NV5 Global Inc
NASDAQ:NVEE
Earnings Call Analysis
Q4-2023 Analysis
NV5 Global Inc
The company has bolstered its commercial sales opportunities, particularly in the area of utility asset and vegetation management. Entering 2024, it stands as a leading provider of geospatial data analytics in the nation. A promising growth landscape presents itself through federal infrastructure funding for transportation and airports, increasing demand tied to sustainability and climate change initiatives, and the development of proprietary data acquisition and processing capabilities. The commercial strategy is further reinforced through the release of new software technology platforms and combined service bundles to enhance enterprise IT, data analytics, and software capabilities.
The company observed a 14% year-over-year increase in gross revenues during the fourth quarter, reaching $215.5 million, primarily due to Axim and VIS acquisitions. Gross profit rose by 17% to $108.6 million, and the net income saw a 24% increase to $9.9 million. This resulted in GAAP diluted earnings per share (EPS) increasing by 23% to $0.64. The adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) saw a 15% increase to $37.3 million. Full-year gross revenues climbed 10% to $861.7 million, with gross profit up 12% to $430.4 million. However, net income fell by 11% to $44.6 million, reflecting increased intangible amortization and higher interest expenses from acquisitions. Adjusted EBITDA for the full year was slightly up to $137.9 million from $135.2 million, and the company reduced its net leverage from 1.4x to 1.2x over two quarters.
Management projects a narrowed guidance range for 2024, emphasizing caution and conservative estimates in organic growth while signaling an ambition to surpass initial targets as the year progresses. The company has set its 2024 gross revenue guidance between $930 million to $935 million, with an adjusted EPS forecast of $5 to $5.06 per share, reflecting steady prospects in the face of predicted modest organic growth.
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Ladies and gentlemen, good afternoon, and thank you for participating in today's conference call to discuss NV5's financial results for the Fourth Quarter and Full Year 2023 ended December 30, 2023.Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Codispoti, CFO of NV5; Alex Hockman, President and COO of NV5; Ben Heraud, COO of NV5; Dan Levine, President of Geospatial at NV5; and Richard Tong, Executive Vice President and General Counsel at NV5.I would now like to turn the call over to Richard Tong. You may begin.
Thank you, operator. Welcome, everyone, to NV5's fourth quarter and full year 2023 earnings call. Before we proceed, I would like to notify all participants that today's presentation can be found on ir.nv5.com and remind everyone that today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC.During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the 2 is available in today's earnings release and on the company's website at www.nv5.com. Please note that unless otherwise stated, all references to fourth quarter 2023 comparisons are being made against the fourth quarter of 2022. And any reference to full year 2023 comparisons are being made to full year 2022.In this presentation, NV5 has included non-GAAP financial measures as defined in Regulation G promulgated under the Securities and Exchange Act of 1934 as amended. Non-GAAP financial measures included in this presentation are adjusted earnings per share and adjusted EBITDA. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5's financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP. In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies. A reconciliation of non-GAAP and GAAP measures is included in the appendix to this presentation.We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Edward Codispoti, Chief Financial Officer, for a review of fourth quarter and full year 2023 results. Dickerson Wright will then provide closing comments before we open the call for your questions. Dickerson, please go ahead.
