Overview
On March 26, 2013, NV5 Holdings, Inc. priced its initial public offering of 1,400,000 units, each unit comprised of one share of the
Companys common stock and one five-year warrant to purchase one share of the Companys common stock, at a public offering price of $6.00 per unit. The units began trading on The NASDAQ Capital Market on March 27, 2013 and are trading
solely as units until September 27, 2013, following which date the warrants will become exercisable at an exercise price of $7.80 per share. On March 28, 2013, the underwriter of the offering exercised its option to purchase up to an additional
210,000 units solely to cover over-allotments. The closing of the offering is expected to occur on April 2, 2013, subject to customary closing conditions.
We are a leading provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, construction, real estate, and
environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment, and
compliance certification.
As the needs of our clients have evolved, we have grouped our capabilities into five core vertical
service offerings:
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infrastructure, engineering, and support services;
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construction quality assurance;
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environmental services.
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Historically, substantially all of our services were concentrated on the first two service sectors. We believe, however, that our three newer service offerings will become increasingly important to our
business as we continue to grow through both organic expansion and strategic acquisitions.
We operate our business through a
network of over 20 locations in California, Colorado, Utah, Florida, and New Jersey. All of our offices utilize our shared services platform, which consists of human resources, marketing, finance, information technology, legal, and other resources
at our corporate headquarters. Our shared services platform is intended to optimize the performance of our business as we increase our scale and scope. By maintaining a centralized, shared services platform, we believe we can better manage our
business, apply universal financial and operational controls and procedures, increase efficiencies, and drive lower-cost solutions.
We currently maintain a staff of approximately 439 employees, which includes approximately 168 licensed engineers and other professionals who provide a wide range of professional and technical solutions
to our customers. Combined with our support technology and software, our professionals are equipped to quickly and effectively respond to the needs of our clients.
Our primary clients include U.S. federal, state, municipal, and local governments; military and defense clients; and public agencies. We also serve quasi-public and private sector clients from the
education, healthcare, energy, and utilities fields, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large and small energy producers.
During our 60 years in the engineering and consulting business, we have worked with such clients and on such well-known projects as (in
alphabetical order):
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Atlantic City Tunnel Connection, NJ;
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Miami International Airport, FL;
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Balboa Naval Hospital, CA
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Miramar Marine Corps Air Station, CA;
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Borgata Hotel and Casino, NJ;
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Mojave Water Agency, CA;
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California Public Employees
Retirement
System, CA;
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Peterson Air Force Base, CO;
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Colorado Department of Transportation, CO;
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Port of Miami, Tunnel and Capital
Improvement
to Pier Wharfs, FL;
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Colorado Rockies, Coors Field Baseball Stadium,
CO;
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San Diego Chargers Qualcomm Football
Stadium, CA;
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Caldecott Tunnel, CA;
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San Diego Zoo and Wild Animal Park, CA;
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Equatorial Guinea LNG (Liquefied Natural Gas)
Facility, Africa;
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SeaWorld, San Diego, CA;
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Fort Irwin Military Housing, CA;
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South Florida Water Management District,
FL; and
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Fort Lauderdale Hollywood International Airport,
FL;
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Stanford University, CA.
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Los Angeles Community College, CA;
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Our current representative clients and project portfolio include (in alphabetical order):
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California Department of Transportation, or
Caltrans, CA;
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Rose Bowl Stadium, CA;
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City of Colorado Springs, CO;
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Rutgers University, NJ;
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City of Sacramento, CA;
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San Diego Gas & Electric, CA;
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Contra Costa County, CA;
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San Diego International Airport,
CA;
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Florida Power and Light, FL;
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Santa Clara County Government, CA;
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Broward County, FL;
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University of California San Diego,
CA;
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Metropolitan Water District of Southern
California, CA;
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University of Miami, FL;
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Miami-Dade County, FL;
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University of Utah, UT; and
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Princeton University, NJ;
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Utah Department of Transportation, UT.
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Our History
We conduct our operations through two primary operating subsidiaries: (i) Nolte, which began operations in 1949 and was incorporated as a California corporation in 1957, and (ii) NV5, which was
incorporated as a Delaware corporation in 2009. In March 2010, NV5 acquired the construction quality assurance operations of Bureau Veritas North America. In August 2010, NV5 acquired a majority of the outstanding shares of Nolte and succeeded to
substantially all of Noltes business. Because NV5s business prior to the Nolte acquisition was insignificant, Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes. In October 2011,
NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte, and, as a result, became the holding company under which NV5 and Nolte
conduct operations. On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams
have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years.
Competitive Strengths
We believe we have the following competitive strengths:
Organizational structure that enhances client service.
We operate our business using a vertical structure grouped by service
offerings rather than the geography-based structure utilized by many of our competitors. This structure ensures that clients engaging our services in any given sector, regardless of the location of the project, have access to the services of our
most highly qualified professionals. Our most skilled engineers and professionals in each service sector work directly with the clients engaging those services, which facilitates relationship-based interactions between our key employees and clients
and assists in developing long-term client relationships. In addition, this structure encourages an entrepreneurial spirit among our professionals.
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Expertise in local markets.
To complement our vertical service model, we maintain a
network of over 20 locations on both the west and east coasts of the U.S. Each of our offices is staffed with quality professionals who understand the local and regional markets in which they serve. Our local professionals are allowed to concentrate
entirely on their local market client engagements while being supported by our shared services platform, under which we perform various back office functions on a centralized basis.
Strong, long-term client relationships.
Our combination of local market experience and professionals with expertise in multiple
vertical service sectors has enabled us to develop strong relationships with our core clients. Some of our professionals have worked with our key clients for decades. For example, we have worked with San Diego Gas & Electric for over 30
years and are recognized as a preferred source of expertise by Princeton University and Caltrans. By serving as a long-term partner with our clients, we are able to gain a deep understanding of their overall business needs as well as the unique
technical requirements of their projects. This increased understanding gives us the opportunity to provide superior value to our clients by allowing us to more fully assess and better manage the risks inherent in their projects.
Experienced, talented, and motivated employees.
We employ seasoned professionals with a broad array of specialties and a strong
customer service orientation. Our executive officers have an average of more than 20 years of operating and management experience in or supporting the engineering and consulting industry and in analyzing potential acquisition transactions. We place
a high priority on attracting, motivating and retaining top professionals to serve our clients, and our compensation system emphasizes the use of performance-based incentives, including opportunities for stock ownership, to achieve this objective.
Industry-recognized quality of service.
We believe that we have developed a strong reputation for quality service
based upon our industry-recognized depth of experience, ability to attract and retain quality professionals, and expertise across multiple service sectors. During the past several years, we received many industry certificates, awards, and national
rankings, including:
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2011 Engineering News-Record Top 500 Design Firms (ranked by
design-specific revenue);
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2010 Engineering News-Record: Best of the Best Government Building
Award; and
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2011 Engineering News-Record Top 100 Construction Management-for-Fee Firms
(ranked by construction-specific revenue);
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2011 Sacramento Regional Transit District: Transit Oriented Design of the
Year.
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Growth Strategies
We intend to pursue the following growth strategies as we seek to expand our market share and position ourselves as a preferred, single-source provider of professional and technical consulting and
certification services to our clients:
Seek strategic acquisitions to enhance or expand our services offerings
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seek acquisitions that allow us to expand or enhance our capabilities in our existing service offerings. In analyzing new acquisitions, we pursue opportunities that provide either the critical mass to function as a profitable, stand-alone operation
or are geographically situated to be complementary to our existing operations. We believe that expanding our business through strategic acquisitions will enable us to exploit economies of scale in the areas of finance, human resources, marketing,
administration, information technology, and legal, while also providing cross-selling opportunities among our vertical service offerings.
Continue to focus on public sector clients while building private sector client capabilities.
We have historically derived the majority of our revenue from public and quasi-public sector clients.
