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NV5 Holdings Inc (NASDAQ:NVEE)
Q1 2020 Earnings Call
May 8, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's Financial Results for the First Quarter of 2020. Joining us today are Dickerson Wright, Chairman and CEO of NV5; Edward Codispoti, CFO of NV5; Alex Hockman, President and COO of NV5; Mark Abatto, President and COO, NV5 Geospatial Solutions; and Richard Tong, Executive Vice President and General Counsel of NV5.

I would now like to turn the call over to Richard Tong.

Richard Tong -- Executive Vice President & General Counsel

[Technical Issues] and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. During this call, GAAP and non-GAAP financial measures will be discussed. A reconciliation between the two is available in today's earnings release and on the company's website at www.nv5.com. Please note that unless otherwise stated, all references to first quarter 2020 comparisons are being made against the first quarter of 2019.

In this presentation, NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities and Exchange Act of 1934 as amended. The non-GAAP financial measures included in this presentation are: total revenues, net revenues, adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margin. NV5 provides non-GAAP financial measures to supplement GAAP measures as they provide additional insight into NV5's financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance or a substitute for GAAP.

In addition, other companies may define non-GAAP measures differently, which limits the ability of investors to compare non-GAAP measures of NV5 to those used by peer companies. A webcast replay of this call and its accompanying presentation will also be available via the link provided in today's news release and in the Investors section of the company's website.

We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Edward Codispoti, Chief Financial Officer, for a review of the first quarter of 2020 and outlook for the rest of the year. Alex Hockman, President and CEO of NV5; and Mark Abatto, President and COO of NV5's Geospatial Solutions, will then provide some insight into the challenges and opportunities for NV5's operations as a result of COVID-19 before turning the call back to Dickerson Wright for a quick review of employee engagement practices we have put in place to ensure that our employees understand the steps we have taken to support business continuity during the COVID-19 outbreak. We will then open the call for your questions. Dickerson, please go ahead.

Dickerson Wright -- Chairman, Chief Executive Officer

Thank you, Richard, and thank you to everyone joining us for NV5's First Quarter 2020 Conference Call. These are certainly challenging times. And the COVID-19 pandemic has caused a significant disruption to economic growth worldwide. NV5 has had to adapt to the conditions and be proactive in its approach.

In a moment, I will discuss the proactive steps that we have taken to adjust to the current environment. But before we get into those details, I would like to direct you to Slide 5 of our presentation. We are fortunate that a majority of NV5 offerings are non-discretionary services with minimal dependence on economic cycles. We hear a lot about essential services during the COVID-19 pandemic. The essential services that continue to operate during the pandemic are determined by each municipality, county or state. However, essential services are largely based on 16 critical infrastructure sectors established by the Cybersecurity and Infrastructure Security Agency within the Department of Homeland Security. In the bottom right-hand corner of this slide, you will see those categories. And the ones that NV5 serves are in bold type. In particular, I'd like to draw your attention to the four essential services that make up a majority of NV5's business. They are: utilities, which are identified there as energy; transportation; water resources; civil program management. All of these are considered essential services and our work continues on these critical infrastructure projects during strong economic times, weak economic times and even during the COVID-19 outbreak.

As you'll see, our backlog has remained strong. We have had very few project cancellations to date. Although there have been some delays in new contract signings because some municipalities and jurisdictions have had to adjust to the new work environment, we have seen growth in the utility sector and received communication from our utility clients who continue to work on all projects. In fact, we have hired 15 people in this sector to serve billable direct roles to these clients.

On a related note, you may have noticed that we have changed the name of our energy vertical to utility services to better depict the services that we are providing. Energy service has a traditional connection to oil, and we provide no service that has a relationship with or dependent on oil. To alleviate this confusion, you will see utility services in all future communications.

While our public and quasi public sector work to date has remained steady, we have seen some erosion to our commercial, hospitality and transactional real estate services. Ed and Alex will highlight the financial impact and operational impact in these areas a little later in this presentation.

But if you would please turn to Slide 6 now, I would like to take a moment to discuss the proactive steps we have taken to stay ahead of any impact to our business. At the very beginning of the COVID-19 outbreak, we immediately canceled non-essential travel along with all trade shows and conferences. We have also frozen salaries, bonuses and furloughed or laid off non-essential staff. Total staff reduction represents approximately 1.5% of our 4,000 full-time equivalent personnel.

In addition, we have negotiated terms, rates, abatement and deferrals from vendors and facility leases. Finally, we are managing both fixed and variable costs and aligning terms of our accounts receivable and accounts payable. So in total, we estimate these proactive steps to have saved $4.5 million to $5.0 million in a 12-month revenue basis going forward. So we are preparing for this disruption if indeed it happens.

If you'll please turn to Slide 7, I'd like to talk about our business continuity practices that we have put in place. The safety and health of all of our employees is foremost. And to that end, we have provided direction as well as personal protective equipment in conformance with the Center of Disease Control and the World Health Organization and also local authorities for control and prevention directives as it relates to the COVID-19 virus.

As previously mentioned, we are fortunate to have a non-discretionary business, requiring us to provide essential service. Therefore, most of our people are working from home or project locations and are busy. As you can see in the left-hand column, we have three categories of employees, including office-based personnel in billable positions, such as engineers, CAD operators and plan reviewers; we have field-based personnel such as inspectors, surveyors and geospatial data acquisition specialists; and technicians and analysts.

Lab technicians who have to work from an NV5 office to perform their job duties will be at that location. We have put continuities into place for each of these categories to help keep all of our people safe. The office-based billable personnel is our largest category of employees, and they are now largely working remotely. Therefore, we have provided them with essential engineering and finance hardware and software tools and increased utilization requirements as they work remotely.

As you know, our business is directly dependent upon the reconciliation of paid labor and billed labor. During the time that our personnel have been working remotely, we have seen an estimated increase in utilization of 8%. As I mentioned earlier in my comments, we have seen increases in our backlog in the first quarter. I would just like to highlight a few of the key wins that made up that backlog that were awarded to us in the quarter. Our geospatial solutions business was selected by NOAA as a prime consultant on a $40 million topobathymetric LiDAR contract. And our LNG utility business was awarded a $34 million liquefaction system upgrade contract.

