NV5 Global, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35849

_______________________________________________________

NV5 Global, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________



Delaware		45-3458017
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 South Park Road,	Suite 350	33021
Hollywood,	Florida	(Zip Code)
(Address of principal executive offices)

(954) 495-2112

(Registrant’s telephone number, including area code)

_______________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	NVEE	The NASDAQ Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated Filer	x

Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 6, 2019, there were 12,818,872 shares outstanding of the registrant’s common stock, $0.01 par value.

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NV5 GLOBAL, INC.

INDEX



		Page

PART I – FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS	1

	Consolidated Balance Sheets (unaudited)	1

	Consolidated Statements of Net Income and Comprehensive Income (unaudited)	2

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited)	3

	Consolidated Statements of Cash Flows (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4	CONTROLS AND PROCEDURES	34

PART II – OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	35
ITEM 1A	RISK FACTORS	35
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	36
ITEM 4	MINE SAFETY DISCLOSURES	36
ITEM 5	OTHER INFORMATION	36
ITEM 6	EXHIBITS	37

SIGNATURES		39

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

NV5 Global, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share data)



	September 28, 2019		December 29, 2018
Assets
Current assets:
Cash and cash equivalents	$	31,425	$	40,739
Billed receivables, net	109,590		98,324
Unbilled receivables, net	53,818		43,411
Prepaid expenses and other current assets	9,198		2,582
Total current assets	204,031		185,056
Property and equipment, net	12,349		11,677
Right-of-use lease asset, net	42,366		—
Intangible assets, net	100,688		99,756
Goodwill	158,423		140,930
Other assets	2,886		2,002
Total Assets	520,743		$	439,421

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,082	$	22,588
Accrued liabilities	33,654		20,853
Income taxes payable	—		2,697
Billings in excess of costs and estimated earnings on uncompleted contracts	2,241		7,625
Client deposits	276		208
Current portion of contingent consideration	3,351		1,845
Current portion of notes payable and other obligations	17,578		17,139
Total current liabilities	80,182		72,955
Contingent consideration, less current portion	2,195		2,853
Long-term lease liability	32,781		—
Notes payable and other obligations, less current portion	40,638		29,847
Deferred income tax liabilities, net	16,881		16,224
Total liabilities	172,676		121,879

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 45,000,000 shares authorized, 12,818,919 and 12,550,711 shares issued and outstanding as of September 28, 2019 and December 29, 2018, respectively	128		126
Additional paid-in capital	246,869		236,525
Retained earnings	101,070		80,891
Total stockholders’ equity	348,067		317,542
Total liabilities and stockholders’ equity	$	520,743	$	439,421

See accompanying notes to consolidated financial statements (unaudited).

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NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands, except share data)



	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Gross revenues	$	131,032		$	104,185		$	376,340		$	302,737

Direct costs (excluding depreciation and amortization):
Salaries and wages	40,426			34,475			113,762			98,542
Sub-consultant services	19,972			14,989			56,969			43,349
Other direct costs	7,139			4,747			25,244			13,539
Total direct costs	67,536			54,211			195,975			155,430

Gross Profit	63,496			49,974			180,365			147,307

Operating Expenses:
Salaries and wages, payroll taxes and benefits	33,428			24,897			93,431			76,122
General and administrative	11,028			7,556			30,786			23,348
Facilities and facilities related	4,664			3,490			12,407			10,552
Depreciation and amortization	6,551			4,057			18,908			11,660
Total operating expenses	55,671			40,000			155,533			121,682

Income from operations	7,825			9,974			24,832			25,625

Interest expense	(421		)	(451		)	(1,230		)	(1,712		)

Income before income tax expense	7,403			9,523			23,602			23,913
Income tax expense	(1,560		)	(2,238		)	(3,422		)	(4,716		)
Net Income and Comprehensive Income	$	5,843		$	7,285		$	20,180		$	19,197

Earnings per share:
Basic	$	0.48		$	0.65		$	1.67		$	1.80
Diluted	$	0.46		$	0.62		$	1.62		$	1.71

Weighted average common shares outstanding:
Basic	12,191,405			11,256,946			12,086,588			10,686,040
Diluted	12,566,966			11,701,394			12,485,049			11,205,748

See accompanying notes to consolidated financial statements (unaudited).