For the years ended December 31, 2012 and 2011, approximately 66% and 65%, respectively, of our revenues were attributable to public and quasi-public sector clients. Even during unsteady economic periods, we have capitalized on public sector
business opportunities resulting from outsourcing initiatives, continued efforts to address the challenges presented by the nations aging infrastructure system, and the need to provide solutions for transportation, energy, water, and waste
water requirements. However, we also seek to obtain additional clients in the private sector, which typically sees greater growth during times of economic expansion, by networking, participating in certain organizations, and monitoring private
project databases. We will continue to pursue private sector clients when such opportunities present themselves. We believe our ability to service the needs of both public and private sector clients gives us the flexibility to seek and obtain
engagements regardless of the current economic conditions.
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Strengthen and support our human capital
. Our experienced employees and management
team are our most valuable resources. Attracting, training, and retaining key personnel has 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. We will also continue to provide our personnel with training, personal and professional growth opportunities,
performance-based incentives, including opportunities for stock ownership, and other competitive benefits.
Description of Services
Infrastructure, Engineering, and Support Services
We provide our clients with a broad array of services in the area of infrastructure, engineering, and support services. We possess the
professional and technical expertise necessary to design and manage clients infrastructure projects from start to finish. This integrated approach provides our clients with consistency and accountability across the life of their projects and
allows us to create value by maximizing efficiencies of scale.
The specific infrastructure, engineering, and support services
we offer fall into three phases of project development:
Site selection
. The site selection phase includes access
assessment, parcel identification, easement descriptions, land use permitting, pipeline routing analysis, site constraints analysis, surveying and mapping, and regulatory compliance.
Design
. The design phase includes road design, grading design, alignment design, laydown design, station pad design, storm drain
design, storm water management, water supply engineering, site planning and profile drawings, and construction cost estimating.
Construction and program management
. The construction and program management phase includes plan review, bid and award assessment,
monitoring services for active construction sites, scheduling assistance, drawing review, permit, approval and review processing, contractor, designer and agency coordination, cost control management, progress payment management, change order
administration, compliance inspections, and evaluation of cost reduction methods.
Our specialty areas within our
infrastructure, engineering, and support service offering include:
Water resources
. We assist clients with a variety
of projects related to water supply and distribution (such as designing water treatment plans and pilot testing), water treatment (including designing and implementing water reclamation, recycling, and reuse projects), and wastewater engineering
(including wastewater facility master planning and treatment, designing and implementing collection, treatment and disposal systems, and water quality investigations).
Transportation
. We provide our clients with services related to street and roadway construction (including alignment studies, roadway inspections, and traffic control planning), the construction of
highways, bridges and tunnels, and the development of rail and light rail systems.
Structural engineering
. From
elaborate office and industrial facilities to major highway and railroad crossings to complex rail and light rail structures to a variety of water related facilities, our structural team provides design, inspection, rehabilitation, and seismic
upgrade services that include structural analysis and design, plans, specifications and estimates, structural construction management, conceptual design studies, cost studies, seismic analysis, design and retrofit, structural evaluations, earthquake
damage assessments, structural repair design, and regulatory agency permitting services.
Land development
. We assist
our clients with many of the front-end challenges associated with private and public land development, including planning, public outreach, sustainability, flood control, drainage, and landscaping.
Surveying
. We are equipped to provide our clients with a full suite of traditional surveying techniques as well as cutting edge
technology services, including high-definition surveying services using three-dimensional LIDAR point clouds. Our services can be used to determine current site condition, provide real-time infrastructure measuring and mapping, preserve historic
sites, aide in forensic and accident investigations, determine volume calculations, and conduct surveys for project progress.
Other services
. Through our Geographic Information System services, we can provide clients with other ancillary services that
include infrastructure management, property management, asset inventory, landscape maintenance, web-based mapping services, land use analysis, terrain analysis and visualization, suitability and constraints analysis, hydrology analysis, biological,
agricultural and cultural inventories, population and demographic analysis, shortest path analysis, street grid density, transportation accessibility analysis, watershed analysis, floodplain mapping, groundwater availability modeling, flood
insurance study preparation, risk and HAZUS mitigation assessment and analysis, mapping, data tracking, and data hosting.
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Construction Quality Assurance
We provide construction quality assurance services with respect to such diverse projects as professional sports stadiums, military
facilities, cultural and performing arts centers, airports, hotels, hospitals and health care facilities, fire stations, major public and private universities, and K-12 school districts. We offer these services on an a la carte or
integrated start-to-finish basis that is intended to guide a client through each phase of a construction project. Our construction quality assurance services generally include site inspections, audits, and evaluations of materials and workmanship
necessary to determine and document the quality of the constructed facility. Before a project commences, we offer our clients a variety of assessment services, including environmental, geotechnical, and structural suitability. We perform these
pre-construction evaluations in order to help detect any potential problems with the proposed site that could prevent or complicate the successful completion of the project. In addition, we evaluate the onsite building conditions and recommend the
best methods and materials for site preparation, excavation, and building foundations.
During development, we assist clients
in designing a comprehensive construction plan, including a summary of planned construction activities, sequence, critical path elements, interrelationships, durations, and terminations. Construction planning services may also include developing
procedures for project management, the change order process, and technical records handling methodology to be employed. We offer inspection services for each phase of a project, including excavation, foundations, structural framing, mechanical
heating and air conditioning systems, electrical systems, underground utilities, and building water proofing systems. Where applicable, we employ additional methods to test materials and building quality. We maintain contact with our clients
managers and, as issues are detected or anticipated, assist them in determining appropriate, cost-effective solutions. We periodically provide construction progress inspections and assessment reports. When a project is complete, we prepare an
evaluation report of the project and certify the inspections for the client. After construction, we offer periodic building inspection services to ensure that the building is maintained in accordance with applicable building codes and other local
ordinances to maximize the life of the project. We also offer indoor environmental quality testing during this period.
Our
specialty areas within our construction quality assurance service offering include:
Construction materials testing and
engineering services
. We provide materials testing services related to concrete, steel, and other structural materials used in construction. We are equipped to provide these services in fabrication plants, in our laboratories, and at the project
or construction site itself. Our field personnel work directly under the supervision of licensed engineers and maintain individual licenses and certifications in their respective areas of expertise. All of our in-house laboratories are inspected
routinely by the Cement and Concrete Reference Laboratory (CCRL) of the National Institute of Standards and Measures. In addition, our laboratories participate in proficiency programs conducted by the CCRL and the American Association of
State Highway & Transportation Officials.
Geotechnical engineering and consulting services
. We provide a wide
variety of geotechnical engineering and consulting services. These services assist our clients to determine whether sites are suitable for proposed projects and to design foundation plans that are compatible with project site and use conditions. We
have experienced geotechnical engineers, geologists, and earth scientists focused on providing services primarily in the southeast, northeast, and western regions of the U.S.
Forensic consulting
. In the event of damage to a structure by natural or man-made causes, our professional staff is qualified to provide forensic consulting and analysis as well as expert witness
services. We provide a wide variety of forensic consulting services, including studies related water intrusion, building code compliance, and claims involving insurance.
Program Management
We provide program management services, which
primarily consist of providing a wide variety of governmental outsourcing services and consulting services that assist organizations in complying with technical government regulations and industry standards. We offer a broad array of technical
outsourcing services, including traffic studies, building code plan review, code enforcement, permitting and inspections, and the administration of public works projects, building departments, and safety departments.
Program management also includes project administration, including bid and award assessment, monitoring services for active projects,
scheduling assistance, drawing review, permit, approval and review processing, contractor, designer and agency coordination, cost control management, progress payment management, change order administration, compliance inspections, constructability
review, as needed, and evaluation of cost reduction methods.
The trend towards increased privatization of U.S. federal,
state, and local governmental services presents an opportunity for us in this service offering. Faced with increased budgetary constraints and economic challenges, many governmental agencies are now seeking to outsource various services, including
the running of their building departments. For building departments specifically, we typically provide a turnkey solution in exchange for a percentage of the building permit fees collected or a minimum monthly retainer. The governmental agency
retains any overage without any overhead costs associated with the fee charged. Outsourcing
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provides a positive source of revenue for us, while simultaneously increasing the efficiency and quality of service to the public. The governmental agency also gains flexibility to control
service levels without the challenges of government bureaucracy. Although we plan to grow our program management services organically through the numerous contacts and client relationships we have with U.S. federal, state and local governments,
tribal nations, and educational institutions, we are also actively pursuing acquisition opportunities that provide services in this sector.
