And I think that we may have not done that as well in ’23 as we intend to do in ’24. So the specific – and then the third initiative, we have incentivized for organic growth, we’ve incentivized the entire infrastructure group by rewarding them for the highest organic growth by a specific segment of that business. So the three things that we’re doing is expediting our recruiting process and really making that we want to react quicker. The second thing is to be much more outpacing with the clients. And we really want our people to really lead the way in supporting and adding value to the clients. And the third thing, of course, is the incentivizing the whole focus of the infrastructure group this year is on organic growth, and we’re willing to reward that for the highest organic growth in the business.
So we can do better, and we intend to do better in 2024 with the infrastructure organic growth.
Jeff Martin: Thank you for that. And then I wanted to drill down a little bit more on the recurring revenue strategy. How much of the business today would you consider recurring revenue? And what do you think the growth potential is there? And what tactically do you need to do to implement that strategy?
Edward Codispoti: It’s only this. We don’t have any recurring. The VIS portion, which is software and all recurring revenue is about $30 million of the total. We do feel though that recurring revenue does happen also in our data center work and our analytical work and our energy efficiency work. For example, what we’re doing in Macau right now is all a reoccurring model of revenue. So Jeff, I would say I don’t want to be specific. We really want to move the company towards more recurring revenue. But probably right now, it’s only about $50 million of the – what’s in the budget.
Jeff Martin: Okay. And then one more, if I could. West Coast has had a lot of severe weather since the start of the year. Just curious if you’re seeing an impact on the – in the first quarter from that?
Dickerson Wright: Well, I can’t speak of anything specific because we haven’t released the first quarter results. However, we are pleased with the results so far in the quarter. And surprisingly, our infrastructure group, which is the most impacted by severe weather has done better than expected.
Jeff Martin: Good to hear. Thank you.
Operator: [Operator Instructions] And we will take our next question from Michael Feniger with Bank of America. Your line is open.
Michael Feniger: Hi, guys.
Dickerson Wright: Hi, Mike.
Michael Feniger: Thank you. Hi, everybody. Thanks for squeezing me in. Just the 14% growth in Q4, is that mostly organic or are there some acquisition contribution in the revenue growth in the fourth quarter?
Edward Codispoti: Yes, the fourth quarter – we acquired, if you recall, Axim and VIS in February and April of ’23, respectively. So quarter-over-quarter, you’re seeing the impact of both of those acquisitions. So most of that is acquisition related.
Michael Feniger: Great. That’s helpful. And Ed, if I could just follow up. I apologize if you kind of addressed it. Just we’re seeing the revenue growth guide for ’24. Is there any reason why that growth doesn’t translate to the adjusted EPS growth on a year-over-year basis? Is there any puts and takes there? And is there any way you can kind of help us ballpark what would the EBITDA growth be similar to the revenue growth that you’re expecting? Just kind of trying to put some guardrails around this, so we’re all in the same boat.
Edward Codispoti: Yes. Well, the EPS and the guidance does correlate to the top line. I mean, we assume that the trending – the currently trending margin. So it should be in the ballpark. And I would expect on the adjusted EBITDA margins again, those should be pretty consistent with what we saw in ’23.
Michael Feniger: Got it. Helpful. And Ed, just last one for you. Just the cash from ops in ’23 was down, but you had a nice jump in the fourth quarter that you guys were highlighting. Just anything we should kind of think about for the cash flow because there are some moving pieces in 2023, how to kind of think about that for 2024?
Edward Codispoti: Absolutely. When you look at the cash flow statement, you’ll see that we have drawn down on that cash from ops, about $15 million in unbilled receivables. And so that’s the nature of the business, in particular, in geo with some of our larger projects. The billing milestones are more on the tail end of the projects as opposed to the actual work performed, if that makes sense. So that drags us down a little bit. We also had in ’23, I’m sure many of you are familiar with Section 174 of the IRS code that was passed along with the Jobs Act. And we paid an additional – it has to do with the capitalization of – for tax purposes of R&D expenses where you must capitalize them and amortize them over a period of time rather than take them all at once.
