A/E firms dealing with heavy workload backlogs
A/E firms all over are dealing with heavy workload backlogs as worries about an economic recession and inflation continue to loom over the economy.
Economic warning signs are everywhere. Last week, the stock market dipped into bear market territory. James Gorman, Morgan Stanley’s CEO, raised his estimate of the odds of a recession to 50-50 (up from 30%). Inflation is eating away at the value of everything like a plague-hungry locust. However, these storm clouds on the horizon haven’t shaken the optimism of the industry at large. Nor do they appear to be dimming the outlook for the industry’s publicly traded firms, whose recent crop of quarterly reports are apparently locust-free. What could be the reason? Let’s take a look.
A record-breaking quarter: On May 5, NV5 Global, Inc. (NASDAQ: NVEE) reported “a record first quarter, generating double-digit growth in gross revenues, net income, adjusted EBITDA, and earnings per share.” Per CEO Dickerson Wright: “We enter the second quarter with a strong backlog and pipeline to build upon our growth in 2022 and are increasing our full-year guidance.” This included increasing gross revenues to a range of $785 million to $810 million (previously $773 million to $802 million). A “strong backlog and pipeline” are in positive contrast to some of the gloomier indicators in the larger economy.
Increasing backlog: On May 4, Tetra Tech, Inc. (NASDAQ: TTEK) also reported a record quarter. Management reported “record second-quarter results in revenue, net revenue, and operating income. Revenue in the second quarter totaled $853 million and revenue, net of subcontractor costs (net revenue), was $700 million, up 13% and 17% year-over-year, respectively.” Importantly—as an indicator of where the AE industry may be heading as opposed to the overall economy—management also reported that “backlog increased to $3.61 billion, up 15% year-over-year.”
It may not be a record: But “robust” sounds really good—especially when accompanied by increasing backlog. On May 11, WSP Global Inc. (TSX: WSP) reported “a strong start to the year, with 12.7% organic net revenue growth, significant increase in backlog, and solid improvement in adjusted EBITDA, adjusted EBITDA margin, and adjusted net earnings per share.” Taking a deeper dive into backlog: “Backlog on April 2, 2022, stood at $11.0 billion, representing 12.1 months of revenues. In the twelve-month period ended April 2, 2022, backlog grew organically by 15.8% across all reportable segments and by 6.2% when compared to December 31, 2021.” Twelve months of backlog is good in anyone’s books—and provides a great buffer to an economic downturn.
More good news from the north: On May 11, Stantec Inc. (TSX, NYSE: STN) also reported good news: “Stantec delivered solid first quarter earnings on the strength of 19.5% net revenue growth and reaffirms its guidance for the full year. Every regional and business operating unit delivered organic net revenue growth and recent acquisitions generated double-digit growth. Backlog continues to grow, rising to a record $5.4 billion, with continued growing momentum in the U.S.” Another positive reference to backlog. Maybe there are some clues for the industry by looking deeper: “Contract backlog stands at $5.4 billion on March 31, 2022, a new record that reflects 6.8% organic growth from December 31, 2021. Like net revenues, organic backlog growth was achieved across all of Stantec’s regional and business operating units. U.S. operations led with organic backlog growth of 9.8%. Infrastructure and Energy & Resources achieved double-digit organic backlog growth, and Environmental Services’ backlog of $1.1 billion is a high-water mark for this business. Contract backlog represents approximately 14 months of work—an increase of one month from December 31, 2021.” A record 14 months of backlog with increases across all major sectors is an encouraging sign for the industry.
Keep backlogs weird: On May 10, Austin-headquartered Atlas Technical Consultants, Inc. (NASDAQ: ATCX) announced positive first-quarter results, “Gross revenue grew 9.7% to $135.2 million, driven by 6% organic growth and the contribution from acquisitions. Adjusted EBITDA increased 13.4% to $16.5 million, and represented 12.2% of gross revenue, driven by higher revenues, benefits of scale, improved pricing, and strong operational execution.” Not only was performance strong, but “backlog reached another record level at $851 million, up 5% from fourth quarter 2021, and up 24% compared to last year. Awards continue to be driven by infrastructure and environmental markets.” Per CEO Joe Boyer: “We had strong organic growth in the first quarter, achieved another record level of backlog, and are on track for another record year in 2022.” Backlogs would appear to be at record levels around the industry.
Backlogs as insulation: Backlogs were at record highs when the industry entered the pandemic in March 2020—kicking off a period of remarkably strong performance. Backlogs are again at record levels, which could make the difference for the AE and environmental industry in the face of a possible recession.
Morrissey Goodale is a CFE Media content partner.
Original content can be found at Morrissey Goodale.