Energy Services
Our energy service includes the management of
existing infrastructure assets as well as new capital expenditure projects. Within energy service, we provide facility energy audits and consulting.
We assist major utilities and energy providers in assessing potential sites for a wide variety of new energy infrastructure projects. We provide services to energy generation and transmission clients for
various types of energy source providers (i.e., wind, solar, natural gas, oil, and coal energy).
Environmental Services
Our environmental service includes investigating and analyzing environmental conditions both outside and inside a
building, recommending corrective measures and procedures needed to reduce liability exposure, increasing our clients awareness of occupational health and safety issues, and helping clients comply with regulatory requirements and industrial
standards through air and water quality testing, health and wellness screening, workplace safety, ergonomics, and emergency preparedness.
Strategic Acquisitions
We maintain a full-time merger and acquisitions (M&A) initiative with executive personnel specifically dedicated to
identifying acquisition targets, exploring acquisition opportunities, negotiating terms, and overseeing the acquisition and post-acquisition integration. From 1994 to the present, across various prior-company employment, our M&A team has
completed approximately 40 transactions in the engineering and consulting industry. Over the course of these transactions, our M&A team has established extensive relationships throughout the industry and continues to maintain an established
pipeline of potential acquisition opportunities.
We seek acquisitions that allow us to expand or enhance our capabilities in
our existing service offerings. In analyzing new acquisitions, we pursue opportunities that provide either the critical mass to function as a profitable, stand-alone operation or are geographically situated to be complementary to our existing
operations. Acquisition targets must include an experienced management team that is compatible with our culture and thoroughly committed to our strategic direction. We believe we add value to the operations of our acquisitions by providing superior
corporate marketing and sales support, cash management, financial controls, information technology, risk management and human resources support through a performance optimization process. Our performance optimization process, which was developed by
our executives through their extensive experience in acquiring and integrating these types of companies, entails a review of both back office and operational functions to, among other things, identify how to improve (i) inefficiencies related
to the delivery of our services to customers, (ii) the performance of a new acquisition through the integration of personnel into our organization, (iii) the risk management of a new acquisition, (iv) the integration of technology and
shared services platforms, and (v) cross-selling opportunities to create synergies with our service offerings.
Key Clients and
Projects
We currently serve over 800 different clients. While our ten largest clients accounted for approximately 49% and
43% of our consolidated contract revenue during the years ended December 31, 2012 and 2011, respectively, no single client accounted for more than 10% of our revenue during those periods, with the exception of San Diego Gas & Electric,
which accounted for approximately 19% and 14% of our revenues for the years ended December 31, 2012 and 2011, respectively. Although we serve a highly diverse client base, for the years ended December 31, 2012 and 2011 approximately 66%
and 65%, respectively, of our revenues were attributable to public and quasi-public sector clients. In this regard, public sector clients include U.S. federal, state, and local government departments, agencies, systems, and authorities, including
the U.S. Department of Defense, transportation agencies, educational systems, and public housing authorities, while quasi-public sector clients include utility service providers, energy producers, and healthcare providers. Of our private sector
clients, our largest clients are contractors, construction engineering firms, and institutional property owners.
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Although we anticipate public and quasi-public sector clients to represent the majority of
our revenues for the foreseeable future, we intend to continue expanding our service offerings to private sector clients. Historically, public and quasi-public sector clients have demonstrated greater resilience during periods of economic downturns,
while private sector clients have offered higher gross profit margin opportunities during periods of economic expansion.
Marketing and
Sales
We strive to position ourselves as a preferred, single-source provider of professional and technical consulting and
certification services to our clients. We obtain client engagements primarily through business development efforts, cross-selling of our services to existing clients, and maintaining client relationships, as well as referrals from existing and
former clients.
Our business development efforts emphasize lead generation, industry group networking, and corporate
visibility. Most of our business development efforts are led by members of our engineering and other professional teams, who are also responsible for managing projects. Our business development efforts are further supported by our shared services
marketing group, which consists of a seasoned marketing manager and marking support personnel located at our corporate headquarters as well as several of our operating units.
As our service offerings become more expansive, we anticipate increasing our cross-selling opportunities. Currently, we are often able to offer our construction quality assurance services in conjunction
with our infrastructure, engineering, and support services to the same clients.
In our experience, there has been a recent
trend in the engineering and consulting industry in which client relationships have shifted away from project-specific engagements and toward long-term, multi-project relationships. This shift requires that service providers commit considerable
resources toward maintaining client relationships, including dedicating both technical and marketing resources tailored to the specific needs clients. We are committed to maintaining our client relationships by, among other things, remaining
responsive to our clients needs and continuing to offer a broad range of quality service offerings and value added solutions.
Employees
As of
January 15, 2013, we had approximately 439 employees, including approximately 349 full-time employees, which includes approximately 168 licensed engineers and other professionals. Our employee attrition rate for 2011 among all staff, part-time
and full-time, was approximately 25%. To date, however, we have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel. We consider our employee
relations to be good.
Backlog
As of December 31, 2012, we had approximately $45.0 million of gross revenue backlog expected to be recognized over the next 12 months. Most of our government contracts are multi-year contracts for
which funding is 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.
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.
Competition
We believe that the engineering and consulting industry is
highly fragmented, characterized by many small-scale companies that focus their operations on regional markets or specialized niche activities. As a result, we compete with a large number of regional, national, and global companies. Certain of these
competitors have broader service offerings and greater financial and other resources than we do. Others are smaller, more specialized, and concentrate their resources in particular areas of expertise. The extent of our competition varies according
to the particular markets and geographic area. The degree and type of competition we face is also influenced by the type and scope of a particular project.
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We believe the providers of engineering and consulting services primarily compete on the
quality of service, relevant experience, staffing capabilities, reputation, geographic presence, stability, and price. Price differentiation remains an important element in competitive tendering and is the most significant factor in bidding for
public sector consultancy contracts. The importance of the foregoing factors varies widely based upon the nature, location, and size of the project. We believe that certain economies of scale can be realized by service providers that establish a
national reputation for providing engineering and consulting services in all five of the service sectors in which we do business. Since the demand for engineering and consulting services within each service offering is viewed as only moderately
correlated with the demand for services within the other service offerings, we are of the view that engineering and consulting firms can benefit considerably from diversified service offerings.
The number of competitors for any procurement can vary widely, depending upon technical qualifications, the relative value of the
project, geographic location, the financial terms, the risks associated with the work, and any restrictions placed upon competition by the client. Our ability to compete successfully will depend upon the effectiveness of our marketing efforts, the
strength of our client relationships, our ability to accurately estimate costs, the quality of the work we perform, our ability to hire and train qualified personnel, and our ability to obtain insurance.
We believe our principal competitors include the following firms (in alphabetical order): AECOM Technology Corporation (NYSE: ACM), AMEC
plc (LSE: AMEC), Bureau Veritas (PAR: BVI), Cardno Limited (ASX: CDD), Intertek Group plc (LSE:ITRK), Jacobs Engineering Group Inc. (NYSE: JEC), Kleinfelder & Associates, Professional Service Industries, Inc., Terracon Consultants, Inc.,
Tetra Tech, Inc. (NASDAQ: TTEK), TRC Companies, Inc. (NYSE: TRR), URS Corporation (NYSE: URS), Willdan Group (NASDAQ: WLDN), and WS Atkins plc (LSE:ATK).
Seasonality
Due primarily to inclement weather conditions, which lead to
project delays and slower completion of contracts, and a higher number of holidays, our operating results during the months of December, January, and February are generally lower than our operating results during other months. As a result, our
revenue and net income for the first and fourth quarters of a fiscal year may be lower than our results for the second and third quarters of a fiscal year.