Thank you, Richard, and thank you to everyone joining us for this call. 2023 was a year of positioning NV5 for profitability and growth above industry benchmarks. In 2024, we will focus on 3 specific segments of M5 for continued growth and profitability. Infrastructure has focused on organic growth with the initiatives to place our key most senior people with direct access to our clients. Our Geospatial segment has more than doubled from $136 million in 2020 to a budget of over $320 million in 2024. We will diversify our offerings to include additional areas of the market, further developing our software and recurring revenue offerings. We anticipate further growth of our Buildings and Technology group, both nationally and internationally through organic as well as M&A growth.Let's turn to Page 5 of the presentation deck that you have been furnished. As you can see, we grew revenue and earnings over full year 2022. When comparing the fourth quarter with the fourth quarter of 2022, we increased our revenues, net income, EBITDA, EPS and cash flow over Q4 '22. However, we cannot rest on past accomplishments. We are providing initiatives and incentives for growth in 2024. You will notice a list of these initiatives and incentives for 2024 growth on the right-hand side of this slide. We are also realizing a resurgence in our real estate transaction business, owner represent patient business and our environmental service offerings.Let's now turn to Page 6, where I mentioned earlier that we have positioned our 3 major operations with a focus on organic growth. Our Buildings and Technology group will expand into new markets for data center commissioning. We will further invest in human and technology capital to expand areas of building and technology services. We are particularly interested in improving the organic growth in 2024 of our Infrastructure group by placing technical experts deployed to be in front of our clients. We've improved and accelerated the recruiting process to fill open positions faster, but also to enter new areas for our services. A portion of our corporate budget will be focused to fund new initiatives.Our Geospatial Group has grown dramatically from $136 million in 2020 to a budget of over $320 million in '24, with 11% of this growth being organic in 2024. We will focus on strengthening our analytical capabilities by expanding our software and recurring revenue model. We have also strengthened our data acquisition capabilities of our Geospatial business with capital expenditures.Please turn to Page 7, where we will discuss 2 specific acquisitions that will help grow NV5 in 2024. CHW was acquired in January of 2024 to expand our infrastructure platform in Florida. Their 130 employees will be fully integrated into our existing Florida operations and strengthen not only our existing survey and transportation capabilities, but will also introduce NV5 to 4 new geographic locations. We also purchased Technical Design Services in the fourth quarter of 2023. This acquisition supports our rapidly growing building and technology group. They bring technical expertise in key areas, including aviation, government, finance and healthcare. We've made other changes in 2024 to ensure the success of NV5 not only now, but in the years to come.Please turn to Page 8. In 2024, I will step up to the Executive Chairman position and reporting to me directly will be Alex Hockman as Co-CEO, having responsibility for our Infrastructure Group. Ben Heraud as Co-CEO will be responsible for all Buildings and Technology operations, both domestically and internationally. Dan Levine, as President of our Geospatial Group will be responsible for all Geospatial operations.Let's turn to Page 9 and hear from Ben as he provides a Buildings and Technology update and tells us of the opportunities for 2024.
Thank you, Dickerson. 2023 represented a significant increase for our international mission critical business, which reflected an explosive demand for commissioning of data centers in support of cloud services. Our international planning and design business also drove 24% organic growth, supporting renovations and new construction in Asia and technology and audiovisual design in the Middle East. In the U.S., our clean energy and technology businesses led the way with 23% organic growth, supporting clients' energy efficiency and electrification initiatives, as well as audiovisual and technology building retrofits. Our domestic planning and design organic growth was impacted by interest rate dependent capital investments by our clients. 2024 growth opportunities are bright. We expect an increase in profitability of traditional MEP work, domestic and international data center expansion, market diversification for our technology design services and industry's conversion to clean energy are all expected to be drivers in 2024.
Thank you, Ben. Alex Hockman will now on Page 10, discuss our infrastructure results for 2023 and the opportunities for 2024.
Thank you, Dick. Please turn to Slide 10. In 2023, we made investments to accelerate organic growth moving forward. We added key leadership in our Southeast and Pacific Northwest businesses. And in early 2024, we acquired CHW Professional Consultants, a leading provider of engineering design, surveying, transportation consulting and landscape architecture to strengthen leadership in the Florida market. We are also seeing green shoots in the construction quality assurance markets in the East and West.In the utility services vertical, we were successful in bringing outsourced working into NV5 and our focus in 2024 is advancing organic growth. Our utility services continue to expand in the Northwest and Southwest and we continue to pursue opportunities for geographic expansion of electrical transmission, distribution and LNG services. We've also advanced our offshoring of utility and LNG design to enhance our competitive advantage and improve margins.Growth opportunities in 2024 include our strategic initiatives in infrastructure and transportation, putting some of our best technical experts in direct client facing positions. Transportation infrastructure investments continue to drive opportunities, and we focused on additional investments in water and wastewater infrastructure. Electrical grid hardening continues to be a driver of growth to mitigate fires in the West to protect against storm damage in the East. And client electrification initiatives are driving the demand for additional electrical power delivery to reduce reliance on fossil fuels and support the conversion from petroleum energy to electricity.I will now turn the call over to Dan Levine to give an update on Geospatial.