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NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)



	Common Stock			Additional Paid-In Capital			Retained Earnings
	Shares	Amount		Additional Paid-In Capital			Retained Earnings		Total
Balance, June 30, 2018	11,129,082	$	111	$	131,746		$	65,947	$	197,804
Stock compensation	—	—		1,902			—		1,902
Restricted stock issuance, net	25,672	—		(1		)	—		—
Stock issuance for acquisitions	37,146	—		2,886			—		2,886
Proceeds from secondary offering, net of costs	1,270,000	13		93,456			—		93,469
Net income	—	—		—			7,285		7,285
Balance, September 29, 2018	12,461,900	$	125	$	229,989		$	73,232	$	303,346

Balance, June 29, 2019	12,657,841	$	127	$	243,646		$	95,228	$	339,001
Stock compensation	—	—		2,819			—		2,819
Restricted stock issuance, net	155,307	1		—			—		1
Stock issuance for acquisitions	5,771	—		403			—		403
Net income	—	—		—			5,843		5,843
Balance, September 28, 2019	12,818,919	$	128	$	246,869		$	101,070	$	348,067



	Common Stock			Additional Paid-In Capital			Retained Earnings
	Shares	Amount		Additional Paid-In Capital			Retained Earnings		Total
Balance, December 30, 2017	10,834,770	$	108	$	125,954		$	54,035	$	180,097
Stock compensation	—	—		4,541			—		4,541
Restricted stock issuance, net	144,118	2		(2		)	—		—
Stock issuance for acquisitions	73,012	1		4,949			—		4,950
Proceeds from secondary offering, net of costs	1,270,000	13		93,456			—		93,469
Proceeds from exercise of warrants, net of costs	140,000	1		1,091			—		1,092
Net income	—	—		—			19,197		19,197
Balance, September 29, 2018	12,461,900	$	125	$	229,989		$	73,232	$	303,346

Balance, December 29, 2018	12,550,711	$	126	$	236,525		$	80,891	$	317,542
Stock compensation	—	—		6,989					6,989
Restricted stock issuance, net	215,431	2		(2		)			—
Stock issuance for acquisitions	41,592	—		2,632					2,632
Payment of contingent consideration with common stock	11,185	—		725					725
Net income	—	—		—			20,180		20,180
Balance, September 28, 2019	12,818,919	$	128	$	246,869		$	101,070	$	348,067

See accompanying notes to consolidated financial statements (unaudited).

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NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)



	Nine Months Ended
	September 28, 2019			September 29, 2018
Cash Flows From Operating Activities:
Net income	$	20,180		$	19,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,908			11,660
Non-cash lease expense	6,770			—
Provision for doubtful accounts	1,725			843
Stock based compensation	6,989			4,541
Change in fair value of contingent consideration	49			267
Gain on disposals of property and equipment	(48		)	—
Deferred income taxes	(3,839		)	564
Changes in operating assets and liabilities, net of impact of acquisitions:
Billed receivables	508			(6,396		)
Unbilled receivables	(4,490		)	(3,759		)
Prepaid expenses and other assets	(5,279		)	819
Accounts payable	(2,053		)	(679		)
Accrued liabilities	(9,170		)	(3,259		)
Income taxes payable	(2,789		)	(6,713		)
Billings in excess of costs and estimated earnings on uncompleted contracts	(5,972		)	485
Deposits	68			—
Net cash provided by operating activities	21,557			17,570

Cash Flows From Investing Activities:
Cash paid for acquisitions (net of cash received from acquisitions)	(29,365		)	(28,460		)
Purchase of property and equipment	(1,810		)	(1,582		)
Net cash used in investing activities	(31,175		)	(30,042		)

Cash Flows From Financing Activities:
Proceeds from secondary offering	—			93,469
Borrowings from Senior Credit Facility	10,000			—
Payments on notes payable	(8,483		)	(7,410		)
Payments of contingent consideration	(1,213		)	(728		)
Proceeds from exercise of unit warrant	—			1,092
Payments of borrowings from Senior Credit Facility	—			(36,500		)
Net cash provided by financing activities	304			49,923


Net (decrease) increase in Cash and Cash Equivalents	(9,314		)	37,451
Cash and cash equivalents – beginning of period	40,739			18,751
Cash and cash equivalents – end of period	$	31,425		$	56,202

See accompanying notes to consolidated financial statements (unaudited).