Insurance and Risk Management
We maintain insurance covering professional
liability and claims involving bodily injury and property damage. We consider our present limits of coverage, deductibles, and reserves to be adequate. Wherever possible, we endeavor to eliminate or reduce the risk of loss on a project through the
use of quality assurance and control, risk management, workplace safety, and similar methods.
Risk management is an integral
part of our project management approach for fixed-price contracts and our project execution process. We have a risk management process that reviews and oversees the risk profile of our operations. This group also participates in evaluating risk
through internal risk analyses in which our corporate management reviews higher-risk projects, contracts, or other business decisions that require corporate approval.
Regulation
We are regulated in a number of fields in which we operate. We
contract with various U.S. governmental agencies and entities. When working with U.S. governmental agencies and entities, we must comply with laws and regulations relating to the formation, administration, and performance of contracts. These laws
and regulations contain terms that, among other things:
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require certification and disclosure of all costs or pricing data in connection with various contract negotiations;
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impose procurement regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based
U.S. government contracts; and
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restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
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Internationally, we are subject to various government laws and regulations (including the
FCPA and similar non-U.S. laws and regulations), local government regulations, procurement policies and practices, and varying currency, political, and economic risks.
To help ensure compliance with these laws and regulations, our employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations.
Access to Information
Our Internet address is
www.nv5.com.
We make available at this address, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission (the SEC). Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange
Act are also available through our website. Information contained on our Web site is not part of this Annual Report on Form 10-K. In addition to visiting our website, you may read and copy any document we file with the SEC at the SECs Public
Reference Room at 100 F. Street, NE, Washington, D.C. 20549 or at
www.sec.gov
. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room.
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We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations. The risks described below highlight some of
the factors that have affected, and in the future could affect our operations. Additional risks we do not yet know of or that we currently think are immaterial may also affect our business operations. If any of the events or circumstances described
in the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected.
The loss of key personnel or our inability to attract and retain qualified personnel could significantly disrupt our business.
As a professional and technical engineering and consulting solutions provider, our business is labor intensive and, therefore, our ability
to attract, retain, and expand our senior management, sales personnel, and professional and technical staff is an important factor in determining our future success. The market for qualified scientists, engineers, and sales personnel is competitive
and we may not be able to attract and retain such professionals. It may also be difficult to attract and retain qualified individuals in the timeframe demanded by our clients. Furthermore, some of our government contracts may require us to employ
only individuals who have particular government security clearance levels. Our failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively. In addition, with the
exception of certain of our executive officers, we do not have employment agreements with any of our employees. The loss of the services of any key personnel could adversely affect our business. We do not maintain key-man life insurance policies on
any of our executive officers.
We depend on the continued services of Mr. Dickerson Wright, our Chairman, Chief Executive Officer,
and President. We cannot assure you that we will be able to retain the services Mr. Wright.
We are dependent upon
the efforts and services of Mr. Dickerson Wright, our Chairman, Chief Executive Officer, and President, because of his knowledge, experience, skills, and relationships with major clients and other members of our management team. The loss of the
services of Mr. Wright for any reason could have an adverse effect on our operations.
Demand from our state and local government
and private clients is cyclical and vulnerable to economic downturns. If the economy remains weak or client spending declines further, then our revenue, profits, and financial condition may deteriorate.
Demand for services from our state and local government and private clients is cyclical and vulnerable to economic downturns, which may
result in clients delaying, curtailing, or canceling proposed and existing projects. Our business traditionally lags the overall recovery in the economy. Therefore, our business may not recover immediately when the economy improves. If the economy
remains weak or client spending declines further, then our revenue, profits, and overall financial condition may deteriorate. Our state and local government clients may face budget deficits that prohibit them from funding new or existing projects.
In addition, our existing and potential clients may either postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some of our clients to demand better pricing terms or delay payments
for services we perform, thereby increasing the average number of days our receivables are outstanding and the potential of increased credit losses on uncollectible invoices. Further, these conditions may result in the inability of some of our
clients to pay us for services that we have already performed. If we are not able to reduce our costs quickly enough to respond to the revenue decline from these clients, our operating results may be adversely affected. Accordingly, these factors
affect our ability to forecast our future revenue and earnings from business areas that may be adversely impacted by market conditions.
Our operating results may be adversely impacted by worldwide economic uncertainties and specific conditions in the markets we address.
Over the past several years, the general worldwide economy has experienced a downturn due, at various times, to the
lack of available credit, slower economic activity, concerns about inflation and deflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, and adverse business conditions. These conditions make
it extremely difficult for our clients and vendors to accurately forecast future business activities, which could cause businesses to slow spending on services. Such conditions have also made it very difficult for us to predict the short-term and
long-term impacts on our business. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery worldwide or in our industry, and any such economic slowdown could have any adverse effect on our results
of operations.
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Our revenue, expenses, and operating results may fluctuate significantly.
Our revenue, expenses, and operating results may fluctuate significantly because of numerous factors, some of which may contribute to more
pronounced fluctuations in an uncertain global economic environment. In addition to the other risks described in this Risk Factors section, the following factors could cause our operating results to fluctuate:
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delays, increased costs, or other unanticipated changes in contract performance that may affect profitability, particularly with contracts that are
fixed-price or have funding limits;
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seasonality of the spending cycle of our public sector clients, notably the U.S. federal government, the spending patterns of our private sector
clients, and weather conditions;
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budget constraints experienced by our federal, state, and local government clients;
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our ability to integrate any companies that we acquire;
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the number and significance of client contracts commenced and completed during a quarter;
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the continuing creditworthiness and solvency of clients;
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reductions in the prices of services offered by our competitors; and
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legislative and regulatory enforcement policy changes that may affect demand for our services.
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As a consequence, operating results for a particular future period are difficult to predict and, therefore, prior results are not
necessarily indicative of results to be expected in future periods. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business, results of operations and financial condition
that could adversely affect our stock price.
We derive a majority of our revenue from government agencies, and any disruption in
government funding or in our relationship with those agencies could adversely affect our business.
For the years ended
December 31, 2012 and 2011, approximately 66% and 65%, respectively, of our revenues were attributable to public and quasi-public sector clients, of which 84% and 84% for the years ended December 31, 2012 and 2011, respectively, were
attributable to public and quasi-public sector clients in California. A significant amount of our revenues are derived under multi-year contracts, many of which are appropriated on an annual basis. As a result, at the beginning of a project, the
related contract may be only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by
numerous factors as noted below. Our backlog includes only the projects that have had funding appropriated.
The demand for
our government-related services is generally driven by the level of government program funding. Accordingly, the success and further development of our business depends, in large part, upon the continued funding of these government programs, and
upon our ability to obtain contracts and perform well under these programs. There are several factors that could materially affect our government contracting business, including the following:
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uncertainty surrounding how any remaining funds are being distributed under the American Recovery and Reinvestment Act of 2009 (ARRA) and
into what governmental areas such funds are being used, and how much funding may remain available;
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changes in and delays or cancellations of government programs, requirements, or appropriations;
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budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services we provide;
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re-competes of government contracts;
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the timing and amount of tax revenue received by federal, state, and local governments, and the overall level of government expenditures;
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curtailment in the use of government contracting firms;
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delays associated with insufficient numbers of government staff to oversee contracts;
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the increasing preference by government agencies for contracting with small and disadvantaged businesses, including the imposition of set percentages
of prime and subcontracts to be awarded to such businesses for which we would not qualify;
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competing political priorities and changes in the political climate with regard to the funding or operation of the services we provide;
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the adoption of new laws or regulations affecting our contracting relationships with the federal, state, or local governments;
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a dispute with, or improper activity by, any of our subcontractors; and
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general economic or political conditions.
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These and other factors could cause government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their rights to terminate contracts, or not to exercise
contract options for renewals or extensions. Any of these actions could have a material adverse effect on our revenue or timing of contract payments from these agencies.
Each year, client funding for some of our government contracts may rely on government appropriations or public-supported financing. If adequate public funding is delayed or is not available, then
our profits and revenue could decline.