Thanks, Alex. Geospatial grew 67% in 2023, including contributions from acquisitions and 6% organic growth in our existing business. This impressive growth was achieved despite delays in federal contract awards as a result of the continuing resolution status of the federal government's budget. Our '23 acquisitions of Axim Geospatial and L3Harris Geospatial software businesses gave us entry into geospatial software market and expanded our defense and intel capabilities.In fourth quarter of 2023 and continuing into the first quarter of 2024, we have increased our commercial sales opportunities in utility asset and vegetation management areas. We entered '24 having strengthened our position as the nation's leading provider of geospatial data analytics. Our 2024 growth opportunities are coming in several areas. First, federal infrastructure dollars are flowing through state departments of transportation and airports, providing numerous contract opportunities we are pursuing. Sustainability and climate change initiatives are also driving demand for geospatial data acquisition and analytics that we are uniquely positioned for.We've developed new data acquisition and processing capabilities that provide us with competitive advantages that we've already fielded in '24. And finally, within our software group, we have released new technology platforms that is gaining -- that are gaining traction, providing access to a broader market and we are now bundling services capabilities with our software sales to extract the full value of our comprehensive enterprise IT, data analytics and software capabilities.I'll hand it over back to you, Dick.
Thanks, Dan. Let's mention our backlog for future work, and it seems to be continuing in a strong growth mode. It's up to $838 million. So let's turn to Page 12 of the deck, where you'll see the many projects on the right side of this deck that are listed. All of these projects are just a cumulative wind representation of 5% of the backlog but [ are ] spread across all areas of our services.I would now like to turn the call over to our Chief Financial Officer, Ed Codispoti, to provide an overview. Go ahead, Ed.
Thank you, Dickerson, and good afternoon, everyone. If you would please turn to Slide 14 of the presentation, I'll review our fourth quarter and year-end 2023 financial results. Our gross revenues in the fourth quarter were $215.5 million compared to $189.8 million in the fourth quarter of the prior year. The 14% increase in growth was driven by our Axim and VIS acquisitions.Gross margin expanded 140 basis points as we produced a higher proportion of revenue through internal resources this quarter rather than through subconsultants. Our gross profit was $108.6 million compared to $93 million in the prior year, an increase of 17%. Net income was $9.9 million in the fourth quarter of 2023 compared to $8 million in the fourth quarter of 2022, an increase of 24%.Our GAAP diluted earnings per share was $0.64 in the fourth quarter of 2023 compared to $0.52 in the prior year fourth quarter, a 23% increase. EPS was based on 15.5 million shares outstanding this quarter compared to 15.3 million shares outstanding in the previous year quarter.Our adjusted EBITDA was $37.3 million compared to $32.5 million in the fourth quarter of the prior year, an increase of 15%. Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related costs, was $1.14 per share in the fourth quarter of 2023 compared to $1.21 per share during the fourth quarter of the prior year.Our cash flows from operations were $16.8 million compared to $13.6 million in the same quarter of the previous year, a 23% increase. Our gross revenues increased 10% for the full year to $861.7 million from $786.8 million in the prior year. The increase in growth was driven by our Axim and VIS acquisitions. Gross margin expanded 80 basis points as we produced a higher proportion of our revenues through internal resources this year rather than through subconsultants. Our gross profit was $430.4 million compared to $386 million in the prior year, an increase of 12%.Net income was $44.6 million for the year compared to $50 million in the prior year, a decrease of 11%. The decrease was impacted by $11.1 million of increased intangible amortization and $9.2 million of additional interest expense due to higher interest rates and debt to fund our Axim and VIS acquisitions.Our GAAP diluted earnings per share were $2.88 per share in 2023 compared to $3.27 per share in the prior year. EPS was based on 15.5 million shares outstanding in 2023 compared to 15.3 million shares outstanding in 2022.Our adjusted EBITDA was $137.9 million compared to $135.2 million in the prior year. Our EBITDA margins were affected by mix of business and the ongoing integration of our recent geospatial acquisitions, Axim and VIS. Our adjusted earnings per share, which excludes the impact of intangible amortization and acquisition-related cost was $4.81 per share in 2023 compared to $5.19 per share in 2022.If you would please turn to Slide 15, I'll now discuss our cash flows and balance sheet. Our cash flows from operations in 2023 were $62.2 million and were affected by increased interest expense of $9.2 million and working capital timing driven by large project cycles. The higher interest expense, as I mentioned earlier, was driven by higher interest rates and debt associated with the geospatial acquisitions. However, we're still at a low net leverage. Our net leverage was 1.2x as of the end of the year and has now dropped for 2 consecutive quarters. If you recall, at the end of the second quarter, our net leverage was 1.4x. So we've made progress in bringing down our leverage. We feel confident in the strength of our balance sheet and believe it positions us well for future growth.I'll now turn it back over to Dickerson for some closing comments.