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NV5 Global, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)



	Nine Months Ended
	September 28, 2019		September 29, 2018
Non-cash investing and financing activities:
Contingent consideration (earn-out)	$	2,570	$	1,565
Notes payable and other obligations issued for acquisitions	$	10,044	$	8,356
Stock issuance for acquisitions	$	2,632	$	4,950
Capital leases	$	769	$	2,878

See accompanying notes to consolidated financial statements (unaudited).

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

Note 1 - Organization and Nature of Business Operations

Business

NV5 Global, Inc. and its subsidiaries (collectively, the “Company,” “NV5 Global,” “our,” “we”) is a provider of professional and technical engineering and consulting solutions to public and private sector clients in the infrastructure, energy, construction, real estate and environmental markets, operating nationwide and abroad. The Company’s clients include the U.S. federal, state and local governments, and the private sector. NV5 Global provides a wide range of services, including, but not limited to:



●	Infrastructure, engineering and support	●	Management oversight
●	Construction quality assurance, testing and inspection	●	Permitting
●	Program management	●	Inspection and field supervision
●	Energy	●	Testing inspection and certification
●	Environmental	●	Forensic engineering
●	Planning	●	Litigation support
●	Design	●	Condition assessment
●	Consulting	●	Compliance certification

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain amounts in the consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.

In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018 (the “2018 Form 10-K”). The results of operations and cash flows for the interim periods presented are not necessarily indicative of the results to be expected for any future interim period or for the full 2019 fiscal year.

Goodwill and Intangible Assets

Goodwill is the excess of consideration paid for an acquired entity over the amounts assigned to assets acquired, including other identifiable intangible assets and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the acquisition date fair value of the acquired company’s tangible and identifiable intangible assets and liabilities.

Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is met, then performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

determines fair value through multiple valuation techniques, and weights the results accordingly. NV5 Global is required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of its reporting units. If the carrying value of a reporting unit exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. The Company has elected to perform its annual goodwill impairment review on August 1 of each year. The Company conducts its annual impairment tests on the goodwill using the quantitative method of evaluating goodwill.

Identifiable intangible assets primarily include customer backlog, customer relationships, trade names and non-compete agreements. Amortizable intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment, if any, is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model.

On August 1, 2019, the Company conducted its annual impairment tests using the quantitative method of evaluating goodwill. Based on the quantitative analyses the Company determined the fair value of each of the reporting units exceeded its carrying value. Therefore, the goodwill was not impaired and the Company did not recognize an impairment charge relating to goodwill as of August 1, 2019. Furthermore, there were no indicators, events or changes in circumstances that would indicate goodwill was impaired during the period from August 2, 2019 through September 28, 2019.

See Note 8 for further information on goodwill and identified intangibles.

There have been no significant changes, other than those related to the adopted new accounting standards below, in the Company’s accounting policies from those disclosed in our 2018 Form 10-K.

Adoption of New Accounting Standards

Leases

We adopted ASU No. 2016-2, Leases ("Topic 842"), as of the first day of the fiscal year 2019 using the modified retrospective approach and elected not to adjust comparative periods. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and the initial direct costs. We elected the practical expedient to keep leases with an initial term of 12 months or less off the balance sheet and the practical expedient to account for non-lease components in a contract as part of a single lease component. Lease payments are recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term. Adoption of the new standard resulted in the recording of additional right-of-use lease assets and lease liabilities of $34,186 and $34,965, respectively, as of the first day of the fiscal year 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows. Additionally, there was no cumulative effect of adoption on retained earnings in the Statement of Changes in Stockholders' Equity.

Revenue Recognition

On the first day of fiscal year 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective approach to all contracts that were not completed as of the beginning of fiscal year 2018. We utilize the portfolio method practical expedient, which allows companies to account for multiple contracts as a portfolio, instead of accounting for them on a contract by contract basis (commonly known as the contract method). For our time and materials contracts, we apply the as-invoiced practical expedient, which permits us to recognize revenue as the right to invoice for services performed. The new standard did not materially affect our consolidated net income, financial position, or cash flows.

Performance Obligations

Some of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and therefore, is not distinct. However, in some instances, we may also promise to provide distinct goods or services within a contract, resulting in multiple performance obligations. For contracts

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

with multiple performance obligations, we allocate the contract transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. Typically, we sell a customer a specific service and use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

The Company’s performance obligations are satisfied as work progresses or at a point in time. Revenue on our cost-reimbursable contracts is recognized over time using direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations because it best depicts the transfer of control to the customer. Contract costs include labor, subcontractors’ costs and other direct costs.