Each year, client funding for some of our government contracts may directly or
indirectly rely on government appropriations or public-supported financing such as the ARRA. It is possible that such appropriated funding will never be allocated to projects that represent opportunities for us to the extent that we anticipate, if
at all. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. In addition, public-supported financing such as state and local municipal bonds may be only
partially raised to support existing projects. Public funds and the timing of payment of these funds may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government
contracting firms, increases in raw material costs, delays associated with insufficient numbers of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts, and the overall level of government expenditures. If
adequate public funding is not available or is delayed, then our profits and revenue could decline.
A delay in the completion of the
budget process of the U.S. government could delay procurement of our services and have an adverse effect on our future revenue.
When the U.S. government does not complete its budget process before its fiscal year-end on September 30 in any year, government operations are typically funded by means of a continuing resolution.
Under a continuing resolution, the government essentially authorizes agencies of the U.S. government to continue to operate and fund programs at the prior year end but does not authorize new spending initiatives. When the U.S. government operates
under a continuing resolution, government agencies may delay the procurement of services, which could reduce our future revenue.
California state budgetary constraints may have a material adverse impact on us.
The state of California has experienced, and is continuing to experience, a significant budget shortfall and other related budgetary
issues and constraints. The state of California has historically been and is considered to be a key geographic region for our business, as approximately 74% and 70% of our revenue in for the years ended December 31, 2012 and 2011, respectively,
came from California-based projects. Ongoing uncertainty as to the timing and accessibility of budgetary funding, changes in state funding allocations to local agencies and municipalities, or other delays in purchasing for, or commencement of,
projects have had and may continue to have a negative impact on our net sales and contract revenues and our income.
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Governmental agencies may modify, curtail, or terminate our contracts at any time prior to their
completion and, if we do not replace them, we may suffer a decline in revenue.
Most government contracts may be
modified, curtailed, or terminated by the government either at its discretion or upon the default of the contractor. If the government terminates a contract at its discretion, then we typically are able to recover only costs incurred or committed,
settlement expenses, and profit on work completed prior to termination, which could prevent us from recognizing all of our potential revenue and profits from that contract. In addition, the U.S. government has announced its intention to scale back
outsourcing of services in favor of insourcing jobs to its employees, which could reduce the number of contracts awarded to us. The adoption of similar practices by other government entities could also adversely affect our revenues. If a
government terminates a contract due to our default, we could be liable for excess costs incurred by the government in obtaining services from another source.
Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely affect our profitability.
Our business depends on our ability to win new contracts and renew existing contracts with private and public sector clients. Contract
proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors. These factors include market conditions, financing arrangements, and required governmental approvals.
For example, a client may require us to provide a bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If negative market conditions arise, or if we fail to secure adequate financial arrangements
or the required government approval, we may not be able to pursue particular projects, which could adversely affect our profitability.
Our inability to win or renew government contracts during regulated procurement processes or preferences granted to certain bidders for which we
would not qualify could harm our operations and significantly reduce or eliminate our profits.
Government contracts
are awarded through a regulated procurement process. The U.S. federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as indefinite delivery/indefinite quantity (IDIQ)
contracts, which generally require those contractors who have previously been awarded the IDIQ to engage in an additional competitive bidding process before a task order is issued. The increased competition, in turn, may require us to make sustained
efforts to reduce costs in order to realize revenue and profits under government contracts. If we are not successful in reducing the amount of costs we incur, our profitability on government contracts will be negatively impacted. The U.S. federal
government has also increased its use of IDIQs in which the client qualifies multiple contractors for a specific program and then awards specific task orders or projects among the qualified contractors. As a result, new work awards tend to be
smaller and of shorter duration, since the orders represent individual tasks rather than large, programmatic assignments. In addition, the U.S. government has announced its intention to scale back outsourcing of services in favor of
insourcing jobs to its employees, which could reduce our revenue. Moreover, even if we are qualified to work on a government contract, we may not be awarded the contract because of existing government policies designed to protect small
businesses and underrepresented minority contractors, which would not apply to us. The federal government has announced specific statutory goals regarding awarding prime and subcontracts to small businesses, women-owned small businesses, and small
disadvantaged businesses, with the result that we may be obligated to involve such businesses as subcontractors with respect to these contracts at lower margins than when we use our own professionals. While we are unaware of any reason why our
status as a public company would negatively impact our ability to compete for and be awarded government contracts, our inability to win or renew government contracts during regulated procurement processes or as a result of the policies pursuant to
which these processes are implemented could harm our operations and significantly reduce or eliminate our profits.
If we fail to
complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.
Our engagements often involve large-scale, complex projects. The quality of our performance on such projects depends in large part upon
our ability to manage the relationship with our clients and our ability to effectively manage the project and deploy appropriate resources, including third-party contractors and our own personnel, in a timely manner. We may commit to a client that
we will complete a project by a scheduled date. We may also commit that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards,
we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of a
project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed or canceled, we may bear the cost of
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an underutilized workforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable
delays from government inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by our clients, industrial accidents, environmental
hazards, labor disruptions, and other factors. To the extent these events occur, the total costs of the project could exceed our estimates and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or
eliminate our overall profitability. Further, any defects or errors, or failures to meet our clients expectations, could result in claims for damages against us. Our contracts generally limit our liability for damages that arise from negligent
acts, errors, mistakes, or omissions in rendering services to our clients. However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued.
We depend on a limited number of clients for a significant portion of our business.
Our ten largest clients accounted for approximately 49% and 43% of our consolidated contract revenue in for the years ended
December 31, 2012 and 2011, respectively, with our largest client, San Diego Gas & Electric, accounting for approximately 19% and 14% of our contract revenue for the years ended December 31, 2012 and 2011, respectively. The loss
of, or reduction in orders from, these clients could have a material adverse effect on our business, financial condition, and results of operations.
We have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact our business and operating results. Our ability to successfully integrate acquisitions
could impede us from realizing all of the benefits of the acquisitions, which could weaken our results of operations.
A key part of our growth strategy is to acquire other companies that complement our service offerings or broaden our technical
capabilities and geographic presence. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to differ from our expectations or the expectations of securities analysts. For example:
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we may not be able to identify suitable acquisition candidates or acquire additional companies on acceptable terms;
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we may pursue international acquisitions, which inherently pose more risk than domestic acquisitions;
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we compete with others to acquire companies, which may result in decreased availability of, or increased price for, suitable acquisition candidates;
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we may not be able to obtain the necessary financing on favorable terms, or at all, to finance any of our potential acquisitions;
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we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; and
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acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits.
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In addition, our acquisition strategy may divert managements attention away from our existing businesses, resulting in the loss of
key clients or key employees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets.
If we are not able to integrate acquired businesses successfully, our business could be harmed.
Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and
could severely weaken our business operations. The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition,
the overall integration of the combining companies may result in unanticipated problems, expenses, liabilities, and competitive responses, and may cause our stock price to decline.
The difficulties of integrating an acquisition include, among others:
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unanticipated issues in integration of information, communications, and other systems;
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unanticipated incompatibility of logistics, marketing, and administration methods;
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maintaining employee morale and retaining key employees;
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integrating the business cultures of both companies;
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preserving important strategic client relationships;
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consolidating corporate and administrative infrastructures and eliminating duplicative operations; and
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coordinating geographically separate organizations.
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In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or growth opportunities
that we expect. These benefits may not be achieved within the anticipated time frame, or at all.
Further, acquisitions may
also cause us to:
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issue securities that would dilute our current stockholders ownership percentage;
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use a substantial portion of our cash resources;
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increase our interest expense, leverage, and debt service requirements if we incur additional debt to pay for an acquisition;
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assume liabilities, including environmental liabilities, for which we do not have indemnification from the former owners, as was the case in our
acquisition of Nolte, or have indemnification that may be subject to dispute or concerns regarding the creditworthiness of the former owners;
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record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential impairment charges;
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experience volatility in earnings due to changes in contingent consideration related to acquisition liability estimates;
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incur amortization expenses related to certain intangible assets;
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lose existing or potential contracts as a result of conflict of interest issues;
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incur large and immediate write-offs; or
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become subject to litigation.
