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NV5 Holdings Inc (NASDAQ:NVEE)
Q2 2020 Earnings Call
Aug 5, 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 Second 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

Thank you, operator. Welcome everyone to NV5's second quarter earnings call. Consistent with social distancing speakers today are connected from different locations. So thank you for your patience including any latencies as we answer questions. A webcast replay of this call and its accompanying presentation are also available via the link provided in today's news release and on the Investors section of the company's website.

Before we proceed, I would like to remind everyone that today's discussions contain forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those statements are included in today's presentation slides in our reports on file with the SEC.

During this call, GAAP and non-GAAP financial measurements 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 second quarter 2020 comparisons are being made against the second quarter of 2019. In this presentation NV5 has included certain non-GAAP financial measures as defined in Regulation G promulgated under the Securities Exchange Act of 1934 as amended. These non-GAAP financial measures included in this presentation are net revenues, adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share. 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.

We 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 second quarter of 2020. Alex Hockman, President and COO of NV5 and Mark Abatto, President of NV5's Geospatial Solutions, will then provide some insights into operational opportunities and strategic initiatives before turning the call back to Dickerson Wright for closing comments. We will then open the call for your questions. Dickerson please go ahead.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Thank you, Richard, and thank you to everyone joining us for NV5's second quarter 2020 conference call. Let's turn to Slide 5 of this visual presentation. We were pleased with our second quarter results which exceeded analysts' consensus for both gross revenue and adjusted EPS. As the second quarter, began in the COVID-19 environment, there was a great deal of uncertainty about the impact it would have on our business. We are somewhat insulated because we are providing essential services. However, we were proactive in implementing immediate measures to stay ahead of any business interruptions that may have materialized during the COVID-19 environment.

Our top priority is protecting the health and safety of our employees which we achieved through putting tools in place to support a remote work environment and providing the appropriate PPE and training for our field personnel. Those proactive steps allow us to maintain utilization and quality of work, and I'm proud of our employees and management team for adapting to the new work environment and delivering a great quarter. We also had to manage both fixed and variable cost. Our business is scalable with few fixed costs and we will continue to actively manage cost to protect earnings.

Our financial position at the end of the second quarter remains strong. We generated strong cash flows in the quarter resulting in over $65 million in cash on hand at the end of Q2. In Q2 we acquired Mediatek Design Group in an all-cash transaction. And in July, we made a payment of $17 million to pay down our debt revolver. The second quarter also delivered some key long-term contracts with utilities, a market that has continued to grow rapidly in the first half of the year as Utilities invest in fire mitigation, reliability improvements and Geospatial vegetation and asset management services. We also secured a number of Transportation contracts with departments of Transportation and municipalities in Florida, New York, California to provide program management and engineering design services. Water monitoring and resource management is another area where we had significant wins with both federal and state governments.

Our cross-selling program continues its rapid growth with $7.7 million in duty cross-selling. Cross-selling is essential to keep business in-house, which contributes to net revenue growth, delivers higher margins and differentiates NV5 from our competitors. Through the first half of the year, we have completed $15 million in cross-sales sells so we are on target to exceed our $26 million cross-selling total for the year.

In Q2, we also acquired Mediatek Design Group which specializes in technology design services including security, enterprise, IT and other building technology solutions in the Middle East and Asia. We now have 40 employees in our Dubai office and the addition of Mediatek complements our existing mechanical, electrical, plumbing and fire protection design or MEP services in the region. We took a similar strategic approach to add technology services to our MEP, offering domestically with the addition of Sextant Group in 2019, allowing us to bundle these services and provide a strong competitive advantage. With a number of large scale projects on the horizon in the Middle East, the addition of Mediatek gives us multi-disciplinary engineering capabilities that position us well in the peak for these jobs. It also opens up new geographies in the Middle East and Southeast Asia for MEP services. So we are now very excited about the addition of Mediatek.

Please turn to Slide 6 to discuss our scalable business and some of the opportunity challenges that lie ahead in the remainder of 2020. As we all know our private sector clients can provide rapid upswings in revenue, unfortunately the drops in revenue can be just this dramatic. NV5 is structured to avoid wild swings in revenue and with a deliberate focus on three characteristics that would make it less susceptible to economic downturns. These characteristics are a focus on the public sector and the Central services, scalability and diversification. The goal is to build the company that would weather the storm and come out even stronger when the economy rebounded. Majority of NV5 services are considered essential, and that is the key advantage for us during the COVID pandemic. Approximately 70% of our revenues have come from the public sector and we deliberately built the company with a focus on services that are considered essential, which insulates us from economic downturns like the global economy is facing today.

We are also scalable. We are a consulting service business. Our business is people and we constantly focus on keeping our fixed costs to a minimum, which allows us to not only be nimble in reducing operating costs, but also the scale of business units that are experiencing rapid growth. Diversification is also a key attribute of our business. So some of our businesses are facing headwinds, our businesses are performing well make up for the contraction of the downturn business units. Diversification also drives our successful cross-selling initiative, providing unique opportunities for growth in client development. So, we are fortunate to be in the position that we're in, but it is the result of an intentional strategic approach to building a business that is resilient.