Gross revenue from services transferred to customers at a point in time is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the reports and/or analysis performed.

As of September 28, 2019, we had $504,349 of remaining performance obligations, of which $390,454 is expected to be recognized over the next 12 months and the majority of the balance over the next 24 months. Contracts for which work authorizations have been received are included in performance obligations. Most of our government contracts are multi-year contracts for which funding is appropriated on an annual basis, therefore performance obligations includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. In the case of non-government contracts and project awards, performance obligations includes future revenue at contract or customary rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in performance obligations to the extent of the remaining estimated amount.

Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) on the Consolidated Balance Sheet. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts as of the reporting date. This liability is generally classified as current. Revenue recognized that was included in the contract liability balance at the beginning of the fiscal year was $2 and $6,437 for the three and nine months ended September 28, 2019, respectively and $222 and $434 for the three and nine months ended September 29, 2018, respectively.

Note 3 – Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other ("Topic 350") simplifying the test for goodwill impairment. This ASU eliminates Step 2 of the goodwill impairment test and simplifies how the amount of an impairment loss is determined. The update is effective for public companies in the beginning of fiscal year 2020 and will be applied on a prospective basis. We will adopt this ASU at the beginning of fiscal year 2020. We do not expect the impact of this ASU to be material to our consolidated financial statements.

Note 4 – Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The effect of potentially dilutive securities is not considered during periods of loss or if the effect is anti-dilutive.

The weighted average number of shares outstanding in calculating basic earnings per share for the nine months ended September 28, 2019 and September 29, 2018 exclude 625,687 and 588,430 non-vested restricted shares, respectively. There were no potentially anti-dilutive securities during the three and nine months ended September 28, 2019 and September 29, 2018.

The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share:

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Numerator:
Net income – basic and diluted	$	5,843	$	7,285	$	20,180	$	19,197

Denominator:
Basic weighted average shares outstanding	12,191,405		11,256,946		12,086,588		10,686,040
Effect of dilutive non-vested restricted shares and units	308,240		381,250		325,219		396,577
Effect of issuable shares related to acquisitions	67,321		63,198		73,242		88,594
Effect of warrants	—		—		—		34,537
Diluted weighted average shares outstanding	12,566,966		11,701,394		12,485,049		11,205,748

Warrant exercise

In conjunction with our initial public offering on March 26, 2013, the underwriter received a warrant to acquire up to 140,000 units (“Unit Warrant”). On March 23, 2016, the underwriter paid us $1,008 to exercise the Unit Warrant. Each of the units delivered upon exercise consisted of one share of our common stock and one warrant to purchase one share of our common stock at an exercise price of $7.80 per share (“Warrant”), which warrant expired on March 27, 2018. On March 19, 2018, the underwriter paid us $1,092 to exercise the Warrant. On March 21, 2018, we delivered 140,000 shares of common stock to the underwriter.

Note 5 – Business Acquisitions

2019 Acquisitions

On July 2, 2019, the Company acquired WHPacific, Inc. (“WHPacific”), a leading provider of design engineering and surveying services serving Washington, Oregon, Idaho, New Mexico, Arizona and California for a cash purchase price of $9,000. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for WHPacific, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

On July 1, 2019, the Company acquired GeoDesign, Inc. (“GeoDesign”), a geotechnical, environmental, geological, mining and pavement engineering company with serving Washington, Oregon and California. The aggregate purchase price is up to $12,800, including $8,500 of cash, $2,000 in promissory note (bearing interest at 4%), payable in four equal installments of $500 due on the first, second, third and fourth anniversaries of July 1, 2019 and $375 of the Company’s common stock (4,731 shares) issued at the closing date. The purchase price also includes $425 of the Company’s common stock payable on the first and second anniversary of July 1, 2019. Further, the purchase price includes a $1,500 earn-out of cash, which was recorded at an estimated fair value of $1,456. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for GeoDesign, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