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Finally, acquired companies that derive a significant portion of their revenue from the U.S. federal government and that do not follow the same cost accounting policies and billing practices that we
follow may be subject to larger cost disallowances for greater periods than we typically encounter. If we fail to determine the existence of unallowable costs and do not establish appropriate reserves in advance of an acquisition, we may be exposed
to material unanticipated liabilities, which could have a material adverse effect on our business.
If we are not able to successfully
manage our growth strategy, our business and results of operations may be adversely affected.
Our expected future
growth presents numerous managerial, administrative, operational, and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our management information systems and our other internal systems and
controls. In addition, our growth will increase our need to attract, develop, motivate, and retain both our management and professional employees. The inability of our management to effectively manage our growth or the inability of our employees to
achieve anticipated performance could have a material adverse effect on our business.
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Our ability to raise capital in the future may be limited, and our failure to raise capital when
needed could prevent us from achieving our growth objectives.
We may in the future be required to raise capital
through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests
of our stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
Our industry is highly competitive, and we may not be able to compete effectively with competitors.
Our industry is highly fragmented and intensely competitive. Our competitors are numerous, ranging from small private firms to
multi-billion dollar public companies. Contract awards are based primarily on quality of service, relevant experience, staffing capabilities, reputation, geographic presence, stability, and price. In addition, the technical and professional aspects
of our services generally do not require large upfront capital expenditures and provide limited barriers against new competitors. Many of our competitors have achieved greater market penetration in some of the markets in which we compete and have
more personnel, technical, marketing, and financial resources or financial flexibility than we do. As a result of the number of competitors in the industry, our clients may select one of our competitors on a project due to competitive pricing or a
specific skill set. These competitive forces could force us to make price concessions or otherwise reduce prices for our services. If we are unable to maintain our competitiveness, our market share, revenue, and profits could decline.
Our business and operating results could be adversely affected by losses under fixed-price contracts.
Fixed-price contracts require us to either perform all work under the contract for a specified lump sum or to perform an estimated number
of units of work at an agreed price per unit, with the total payment determined by the actual number of units performed. For the years ended December 31, 2012 and 2011, approximately 7% and 11%, respectively, of our revenue was recognized under
fixed-price contracts. Fixed-price contracts expose us to a number of risks not inherent in cost-plus and time and material contracts, including underestimation of costs, ambiguities in specifications, unforeseen costs or difficulties, problems with
new technologies, delays beyond our control, failures of subcontractors to perform, and economic or other changes that may occur during the contract period. Losses under fixed-price contracts could be substantial and adversely impact our results of
operations.
If our clients delay in paying or fail to pay amounts owed to us, it could have a material adverse effect on our liquidity,
results of operations, and financial condition.
Accounts receivable represent the largest asset on our balance sheet.
While we take steps to evaluate and manage the credit risks relating to our clients, economic downturns or other events can adversely affect the markets we serve and our clients ability to pay, which could reduce our ability to collect all amounts
due from clients. If our clients delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, results of operations, and financial condition.
If we extend a significant portion of our credit to clients in a specific geographic area or industry, we may experience disproportionately high
levels of collection risk and nonpayment if those clients are adversely affected by factors particular to their geographic area or industry.
Our clients include public and private entities that have been, and may continue to be, negatively impacted by the changing landscape in the global economy. We face collection risk as a normal part of our
business where we perform services and subsequently bill our clients for such services. For the years ended December 31, 2012 and 2011, our largest client, San Diego Gas & Electric, accounted for approximately 19% and 14%,
respectively, of our revenues. In the event that we have concentrated credit risk from clients in a specific geographic area or industry, continuing negative trends or a worsening in the financial condition of that specific geographic area or
industry could make us susceptible to disproportionately high levels of default by those clients. Such defaults could materially adversely impact our ability to collect our receivables and, ultimately, our revenues and results of operations.
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As a government contractor, we must comply with various procurement laws and regulations and are
subject to regular government audits. A violation of any of these laws and regulations or the failure to pass a government audit could result in sanctions, contract termination, forfeiture of profit, harm to our reputation, or loss of our status as
an eligible government contractor and could reduce our profits and revenue.
We must comply with and are affected by
U.S. federal, state, local, and foreign laws and regulations relating to the formation, administration, and performance of government contracts. For example, we must comply with defective-pricing clauses found within the Federal Acquisition
Regulation (FAR), the Truth in Negotiations Act, Cost Accounting Standards (CAS), the ARRA, the Services Contract Act, and the U.S. Department of Defense security regulations, as well as many other rules and regulations. In
addition, we must also comply with other government regulations related to employment practices, environmental protection, health and safety, tax, accounting, and anti-fraud measures, as well as many others regulations in order to maintain our
government contractor status. These laws and regulations affect how we do business with our clients and, in some instances, impose additional costs on our business operations. Although we take precautions to prevent and deter fraud, misconduct, and
non-compliance, we face the risk that our employees or outside partners may engage in misconduct, fraud, or other improper activities. Government agencies routinely audit and investigate government contractors. These government agencies review and
audit a government contractors performance under its contracts and cost structure and evaluate compliance with applicable laws, regulations, and standards. In addition, during the course of its audits, such agencies may question our incurred
project costs. If such agencies believe we have accounted for such costs in a manner inconsistent with the requirements for FAR or CAS, the agency auditor may recommend to our U.S. government corporate administrative contracting officer that it
disallow such costs. Historically, we have not experienced significant disallowed costs as a result of government audits. However, we can provide no assurance that such government audits will not result in a material disallowance for incurred costs
in the future. In addition, government contracts are subject to a variety of other requirements relating to the formation, administration, performance and accounting for these contracts. We may also be subject to
qui tam
litigation brought by
private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for treble damages. Government contract violations could result in the imposition of civil and criminal penalties or sanctions,
contract termination, forfeiture of profit, or suspension of payment, any of which could make us lose our status as an eligible government contractor. We could also suffer serious harm to our reputation. Any interruption or termination of our
government contractor status could reduce our profits and revenue significantly.
State and other public employee unions may bring
litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to
compete for contracts and may have an adverse effect on our revenue and profitability.
Over at least the last 20
years, state and other public employee unions have challenged the validity of propositions, legislation, charters, and other government regulations that allow public agencies to contract with private firms to provide services in the fields of
engineering, design, and construction of public improvements that might otherwise be provided by public employees. These challenges could have the affect of eliminating or severely restricting the ability of municipalities to hire private firms for
the purpose of designing and constructing public improvements, and otherwise require them to use union employees to perform the services. If a state or other public employee union is successful in its challenge and as a result the ability of state
agencies to hire private firms is severely limited, such a decision would likely lead to additional litigation challenging the ability of the state, counties, municipalities, and other public agencies to hire private engineering, architectural, and
other firms, the outcome of which could affect our ability to compete for contracts and may have an adverse effect on our revenue and profitability.
Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of previously recorded revenue and profits.
We account for some of our contracts on the percentage-of-completion method of revenue recognition. These contracts accounted for
approximately 7% and 11% of our revenue for the years ended December 31, 2012 and 2011, respectively. Generally, our use of this method results in recognition of revenue and profit ratably over the life of the contract based on the proportion
of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to revenue and estimated costs, including the achievement of award fees as well as the impact of change orders and claims, are recorded
when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of
long-term contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenue and profit.
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Our actual business and financial results could differ from the estimates and assumptions that we use
to prepare our financial statements, which may significantly reduce or eliminate our profits.
To prepare financial
statements in conformity with generally accepted accounting principles in the U.S. (U.S. GAAP), management is required to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions could
affect the reported values of assets, liabilities, revenue, and expenses as well as disclosures of contingent assets and liabilities. For example, we recognize revenue over the life of a contract based on the proportion of costs incurred to date
compared to the total costs estimated to be incurred for the entire project. Areas requiring significant estimates by our management include:
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the application of the percentage-of-completion method of accounting and revenue recognition on contracts, change orders, and contract claims;
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provisions for uncollectible receivables and client claims and recoveries of costs from subcontractors, vendors, and others;
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provisions for income taxes, research, and experimentation credits and related valuation allowances;
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value of goodwill and recoverability of other intangible assets;
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valuations of assets acquired and liabilities assumed in connection with business combinations;
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valuation of stock-based compensation expense; and
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accruals for estimated liabilities, including litigation and insurance reserves.