Thank you, Ed. Let's go to Page 17, and we'll give further detail on how we are positioning NV5 for total growth, organic growth and profitability measured by the industry's benchmarks. We are going to strength and expand our infrastructure platform by increasing organic growth from our existing platform and through strategic acquisitions that support future growth. We will continue to expand our software and recurring revenue for all key areas of operations. We will use the strength of our low leverage balance sheet to be opportunistic in all areas of growth. Our guidance for 2024 is $930 million to $935 million in gross revenues and an adjusted EPS of $5 to $5.06 per share. Thank you.
[Operator Instructions] And we will take our first question from Chris Moore with CJS Securities.
First of all, congratulations, Dickerson, I assume this just means you'll have a little bit more free time in your hands, probably not too much, but the whole -- the 2 new CEOs, it's an interesting development. So that's terrific. Maybe we can talk about the guidance ranges. They're certainly tighter than we're used to at this time of the year and kind of maybe just talk a little bit more about what's in there? And what kind of organic growth is there at this moment for the current range we're talking about?
Chris, this is Ed. You're right. Historically, we've given broader ranges both for revenue and EPS. This year, going into 2024, we're purposely keeping that range much narrower. We're being conservative when it comes to our assumptions for organic growth, we're assuming very modest organic growth. And the goal, to be frank, is to have that be a low target early in the year, but we have every intention of beating and raising throughout the year. And so we want to set conservative expectations and hopefully be able to beat and raise throughout the year.
So backlog looks like was $838 million at Q4. Roughly, how much of that is geospatial?
Yes, that's -- this is Dick. That's a good question because we didn't get a full year of Axim and we didn't get a full year of our VIS acquisition. But I think the -- if you're looking for the exact number that was contributing that year, it would be an estimate. But I think [ 1x ] when Ed came in, in April and one came in --
In February, right. I think he's referring to the -- as of a point in time in December what the backlog of it, what the composition was of geo versus core.
Is that what your question was?
Yes. Just trying to get a sense as to how much of that $838 million is geo at the end of the year.
Well, I think it runs about the same percentage as the overall total percentage. So you can assume, and we're looking at that. And a lot of it is being impacted because of the federal project delays, but it would roughly be 1/3 of -- the backlog would roughly be 1/3 in geospatial, but it could certainly ramp up if we have the continuing resolution authorized, which really impacts the geospatial group.
And that was my final question really, that a good segue. So you had addressed that, that you talked about kind of funding delays for the federal government geospatial projects. I mean, is -- given it's an election year, is there any reason to believe that these are going to improve throughout '24, just kind of your thoughts on that?
Well, that would just be my thoughts. What we hear from discussing with people is that there could be something as early as March, which continues it. But if it moves on into June, it may be just the whole budget will be revisited, so that could be longer. But I think best case scenario, we think the federal work can be sometimes towards the end of March, but it could drag on to June of 2024.
And we will take our next question from Andy Wittmann with Baird.
Dick, congratulations on your next move in your career. I guess the question I wanted to ask was also on the guidance and maybe just for a little bit more detail, Ed here. Just on the -- you mentioned modest organic growth. I mean, the total revenue guidance here is just around 7%, a little bit over that, maybe. Your backlog is up 5% year-over-year. So I guess what is in your mind, modest organic growth, I think you said that? I mean, is it that kind of order of magnitude with backlog, up 5%? And then there's like 2% of revenue here that's M&A? Or how do we think about the components between organic growth and if there's any acquisition revenue that's assumed in your guidance beyond the deals that you've already publicly announced?
There is no -- Andy, this is Ed. There is no acquisition revenue, like you just said, beyond those that have already been announced, that being CHW. And as far as the organic growth that's implied, it's under 5%. And so it's very modest. Again, we're shooting for more. But we have -- number one, as I said, our intention is to beat and raise throughout the year and we also have the uncertainty around the continuing resolution. And so we figured it was a good place to start out of the gates here going into '24.
