AE industry records double-digit growth in Q3 2022

How great has this year been for designers? Well, the headlines from the third-quarter reports from some of the leading publicly traded engineering, EA, and environmental firms paint a picture of a still rapidly growing and hugely profitable AE and environmental industry.

Double-digit percentage increases in revenues and income abound. And it’s not just these publicly traded firms that are reporting 20-plus percentage increases in revenues and earnings. Firms of all sizes and types around the industry are experiencing unprecedented growth and profitability.

But it’s not all wine and roses. You don’t have to look far to find some publicly traded firms that didn’t report such stellar results. Similarly, there are still underperforming firms to be found in every state, in every market, and in every service area. For those leadership teams that are not driving double-digit growth in top and bottom lines in this market, they (and their boards and shareholders) should be asking “Why not?”

Let’s take a look at some of those publicly traded Q3 headlines.

Stantec delivers record third-quarter results and all-time high backlog of $6.2 billion: On Thursday, Stantec reported its results for the three- and nine-month periods ended September 30. The firm delivered record third-quarter adjusted diluted earnings per share (EPS) of $0.86 driven by significant net revenue growth and solid project margins. Net revenue of $1.2 billion in the third quarter (up 24.3% over the same period in 2021) was generated on the strength of 11% organic growth and 12.9% acquisition growth. Every one of the firm’s regional and business operating units delivered organic net revenue growth in the third quarter. Project margin in the third quarter was 54.1%. And here’s the stat that really caught my attention—backlog at the end of September 30 reached an all-time high of $6.2 billion (up 20% from the end of 2021), driven primarily by organic growth of 15.1% since December 31, 2021.

NV5 announces record third-quarter results; Exceeds analyst consensus: Some highlights from the firm’s third-quarter report from November 3 include these double-digit growth percentages over the prior year:

• Gross revenues in the third quarter of 2022 were $204.1 million compared to $185.6 million in the third quarter of 2021, a 10% increase

• Net income in the third quarter of 2022 was $16.1 million compared to $12.6 million in the third quarter of 2021, a 28% increase

• Cash flows provided by operations were $26.1 million in the third quarter of 2022 compared to $15.8 million in the third quarter of 2021, a 65% increase.

It’s no wonder CEO Dickerson Wright commented, “NV5 has consistently delivered growth and profitability exceeding the industry average and has demonstrated resilience to changing economic conditions. We enter the fourth quarter with a strong backlog, a healthy acquisition pipeline, and potential high-margin, non-discretionary service offerings.”

Tetra Tech reports record third-quarter results: On August 3, Tetra Tech announced record-high third-quarter results in gross and net revenue, operating income, and EPS. Revenue in the third quarter totaled $890 million and net revenue was $720 million, up 11% and 13% year-over-year, respectively. Operating income was $84 million, up 20% year-over-year. EPS was $1.09, up 15%. Cash generated from operations was $98 million, up 42% year-over-year. Backlog increased to $3.51 billion, up 8% year-over-year, and on a constant currency basis increased 12% year-over-year to $3.65 billion.

Parsons reports strong third-quarter 2022 results: November 2 saw Parsons report its third-quarter performance, which included the following double-digit highlights:

• Revenue increased 19% year-over-year to $1.13 billion, including organic growth of 11%

• Organic revenue growth was driven by both business segments: Critical infrastructure (13%) and federal solutions (10%)

• Net income increased 53% to $30 million

• Adjusted EBITDA increased 22% to $103 million

• Cash flow from operations increased 59% year-over-year and 28% for the first nine months of 2022

• Total backlog of $8.2 billion.

Bowman announces record third-quarter results; Exceeds consensus estimates and raises guidance: On Thursday, Bowman Consulting’s Q3 report contained the following highlights for the three months ended September 30, as compared to the same period in 2021:

• Gross revenue of $71.2 million, compared to $39.7 million, a 79% increase

• Year-over-year organic gross revenue growth of 23%

• Net service billing of $64.9 million, compared to $35.7 million, an 82% increase

• Year-over-year organic net service billing growth of 25%

• Adjusted EBITDA of $9.6 million, compared to $4.4 million, a 118% increase

• Gross backlog of $230 million, compared to $139 million, a 65% increase.

Atlas Technical Consultants reports strong third-quarter 2022 results: Last Tuesday, the folks at Atlas had some good news to report, which included the following highlights for the three months ended September 30 compared to the same period the prior year:

• Gross revenue grew 17% to $162.1 million, including 10% organic growth

• Net revenue grew 15%

• Gross margin, excluding subcontractor costs, was 59.5%, up 75 basis points; operating margin excluding subcontractor costs was 10.8%, up 310 basis points, driven by higher revenues, benefits of scale, improved pricing, and solid operational execution

• Adjusted EBITDA increased 30% to $25.8 million; Adjusted EBITDA margin, excluding subcontractor costs, was a record 20.0%, and up 240 basis points

• Backlog reached another record level at $864 million, up 14% compared to last year.

Conclusion: Our industry expanded rapidly this year despite rising interest rates and some slowing in single-family home building. Around the country, AE and design firms are experiencing double-digit percentage increases in both revenues and profits for yet another record year. Growing 20% when you’re a $10 million or $100 million firm is hard enough to do—especially when the supply of qualified labor is stretched thin. The fact that these publicly traded firms are pulling off double-digit growth at the billion-dollar scale of business is directly attributable to the quality of their leadership and management.

Morrissey Goodale is a CFE Media content partner.

Original content can be found at Morrissey Goodale.

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