In the infrastructure vertical, we were awarded a $3.9 million project to develop an environment study contract by the Florida Department of Transportation. And in California, we were awarded a $2.4 million surveying and engineering services contract by the City of Merced. So work is still being awarded during the COVID-19, and we're making the most of the opportunities that are presented to us and that we proactively seek.

I will now hand the presentation over to our Chief Financial Officer, Ed Codispoti, to provide an overview of our first quarter results and some details about our thoughts on the remainder of 2020. Ed?

Edward H. Codispoti -- Chief Financial Officer

Thank you, Dick, and good afternoon, everyone. If you would please turn to Slide 9, I'd like to start off with a review of our P&L results. As you can see, we had strong first quarter results this year. Our total revenues increased 42% to $167 million, and our net revenue increased 43% to $129.6 million. This represented an organic growth of 4%. Our adjusted EBITDA also showed substantial growth as it increased 58% from last year to $24.1 million. This growth not only reflects the growth in our business but also the increase in our scale as our margin increased to 19% of net revenues from 17%.

Our growth was reflected in adjusted EPS as well. We had 11% growth in our adjusted EPS as we grew to $0.84 per share from $0.76 per share a year ago. Our financial strength was not just reflected in earnings. Our cash flows were also strong as we generated $13.6 million this quarter.

Turning now to Slide 10. As you can see, our balance sheet and liquidity positions remain strong. And we've continued to be in a stable and solid financial position. As of the end of the quarter, we had $38.3 million of cash on hand, $45 million of available draws under our debt revolver and our net accounts receivable were $211.9 million. Of course, due to the uncertainties regarding the coronavirus on the economy, we have been proactive in planning for uncertainties. We have executed quite a few cost-cutting initiatives, including reductions of costs wherever possible. The initiatives have included staff reductions, wage freezes and renegotiations with vendors.

To that end, we are withdrawing previously provided guidance for fiscal 2020. We have also taken measures to ensure that we have access to all available funds under our debt revolver. Therefore, this week, we amended the terms of our credit agreement to increase allowed leverage under our covenants.

If you would please turn to Slide 11, I'll walk you through the changes we made. Now although we don't know at the moment if we need the increases in these covenants, we felt it was prudent to plan for any unforeseen impacts on the economy due to the coronavirus. As you can see in this slide, our previous leverage ratio covenants went from 4.25 to 3.50 between now and the first quarter of next year. With our new terms, our covenants will ratchet up to 5.25 and then come down to 3.50 in the third quarter of next year. Our pricing was also adjusted from a range of 225 basis points to 125 basis points depending on leverage plus LIBOR to between 300 basis points to 150 basis points plus LIBOR with a LIBOR floor of 75 basis points.

I hope this gives you a good sense of our results for the quarter and the financial strength and stability of our balance sheet. With that, I'll turn it over to Alex Hockman, our President, to discuss our operations in more detail. Alex?

Alexander A. Hockman -- President

Thank you, Ed and good afternoon, everyone. Could you please turn to Slide 13. As Dick mentioned earlier, we are fortunate that a majority of our business offerings are considered essential services. However, we do have a few operations that have exposure to the downturn in economic activity. The segment of our mechanical, electrical, plumbing and fire protection business that focuses on hospitality, resorts and casinos, has seen a reduction in capital investment in these sectors.

Also, our real estate due diligence practice is experiencing a downturn. The service line provides ALTA surveys, environmental site assessments and property condition assessments required by financial institutions for real estate transactions. There have also been some project delays due to COVID-19, which you will see in the center column. These are not project cancellations. We are simply moving the revenue to the right.

In New York City, for example, design services have been temporarily delayed, but construction projects continue. We have also had a few projects that were temporarily closed due to someone on the construction site testing positive for COVID-19. I would like to emphasize that these are not NV5 employees, but they did result in temporary closures.

We have also had some intermittent government closures and restrictions, which make it challenging to have contracts approved, and inspections for our forensics engineering business have seen some delays due to restricted access to occupied buildings. COVID-19 has presented some opportunities as well, including opportunities to repurpose facilities to serve as healthcare operations. And as Dick mentioned earlier, we have seen an uptick in our utility services work during the COVID outbreak. Also, our health and safety consulting has seen an uptick as well as our business inspection services as many municipalities have allowed outsourcing to support their capacity.

As a scalable organization, our leaders are diligent to adjust staffing levels to minimize the impacts on earnings that have come from project delays or downturns. We have also implemented a number of cost-cutting measures to navigate through these times.

I would now like to direct you to Slide 14 to speak about the success we have seen in our cross-selling programs. Cross-selling is a key component to driving NV5's organic growth and contributing to our net revenue, which is revenue generated by NV5 employees as opposed to subcontracting with other firms. Net revenues are more profitable than outsourced work and improves our utilization across the organization.

In addition, our ability to offer a broader range of in-house services provides an important competitive advantage. Our cross-selling target for 2020 is $26 million, which equates to $500,000 per week. Our Q1 cross-selling target was $6.5 million, and we exceeded that target by 11%, finishing the quarter with $7.2 million in sales across verticals.

Before I hand the call over to Mark to discuss NV5 Geospatial Solutions, would you please turn to Slide 15. As you can see, our backlog remained strong at the end of the first quarter at $574 million compared to $567 million at the end of Q4 2019. We are continuing to win work and our backlog at the end of this period is a 30% increase over our backlog for the end of Q1 2019. As we have discussed before, backlog is a significant metric that is helpful in estimating the health of the organization. In the current environment, it's good to have a large volume of secured contracts on hand.

At this point, I would like to turn the call over to Mark Abatto, President and COO of NV5 Geospatial Solutions, to provide an overview of the impacts and opportunities for Geospatial Solutions related to COVID-19. Mark?

Mark Abatto -- President and Chief Operating Officer

Thank you, Alex. On Slide 16, you will see that like the core NV5 business, our Geospatial Solutions are considered essential services, given the nature of what we do for the utility industry and all levels of government. Our uninterrupted support of customers resulted in a strong quarter, as Ed mentioned earlier. While the way in which we address the market is different today than it was a few months ago, the demand for Geospatial Solutions remains strong.