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Our actual business and financial results could differ from those estimates, which may significantly reduce or eliminate our profits.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our securities.
Management continues to review and assess our internal controls to ensure we have adequate internal financial and accounting controls.
Failure to maintain new or improved controls, or any difficulties we encounter in their implementation, could result in material weaknesses, and cause us to fail to meet our periodic reporting obligations or result in material misstatements in our
financial statements. Any such failure could also adversely affect the results of periodic management evaluations (and, once we no longer qualify as an emerging growth company under the JOBS Act or a smaller reporting company
as defined under related Securities and Exchange Commission rules, annual audit attestation reports) regarding the effectiveness of our internal control over financial reporting that will be required under Section 404 of the Sarbanes-Oxley Act
of 2002 (the Sarbanes-Oxley Act) with respect to annual reports that we will file as a public company. The existence of a material weakness could result in errors in our financial statements that could cause us to fail to meet our
reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
For so long as we qualify as an emerging growth company under the JOBS Act, which may be up to five years following our initial public offering, we intend to take advantage of certain
exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404.
Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the
effectiveness of our internal controls over financial reporting.
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Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.
The rate at which we utilize our workforce is affected by a number of factors, including:
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our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;
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our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces;
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our ability to manage attrition;
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our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and
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our ability to match the skill sets of our employees to the needs of the marketplace.
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If we over utilize our workforce, our employees may become disengaged, which will impact employee attrition. If we under-utilize our
workforce, our profit margin and profitability could suffer.
Our backlog is subject to cancellation and unexpected adjustments, and is
an uncertain indicator of future operating results.
As of December 31, 2012, we had approximately $45.0 million
of gross revenue backlog expected to be recognized over the next 12 months. 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.
Employee, agent or partner misconduct or our overall failure to comply with laws
or regulations could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents, or partners could have a significant negative impact on our business
and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other foreign corrupt practices,
regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws, and any other applicable
laws or regulations. For example, the Foreign Corrupt Practices Act (the FCPA), and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S.
officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these regulations and laws, and we take precautions to prevent and detect misconduct. However, since our internal controls are subject to inherent
limitations, including human error, it is possible that these controls could be intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot assure that our controls will protect us from reckless or criminal
acts committed by our employees and agents. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or
all of which could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions. Historically, we have not had any material cases involving misconduct or fraud.
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If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if
we are unable to maintain these relationships, our revenue, profitability, and growth prospects could be adversely affected.
We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputes with our subcontractors arising from, among other things, the quality and timeliness of
work performed by the subcontractor, client concerns about the subcontractor, or our failure to extend existing task orders or issue new task orders under a subcontract. In addition, if any of our subcontractors fail to deliver on a timely basis the
agreed-upon supplies, fail to perform the agreed-upon services, go out of business, or fail to perform on a project, then our ability to fulfill our obligations as a prime contractor may be jeopardized and we may be contractually responsible for the
work performed by those contractors or subcontractors. The absence of qualified subcontractors with which we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts.
Historically, our relationship with our contractors and subcontractors have been good, and we have not experienced any material failure of performance by our contractors and subcontractors. During the years ended December 31, 2012 and 2011, the
utilization of contractors or subcontractors generated approximately 16% and 19%, respectively, of our gross contract revenues.
We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. Our future revenue and
growth prospects could be adversely affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us or if a government agency terminates or reduces these other contractors programs, does not
award them new contracts, or refuses to pay under a contract.
Changes in resource management or infrastructure industry laws,
regulations, and programs could directly or indirectly reduce the demand for our services which could in turn negatively impact our revenue.
Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local, or foreign laws and regulations pertaining to resource management, infrastructure, and the environment.
Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation, or enforcement of these programs, could result in a decline in demand for our services, which could in turn
negatively impact our revenue.
Legal proceedings, investigations, and disputes, including those assumed in acquisitions of other
businesses for which we may not be indemnified, could result in substantial monetary penalties and damages, especially if such penalties and damages exceed or are excluded from existing insurance coverage.
We engage in professional and technical consulting and certification services that can result in substantial injury or damages that may
expose us to legal proceedings, investigations, and disputes. For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury claims, employee or labor disputes, professional liability claims, and
general commercial disputes involving project cost overruns and liquidated damages as well as other claims. In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations about environmental and
engineering conditions of project sites for our clients. We may be deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate. Any unfavorable legal ruling against us could result in substantial
monetary damages or even criminal violations.
In this regard, the agreement pursuant to which we acquired Nolte did not
include representations and warranties regarding the business being acquired or any indemnification provisions or other assurances from the seller regarding Nolte. In the event any unforeseen matters arise, whether regarding the permits and
authorizations required to run the Nolte business, filing of tax returns and payment of associated taxes, or the existence or extent of any contingent liabilities of the Nolte business (including third-party claims to which Nolte may be subject in
the future including regarding professional liability for work performed prior to our acquisition of Nolte), we would be materially adversely affected if we were required to pay damages or incur defense costs in connection with a claim for which no
such indemnity has been provided. In this regard, in 2011, the California Franchise Tax Board initiated an examination of Noltes state tax filings and raised various questions about approximately $0.7 million of research and development tax
credits generated and included on Noltes tax returns for the years 2005-2010. We responded to these inquiries, but in the fourth quarter of 2012, the California Franchise Tax Board denied these credits in full. We are vigorously defending
Noltes position and believe its position meet the recognition criteria under ASC 740-10. We believe Nolte has appropriate documentation to support the credits in full. Accordingly, we have not recorded a liability for uncertain tax benefits
related to these state or federal research and development credits. Nolte has appealed the ruling and engaged a specialist firm to assist with the appeal.
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We maintain insurance coverage as part of our overall legal and risk management strategy to
minimize our potential liabilities; however, insurance coverage contains exclusions and other limitations that may not cover our potential liabilities. Generally, our insurance program covers workers compensation and employers liability,
general liability, automobile liability, professional errors and omissions liability, property, and contractors pollution liability (in addition to other policies for specific projects). Our insurance program includes deductibles or
self-insured retentions for each covered claim. In addition, our insurance policies contain exclusions that insurance providers may use to deny or restrict coverage. Specialty liability and professional liability insurance policies provide for
coverages on a claims-made basis, covering only claims actually made and reported during the policy period currently in effect. Our insurance programs provide coverage for acts or omissions associated with the Nolte business prior to our
acquisition. If we sustain liabilities that exceed or that are excluded from our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations and financial condition, including our profits
and revenue.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as
disrupt the management of our business operations.
We maintain insurance coverage from third-party insurers as part of
our overall risk management strategy and some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail, suddenly cancel our coverage, or otherwise are unable to provide us with adequate
insurance coverage, then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will
be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.
Our failure
to implement and comply with our safety program could adversely affect our operating results or financial condition.
Our safety program is a fundamental element of our overall approach to risk management, and the implementation of the safety program is a
significant issue in our dealings with our clients. We maintain an enterprise-wide group of health and safety professionals to help ensure that the services we provide are delivered safely and in accordance with standard work processes. Unsafe job
sites and office environments have the potential to increase employee turnover, increase the cost of a project to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our operating costs. The
implementation of our safety processes and procedures are monitored by various agencies and rating bureaus, and may be evaluated by certain clients in cases in which safety requirements have been established in our contracts. If we fail to meet
these requirements or do not properly implement and comply with our safety program, there could be a material adverse effect on our business, operating results, or financial condition.
We may be subject to liabilities under environmental laws and regulations, including liabilities assumed in acquisitions for which we may not be indemnified.
We must comply with a number of laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and
hazardous substances. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA), and comparable state laws, we may be required to investigate and remediate regulated hazardous materials.