And then I guess, just because you don't -- you just give EPS and you give revenue, I guess I'd like to try to get an understanding of kind of how you view your profit margins, I guess maybe you'd say EBITDA margins since that's the number that you reconcile to. Like the mix of your business has changed, right? You've added some of these higher-margin software programs. And so it's been kind of moving around. But I'm just wondering, do you think that the reported adjusted operating -- adjusted EBITDA margin will be up year-over-year with the new mix? Or how should we think about profit margins on a year-over-year basis?
I think that we're -- when you consider the Axim and VIS acquisitions and VIS in particular, although it's a software company, which has the scalability to have much higher margins down the road. They weren't -- they weren't significantly high margins relative to other software companies when we acquired them. And so part of the strategy there was to integrate them into NV5 and be able to scale them through our synergies and grow them. And so we, in '23 did not benefit a lot from those margins. As a matter of fact, Q4, some of this is tied into, again, the continuing resolution, but our margins in Q4 were not great on the geo side.Going into 2024, as we continue to progress into the future and are able to recognize more synergies, both on the top line and in terms of costs, I would expect those to improve. But I wouldn't anticipate a significant increase in EBITDA margins in '24. We're striving for that. But in terms of modeling, I wouldn't anticipate a significant expansion of margins in '24.
I guess then, Dick, I just wanted to talk to you about some of these markets that have proven to be more cyclical over the years. You mentioned, I think, the term green shoots on -- I think that was related to -- I don't know if that was your real estate transaction services. Can you just talk -- I know that fourth quarter last year was where you started to see some of that cyclicality creeping in. Can you talk about the performance in the fourth quarter of the real estate transaction services, the construction quality assurances business that you have and the -- the part of the business where you serve as a municipal building inspector for -- that's dependent on kind of residential, sometimes building permits that drives that business. I'm just kind of curious as to how those performed in this fourth quarter versus the prior fourth quarter.
Good questions, all of them, Andy. Let's start with the businesses where all 3 are very dependent on interest rates. However, I can say this, and I can't -- I don't want to speak too much forward, but we're seeing a -- we're very pleased with what has the turnaround that's been made in our real estate business. Their volume has increased, the profitability has increased and the amount of actual assignments they have has increased. The same thing has in various pockets on the CQA area, it's really the same thing.Southern California, we've seen a real resurgence in our construction quality assurance business and particularly in our San Diego and L.A. markets, and we're starting to see some real growth in the San Joaquin Valley. And that is -- that has been somewhat specific to interest rates, but somewhat dependent on the overall growth of the economy in California, it's come back quite a bit. As far as what we call municipal outsourcing or a private provider building network, we deal with a lot of municipalities. And obviously, they are dependent -- very dependent on the interest rates. What we try to do with [indiscernible] to mitigate that somewhat is we do -- we charge a percent of the building department fee. And so that way, the municipality will not be as sensitive to the overall interest rates but will be more dependent on what we can do as a percent of the building permits.But obviously, all 3 areas have been affected by interest rates. And I would say if I want to order them in recovery, I think we're really starting to see some momentum in our real estate transaction business. And we're starting to see some vast regional improvements in our CQA business. And then I think we have an overall general effect by municipalities, which are very dependent on interest rates and sales tax. And so that would be the third. But all 3 have been impacted, but we're making progress in growing them. It's just that we feel the real estate and CQA is coming back a little quicker than the municipal business.Well, let me just say one thing while everybody's listening. I was listening, and thank you, Andy, for saying that. But I'm not going anywhere. I'm not leaving. I'm still going to be very involved with the company, and I have a commitment to our board to be very involved. And so you'll see the 3 -- and I'll comment on our concluding comments. But I really wanted people to know that, although many would probably wish that, I'm not riding off into the sunset, so I'll still be around, but I think now it's time to have some other people step up.
And we will take our next question from Rob Brown with Lake Street Capital Markets.
I just wanted to talk about the geospatial organic growth. I know you said it's dependent on some of the federal spending activity. But where do you sort of see that organic growth over time? Is it still in that mid-double digit range? Or really, what's the dependence there in terms of organic growth? And what do you think it can kind of be next year?