As we look to the center column of the presentation, you will see that we are still seeing a softening in some of the markets that we serve. Commercial Development & Hospitality continues to be slow and we expect to that to continue throughout 2020. This trend impacts our MEP design business which depends on new construction or renovation of these types of buildings. In addition, real estate portfolio transactions continue to be down, and we expect that trend to continue throughout the year. There are also a number of growth opportunities that we are currently pursuing. Water management along with vegetation and asset management for utilities are areas that are rapidly expanding their use of geospatial data. We have also recently expanded our relationship with NOAA, which is utilizing Geospatial Solutions in new and innovative approaches to shoreline monitoring, navigation safety and sea level rise.

The Geospatial Solution Group is also using NV5's platform as an opportunity to leverage NV5 client relationships. Fire mitigation efforts upgrades to an aging grid and improvements to reliability and power delivery are driving the investments that utilities are making in engineering and design and surveying. The transportation infrastructure market continues to be strong in California, Florida, Pacific Northwest, Georgia and Pennsylvania. Gas taxes account for a large part of the revenue that funds roads, bridges and other transportation improvements. After a historic drop in gasoline consumption in April, gas usage has rebounded. As people look for ways to travel safely, they are broadening air travel and turning to their automobiles. This increase in gasoline consumption is helping to stabilize gas tax revenue that funds the infrastructure projects.

If you'll please turn to Slide 7, I would like to speak for a moment about Diversity & Inclusion. Diversity & Inclusion are fundamental to NV5's values. We have focused on expanding our Diversity & Inclusion efforts through the tangible actions we have taken. United States is simply not graduating enough engineers and technical professionals. We also know that there are not enough opportunities for people of color to pursue engineering and technical professions. We wanted to do more to contribute to the solution and pledged $275,000 to the National Society of Black Engineers to provide scholarships and access to educational opportunities for black students pursuing careers in engineering and technical fields. We also wanted to drive our culture of Diversity & Inclusion deep into the NV5 organization.

Dr. Carl Henderson is a PhD, a Professional Engineer and a Geotechnical Engineer who has managed our San Diego quality -- Construction Quality Assurance Group for the last two years. He is an active member of the National Society of Black Engineers and a member of other mentorship organizations. And we have asked him to lead our Diversity & Inclusion Group as the Chief Diversity Officer of NV5. I have known Carl since he joined NV5, and I know he will be successful in this new role. Opportunities for growth, have also been limited for many women in engineering and technical professions, and we are proud to be an industry leader in gender representation with women leading several key operations and serving on our Board of Directors.

I will now hand the presentation over to our CFO, Ed Codispoti to provide an overview of our Q2 financial results. 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 the review of our P&L results. As you can see we had strong second quarter results. Our gross revenues increased 27% to $162.7 million and our net revenue increased 29% to $128.5 million. We are very pleased that our gross revenues for the quarter exceeded analysts' expectations by 8%. It is a testament to the resiliency of our business, despite the impact of the pandemic.

Our adjusted EBITDA also showed substantial growth as it increased 46% from last year to $26.9 million. And our adjusted EBITDA margin continues to show the benefits of our scale as it increased to nearly 21% for the quarter, a 13% improvement over the prior year quarter. Our adjusted EPS was also very strong this quarter in light of the pandemic, as we came in at $0.93 per share, while analysts were expecting $0.59 per share. Therefore we beat expectations by 58%.

In addition to our robust P&L performance, our cash flows and balance sheet also demonstrated the strength of our business. If you would please turn to Slide 10, you'll see that our cash flows from operations for the quarter were extremely strong as we generated $37.1 million. We see this in our cash position at the end of the second quarter as we came in at $65.2 million compared to $31.8 million at year-end, therefore, we more than doubled our cash position without having to draw any funds from our debt revolver. I'm also pleased to report that we have not seen degradation in the collection of our accounts receivable, despite the pandemic. And in July, we paid down $17 million of our debt revolver. This demonstrates our focus on maintaining strong cash flows and bringing down our leverage. As a result of the $17 million pay down in July, we now have $56.6 million of available capacity under our credit revolver.

I hope this overview has given you clear visibility into our financial 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 and COO to discuss our operations in more detail. Alex?

Alexander A. Hockman -- President, Chief Operating Officer & Director

Thank you, Ed, and good afternoon everyone. Would you please turn to Slide 12. The Power & Utilities sector continues to provide opportunities for growth, as utilities invest in fire mitigation efforts and to improve reliability of power delivery. The electrical grid is outdated and upgrades to safer and more efficient equipment along with undergrounding of power lines, our large capital investments that require engineering design, construction and quality assurance, survey and program management services. Transportation infrastructure is another area that we expect to grow as nations in investment, and safe and efficient infrastructure as fallen behind for decades.