Importantly, our customers continue to leverage our solutions to support regulatory compliance programs, including safety and reliability obligations as well as critical infrastructure and emergency response planning. We entered 2020 with the largest geospatial backlog in our history, driving growth in Q1 and sustaining near-term delivery activity at a high level. As you know, the front end of our value stream often involves acquiring data with sophisticated remote sensing technology operated by our field crews and supplemented by our partner network.

As an essential business, that activity has continued uninterrupted despite logistics challenges associated with travel. We continue to follow the guidelines of the CDC and health officials as we monitor state-by-state and regional travel guidelines. We have successfully transitioned our support teams and geospatial professionals who deliver the downstream data production and analytics solutions to the safety of their homes.

As we explore potential business impacts of the pandemic, three things arise which we are monitoring closely. The first is the potential redistribution of government spending to COVID-19 response programs, which could delay funding to existing programs and delay new project starts, pushing backlog to future quarters. It's important to emphasize the footer at the bottom of the slide. We are a business with limited fixed costs, and we have the ability to scale the business to meet changing demand patterns. We've seen a decline in industrial manufacturing activity across the United States, which naturally impacts the utility industry's revenue source. While we expect sustained demand for solutions in support of regulatory compliance, safety and reliability programs, funding for novel geospatial solutions could be deferred.

Now the disruptors, as I mentioned, if they occur, could simply delay customer spending to later quarters. And as business conditions improve, we could see increased demand pressure on capacity and resources. So we are focused on ways to expand capacity through process efficiency and partnerships. Finally, with an intermediate to long-term perspective, we continue to see emerging growth opportunities; notably, the demand for geospatial solutions connected to shovel-ready infrastructure projects that may be accelerated by a federal stimulus program. Secondly, we feel that remote sensing solutions like ours are proving daily that there are more effective, efficient and safer alternatives to monitor and inspect high-value assets than traditional manual field-based methods.

And with that, I'd like to turn it back over to Dickerson Wright to say a few words about employee inclusion. Dickerson?

Dickerson Wright -- Chairman, Chief Executive Officer

Thank you, Mark. On Slide 18, I will discuss some of the steps that we have taken to drive an inclusion through the organization. NV5's business is people. We believe we have the best people and that is what has fueled our ability to grow faster than the industry's average and is the driver for our ability to continue driving growth in the future.

If you have followed NV5, you will know that we drive stock ownership deep within our organization. We want partners, not just employees. And providing restricted stock ownership into all levels of the organization means that we are all in this together.

As the leaders of NV5, we have an obligation to provide our employees with the training and equipment that they need to do their jobs in the safest manner possible, and we have an obligation to provide them with the necessary tools to continue performing their jobs at a high level in this new work environment.

We've been proactive in providing personal protective equipment and hardware and software resources to make their transition to remote working or field work in a COVID-19 environment as seamless as possible. But we also have a responsibility to be transparent with our employees. We have had to make some tough decisions, just like virtually every other company during these tough economic times. Employees naturally have questions at a time like this. And we are actively working to communicate with all of our employees to alleviate any uncertainty that they may be feeling. We tried to be transparent about our actions that we have taken to support business continuity and offering transparency about topics like wage and bonus raises, limited profit sharing contributions and staffing reductions when they have been required. Our senior leaders are meeting virtually and communicating with all of our employees and addressing any questions they have head on.

NV5 has always been a business of inclusion, driving stock ownership deep into the organization because we want shareholders, not just employees. As I mentioned, we've also increased our inclusion practices with expanding stock ownership opportunities throughout the organization. We have provided the necessary tools and technologies to allow remote employees to not only perform their jobs without disruption, but also to be able to connect with their coworkers from their remote workspaces. Reviews and career opportunity engagement between the direct management and employee continue.

We are giving an additional scrutiny to ensure that employees understand their current performance and the opportunities that are available to them throughout NV5. All of these practices are put in place to mitigate the haves and the have-nots. We do not want a separation. We are all in this together. As a rapidly growing company, opportunities for career advancements are available for all NV5 employees. We want them to know this. We want all of them to benefit from the hard work and dedication they are putting into their jobs and the subsequent growth of NV5.

The steps that we are taking to communicate with our employees and to make them feel included in the growth of NV5 are not only essential for setting minds at ease, but they are also critical to the long-term growth of NV5.

This will complete our prepared remarks. And now we'd like to open the call for your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Chris Moore with CJS Securities. You may proceed with your question.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Thank you. Hey, good afternoon guys.

Dickerson Wright -- Chairman, Chief Executive Officer

Hi Chris.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Yes. How are you? Maybe we could just start on Slide 13. You're talking about the -- that Alex went through the -- some of the COVID-19 challenges. Just trying to get a sense for perhaps kind of the magnitude of some of these things. I know in the left column, some of the exceptions, discretionary. I know that's not a big revenue source. But maybe you could get a feel for how big that is and then talk about kind of the center column the magnitude there that we're talking about.

Dickerson Wright -- Chairman, Chief Executive Officer

Okay. So Chris, if we understand -- I'm now on Slide 13 with you. If I understand your first question, it would be what erosion or degradation we've had in business on the discretionary work in the left-hand column?

Christopher Moore -- CJS Securities, Inc. -- Analyst

Exactly.