Yes. Good question, Rob. I think it's going to be a bit of a hockey stick. I think if we do get the federal projects going, which Axim is very dependent on, then you'll see an explosion in organic growth. The other 2 segments, the Quantum Spatial has had good double-digit organic growth, and they are more -- they're not as dependent on specific federal projects although they do a lot. That segment of the business also does an awful lot in acquisition and we've made a significant capital expenditure to help them in the acquisition business. So I think that, that organic growth is fairly stable.The software growth is kind of a -- a little bit different for us. We're all through Europe, and we're seeing a great effect of that business on other portions or pieces of our business. But they also have some dependency on the continuing resolution. So what you'll see, when this is funded, you're going to see a very big explosion in organic growth. And right now, these projects have been kind of pushed to the right. So if we were to measure it right now, being conservative, I would say we'd really see an increase in the organic growth around the second half of the year in geospatial.
And then you mentioned some of the macro drivers in the market that are driving your business, but I just want to talk a little bit more about electrification and where do you see that kind of driving things and maybe a trend line there. How do you see that playing out? Is that really a '24 impact? Or does that start over time here?
I think, Rob, you're referring to the delivery system of the utility business and the improvement of the grid and some of the things that they're doing in any ways to mitigate. I'll let Alex Hockman, whose utility group reports to him, he may add some more color to this.
So we're seeing the growth in electrification taking place now and it will continue for years to come. And as that grows, we're going to continue to see the other demands that we have in terms of distribution and transmission as well as the hardening. As I mentioned, weather on the East Coast and fire hardening on the West Coast. So it all plays to the fact that we have -- will have and continue to have these additional power demands through the electrification initiatives.
And just another thought, we've recently signed a significant contract for the charging stations for electric vehicles. And so we see some of that -- we see more demands on the grid, but we see that with the growth of these charging stations, it's going to make the delivery of electricity more critical.
And we will take our next question from Tim Mulrooney with William Blair.
I had a couple of questions in utility, but more on the LNG side. So maybe this is for Alex, too. But can you talk about how that LNG business performed in 2023 and how you're thinking about growth potential for 2024? Just curious how project activity is shaping up as we move through the winter months here.
Yes. So our LNG business, as just so we're on the same page, is predominantly in the peak shaving arena. So the recent announcements have absolutely no impact on our business. So we're anticipating and continue to see demand in the peak shaving LNG. So the issues that we have as we look at growth, it's just the cyclicality of how the project is being delivered. But in terms of long-term performance, where it's still very bullish on our LNG business.
Okay. You anticipated my next question about the recent announcements we've seen out of the administration. So that's good to hear that that's not impacting you guys. But can you talk a little bit more about the actual performance? What was the growth like and what do you expect for growth?
So -- and just to comment a little bit further, the export LNG is what's been impacted by the announcement. Our year-over-year growth in terms of 2022, we were looking at in '23 -- I'm sorry. It was $80 million for our LNG business and that is at an EBITDA margin of 10% -- 10.6%. So that business gets impacted again because that is a full EPC project delivery. So we do the engineering, the procurement as well as the construction. So there is some cyclicality that takes place in that industry, depending upon when the project is ready to actually go into construction.
I think -- this is Dick, just adding another thought. The LNG business is one that we have that's very dependent on the construction schedule. It's a percent of completion project -- projects that they do tend to be conservative. And so if anything towards the end of the year, you see a hockey stick in profitability because it's really based on what percent complete is the project and as it goes. So we do a lot of engineering, a lot of our engineers are certainly applied and utilized. But actually, the actual transition is based on the construction schedule.
Okay. Moving to Geospatial. In that segment, I mean, we've seen -- and you talked a little bit about margins here, but I wanted to ask a little bit more, just stepping back, I mean, we've seen pre-tax income margins here near 20% on the lower side on an annual basis as high as 27% on the high side over the last several years. But how should we think about steady state or normalized margins here if we're thinking about this business from a longer-term perspective on an annual basis, particularly if everything plays out as you expect it to?
Well, let me start and then Ed can certainly follow up with this. The Geospatial business is much more dependent on depreciation and amortization than our other service lines. So equipment is required. So the EBITDA, the DA portion of that is certainly higher. So as we make these acquisitions and as we grow, there'll be -- and as you saw, there'll be a much more of a commitment to capital expenditures. And that is probably the -- one of the major differences where we were capital light in our consulting business, there's more capital required in the Geospatial business. And to the extent that we're making those investments, you'll see some fluctuation in EBITDA.