CERCLA and comparable state laws typically impose strict joint and several liabilities without regard to whether a company knew of or caused the release of hazardous substances. The liability for the entire cost of clean-up could be imposed upon any
responsible party. Other principal federal environmental, health, and safety laws affecting us include, among others, the Resource Conversation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Occupational Safety and
Health Act, the Toxic Substances Control Act, and the Superfund Amendments and Reauthorization Act. Our business operations may also be subject to similar state and international laws relating to environmental protection. Liabilities related to
environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations, could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third-party claims
for property damage or personal injury, or cessation of remediation activities. Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.
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Weather conditions and seasonal revenue fluctuations could have an adverse impact on our results of
operations.
Due primarily to inclement weather conditions, which lead to project delays and slower completion of
contracts, and a higher number of holidays, our operating results during December, January, and February are generally lower in comparison to other months. As a result, our revenue and net income for the first and fourth quarters of a fiscal year
may be lower than our results for the second and third quarters of a fiscal year. If we were to experience lower-than-expected revenue during any such periods, our expenses may not be offset, which could have an adverse impact on our results of
operations.
Catastrophic events may disrupt our business.
Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters as well as
terrorist actions, could negatively impact the economies in which we operate by causing the closure of offices, interrupting projects, and forcing the relocation of employees. We typically remain obligated to perform our services after a terrorist
action or natural disaster unless the contract contains a force majeure clause that relieves us of our contractual obligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may be affected
significantly, which would have a negative impact on our financial condition, results of operations, or cash flows.
Further,
we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational, support, hosted services, and sales activities. Despite our implementation
of network security measures, we are vulnerable to disruption, infiltration, or failure of these systems or third-party hosted services in the event of a major earthquake, fire, power loss, telecommunications failure, cyber-attack, war, terrorist
attack, or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, lengthy interruptions in our services, breaches of data security, and loss of critical data and could harm our future operating
results.
We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual
property rights could adversely affect our competitive position.
Our success depends, in part, upon our ability to
protect our proprietary information and other intellectual property. We rely principally on trade secrets to protect much of our intellectual property where we do not believe that patent or copyright protection is appropriate or obtainable. However,
trade secrets are difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information. In addition, we may be unable to
detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection would adversely affect our competitive business position. In addition, if we are
unable to prevent third parties from infringing or misappropriating our trademarks or other proprietary information, our competitive position could be adversely affected.
We rely on third-party internal and outsourced software to run our critical accounting, project management, and financial information systems. As a result, any sudden loss, disruption, or unexpected
costs to maintain these systems could significantly increase our operational expense and disrupt the management of our business operations.
We rely on third-party software to run our critical accounting, project management, and financial information systems. We also depend on our software vendors to provide long-term software maintenance
support for our information systems. Software vendors may decide to discontinue further development, integration, or long-term software maintenance support for our information systems, in which case we may need to abandon one or more of our current
information systems and migrate some or all of our accounting, project management, and financial information to other systems, thus increasing our operational expense as well as disrupting the management of our business operations.
Our Chairman, Chief Executive Officer, and President owns a large percentage of our voting stock , which may allow him to have a significant
influence on all matters requiring stockholder approval.
Mr. Dickerson Wright, our Chairman, Chief Executive
Officer, and President, beneficially owns approximately 1,821,610 shares, or 70.1% of our common stock on a fully diluted basis as of March 26, 2013. Accordingly, Mr. Wright has the power to influence or control the outcome of important
corporate decisions or matters submitted to a vote of our stockholders, including decisions regarding mergers, going private transactions, and other extraordinary transactions, and to influence or control the terms of any of these transactions.
Although Mr. Wright owes us and our stockholders certain fiduciary duties as a director and an executive officer, Mr. Wright could take actions to address his own interests, which may be different from those of our other stockholders.
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As an emerging growth company within the meaning of the Securities Act of 1933, as amended (the
Securities Act), we will utilize certain modified disclosure requirements, and we cannot be certain whether these reduced requirements will make our securities less attractive to investors
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We are an emerging growth company within the meaning of the rules under the Securities Act. We plan in future filings with the SEC to
utilize, the modified disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of
holding a nonbinding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial
reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our annual gross revenue exceed $1 billion, (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that
is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding
three-year period.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your
influence over matters on which stockholders vote.
Our board of directors have the authority, without action or vote
of our stockholders, to issue all or any part of our authorized but unissued Shares, including Shares issuable upon the exercise of options, Shares that may be issued to satisfy our payment obligations under our incentive plans, or Shares of our
authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote, and, in the case of issuances of preferred stock, likely would result in your
interest in us being subject to the prior rights of holders of that preferred stock.
The sale of a substantial number of Shares may
cause the market price of our Shares to decline.
Sales of a substantial number of shares of common stock in the public
market following our initial public offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. The shares of common stock outstanding prior to our initial public offering are eligible for
sale in the public market at various times in the future. All of our directors and executive officers have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible
into or exchangeable for shares of common stock during the period from March 26, 2013 the continuing through the date 180 days after March 26, 2013, subject to extension in some circumstances, except with the prior written consent of the
representatives of the underwriters. Upon expiration of this lock-up period, up to approximately 2,600,000 shares of common stock held by affiliates and others may become eligible for sale, subject to the restrictions under Rule 144 of the
Securities Act.
We will incur increased costs as a result of being a public company, and the requirements of being a public company may
divert management attention from our business.
As a public company, we will be subject to a number of additional
requirements, including the reporting and corporate requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010, the JOBS Act, and the listing standards of the exchange on which our securities are listed. These requirements
will cause us to incur increased costs and might place a strain on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and financial condition. In
addition, in connection with Section 404(a) of the Sarbanes-Oxley Act, we will need to deliver a report that assesses the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year
ending December 31, 2013, and, in connection with Section 404(b) of the Sarbanes-Oxley Act, our auditors will be required to attest to our internal controls over financial reporting once we no longer qualify as an emerging growth company
under the JOBS Act or as a smaller reporting company, as defined in Exchange Act Rule 12b-2. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant
resources and management oversight will be required. As a result, our managements attention might be diverted from other business concerns, which could have a material adverse effect on our business, prospects, financial condition, and results
of operations. Furthermore, we might not be able to retain our independent directors or attract new independent directors for our committees.
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Provisions in our charter documents and the Delaware General Corporation Law could make it more
difficult for a third party to acquire us and could discourage a takeover and adversely affect existing stockholders.
Anti-takeover provisions in our certificate of incorporation and bylaws, and in the Delaware General Corporation Law, could diminish the
opportunity for stockholders to participate in acquisition proposals at a price above the then-current market price of our common stock. For example, while we have no present plans to issue any preferred stock, our board of directors, without
further stockholder approval, will be able to issue Shares of undesignated preferred stock and fix the designation, powers, preferences, and rights and any qualifications, limitations, and restrictions of such class or series, which could adversely
affect the voting power of your Shares. In addition, our bylaws will provide for an advance notice procedure for nomination of candidates to our board of directors that could have the effect of delaying, deterring, or preventing a change in control.
Further, as a Delaware corporation, we are subject to provisions of the Delaware General Corporation Law regarding business combinations, which can deter attempted takeovers in certain situations. We may, in the future, consider adopting
additional anti-takeover measures. The authority of our board of directors to issue undesignated preferred or other capital stock and the anti-takeover provisions of the Delaware General Corporation Law, as well as other current and any future
anti-takeover measures adopted by us, may, in certain circumstances, delay, deter, or prevent takeover attempts and other changes in control of our company not approved by our board of directors. See Description of Capital Stock for
further information.
We currently do not intend to pay dividends on our shares of Common Stock and, consequently, your only opportunity
to achieve a return on your investment is if the price of our shares appreciates.
We do not expect to pay dividends on
our shares of common stock in the foreseeable future and intend to use cash to grow our business. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as the
extent to which our financing arrangements permit the payment of dividends, earnings levels, capital requirements, our overall financial condition, and any other factors deemed relevant by our board of directors. Consequently, your only opportunity
to achieve a return on your investment in us will be if the market price of our common stock appreciates.