Dickerson Wright -- Chairman, Chief Executive Officer

Okay. Yes, as a -- what we -- we started to see a slight amount of erosion in the last portion of March. And we saw specifically in that area in our real estate portfolio business, our reoccurring revenue business that is our division that does the ALTA surveys and the existing property surveys and environmental work for existing properties that are selling. So that is a portfolio-based work, mainly with REITs and the private sector and with those firms that are buying portfolio of properties. So we started to see some degradation of that. But that entire piece of business, even if it's going out at full budget capacity, represents a much smaller amount of our business. And so roughly on a $700 million run rate, that represents about 6% of our business, and the erosion is not 100%. So between that and the -- hospitality work is mostly, as Alex mentioned, with our design work for MEP and work there. So that total amount of erosion that we've seen only represents -- the total between both of those represents about 8% or 9% revenue of our business. But that's difficult. Let me just go on. I don't want to belabor this answer. But we've seen in that hospitality space -- I mean, the hospital space, which is also somewhat included in that -- well, that's more in the healthcare and the new growth areas. We are seeing some improvements in the hospitality space and resourcing casinos. And these are safety protocol procedures that we have been retained to do for COVID monitoring and also COVID writing. And so there's a lot of work that has been done to those very best [Phonetic] three areas that involve work that we would have not normally seen because of COVID. And one is a significant contract between our program management group that deals mostly with the hospitality, resorts, casinos and our environmental health safety group, and we see a lot of cross-selling between that. So that kind of mitigates some of that loss. And so it's probably less than 9% of total erosion, more like 8% of the -- of business.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Got it. Very helpful. And if I'm looking at the center column, the core business impact, it looks like that would be more kind of revenue that will be pushed to the right. Again, I'm just trying to get a general sense in terms of the things that you laid out here. The magnitude are we talking about? On a quarterly basis, is this $5 million worth of revenue? Is it $25 million worth of revenue? Just a sense of the scope.

Dickerson Wright -- Chairman, Chief Executive Officer

That business is basically -- for what we're seeing, is pretty stable because where you have seen -- that really kind of flows to our infrastructure business. And we've seen some awards. We've seen some increases in that business. And so I don't know if I would even consider that a completely negative. I would say that's probably neutral or maybe a minus or 1% or 2%, but not really negative.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Got it. That's helpful.

Dickerson Wright -- Chairman, Chief Executive Officer

And then on the right-hand side, maybe a question you have, we're seeing significant growth in our utility delivery service business. As I may have mentioned, we have seen a -- we are hiring people. We've seen an increase in utilization rates in that area. And our total amount of hires, new hires, that were all direct are over 15 -- about 20 people; I think five in our geospatial business and 15 in that utility business. The healthcare facility is benefiting because of improvements that they have to make for COVID. And that's affecting some of our work in many of the hospitals that we are doing for improvements. And that has an impact both in our mechanical, electrical engineering space and in our environmental space.

And so in the Army Corps of Engineers and other facilities, that is -- some very big projects in converting normal hospitality to healthcare spaces. So that we see as a growth. And we're blessed not to be as impacted as many of the discretionary businesses are.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Got it. Helpful. Last one for me is just kind of on a post-COVID scenario. From a competitive landscape standpoint, it's -- a lot of your competition are smaller companies that are -- that have a regional focus or kind of specialized niche activities. Do you see the potential for -- from kind of competitive environment, competitive landscape as you're being in a better position coming out of this?

Dickerson Wright -- Chairman, Chief Executive Officer

Well, there are some immediate opportunities that we see. We've seen -- and I was going to mention that maybe more in my concluding remarks. But we see opportunities for many firms that are more -- are looking to -- looking for a financial savior. And so we've had many opportunities, so we can be much more selective in the M&A space, and that's in the smaller places.

As a national company, we've been very careful not to put so much dependence on any one region, any one market of service and any one specific area that would really be sensitive to the change in environmental conditions. So we tend to have a much more diversified portfolio, and we tend to be in services that are not subject to economic cycles. And that's maybe more on a national basis.

So to answer your question, Chris, immediate opportunities we're seeing in selective M&A opportunities because we're still in a very strong financial position. And then we also see -- in the go-to-market servicing area, we see a spreading of our service on a national basis and not too much dependence on any one area.

Christopher Moore -- CJS Securities, Inc. -- Analyst

Thanks helpful. Thanks. I'll jump back in line.

Operator

Thank you. Our next question comes from Jeff Martin with Roth Capital. You may proceed with your question.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Thanks. Good afternoon. How are you guys?

Dickerson Wright -- Chairman, Chief Executive Officer

Hi Jeff.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

I was wondering if you could walk us through kind of the decision process behind whether to provide guidance or not? Is it just too uncertain short term? Are you seeing things shift in a way that you're not comfortable with some idea of kind of the factors you weighed in terms of whether to provide updated guidance or not? That would be helpful.

Dickerson Wright -- Chairman, Chief Executive Officer

Well, sure. I'll take that. And please, any of the other speakers, Alex or Ed feel to jump in or Mark as you see things. Our suspension of guidance was we just don't like to get too involved in things that are completely outside of our area of control.

So we certainly -- there are certainly some things in this quarter coming up that could have an effect on that. So we don't want to give guidance that is: one, too optimistic; and then also, we don't want to be too conservative. We certainly are very conservative in our financing relationships, and as you see, as Ed brought out. But our guidance, we don't want to be affected by a smaller space, and those were mostly in those areas where we just don't have the clarity in some of those selective or discretionary areas such as real estate and some of the things that are going on in our casino business and some of the things that are in our forensic business or insurance business that we just don't have the clarity that we had before. So although you'll see an increase in backlog, I think you'll see we had a very strong quarter, we just think that there's now some things that prevent us from giving short-term guidance. And when I say short-term guidance, at least through this quarter that we're in, and then we'll see how that solidifies. But I don't see any strong financial reasons other than the uncertainty that we have in some of our client base in the discretionary businesses.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Understood. Okay. And then with respect to -- and Mark alluded to this a little bit in terms of utility revenue declines and potentially impacting budgets. But I was curious about state and local government, how might lower tax receipts, particularly in gas -- lower gas consumption and potentially other tax receipts down the road, how could that potentially impact projects for the balance of this year and as we get into next year?

Dickerson Wright -- Chairman, Chief Executive Officer

Well, I'll give a general view, and I'd like maybe Alex and Mark, feel free to answer with more specificity. The utility services -- first, let me mention that. What we are doing -- utility is such a growing area of our business, and it's been a limited area of the geospatial business that we are introducing them to and we're expanding that relationship in geographical areas. So although we may have mentioned that we may see a macro decline in maybe overall usage, we have -- and the grid usage, and we think we are really benefiting from the: one, aging of the grid. And as you know, in California, the mitigation processes go to Florida. They're having a direct impact, positive for us, on delivering utilities underground and mitigation of fire risk. And so we're seeing a lot of expansion in that growth.