While air travel is down, many regions are experiencing increased road traffic, which provides necessary funding for infrastructure projects through gasoline taxes. We see an opportunity with municipal outsourcing as some municipalities have struggled to staff their departments during COVID-19 combined with an uptick in construction permits and housing starts. Municipalities will be looking for assistance in the plan review and inspection of these housing projects in addition to the services NV5 provides that are required to improve the adjacent infrastructure. We are also anticipating a number of opportunities in our international business, particularly in the Middle East, where a number of large scale projects are expected in the upcoming months. The acquisition of Mediatek in the second quarter positions us well to compete on these projects for MEP and technology design services.

I'll now turn to areas of strategic focus. Due to our mature cross-selling program and enhanced IT network, we are well positioned to move to remote working due to the experience gained through our inter-office work share as performed across verticals. As we move to large scale remote working during COVID-19, we have realized that there are operational efficiencies such as reduced office costs that may be sustainable, while there are benefits to an office environment including team building and mentoring young engineers we are evaluating operational efficiencies that we can implement now and continue when the pandemic is over.

Cross-training is another area we are focusing on to provide us with opportunities to increase utilization and expand the strengths and specializations of our team. Broadening their capability also allows us to have a larger bench to fulfill client commitments, while cross-training will strengthen our success in planning as well. We are also looking for opportunities to expand our work with the federal government. Our Geospatial business works a great deal with the federal government while our core business is largely working with state and local governments. So, we see an opportunity to expand our federal offering. Finally, we are expanding our disaster response services. Disasters such as hurricanes and floods caused damage to buildings and infrastructure that require environmental compliance and Indoor Air Quality consulting as well as insurance and litigation support services that we can mobilize following an event.

If you would please turn to Slide 13. I'll provide an update on our cross-selling program and some key wins in Q2. Our cross-selling program continues to be ahead of its 2020 full-year goal of $26 million in cross-sales. We completed $7.7 million of sales across verticals in Q2, bringing our year-to-date total at the end of Q2 to almost $15 million. This program has contributed 6% of our net revenues in the first half of the year, which is work that would have been outsourced to subcontractors. We also had some significant wins in Q2 including civil program management contracts with Caltrans District 6 and 9 totaling $17 million. We have a long-standing relationship with Caltrans and are provided engineering and support services in 10 of Caltrans 12 districts.

Our Geospatial business secured a $4.6 million contract with the Prominent Utility in the eastern states, provide lighter surveys and hyper spectral imagery to support vegetation and asset management of transmission lines. The New York State DOT awarded NV5 a $3.5 million contract for construction inspection services to support drainage and pavement improvements, bridge rehabilitation and roadway & pedestrian facility improvements. Finally, our building program management office in Colorado was awarded a program management and land development for Lytton Rancheria Tribe Windsor Residential Project.

If you please turn to Page 14 for our backlog update. We finished Q2 with $525 million in backlog. Our Q2 backlog is 16% higher than Q2 of 2019, and we secured a number of key wins in Q2 that contributed to that backlog number. We have seen the timeline from submitting a proposal to receiving an executed contract is taking longer in some cases, particularly with some municipalities in utilities, but the pipeline in volume of opportunities remains strong.

At this point, I would like to turn the call over to Mark Abatto, President of NV5 Geospatial Solutions to provide some detail on the seasonality of geospatial backlog, areas of growth and strategic initiatives. Mark?

Mark Abatto -- President and Chief Operating Officer, NV5 Geospatial Solutions

Thank you, Alex. Before I move on to the next slide, I would just like to note that the Geospatial Solutions Group is entering a key part of the year. Our largest sector is the federal government and with its fiscal year ending in September, we typically see a seasonal increase in sales activity during Q3. In addition, one of our largest annual utility contracts is renewed in Q3 each year, so we anticipate some sizable contributions to backlog in the coming months.

Would you please turn now to Slide 15, for an operational overview of Geospatial Solutions. Starting on the left hand side of the chart, we continue to be bullish on the macros that are driving long-term growth in four areas. The first being infrastructure. Regulatory compliance and risk management concerns coupled with aging infrastructure in the United States will continue to drive demand for survey that is used in the planning, design and construction phases of major infrastructure projects as well as asset inspection, both of which rely on the quality and efficiency of remote sensing geospatial solutions. Likewise, we see strong demand for infrastructure related services that facilitate the nationwide 5G rollout.

In the environmental space, climate change adaptation including coastal resilience, flood analysis, environmental habitat and wildfire mitigation to name a few, rely heavily on spatial and condition based risk analysis made possible by geospatial analytics. Further demand continues to grow across government agencies, scientific organizations and private industry for predictive analytics and monitoring of precious natural resources like water and forestry. National Defense Solutions represent a growth opportunity as we build upon our existing position supporting military facilities and certain classified geospatial programs. Our qualifications, position us well to continue growing share of wallet with these capabilities and expand the value proposition to include GIS integration and application development.