And just to add to that, in '22, for example, and historically, those margins were in the 20% range, but more recently in the fourth quarter, for example, with the continuing resolution, and also with the integration of the recent VIS acquisition, which, as I mentioned, is coming in at a lower margin. It does dilute the overall geospatial margin so that it's currently in the high-teens 17% range. But again, the long-term strategy is to grow that and scale that software business along with the rest of geospatial and we expect that in the long run, we'll get back to that 20% range for those margins.
We'll take our next question from Jeff Martin with ROTH Capital Partners.
Dick, wanted to know if you would dive a little bit more into the organic growth expected coming out of infrastructure. Is that an area where you see significant room for improvements? Is there anything tactically that you're doing internally or externally that's going to drive that organic growth increase?
Yes. I'm going to probably comment that more in -- with more specificity in my concluding comments. But overall, I think we could do a much better job in organic growth for infrastructure. And I think it was really impacted by 2 things. One, we've accelerated the recruiting process so that we fill open slots much quicker than we have had in the past. And we've enhanced that. We've done specific videos. We've strengthened the human resources and the recruiting process to actually not take advantage and not lose revenue because of open slots.The second thing, though, is we want our executives, we want our [indiscernible] people to be much more outpacing, much more with the client as -- and be embedded and add value. And I think that we may have not done that as well in '23 as we intend to do in '24.So the specific -- and then the third initiative, we have incentivized for organic growth, we've incentivized the entire infrastructure group rewarding them for the highest organic growth by a specific segment of that business. So the 3 things that we're doing is expediting our recruiting process and really making that, we want to react quicker. The second thing is to be much more outpacing with the clients. And we really want our people to really lead the way in supporting and adding value to the clients. And the third thing, of course, is the incentivizing the whole focus of the infrastructure group this year is on organic growth and we're willing to reward that for the highest organic growth in the business. So we can do better, and we intend to do better in 2024 with the infrastructure organic growth.
And then wanted to drill down a little bit more on the recurring revenue strategy. How much of the business today would you consider recurring revenue? And what do you think the growth potential is there? And what tactically do you need to do to implement that strategy?
The VIS portion, which is software and all recurring revenue is about $30 million of the total. We do feel though that recurring revenue does happen also in our data center work and our analytical work and our energy efficiency work. For example, what we're doing in Macau right now is all a recurring model of revenue. So Jeff, I would say, I don't want to be specific. We really want to move the company towards more recurring revenue. But probably right now, it's only about $50 million of the -- what's in the budget.
And then one more, if I could. West Coast has had a lot of severe weather since the start of the year. Just curious if you're seeing an impact on the -- in the first quarter from that?
Well, I can't speak of anything specific because we haven't released the -- our first quarter results. However, we are pleased with results so far in the quarter. And surprisingly, our infrastructure group, which is the most impacted by severe weather has done better than expected.
[Operator Instructions] And we will take our next question from Michael Feniger with Bank of America.
Ed, the 14% growth in Q4, is that mostly organic or are there some acquisition contribution in the revenue growth in the fourth quarter?
Yes. The fourth quarter -- we acquired, if you recall, Axim and VIS in February and April of '23, respectively. So quarter-over-quarter, you're seeing the impact of both of those acquisitions. So most of that is acquisition related.
And Ed, if I could just follow up. Apologize if you kind of addressed it. Just we're seeing the revenue growth guide for '24. Is there any reason why that growth doesn't translate to the adjusted EPS growth on a year-over-year basis? Is there any puts and takes there? And is there any way you can kind of help us ballpark -- would the EBITDA growth be similar to the revenue growth that you're expecting? Just kind of trying to put some guardrails around this, so we're all in the same boat.
Yes. Well, the EPS and the guidance does correlate to the top line. I mean, we assume that the trending -- the currently trending margin. So it should be in the ballpark. And I would expect on the adjusted EBITDA margins, again those should be pretty consistent with what we saw in '23.
And Ed, just last one for you. Just the cash from ops in '23 was down, but you had a nice jump in the fourth quarter that you guys were highlighting. Just anything we should kind of think about for the cash flow, because there's some moving pieces in 2023, how to kind of think about that for 2024?