I think that your other question was on municipalities. And obviously, many of these municipalities depend on sales tax revenue, gas tax revenue. And so we see somewhat of a slowing of their traditional way of giving us work. But our private provider, our municipal outsourcing work, we tend to benefit from some of these utilities outsourcing some of this work that they can't -- they don't have the overhead. Their overhead prevents them from doing it now. But maybe, Alex, you may want to respond or Mark, either one, as you see the municipal environment or the utility environment.

Alexander A. Hockman -- President

Well, Dick, I think you've actually stated it quite well. The fact is, we find, in some cases, municipalities move to outsource. It saves them money in the long run. They don't have to have the staff on their payroll. They're able to just have us provide the services when the need arises.

So it's one of the reasons, also in part to answer your first question, Jeff, there's some uncertainty. There's actually some very good upside. We have already seen municipalities advertised. In some cases, they've just decreed that we could have the private inspectors conduct the municipal inspections in lieu of the municipal inspector. So there's definitely an upside. But there still is the level of uncertainty that we just need to see how the cities and municipalities are going to be able to fund some other capital improvement projects.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Okay. Great. And then my final question is surrounding the increase in utilization. You say it's up 8%. Does that have a positive impact on margins? And is that a further buffer in terms of financial performance relative to your expense reductions?

Dickerson Wright -- Chairman, Chief Executive Officer

Well, I'll begin to answer that, and then certainly, Scott (sic), I think, we love -- we get a utilization report every week from our Geospatial division, and they seem to be doing quite well. What we have seen in working remotely, our engineers now are driven by tasks much more so than just utilization. And in fact, I was speaking to our -- the Head of our Utility Services group just the day before yesterday, and our utilization has increased greatly. And that 8% is a going-forward number. We actually -- it could be higher than that. But they now are applying all their time to a specific task. And so we have seen an increase in that utilization. What we want to monitor closely is the specific activity they are doing and the rates that they're doing it.

I think our overhead, as you've seen, has dropped significantly. And I think the very first forward gleans of this is you'll see an increase in our profitability on net revenue from 17% to 19%, which we feel very good. We feel very good about that. And I think our entire business is related to the reconciliation of labor to revenue. And so it's a very good sign when utilization continues to go up.

And the comforting thing for me is the utilization, not based on a percentage of a smaller staff, but a percentage of a more stable staff, because most of our furloughing and laying off has been in administrative and non-direct billable people. So it tends to me -- the tendency seems to be in our favor on the utilization rate. And I think it can help profitability because we certainly reduced a lot of the overhead that we've had prior to the COVID.

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Thanks very much for your time [Indecipherable].

Dickerson Wright -- Chairman, Chief Executive Officer

Thank you. Thank you Jeff -- and to you and your family.

Alexander A. Hockman -- President

Thanks Jeff.

Edward H. Codispoti -- Chief Financial Officer

Thanks Jeff.

Operator

Thank you. And our next question comes from Rob Brown with Lake Street Capital. You may proceed with your question.

Robert Brown -- Lake Street Capital Markets, LLC -- Analyst

Good afternoon.

Dickerson Wright -- Chairman, Chief Executive Officer

Hi Rob.

Robert Brown -- Lake Street Capital Markets, LLC -- Analyst

Hi. My question is on the geospatial business, in particular. How much visibility do you have in that business of the backlog? How much coverage does that give you sort of throughout a year? And how sort of [Indecipherable] those contracts?

Dickerson Wright -- Chairman, Chief Executive Officer

I think, Mark, I'll defer to Mark. He's living and breathing it every day. And their recognition of backlog is slightly different than the core business. But I think it would be very good if Mark could walk you through that, Rob, on our backlog visibility in the geospatial business. So go ahead, Mark.

Mark Abatto -- President and Chief Operating Officer

Sure, Rob. Really, at any point in time, we typically will have about 60% of our forward-looking 12-month revenue projection sitting in backlog. And again, backlog for us represents contracts, actual tasking that's been awarded to us, so firm fixed commitments. If you look at our backlog entering Q2, which is somewhere around $89 million to $90 million or so, we will expect between 85% and 90% of that to convert just within the 2020 fiscal year.

Robert Brown -- Lake Street Capital Markets, LLC -- Analyst

Okay. Good. That's great color. Thank you. And then in terms of the overall market, are you -- it might be too early to answer this, but are you seeing any sort of -- kind of discussions on infrastructure spending, infrastructure activity, kind of plans to have projects maybe move forward given -- once the virus sort of thing settles down, do you get a sense of any sort of increased infrastructure activity out of your customer base? Or is it too early to say yet?

Dickerson Wright -- Chairman, Chief Executive Officer

Alex -- let me first speak from what I see on the federal level; tremendous amount of talk. But today, it's more all hat, no cattle. I think they continue to say that we need it, and it needs to be, and it needs to go on. We have not seen a tremendous increase in the federal support of infrastructure spending. But what I'd like to say, over the years, we've seen dire straits. But we've always been steady in our revenue and our services from the infrastructure space. And it was facing headwinds. But now the political environment certainly seems to be like tailwind. So we're in a spot to really benefit. There's no one, no political party or preference or no one can say that our infrastructure is not aging. No one can say whether they need to drink water or not drink water or they need to have -- they need to depend on safety in going over bridges or going the road. So that is not something that is subject to something discretionary. Federally, though, there's a tremendous need to support that. We have not seen any more or any significant increase than we've always had. Maybe more in the state or municipal level, I can let Alex maybe speak to that and what he is seeing. And if Mark cares to add anything, feel free to.

Alexander A. Hockman -- President

It's pretty much what we've always seen. There's a lot of talk. There's a lot of interest about this potential stimulus package, the infrastructure stimulus. But the reality is it's just too early to tell. It's just that simple. I think that we are clearly in a position where we will benefit significantly if it's passed or when it's passed. But at this point, it's just too early in the game.

Robert Brown -- Lake Street Capital Markets, LLC -- Analyst

Okay, great. Thank you for now.

