November 30, 2016, unless definitive documentation for the Senior Credit Facility is executed and delivered prior to such date.

 

 

Credit Facility

 

On January 31, 2014, we entered into a Business Loan Agreement with Western Alliance Bank, an Arizona corporation (“Western Alliance”), as lender, which was amended on September 3, 2014 and provides for a two-year, $8,000 revolving credit facility (the “Credit Facility”). On July 20, 2015, we amended the Credit Facility to add additional subsidiary guarantors, establish a within-line facility of up to $1,000 for the issuance of standby letters of credit and extend the maturity date of the Credit Facility to May 31, 2016 from January 31, 2016. The interest rate was prime rate plus 0.50%, with a minimum of 3.75%. The Credit Facility contained certain financial covenants, including an annual maximum debt to tangible net worth ratio of 3.0:1.0 as of December 31, 2014 and for each annual period ending on the last day of each fiscal year thereafter. In addition, the Credit Facility contained an annual minimum debt service coverage ratio equal to 1.5:1.0 for each annual period ending on the last day of the fiscal year beginning December 31, 2013. The Credit Facility also contained financial reporting covenant provisions and other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type. The Credit Facility was guaranteed by our wholly-owned subsidiaries: (i) NV5 Holdings, (ii) NV5, Inc. (iii) NV5, LLC, (iv) JLA, and (v) RBA. As of September 30, 2016 and December 31, 2015, we were in compliance with the financial and reporting covenants. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Credit Facility was $0. Standby letters of credit outstanding were $146 as of September 30, 2016 and December 31, 2015.

 

 

Note Payable

 

The note held by the seller of Nolte Associates Inc. (the “Nolte Note”) is currently outstanding with a maturity date of July 29, 2017. The Nolte Note bears interest at the prime rate plus 1%, subject to a maximum rate of 7.0%. As of September 30, 2016 and December 31, 2015, the actual interest rate was 4.25%. Under the terms of the Nolte Note, as amended, we pay quarterly principal installments of approximately $100 plus interest. The Nolte Note is unsecured. As of September 30, 2016 and December 31, 2015, the outstanding balance on the Nolte Note was approximately $397 and $754, respectively.

 

 
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Other Obligations

 

On May 20, 2016, we acquired all of the outstanding equity interests of Dade Moeller. The purchase price allowed for the payment of $3,000 in shares of our common stock or a combination of cash and shares our common stock, at our discretion, payable in three installments of $1,000, due on the first, second and third anniversaries of May 20, 2016.

 

 

Uncollateralized Promissory Notes

 

On October 26, 2016, we acquired all of the outstanding equity interests of the JBA Consulting Engineers, Inc. (“JBA”), a Las Vegas, Nevada-based MEP engineering, acoustics, technology, and fire protection consulting firm. We believe that the acquisition of JBA will expand and strengthen our existing energy and environmental platform by introducing our professionals to new clients and making new services available to our existing clients. The purchase price of this acquisition was $23,000 including $12,000 in cash paid at closing, $7,000 in promissory notes (bearing interest at 3.5%), payable in five installments of $1,400, due on the first, second, third, fourth and fifth anniversaries of October 26, 2016, the effective date of the acquisition, $1,400 of our common stock (44,947 shares) as of the closing date of the acquisition, $2,600 in stock or a combination of cash and shares of our common stock, at our discretion, payable in two installments of $1,300, due on the first and second anniversaries of October 26, 2016, and an undertaking to issue by January 24, 2017, an equivalent number of shares of restricted common stock equal to an aggregate of $2,000, to be granted to certain key employees of JBA selected in our sole discretion and vesting over a period of four years.

 

On September 12, 2016, we acquired certain assets of Weir. The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the “Weir Note”) payable in four installments of $125, due on the first, second, third and fourth anniversaries of September 12, 2016, the effective date of the acquisition. The outstanding balance of the Weir Note was $500 and $0 as of September 30, 2016 and December 31, 2015, respectively.

 

On May 20, 2016, we acquired all of the outstanding equity interests of the Dade Moeller. The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the “Dade Moeller Notes”) payable in four equal payments of $1,500 each due on the first, second, third, and fourth anniversaries of May 20, 2016, the effective date of the acquisition. The outstanding balance of the Dade Moeller Notes was $6,114 as of September 30, 2016 and $0 as of December 31, 2015.

 

On July 1, 2015, we acquired all of the outstanding equity interests of the The RBA Group, Inc., Engineers, Architects and Planners (“RBA”). The purchase price included an aggregate of $4,000 of uncollateralized promissory notes bearing interest at 3.0% (the “RBA Notes”) payable in four equal payments of $1,000 each due on the first, second, third, and fourth anniversaries of July 1, 2015, the effective date of the acquisition. The outstanding balance of the RBA Notes was $3,000 and $4,000 as of September 30, 2016 and December 31, 2015, respectively.

 

On June 24, 2015, we acquired certain assets of Allwyn Priorities, LLC. (“Allwyn”). The purchase price included an uncollateralized $500 promissory note bearing interest at 3.5% (the “Allwyn Note”) that is payable in three equal payments of $167 each due on the first, second and third anniversaries of June 24, 2015, the effective date of the acquisition. The outstanding balance of the Allwyn Note was $333 and $500 as of September 30, 2016 and December 31, 2015, respectively.