Absolutely. When you look at the cash flow statement, you'll see that we have drawn down on that cash from ops, about $15 million in unbilled receivables. And so that's the nature of the business, in particular, in geo with some of our larger projects, the billing milestones are more on the tail end of the projects as opposed to the actual work performed, if that makes sense. So that drags us down a little bit.We also had in '23, I'm sure many of you are familiar with Section 174(d) of the IRS code that was passed along with the Jobs Act. And we paid an additional -- it has to do with the capitalization of -- for tax purposes of R&D expenses where you must capitalize them and amortize them over a period of time rather than take them all at once. So in those first say, 5 years or so, it takes you a while to bounce out. And during that ramp-up time, you're paying more than you historically paid in taxes. It's not that it affects your income tax effective rate at all, it's just more cash flow. And so we had to pay around $19 million more in 2023.Now the interesting thing is that I believe it was last month, the House passed a bill to repeal that, and it's now going to the Senate. If that is repealed, then we would -- those payments that we've made for both 2023 and 2022 would come back to the company if that's the way that they administer the repeal. So those are just some of the unique items when you think about cash flow that are affecting us this year.
And just lastly, and maybe Dickerson, you'll touch on this in your concluding remarks. Congratulations, by the way, with the succession plan. Just anything we should be aware of in terms of changes to NV5 going forward? Is the M&A strategy changing, maybe certain types of reporting with the co-CEO. Just curious, is this kind of a big deal to see this? I'm just curious, seriously, if there is any shift in the strategy that we've been [ hearing ] from NV5, maybe going forward with the succession plan coming effective in March.
Well, yes, I think -- let me answer the question, hopefully, in the order that you asked. Our M&A is very active. In fact, we're probably more active than I can ever remember us being. We will focus, and we're always going to be opportunistic. And so will we be opportunistic in our 3 key areas of growth that I announced with our Buildings and Technology Group, our Infrastructure Group and our Geospatial Group. So we will look for various acquisitions that really strengthen those platforms. And in my concluding comments, there are some specific things that are happening right now that we really feel we're in a good position to take advantage of.And so if you don't mind, Mike, I will speak specifically of some of the changes that we're going to do in the -- in the services that we may offer. But the real intent is to be opportunistic and to grow those key areas. You'll notice that we made a large acquisition in our infrastructure group at the beginning of this year. There may be other acquisitions for infrastructure and for geospatial. And we really want to take advantage of work as being done in our Buildings and Technology group. So it's just a matter of -- M&A activity is very active right now, and we are going to be opportunistic in those 3 segments that we mentioned.
And ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Wright for closing remarks.
I was listening to the questions on the call today. And I have a few things that I'd like to say about what we have accomplished in 2023 and what we look forward to in 2024. First 2023 was a positioning year for NV5's future growth. We established this platform to really grow. And although, as you know, when companies are repositioning, they internalize, but we still had a very profitable year and a year of growth, even though we will certainly see the rewards of that in 2024. We remain -- as Mike -- that I mentioned to Mike, we remain very active in M&A activity. And in fact, we intend to shortly to conclude a number of acquisitions to expand our platform. So we are very, very active in that role.In the macro picture, you may have noticed in the national news recent announcements that $2 trillion will be spent in the next 5 years for a worldwide data center reduction and improvements. NV5 is well positioned through our Buildings and Technology group to take advantage of this opportunity. We have made 3 acquisitions, specifically in supportive data centers and with many more to follow.Domestically, our Infrastructure Services group is off to a very good start in 2024. Initiatives that I mentioned earlier and incentives that I mentioned earlier seemed to have provided a focus on organic growth, and so we're pleased with the results there.You heard us mention that this is in our Geospatial Group. Although that business is strong and very robust, we are dependent on the federal government and work that's been delayed because of the continuing resolution. So as that is resolved, we will certainly increase our geospatial activity, but we are still dependent on the federal continuing resolution. And so if you've seen some -- in fact, we probably would have had an even stronger quarter in the fourth quarter if we didn't have -- experience those delays and we're seeing that impact right now. But as that resolution goes, then I think we will be well positioned to move forward.Overall, I am pleased to report that business for 2024 is strong. We have anticipated growth and profitability. And you'll notice, and it was a key comment that Ed made, while we were doing this and as we did these acquisitions, we reduced our debt. We reduced our leverage from 1.4x EBITDA down to 1.2x. So we are mindful on being a profitable, expanding company, but we need to adapt. We need to restructure to allow our key people to grow the business and grow the company.So we anticipate a very good year in 2024, and we thank everyone for your listening today and look forward to us. We will join you again in the first quarter of 2024 to see where we are. So thank you very much.
Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.