Operator

Thank you. Our next question comes from Tate Sullivan with Maxim Group. You may proceed with your question.

Tate Sullivan -- Maxim Group LLC -- Analyst

Okay. Thank you. Good day everyone. Everyone else -- you've been consistent since you talked about your energy 2021 strategy and all your comments about the utility services being strong, and I think we've heard that, a consistent message from utilities, in general. Can you talk a little bit or frame a little bit your utility exposure as a percent of revenue after Quantum and going forward? Or can you give any context to how large a portion of your business it is or could be?

Dickerson Wright -- Chairman, Chief Executive Officer

Yes, it's a good portion of our business. And our utility services act more like an aggregator. So we -- and what I mean by that is they accumulate the revenue that could be generated by an office. And so we don't want to count that revenue twice. But I think the -- with specificity, the overall amount of it, one -- number one, it's very profitable. It's at the high EBITDA margins, and it -- and we have because of that high EBITDA margins, what has built up to that high EBITDA is higher utilization rates. As the overall size of it, it can vary.

I'll let Alex speak to what you're seeing in the -- in our utility services. And of course, that includes some of our other areas besides just the electrical generator could be. It could be our LNG business, too. So maybe, Alex, you can speak to that.

Alexander A. Hockman -- President

So part of the reason why we're seeing the increase, we're speculating. As you know, this past year, we had very significant fires in some regions as a result of transmission lines. So there's a tremendous amount of undergrounding that's taking place. There's also work that needs to be done to make sure that there isn't vegetation that's encroaching our lines. That affects both our services as well as our geospatial services. So there are a number of ways in which we're able to capture that market share, and we have a very diverse offering. But exactly why it's happening? We don't necessarily have the background reasons other than the fact that we are definitely seeing it, and it is very much geared toward fire safety as well as undergrounding services.

Dickerson Wright -- Chairman, Chief Executive Officer

And maybe [Speech Overlap] your estimate of the size of it. Our total revenue, in rough terms, looks like $700 million, or for this quarter 100 -- well, we put $165 million [Phonetic]. But maybe just a rough estimate of what we feel the overall utility business is as an aggregator and as specific -- specifically located at each office. So just what made the total using the total there.

Alexander A. Hockman -- President

Yes. So as an aggregator, as it relates to the core business, it's -- about 20% of our revenues is related to utility services. And that's really focusing on more the electrical. We do recognize that there is other utilities that we have with respect to water and sewer. But the portion of the revenue that I was referring to is really focused on what's taking place in the electrical market. Mark, I'll let you comment on the percentage relative to utility services.

Mark Abatto -- President and Chief Operating Officer

Yes. It's fairly consistent with what you had just said, Alex. So it's roughly about a quarter of the geo business segment's revenue. If you add additional utilities, some ancillary, as you mentioned, it could be as much as 30%.

Tate Sullivan -- Maxim Group LLC -- Analyst

Great. Okay. I appreciate all that detail. Thank you. Thank you everyone.

Operator

Thank you. [Operator Instructions] Our next question comes from Scott Blumenthal with Emerald Advisers. You may proceed with your question.

Scott Blumenthal -- Emerald Research -- Analyst

Good afternoon. Nice to see everybody's smiley faces again even if only virtually.

Dickerson Wright -- Chairman, Chief Executive Officer

Yes, Scott, I'm missing you, at least -- yes. But I can tell you, my hair is combed somewhat right now anyway. You can see it. We're here.

Scott Blumenthal -- Emerald Research -- Analyst

Dick, I think we all need a haircut at this point, right?

Dickerson Wright -- Chairman, Chief Executive Officer

You're not kidding. I kind of look like George Washington, I think right now. But yes, we're -- we can certainly use some of the services that we take for granted. So how are you, Scott? Everything good, I hope, with your family, everything fine?

Scott Blumenthal -- Emerald Research -- Analyst

Everything's great. Thank you. I'm very happy to hear that the safety of the employees is first and foremost.

Dickerson Wright -- Chairman, Chief Executive Officer

Yes. Thank you.

Scott Blumenthal -- Emerald Research -- Analyst

Thank you. Dick, do you feel now that -- well, maybe this is a little bit of a better for -- question for Ed. Ed, do you feel now that with the geospatial business on board that we can consistently kind of expect gross margins to be up around the 50% range, which is about 5% or 500 basis points above, I guess, the base business?

Edward H. Codispoti -- Chief Financial Officer

I do. I think that's a good run rate, the low 50s, 50%, 51%, where we're at now for the quarter is a good assumption going forward. That takes it into account -- in this particular quarter, it has some lift from Quantum, but also our business, excluding Quantum, both improved. And so yes, I believe that's a good assumption going forward.

Scott Blumenthal -- Emerald Research -- Analyst

Okay, super. And can you -- I know it was on a couple of slides here that we're scalable with limited fixed costs. Can you kind of maybe size the fixed to variable cost ratio in the overall business at this point since it's changed a little bit in the last quarter or so?

Edward H. Codispoti -- Chief Financial Officer

Yes. From a fixed cost, our facilities, for example, which are one of our primary fixed costs, remain steady at just over 3% of gross revenues. And really, from a G&A perspective, those should remain pretty steady as well. Those have been hovering around 8%. There should be no change to that going forward, and we hope to gain from the scale of that as we continue to grow going forward.

Scott Blumenthal -- Emerald Research -- Analyst

Okay. Super. That's super helpful. Thank you. And then, I guess, for Dick or Alex, I appreciate the suspension of guidance, and I can understand that. Can you make any comment at all about what has been a, I guess, a particularly scary April? We're talking about mostly January through March. But did you see a meaningful decline or impact in any of your locations or business segments there? And -- or were you pleasantly surprised that the business maintained a decent cadence through the month of April?

Dickerson Wright -- Chairman, Chief Executive Officer

You are welcome. Alex, I'll take a first look at that. Our transactional services real estate business was formerly known as Bock & Clark. We've seen, for the month of April, they had a really strong first quarter. We've seen some significant erosion in that business. And there -- and we have a very good manager there who's probably listening in, Jeff Echko. So we're really watching the costs. But on the revenue side, we've seen a significant drop up to maybe 40% of revenue in that business, but it's not a big, big portion of our business.