On June 3, 2019, the Company acquired Alta Environmental, L.P. (“Alta”), a consulting firm specializing in air quality, environmental building sciences, water resources, site assessment and remediation as well as environmental health and safety compliance services. The aggregate purchase price is up to $6,500, including $4,000 of cash and $2,000 in promissory note (bearing interest at 4%), payable in four equal installments of $500 due on the first, second, third and fourth anniversaries of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash, which was recorded at an estimated fair value of $485. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Alta, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

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(in thousands, except share data)

On June 3, 2019, the Company acquired Page One Consultants (“Page One”), a program management and construction quality assurance firm based in Orlando, Florida. The aggregate purchase price is up to $3,900, including $2,000 of cash, $1,000 in promissory note (bearing interest at 3%), payable in three equal installments of $333 due on the first, second and third anniversaries of June 3, 2019 and $200 of the Company’s common stock (2,647 shares) issued at the closing date. The purchase price also includes $200 of the Company’s common stock payable on the first anniversary of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash and stock, which was recorded at an estimated fair value of $448. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Page One, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

On March 22, 2019, the Company acquired The Sextant Group, Inc. (“The Sextant Group”), a national leading provider of audiovisual, information and communications technology, acoustics consulting, and design services headquartered in Pittsburgh, PA. The Sextant Group provides services throughout the U.S. and is well-known for creating integrated technology solutions for a wide range of public and private sector clients. The aggregate purchase price is up to $11,000, including $7,000 of cash and $4,000 in promissory note (bearing interest at 4%), payable in four equal installments of $1,000 due on the first, second, third and fourth anniversaries of March 22, 2019. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for The Sextant Group, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

On December 31, 2018, the Company acquired certain assets of Celtic Energy, Inc. (“Celtic”), a nationally recognized energy consulting firm that specializes in energy project management and oversight. The aggregate purchase price is up to $1,900, including $1,000 in cash, $300 in promissory note (bearing interest at 3%), payable in three equal installments of $100 on the first, second and third anniversaries of December 31, 2018 and $200 of the Company’s common stock (3,227 shares) issued at the closing date. The purchase price also includes $200 of the Company’s common stock payable on the first anniversary of December 31, 2018. Further, the purchase price includes a $200 earn-out of cash, which was recorded at an estimated fair value of $181. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Celtic, the Company performed a purchase price allocation.

2018 Acquisitions

On November 2, 2018 the Company acquired CHI Engineering, Inc. (“CHI”), an infrastructure engineering firm based in Portsmouth, New Hampshire. CHI is a leading provider of engineering, procurement, and construction management services to the liquefied natural gas (“LNG”), petroleum gas (“LPG”) and Natural Gas industries. CHI’s client base includes the majority of LNG facility owner/operators in the U.S. The aggregate purchase price of this acquisition is up to $53,000, including $30,000 in cash, $15,000 in promissory notes (bearing interest at 3%), payable in four equal installments of $3,750 on the first, second, third and fourth anniversaries of November 2, 2018 and $3,000 of the Company’s common stock (36,729 shares) issued at the closing date. In July 2019, the Company received $2,360 from the sellers of CHI, as a working capital adjustment which was recorded a reduction of the purchase price paid for the acquisition of CHI. The purchase price also includes $3,000 of the Company’s common stock payable in three installments of $1,000, due on the first, second and third anniversaries of November 2, 2018. The purchase price also includes a $2,000 earn-out of cash (at a 3% interest rate which begins to accrue on January 1, 2020), which was recorded at its estimated fair value of $1,547, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to related party individuals who became employees of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CHI, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.

On August 24, 2018, the Company acquired all of the outstanding equity interests in CALYX Engineers and Consultants, Inc. (“CALYX”), an infrastructure and transportation firm based in Cary, North Carolina. CALYX provides roadway and structure design, transportation planning, water resources, construction services, utility services, building structure design, land development, traffic services, cultural resources, surveying, and environmental services. CALYX serves both public and private clients, including state departments of transportation, municipalities, developers, higher education, and healthcare systems. The acquisition of CALYX will expand our infrastructure engineering service in the southeast United States. The purchase price of this acquisition is $34,000, subject to customary closing working capital adjustments, including $25,000 in cash, $4,000 in promissory notes (bearing interest at 3.75%), payable in four installments of $1,000, due on the first, second, third and fourth

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anniversaries of August 24, 2018 (see Note 10), $3,000 of the Company’s common stock (36,379 shares) as of the closing date of the acquisition, and $2,000 in cash payable within 120 days of the closing date. The note is due to related party individuals who became employees of the Company. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CALYX, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.