Finally, on the growth side. As a largely US based solutions provider, we see international markets as a tremendous growth opportunity. Close to home, we have gained traction recently in the Canadian market, which boasts the second highest forecast growth rate to light our base geospatial solution. And we anticipate entry point to Europe and the rest of the world to come from a combination of NV5's international network and potentially M&A.

Moving to the right hand side in strategic focus areas, I'll start with offerings, touch on execution and finish with markets. In terms of offerings, geospatial analytics are the vehicle through which we answer our customers critical questions. Sometimes deliverable is an analytics ready data set ingested by our customers and leveraged by their in-house data scientists. Other times we deliver answers along a continuum of descriptive to predictive to prescriptive analytics. As more data from more sources is blended together on a more frequent basis, our strategic focus will remain on harnessing those data to deliver advanced analytical insight. How we manage these feature rich dataset deliver insight to our customers, allow them to visualize information and interact with it all is a part of our data engagement strategy. On an increasing basis this involved cloud enabled solutions, proprietary software and custom build GIS systems and applications to solve big data problems.

Operational excellence has been and will continue to be a strategic differentiator. Investing in and applying the right remote sensing technology and delivery platform for the mission is critical to success, whether it'd be lidar, hyperspectral imagery or thermal, platformed on satellites, planes, helicopters, UAVs, robots or trucks. Further, we continue to develop proprietary algorithms and invest in machine learning to turn unstructured geospatial data into structured usable information at higher levels of fidelity and at a quicker pace, supported by advanced automated quality control routines.

Finally, we've grown consistently in our core markets and our strategic focus is to expand our market opportunities further in three ways. The first is to offer more value-added solutions to existing customers of legacy quantum spatial and the NV5 core business. The second, is to expand further into near adjacent markets such as telecommunications, rail and others. And thirdly, to expand internationally with existing and emerging capabilities by leveraging NV5's network and/or through M&A. I'll wrap up by emphasizing that we are focused on expanding our solution offerings to meet the growing geospatial opportunities within our core and adjacent markets.

And with that, I'd like to turn it -- to turn it back over to Dickerson.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Thank you, Mark. I would like to go to Slide 17 and give you my thoughts on Public Project Funding and why we believe that we are positioned for continued success. We've received many questions about Public Project Funding and I'd like everyone to keep in mind the critical infrastructure is not optional. We need safe roads. We need safe and reliable power delivery to our communities. Clean water and water treatment are necessary functions. All of these continue to operate in good economies and weak economies.

Let me give you some of my observations about each of these areas. The first is, transportation and infrastructure. Most of the work we do with state government support transportation and infrastructure, and many transportation and infrastructure projects are funded by gasoline taxes. Gas taxes are typically dependent on the volume of gasoline used and most people are not still flying. So how are they are getting around and going to the places they want to be? They're using automobiles more. The volume of gasoline used in the US dropped significantly in April. But it has rebounded as people are driving more because they feel it is the safest way to travel, and this increase in gas usage is benefiting road funding.

Another key market for us is utilities. The population is growing and the need for power is increasing. We have seen growth in our utility services work as utilities invest in upgrades to aging electrical grid and continue with fire mitigation efforts. Water is another area which where we are seeing opportunities. Water resources and concentration is one of the fastest growing markets for Geospatial Solutions and we are a leading provider of specialized technologies and data analytics for water resources. As for municipal funding, the increase in residential housing is going to be a source of income for municipal governments. Each of these housing projects will require permits and inspections and property tax revenue will be generated from each home that is constructed. I hope this provides some high level insight into funding for some of our markets and we believe that we are well positioned to continue our success in these sectors.

Again, most of our revenue is coming from essential services on public sector non-discretionary projects. We have shown that the business continuity that we put in place for COVID-19 is sustainable for however long the pandemic lasts. And our limited fixed costs allow us to scale the business efficiently and effectively. We continue to focus on growth opportunities in both the core business and Geospatial Solutions business, and we see a strong pipeline for M&A to strengthen our verticals and to expand the technology business, which we see as a true differentiator.

This completes our prepared remarks and now we'd like to turn open the call for your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Rob Brown with Lake Street Capital Markets. Your line is now open.

Robert Brown -- Lake Street Capital Markets -- Analyst

Good afternoon and congratulations on a strong quarter.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Hi, Rob. Thank you.