And the second thing that we've seen some -- and then I'll give you what -- without giving exact numbers, I can just give you an idea of what we see the total -- if there's any degradation, what that total could be for April.

I think the other business where our organic growth is very much influenced, we probably could have had much higher -- I think closer to 7% organic growth. But we saw a delay in our LNG business. And that business is a combination of design work and installation. And in accounting, we just can't record the revenues on piece -- on the conversion functions and equipment, etc. that has not been recorded. So their revenue is a bit lumpy. And they showed in the month of March about a 50% degradation from budget in the quarter -- in the first quarter. And then, they're slowly coming back. But we still see some degradation there. I think overall, we're very conservative in our financing. And we are well, well ahead of any kind of worst-case scenarios that we've given to our financial commitment and things like that. But we probably see a slighter reduction in revenue in April. But it's just unseen. It's unseen times. So I think our geospatial business was very strong in April. And I think I saw -- the only that I saw any significant erosion, if you will, is in that -- is in the -- in those two areas that I mentioned. And that obviously is offset by some increase in our utility services business.

So I'm hesitant to give you a specific number because I don't really have that number right now. But we've probably seen a decrease from our internal budget for the month of April. And then I think we're starting to see things slowly get better. So I think we're kind of in the worst quarter of what we see. But that's about all the visibility I think I have right now. And Alex, you may see some other things in certain areas differently than I do or Mark, feel free to comment if you -- to Scott's question, if you'd like.

Alexander A. Hockman -- President

Yes. I'll let add just a little bit more color, Scott. I think it's important to appreciate that Dick mentioned two of our P&Ls. That's two out of over 100 P&Ls that ultimately make up our month. As we look at the Bock & Clark acquisition, which is the real estate transaction, what I think is important is how scalable that operation is. Even with the decrease in revenue for that operation, my expectation is they will still turn a profit. And with respect to CHI, while we had the lumpiness, they are still a very profitable organization. It's just a matter of when we see the big increase in the top-line, which also is an impact on the bottom-line. But again, those are just two operations. If you -- as I start to develop the weekly analysis and how we're trying to wrap up the month of April, I would say I definitely -- I'm pleasantly surprised. And as Dick mentioned, we've seen a lot of operations that have actually been able to take advantage of these times, and they are selling more than they were able to generate previously or they're certainly ahead of budget. So I am -- I remain cautiously optimistic in terms of how April will ultimately play out.

Mark Abatto -- President and Chief Operating Officer

And I'll just chime in. As Dick had mentioned that the Geospatial Solutions group did had a very strong April, a continuation, really, of the first quarter, very strong double-digit top-line growth and quite strong operating leverage from an adjusted EBITDA standpoint.

Scott Blumenthal -- Emerald Research -- Analyst

Thank you Mark. I appreciate that and Dick and Alex also. Dick, to your earlier comments to -- with the previous caller, you mentioned that about 8% of the business is real estate due diligence hospital kind of discretionary. But the 8% of the business is not completely gone away. You're not 8% impacted.

Dickerson Wright -- Chairman, Chief Executive Officer

No, no, no.

Scott Blumenthal -- Emerald Research -- Analyst

A 40% [Phonetic] impact on that 8%, right?

Dickerson Wright -- Chairman, Chief Executive Officer

Yes, that's right. I mean, believe me, yes, we haven't lost all that business. But if I took the entire piece together, that probably only represents that 8-plus percent of our business. That's right. And then we didn't lose all of that.

Scott Blumenthal -- Emerald Research -- Analyst

Got it. Got it. So really, if we're -- if I speculate and say we're down 40% in that business, overall, we're impacted maybe 3%?

Dickerson Wright -- Chairman, Chief Executive Officer

Yes. On the overall, right.

Scott Blumenthal -- Emerald Research -- Analyst

Right.

Dickerson Wright -- Chairman, Chief Executive Officer

And it's a very profitable business. I'd love to see it at 110%. But yes, that's what it is.

Scott Blumenthal -- Emerald Research -- Analyst

As would I. Thank you.

Dickerson Wright -- Chairman, Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Keith Rosenbloom with Cruiser Capital. You may proceed with your question.

Keith Rosenbloom -- Cruiser Capital -- Analyst

Thanks guys and thanks for the presentation.

Dickerson Wright -- Chairman, Chief Executive Officer

Hi Keith, how are you?

Keith Rosenbloom -- Cruiser Capital -- Analyst

Dick, I can't wait to see your new hairdo.

Dickerson Wright -- Chairman, Chief Executive Officer

Yes, right. Thank you, Keith. Shortly, you'll see if we get ever a problem again.

Keith Rosenbloom -- Cruiser Capital -- Analyst

Hey, toward that point, actually, it looks like you guys did a lot of work to create additional liquidity here, which seems pretty impressive. Towards that end, one of the things that jumps out is the new adjusted operating margin up by quite a bit. Is this the new normal for you guys? Do you see throughout the course of the year -- I know you've suspended guidance, so maybe we should move to a broader conceptual thing. But with geospatial, should we be expecting substantially higher adjusted EBITDA margins than what you've traditionally been producing with the rest of the business?

Dickerson Wright -- Chairman, Chief Executive Officer

It's a good question, Keith. You know that when we -- back to when we did give guidance last year, we had a cumulative EBITDA of around $103 million. And if you would just make this linear, we did, what, $24 million, $25 million in EBITDA for the quarter. And traditionally, the first quarter is -- has been our slowest quarter of the year. Now of course, there's a new dynamic with GeoSolutions and Quantum Spatial joining the company. That certainly put things differently. But you -- and thank you, we've known each other for a long time. We've spoke for a long time. We've always known our aspirations. We think a good, efficient company should be running in the 15% to 20% EBITDA net revenue margin. So I was pleased but not overly surprised that we're at 19%. And I'm optimistic. But I would expect our operations to continue there. And I look for the scalability. I think Ed mentioned about 8% to one of the callers on our administrative overhead. We are driving that significantly down and that maybe can only help our net revenue.