On February 2, 2018, the Company acquired CSA (M&E) Ltd. (“CSA”), a leading provider of Mechanical, Electrical, and Plumbing (MEP) engineering and sustainability consulting services. CSA provides MEP and sustainability services for the retail, education, healthcare, industrial, corporate, hospitality and infrastructure market sectors with offices in Hong Kong, Macau and the UAE. CSA serves private and public sector clients throughout Asia and the Middle East. The purchase price of this acquisition was up to $4,200, including $2,000 in cash; $600 in promissory notes (bearing interest at 3%), payable in four installments of $150, due on the first, second, third and fourth anniversaries of February 2, 2018, the effective date of the acquisition; and $150 of the Company’s common stock (2,993 shares) issued as of the closing date. The purchase price also includes $250 of the Company’s common stock payable in two installments of $125, due on the first and second anniversaries of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $1,200 payable in cash and stock, subject to the achievement of certain agreed upon financial metrics for fiscal year 2018. The earn-out of $1,200 is non-interest bearing and was recorded at its estimated fair value of $899, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual who became an employee of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for CSA, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.

On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko Utility Design, Inc. (“Butsko”). Butsko is leading provider of utility planning and design services serving both public and private sector clients through its offices in Southern California and Washington. The purchase price of this acquisition was up to $4,250, including $1,500 in cash; $1,000 in promissory notes (bearing interest at 3%), payable in four installments of $250, due on the first, second, third and fourth anniversaries of January 12, 2018, the effective date of the acquisition; and $300 of the Company’s common stock (5,630 shares) issued as of the closing date. The purchase price also includes $600 of the Company’s common stock payable in two installments of $300, due on the first and second anniversaries of the acquisition. The purchase price also included a non-interest bearing earn-out of up to $850 payable in cash and stock, subject to the achievement of certain agreed upon financial metrics for fiscal year 2018. The earn-out of $850 is non-interest bearing and was recorded at its estimated fair value of $666, based on a probability-weighted approach valuation technique used to determine the fair value of the contingent consideration on the acquisition date. The note and the earn-out are due to a related party individual who became an employee of the Company upon the acquisition. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Butsko, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date for the acquisitions closed during 2019 and 2018:

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	2019			2018
Cash	$	75		$	345
Billed and unbilled receivables, net	19,417			20,999
Property and equipment	1,580			3,122
Prepaid expenses	2,056			589
Other assets	164			83
Intangible assets:
Customer relationships	12,839			32,267
Trade name	910			2,479
Customer backlog	852			8,007
Non-compete	1,647			4,306
Total Assets	39,540			72,197
Liabilities	(9,263		)	(11,589		)
Deferred tax liabilities	(4,495		)	(8,903		)
Net assets acquired	$	25,782		$	51,705

Consideration paid (Cash, Notes and/or stock)	$	42,898		$	90,516
Contingent earn-out liability (Cash and stock)	2,570			3,112
Total Consideration	$	45,468		$	93,628
Excess consideration over the amounts assigned to the net assets acquired (Goodwill)	$	19,686		$	41,923

Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from these acquisitions. See Note 8 for further information on goodwill and identified intangibles.

The consolidated financial statements of the Company for the three and nine months ended September 28, 2019 and September 29, 2018 include the results of operations from any business acquired from their respective dates of acquisition during each of the respective period as follows:



	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Gross Revenues	$	16,537	$	4,984	$	22,229	$	11,374
Income before income taxes	$	1,272	$	1,356	$	2,211	$	2,008

The following table presents the unaudited, pro forma consolidated results of operations (in thousands, except per share amounts) for the three and nine months ended September 28, 2019 and September 29, 2018 as if the acquisitions of CHI, CALYX, The Sextant Group, Page One, Alta, WHPacific and GeoDesign had occurred as of January 1, 2018. The pro forma information provided below is compiled from the pre-acquisition financial information of CHI, CALYX, The Sextant Group, Page One, Alta, WHPacific and GeoDesign which includes pro forma adjustments for amortization expense, adjustments to certain expenses, and the income tax impact of these adjustments. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of these acquisitions actually been acquired on January 1, 2018 or (ii) future results of operations:

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	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Gross revenues	$	131,032	$	141,249	$	403,162	$	417,672
Net income	$	5,843	$	9,526	$	19,407	$	24,550
Basic earnings per share	$	0.48	$	0.84	$	1.61	$	2.28
Diluted earnings per share	$	0.46	$	0.81	$	1.55	$	2.18

The Company has determined the supplemental disclosures pursuant to ASC 805-10-50-2h, for the Celtic, CSA and Butsko acquisitions were not material to the Company’s consolidated financial statements both individually and in the aggregate.