Robert Brown -- Lake Street Capital Markets -- Analyst

Just wanted to get a little more color on kind of the new business pipeline and how much if any is that been kind of elongated from the COVID activity or clearly the results are showing well, but are new business being -- the letting of that slowed any?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, I think it's been, I like that you use the word elongated, Rob. Some of the projects are delayed. Some of the projects simply because people that are in states, municipalities are also not in their offices. So there is a longer time and Alex touched on this in his presentation. It's been a longer time in the official award of the contract. So we don't recognize that until we get the official award. So -- although we see the second half stronger and the consensus that was originally given by the seven analysts that cover us, we think that's -- we think that is OK. In 2021, it could be a little bit more aggressive. What we do see -- the only slowdown we see is not so much in the additional work, but it's the delay in awarding the contracts, and we have seen some softening of course in our residential business -- portfolio of business that is done with our larger portfolio acquisitions. And so we have seen some softness there, but generally the award the contracts is taking a little bit longer.

Robert Brown -- Lake Street Capital Markets -- Analyst

Yes. Okay. That's not a surprise. And then in the cross-selling activity you talked a lot about some great progress there. How is the cross-selling been going with the QSI geospatial business? Is that still early stages. I think there's a lot of opportunity there, but where do you see that progressing at this point?

Dickerson C. Wright -- Chairman & Chief Executive Officer

We are seeing some benefit from that, but we will really see that when Quantum Spatial is fully integrated and that won't be from the beginning of 2021. So we do -- we're introducing the places and I'll speak to that later, but they now have some international opportunities for us in Malaysia with the aging grid and with utilities around the country where they just have not had the introduction that we have. So it's been a tremendous help to them in the cross-selling. But we will benefit more when they are fully integrated.

Robert Brown -- Lake Street Capital Markets -- Analyst

Okay. Great. Thank you. I'll turn it around.

Operator

Thank you. Our next question comes from Jeff Martin with ROTH Capital. Your line is now open.

Jeff Martin -- ROTH Capital -- Analyst

Thank you. Good afternoon guys.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Hi, Jeff. Good to hear from you.

Jeff Martin -- ROTH Capital -- Analyst

Good to hear from you. Congratulations on a very strong quarter. Nice to see. Could you touch on utilization. I know that had been trending higher. Are you still seeing an elevated utilization trend?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, I think the utilization is stronger in our growth areas. It's very strong in our Utility and Power business, where that utilization is in that 81% and that's a big piece of our business. We are seeing some softening in the areas where our business is not as strong and so we've seen a creep up in the margin because of billability [Phonetic] in some of our commercial and real estate dependent sections. But I would say, utilization seems to be about the same, although we're starting to see some erosion in the commercial side.

Jeff Martin -- ROTH Capital -- Analyst

Okay. And then how should we think about the third and fourth quarters relative to this quarter? Should we think if this quarter as the base level to build on? Should we think of it as there may be some seasonality to consider in the third and fourth quarter and put that in the context, if you wouldn't mind relative to the change in backlog from Q1 to Q2?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Sure. I think the consensus -- overall consensus guideline of the guidance is in a range of you seven analysts have come up with [Indecipherable] or so. I think some of you are much heavilier weighted in the third quarter and the fourth quarter, which is a little bit unusual. And I think some of you may have gotten a little aggressive there. But I do think, overall, we don't have any issue with the overall annual results both in revenue and in adjusted EPS by all of the analysts. So I think the big picture is pretty accurate. We're pretty comfortable with. There is certain analysts that have put more waiting in some quarters than others, but the consensus looks something reasonable.

Jeff Martin -- ROTH Capital -- Analyst

Okay. And then anything to read in the change in backlog from Q1 to Q2?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, yes, I think our backlog has suffered somewhat in project delays and recording delays and so I'm not anticipating the strong ramp up in backlog in the third quarter or the fourth quarter that has been historic, and that's because of the delay in awarding of the contracts. And usually as our cash flow benefits when we are not immediately implementing these contracts as were not paying the people every two weeks, so you'll see an increase in that cash. And so I think there is no -- we don't see a significant cloud over the horizon, however we cannot record the backlog as quickly as we have done in the past because the municipalities are just not there to assign those contracts. I mean, Alex is here, maybe you have some more specificity on that.

Alexander A. Hockman -- President, Chief Operating Officer & Director

No, I think you've already covered. It's a matter of -- for the projects many times they are awarded. We have noticed that we're going to be winning the project, but until we actually have the contract and the task order, it doesn't get into backlog. And just because of some of the office closures were not getting in the municipal contracts executed this quickly.

Jeff Martin -- ROTH Capital -- Analyst

That makes sense. Thanks for that. One more if I could. I want to make sure I understood Mark's comments regarding QSI correctly that Q3 typically has some seasonality to it relative to Q2. Is that correct? And then secondly, is the target of $150 million revenue and $35 million EBITDA for QSI still the right way to think about how that's progressing this year so far?

Dickerson C. Wright -- Chairman & Chief Executive Officer

I'll first give a general comment, and then I'd like Mark to give more specificity to the -- to your question. First, we do not have any sign that the original budget of $150 million in the adjusted EBITDA that they are showing -- they're performing very well with that. They are though quite dependent on the federal business and Mark will speak to that, but the federal contracts that whole budget, there is going to be a tremendous release of pent-up work, and with the federal budgets that usually comes around September 30. But Mark is prepared at least me for this and so maybe Mark you can explain to Jeff, a little bit on how that works and how you're seeing the year and the backlog.