With some of our outcomers, though, we do have a little bit more sub-consultants. We have it with the Bock & Clark business, which is, of course, down a little bit. Geospatial uses a little more sub-consultants and they use them wisely. But to answer your question, I hope that we would continue at that or better at the 19% or better net revenue margin. But Ed, you tend to be -- you look at it very close as well. So maybe you may have a comment.

Edward H. Codispoti -- Chief Financial Officer

Yes. No, I think from a margin perspective -- you're talking about EBITDA margins. Is that -- are we talking about EBITDA margins or gross margins? I just want to make sure we're talking about the same figure.

Keith Rosenbloom -- Cruiser Capital -- Analyst

EBITDA margins.

Edward H. Codispoti -- Chief Financial Officer

Yes. I definitely feel strongly about those margins. The Quantum acquisition, of course, was very complementary. They, as you know, have had margins of around 23% or so. And so from our perspective, as we continue to increase revenue, the EBITDA margin should improve from there. Of course, we have all the uncertainties that we've been talking about on this call around COVID. But all else being equal, as we continue on our trajectory, that really should improve those margins as we really gain from our scalability.

Keith Rosenbloom -- Cruiser Capital -- Analyst

Thank you guys. Appreciate and keep up the good work.

Dickerson Wright -- Chairman, Chief Executive Officer

Thanks Keith.

Operator

Thank you. At this time, 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 -- Chairman, Chief Executive Officer

Thank you, operator. And before I get into some of the specific financial aspects and how we see the financial strength of the company, I want to comment, and I want to thank our safety team and support team if you would know the work that's been done to watch out for the safety of all our employees. So we don't normally do this, but I would like to give a specific thank you to our safety team, led by Rafael Silva. So I wanted to say that the work we've had -- we've done -- I happen to be in the Sacramento office today, and I'm trying to speak through my math, but so much is done for our safety of our employees, and it's really important, really important on those job sites and really important to the things we do. So we want to thank our team. They've been very proactive and it's certainly appreciated and because we want to protect our people, and we want them, of course, to be -- continue to be working efficiently. But a key aspect is their health and protection. So I want to say that.

Some of the things just in comments I'd like to make, I think we had a very good quarter. I think we've addressed some of the things that were of a concern to me. And so I will share those concerns with you. I wanted to really understand that model of a non-discretionary business. And believe me, that really, we are in a good spot right now. Could things be better in the world economy? Could things be better in many places? Yes. But it really seems to be in a good spot. Encouraging is that we're winning work internationally. We've won some significant opportunities there, and that seems to be coming back. And as you know, they had the COVID issue long before we've had, and so they've been addressing to this environment.

I think it's important to also look at the organic growth of the company and look at it as a one company. We're thrilled with Geospatial and what they've added. Geospatial though adds about 24% of the company. So there is a tremendous amount of growth in our core business going on. And so look for the -- still, we would like to continue on organic growth. It's not guidance, but we were pleased that for, but we could certainly be more pleased with [Phonetic] specific areas of opportunity, keep us in the high-single digits.

Keith and some other callers, it was -- my concern going into the quarter was our financial stability. And so I want to thank Ed and our finance team and our partner in doing this. We were very proactive to make sure that not only was our stable business continuing it was. But that in the worst-case scenario, where would we be? And so I was told by our institution that they felt that we are one of the most proactive companies that they've ever -- they have a relationship with in trying to get a -- in front of a potential problem. We've done that, and we're very, very pleased with where we are going forward.

I may want to talk a little bit very quickly about cash flow. You'll notice in the slide that it seems like our cash flow dropped for the quarter. But it's a very interesting thing with our business. When we have more business, everything is directly related to the labor relationship to build labor, pay labor and build labor. We pay our labor, we pay everyone every two weeks. We collect our money in about 60 days. So you can imagine, as business is really good, then the cash flow may erode slightly. We think we've really got a good handle on this. We don't have any reason that we're going to any lines of credit, and we're going to continue with this.

I think one of the other questions that you may be asking, we still look at wonderful opportunities in M&A. I think you should -- I think our investors should look in our M&A area, our focus this year for really support functions. We are very excited about a technical roll-up opportunities that we have under our geospatial platform, very solid. We've established committee meetings every quarter on how do we grow technology, both through acquisition and through organic growth. And so we are looking at specific opportunities there and specific niche opportunities that support our existing platforms. So this year, our focus is on the smaller, directly related niche opportunities.

But believe me, we're very opportunistic, and that's another reason why we want to be in a strong financial position. So I just don't want you to think that the M&A activity has gone away. It's -- we have a great opportunity now to be more selective. And then just a comment on guidance. We are ultra conservative in the guidance. We want to have clear visibility before we start to resume guidance. So we just don't know what to -- what clear visibility we have in the quarter itself. We seem to be doing quite well. But it's best just to make sure that we have real clarity in our guidance. So we think it was prudent to suspend that. So overall, we had a very good quarter. I really want to thank you, our investors, for continuing with us. And we really do have -- we have tremendous employees. We have a well-run company, and it's our employees that are working all over remotely. I miss the opportunity of getting it -- to see them and being in front of them as much as we can and soon we will. But I want to thank. So the thank you goes to all of you who have believed in our company as investors, and all of you -- all of those that believe in the vision of NV5 and the growth of NV5 and are working every day to fulfill that vision. So thank you, everyone, for a good quarter. I look forward to speaking to you again next quarter. And please, everyone, stay safe. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.

Duration: 72 minutes

Call participants:

Richard Tong -- Executive Vice President & General Counsel

Dickerson Wright -- Chairman, Chief Executive Officer

Edward H. Codispoti -- Chief Financial Officer

Alexander A. Hockman -- President

Mark Abatto -- President and Chief Operating Officer

Christopher Moore -- CJS Securities, Inc. -- Analyst

Jeffrey Martin -- Roth Capital Partners, LLC -- Analyst

Robert Brown -- Lake Street Capital Markets, LLC -- Analyst

Tate Sullivan -- Maxim Group LLC -- Analyst

Scott Blumenthal -- Emerald Research -- Analyst

Keith Rosenbloom -- Cruiser Capital -- Analyst

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