So in those first say, five years or so, it takes you a while to bounce out. And during that ramp-up time, you’re paying more than you historically paid in taxes. It’s not that it affects your income tax effective rate at all. It’s just more cash flow. And so we had to pay around $19 million more in 2023. Now the interesting thing is that I believe it was last month, the House passed a bill to repeal that, and it’s now going to the Senate. If that is repealed, then we would – those payments that we’ve made for both 2023 and 2022 would come back to the company if that’s the way that they administer the repeal. So those are just some of the unique items when you think about cash flow that are affecting us this year.
Michael Feniger: Great. And just lastly, and maybe Dickerson, you’ll touch on this in your including remarks. Congratulations, by the way, with the succession plan. Just anything we should be aware of in terms of changes to NV5 going forward, is the M&A strategy changing. Maybe certain types of reporting with the CO-CEO. Just curious, this is – is this kind of a big deal to see this? And I’m just curious, seriously, if there’s any shift in the strategy that we’ve been hearing from NV5 maybe going forward with the secession plan coming effective in March?
Dickerson Wright: Well, yes, I think, let me answer the question. Hopefully, in the order that you asked. Our M&A is very active. In fact, we’re probably more active than I can ever remember us being. We will focus, and we’re always going to be opportunistic. And so will we be opportunistic in our three key areas of growth that I announced with our Building Technology group, our infrastructure group and our Geospatial Group. So we will look for various acquisitions that really strengthen those platforms. And in my concluding comments, there are some specific things that are happening right now that we really feel we’re in a good position to take advantage of. And so if you don’t mind, Mike, I will speak specifically of some of the changes that we’re going to do in the in the services that we may offer.
But the real intent is to be opportunistic and to grow those key areas. You’ll notice that we made a large acquisition in our infrastructure group at the beginning of this year. There may be other acquisitions for infrastructure and for Geospatial. And we really want to take advantage of work as being done in our Building Technology group. So it’s just a matter of M&A activity is very active right now, and we are going to be opportunistic in those three segments that we mentioned.
Michael Feniger: Great, thank you.
Operator: And ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call back over to Mr. Wright for closing remarks.
Dickerson Wright: Thank you. I was listening to the questions and the calls today, and I have a few things that I’d like to say about what we have accomplished in 2023 and what we look forward to in 2024. First, 2023 was a positioning year for NV5’s future growth. We established this platform to really grow and although, as you know, when companies are repositioning and they internalize, but we still had a very profitable year and a year of growth, even though we will certainly see the rewards of that in 2024. We remain, as Mike – as I mentioned to Mike, we remain very active in M&A activity, and in fact, we intend to shortly to conclude a number of acquisitions to expand our platform. So we are very, very active in that role.
In the macro picture, you may have noticed in the national news recent announcements that $2 trillion will be spent in the next five years for worldwide data center production and improvements. NV5 is well positioned through our building technology group to take advantage of this opportunity. We have made three acquisitions, specifically in support of data centers, with many more to follow. Domestically, our infrastructure services group is off to a very good start in 2024. Initiatives that I mentioned earlier and incentives that I mentioned earlier seem to have provided a focus on organic growth, and so we’re pleased with the results there. You heard us mention that this is in our Geospatial Group. Although that business is strong, it’s very robust.
We are dependent on the federal government and work that’s been delayed because of the continuing resolution. So as that is resolved, we will certainly increase our geospatial activity, but we are still dependent on the federal continuing resolution. And so if you’ve seen some, in fact, we probably would have had an even stronger quarter in the fourth quarter if we didn’t have to experience those delays and we’re seeing that impact right now. But as that resolution goes, then I think we will be well-positioned to move forward. Overall, I am pleased to report that business for 2024 is strong. We have anticipated growth and profitability and you’ll notice, and it was a key comment that Ed made, while we were doing this, and as we did these acquisitions, we reduced our debt, we reduced our leverage from 1.4 times EBITDA down to 1.2 times.
So we are mindful on being a profitable, expanding company, but we need to adapt, we need to restructure to allow our key people to grow the business and grow the company. So we anticipate a very good year in 2024, and we thank everyone for your listening today and look forward to us, we will join you again in the first quarter of 2024 to see where we are. So thank you very much.
Operator: Ladies and gentlemen, this concludes today’s call. And we thank you for your participation. You may now disconnect.