Mark Abatto -- President and Chief Operating Officer, NV5 Geospatial Solutions

Sure, Jeff. And from a seasonal perspective, it has more to do with the timing of awards, not necessarily the flow of business in executing against the backlog. But the seasonal component Dick just alluded to does relate specifically to the federal business. That represents about 40% of our book of business with year end ending on September 30, we see a seasonal uptick in awards each and every year during the third quarter, that's where our backlog begins to rebuild itself. In addition to that, we have several larger utilities with the annual programs renew in the third quarter. So from Q1 to Q2, we see an expected and seasonal decline in backlog to be rebuilt in Q3. And we fully expect that to occur again this year.

Jeff Martin -- ROTH Capital -- Analyst

Great. That's the connection I was trying to tie together. Thanks, Mark.

Mark Abatto -- President and Chief Operating Officer, NV5 Geospatial Solutions

You're welcome.

Operator

Thank you. Our next question comes from Michael Feniger with Bank of America. Your line is now open.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Thanks for taking my question. Just first off with your comments to -- first a great quarter. You guys are controlling what you can control. But with non anticipating strong backlog in Q3 and Q4, is there a risk, when we see like consensus has like 13% EBITDA growth for 2021. I know there's a lot of moving parts right now with the FAST Act, it's stimulus. Right now is that looking a little aggressive from where we're sitting with a few weeks ago with the FAST Act expiring at the end of September. And is that FAST Act -- can you kind of help us understand what you're thinking base case, a good scenario, a scenario that could be -- if we just see a one year resolution, what are you looking at with that FAST Act end of September, what that could mean maybe for your ability to build the backlog for 2021?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Mike, very good questions. And I think very observant. I was going to comment on that in my concluding comments. I think 13% organic growth is a bit aggressive. I think we have of the seven analysts and thank you all seven for covering us to have been significantly aggressive in their -- what they feel our growth is going to be and our adjusted earnings per share increase. I don't -- I think we'll try for that, I think we'll certainly try for double-digits organic growth and it could happen. We're going to try our best. We're going to continue to be focused as we are, but I think we don't have any concern or issues with the 2020 overall results, as I said before, and that is adjusted $3 and are roughly adjusted $3.17 a share. I think so -- I think the increase and also in the revenue we're not -- that is not an issue. We do have some questions concerning the projections on certain analysts for 2021. And so it's probably best that they take us -- take another look at what they have, and we appreciate very much you believing in us this much, but I think maybe you could have gotten a little aggressive.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Fair enough. And maybe you could just touch on the FAST Act or maybe you're saving it for your end results. And just on -- Mark, on QSI, I understand you're explaining the seasonality of how the backlog works and you expect the backlog to build in the third quarter. There is some concern that utilities might be lowering capex next year. Obviously there's a lot of uncertainty right now with the federal government right now and stimulus, and I guess is there any risk? I know usually you guys build in the third quarter, but because of some of the dynamics of COVID, is there, any concerns when you sit here today that may be building that backlog, might be a little bit more challenging and maybe just kind of slips into the next quarter or so? Thank you.

Mark Abatto -- President and Chief Operating Officer, NV5 Geospatial Solutions

I'll take the second part of that question. As it relates to the utilities and the types of solutions we provide. They are not capex sensitive from that perspective. A lot of what we do is related to O&M budgets and it's specifically designed around regulatory compliance, risk mitigation, security and safety of the grid and resiliency. So those are not discretionary or optional on the part of the utilities, and therefore we do not anticipate there to be a significant impact and a sustained impact as it relates to COVID-19 on that book of business.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Chris Moore with CJS. Your line is now open.

Christopher Moore -- CJS Securities -- Analyst

Hey, good afternoon guys. Yes, maybe to start. Wasn't sure what the organic growth was in the quarter?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, it was very difficult to utilize organic growth. And so we didn't report it, because we had to go off of the analysts' consensus. In the analysts' consensus, just the total growth, so they use the same acquisitions that we would have not used. So I would say, apples-to-apples last year organic growth was relatively flat. But it was not a true indicator. This time when you're going consensus, because you guys including CJS that include did not separate acquisitions from organic growth at least I didn't think it did, Chris.

Christopher Moore -- CJS Securities -- Analyst

Got it. It's helpful. Just from a second half kind of free cash flow expectation, trying to get -- any sense, you might be able to give us there?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Yes. I'll defer to Ed on that. He watches our cash very closely.

Edward H. Codispoti -- Chief Financial Officer

Yes. Hi, Chris. So obviously we had a very strong first half. I think when you think about the full year from a free cash flow perspective, we have a target of between $60 million and $80 million of free cash flow. Hopefully more on the higher end of that range. Of course, it depends on working capital usage, which we're focusing very carefully on and it has a lot of our attention. But I think in terms of the full-year plan for free cash flow, think about it between $60 million and $80 million.

Christopher Moore -- CJS Securities -- Analyst

Got it. That helps. And the last one from me, just obviously very strong EBITDA margins. Was that mostly a function of QSI or were there also -- are there any cost savings in there that kind of unique to the second quarter or just kind of how to look at it?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Yes. I think you have to look at it two ways. QSI performed on their budget and they were not focused on reduction -- scalable cost and reduction of costs, because they were not completely integrated. I think, so whatever they provided, they provided. The improvements that were in the core business and improvement in the core business was the absolute -- we reduced overall travel by almost $600,000 a month. We reduced our -- we reduced conferences by a cost of $500,000 a month. We've had rent and deferrals to almost $500,000 a month. So we were really -- operate much more efficiently. Now some of that will continue. Some of that we've learned from it and that will continue. So when you see the improvement in the percentage, I think you're speaking of that 20% on net revenues. The lion's share of that improvement came from the core business.

Christopher Moore -- CJS Securities -- Analyst

Got it. That's helpful. I'll jump back in line. Thanks guys.

Operator

Thank you. Our next question comes from Lisa Springer with Singular Research. Your line is now open.

Lisa Springer -- Singular Research -- Analyst

Thank you. You mentioned during the presentation that one of the challenges facing the company is the softness in the real estate transactions market. Pre-COVID, what was the contribution from this to revenues of approximately. And are you seeing any improvement in the real estate transaction market in the third quarter?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, it's the way we do it. We look at everything, which includes the real estate market. 30% of our businesses we consider commercial sector. Of that business about roughly what would that be, that would be roughly 8% to 10% of that business is with our big portfolio transaction that we do with a company that we own. It's NV5 now, what we call the [Indecipherable] and they do the property surveys whether that building is being built new or old and they do both and alt [Phonetic] the survey, physical survey and they do environmental work. We'd seen a slowdown in that business.

The other slowdown we saw that is starting to have some a little green shoots has been in new [Indecipherable] service business. We do a significant amount of our -- what we call commercial work for residential is supporting the small municipalities around the country, becoming their building departments when things are slow and then when we see things building up and there is more building permits as you see more housing permits, we benefit by that by getting outsourced work also. So those are the two areas that we saw softening.

Lisa Springer -- Singular Research -- Analyst

Okay. Thank you.

Operator

Thank you.[Operator Instructions] Our next question comes from Marc Riddick with Sidoti. Your line is now open.

Marc Riddick -- Sidoti -- Analyst

Hi, good evening.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Hi, Marc.

Marc Riddick -- Sidoti -- Analyst

So, there's a couple of things I wanted to touch on that you just maybe get a little more color around that you mentioned which is really interesting. One of which I guess to start around the possibility of future office cost reductions around the experiences that you've had with the virtual workforce successes. I was wondering if that's something that as -- are there upcoming office lease expirations that we should be thinking about where there -- are there some sign post ahead that you can sort of target there or do you think that's something that's -- how do you see that evolving as we sort of moving forward with the expenses that you've had so far?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Look, it's not meaningful to you Marc. I think we've constantly and Richard Tong is here with us. We managed our real estate portfolio very closely. Any time, we can see opportunities where -- through acquisition where our lease and expires, we can consolidate offices, we do so. So we haven't really baked anything into the go-forward budget and now we're not going to be utilizing these things, but we're learning a lot. We're learning a lot that maybe people can work remotely. There is a consequence of that. We still need mentoring, we need senior leadership of those people. But we don't specifically isolate any one, and Richard may have, but for this -- for the purposes of your question, we don't isolate any -- we have over 120 facilities around the country in the world. We don't isolate any one specific thing that says, this is going to improve our results for next year. This is all -- this all gets pretty well distilled in faded out at budget time for us which is toward the latter end of the fourth quarter.

Marc Riddick -- Sidoti -- Analyst

Okay. Great. And then that actually kind of ties a little bit into where I was going next, and you had mention of some of the utilization flexibility around cross-training. And I was wondering if you could just maybe a little bit more mention of maybe what's taking place over the last several weeks, given the COVID environment that -- is it a little different or accelerated versus what it would have been in a normal environment? How should we think about the -- what's taken place from a cross-training perspective?

Dickerson C. Wright -- Chairman & Chief Executive Officer

Alex may care to comment on that. But for me, it's the word would be opportunistic. We on times of natural disasters, we -- our EHS, Environmental Health Services Group, we do a tremendous amount of training of people in the core business. So I can do that work that may not -- have not been able to do some of the construction projects that were shut down. So we do an awful lot of work that way. We have been very involved in COVID protocols and writing those calls. I'm not saying it's enough to replace the entire business, but we really -- the cross-training is to train those people to do some of the action services, and maybe Alex, you may want to comment on that.

Alexander A. Hockman -- President, Chief Operating Officer & Director

Yes. So one of the things that we've talked about is the services that we provide to power or utility companies and everything from undergrounding as well as the [Indecipherable] hardening and many services that we have and many are very engaged specialties. And one of the things that we are seeing is now that we're working remotely to a much larger extent, we recognize the ability to interface with teams just through programs like Microsoft team. So what we're looking at now is how we can cross-train, so that we're able to have higher utilization among those SaaS that have a high degree of specialty where we have and also be generalist, so as we're opportunistic as Dick said when we have our project, we can do a much better job of utilizing our resources nationwide.

Marc Riddick -- Sidoti -- Analyst

Okay. That's great color. And very helpful. And then the last one from me. I want to switch gears over to Geospatial for a moment. I was -- one of the things I'm sort of curious about is the commentary around growth opportunities in international markets and I was wondering if you could speak to maybe some of the bigger picture thoughts around the potential for international market expansion for that part of the business of any specific competition hurdles that you might see/opportunities and the opportunity certainly makes sense, but how should we think about the potential for international expansion for Geospatial Solutions? Thank you.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Well, Marc, we really do want to speak to you at length on this and I think for the first time we have ever spoken, and I don't think you've reached out to Mark Abatto. But let me just answer this and then we're going to have to go. We feel that tremendous opportunity that we see is going to be in the utility support service energy and some of these countries are expanding very rapidly, but they have an aging grid, and a key portion of that is what we will do analytically. We're not going to be buying airplanes and we're not going to be using physical equipment, but we are going to take data, the data and we're going to take that data in a useful way. So, internationally, it's going to be mostly focused on generating and supporting the utility at the utility grid. So anyway, we really would love to talk to you more about this. And I can arrange for Mark Abatto, I see your phone number there, Mark will reach out to you and specifically speak to what the international opportunities that are ahead.

Marc Riddick -- Sidoti -- Analyst

Much appreciated. Thank you.

Dickerson C. Wright -- Chairman & Chief Executive Officer

Okay. Thank you.

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 C. Wright -- Chairman & Chief Executive Officer

Thank you. I'm hearing all types of music going off on my years now. But, hopefully you can hear me. I just thought of this as we were looking at and what we're going through, and we all as people, we all as companies, we live in very interesting times. Not only must we adapt in our personal life and adjust in our personal lives and twitter people from home and work from home, we need to do that. But as a company, we have to adjust to the market conditions. It's not business as usual. It's really how we can adapt to the current business environment. So, what differentiates NV5 from our competitors. It's the support that we are getting from all of our technical personnel and we want to support them, so that they are free to continue to have contact with the clients. Not so much maybe by in-person, but by phone, and we want to make this as their priority.

We were fortunate enough and the results show that. In the quarter, we gave them the technology and software for them to work for remotely. And this must continue. We continue to encourage them to call their clients, reach out to the clients, look for things that they can do with the clients, even though they may not be able to see them in person. I think we want to speak a little bit about what is going to happen in the year. We're very optimistic about 2020. I appreciate the seven analysts and the guidance that you gave us and we are strengthened by the optimism you have shown in the company. We think 2020 is -- looks OK with us. I think it's something we can do and we don't see any erosion in that.

I think in 2021 please go back and look at some of the things you've had because the consensus of organic growth is closer to 14% and we're going to try that, we're going to try our best. But we may have been a little too optimistic in that and the increase in adjusted earnings per share has significant for just two of you analysts. So please take a look at that. We anticipate a great year in 2021. We will continue to focus as we're doing, and I think, I appreciate everyone's continued support of the company.

One of the areas that we are very focused on in our M&A activity is technology, and how technology can give us opportunities. It's going to give us opportunities domestically. It's going to give us opportunities internationally. And right now we're looking for companies that can enhance a platform that we received from our Geospatial Quantum. Quantum Spatial services in our Geospatial work. So we are starting to see many opportunities, and the more we integrate, the more we support. We support this integration of Quantum Spatial on the technology. We think we're going to continue to grow and improve the margin. So we're excited about the opportunities ahead. We're surprised and very excited about that we had and we really look forward to speaking to you guys again in the next quarter, the third quarter. Anytime though, please reach out to us. Any questions you may have, we want to be available for any of -- all of our people and all of our investors. So thank you everyone for listening in today and that will conclude our comments on our Q2 earnings. Thank you.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Richard Tong -- Executive Vice President & General Counsel

Dickerson C. Wright -- Chairman & Chief Executive Officer

Edward H. Codispoti -- Chief Financial Officer

Alexander A. Hockman -- President, Chief Operating Officer & Director

Mark Abatto -- President and Chief Operating Officer, NV5 Geospatial Solutions

Robert Brown -- Lake Street Capital Markets -- Analyst

Jeff Martin -- ROTH Capital -- Analyst

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Christopher Moore -- CJS Securities -- Analyst

Lisa Springer -- Singular Research -- Analyst

Marc Riddick -- Sidoti -- Analyst

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