Note 6 – Billed and Unbilled Receivables

Billed and Unbilled Receivables consists of the following:



	September 28, 2019			December 29, 2018
Billed receivables	$	114,148		$	101,482
Less: allowance for doubtful accounts	(4,557		)	(3,158		)
Billed receivables, net	$	109,590		$	98,324

Unbilled receivables	$	55,206		$	44,799
Less: allowance for doubtful accounts	(1,388		)	(1,388		)
Unbilled receivables, net	$	53,818		$	43,411

Note 7 – Property and Equipment, net

Property and equipment, net, consists of the following:



	September 28, 2019			December 29, 2018
Office furniture and equipment	$	2,877		$	2,328
Computer equipment	12,382			11,640
Survey and field equipment	6,388			5,526
Leasehold improvements	3,981			2,541
	25,628			22,035
Accumulated depreciation	(13,279		)	(10,358		)
	$	12,349		$	11,677

Depreciation expense was $1,317 and $3,591 for the three and nine months ended September 28, 2019, respectively and $1,077 and $3,111 for the three and nine months ended September 29, 2018, respectively.

Note 8 – Goodwill and Intangible Assets

Goodwill

The changes in the carrying value by reportable segment for the nine months ended September 28, 2019 were as follows:

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	Nine Months Ended
	December 29, 2018		2019 Acquisitions		Disposed/Adjustments			September 28, 2019
INF	$	69,255	$	13,797	$	(2,193	)	$	80,859
BTS	71,675		5,889		—			77,564
Total	$	140,930	$	19,686	$	(2,193	)	$	158,423

Goodwill of approximately $5,712 and $13,549 from acquisitions during the nine months ended September 28, 2019 and September 29, 2018, respectively, is expected to be deductible for income tax purposes. In July 2019, the Company received $2,360 from the sellers of CHI, as a working capital adjustment which was recorded a reduction of goodwill and the purchase price paid for the acquisition of CHI.

Intangible Assets

Intangible assets, net, as of September 28, 2019 and December 29, 2018 consist of the following:



	September 28, 2019							December 29, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer relationships (1)	$	113,794	$	(26,434	)	$	87,360	$	100,956	$	(18,724	)	$	82,232
Trade name (2)	9,798		(8,084		)	1,714		8,888		(6,469		)	2,419
Customer backlog (1)	16,853		(10,966		)	5,887		16,000		(6,730		)	9,270
Favorable lease (3)	553		(233		)	320		552		(197		)	355
Non-compete (4)	10,201		(4,794		)	5,407		8,554		(3,074		)	5,480
Total	$	151,199	$	(50,511	)	$	100,688	$	134,950	$	(35,194	)	$	99,756


(1)	Amortized on a straight-line basis over estimated lives (1 to 10 years)


(2)	Amortized on a straight-line basis over their estimated lives (1 to 3 years)


(3)	Amortized on a straight-line basis over the remaining lease term of 9 years


(4)	Amortized on a straight-line basis over their contractual lives (4 to 5 years)

Amortization expense was $5,234 and $15,317 for the three and nine months ended September 28, 2019, respectively and $2,980 and $8,549 for the three and nine months ended September 29, 2018, respectively.

Note 9 – Accrued Liabilities

Accrued liabilities consist of the following:



	September 28, 2019		December 29, 2018
Accrued lease liability	$	10,768	$	—
Accrued vacation	9,958		7,994
Payroll and related taxes	5,383		8,136
Benefits	1,708		1,598
Unrecognized tax benefits	878		548
Professional liability reserve	1,168		157
Deferred rent	—		779
Other	3,791		1,641
Total	$	33,654	$	20,853

Note 10 – Notes Payable and Other Obligations

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Notes payable and other obligations consists of the following:



	September 28, 2019			December 29, 2018
Other obligations	$	3,774		$	4,893
Uncollateralized promissory notes	41,765			40,001
Senior credit facility	10,000			—
Capital leases	2,676			2,092
Total notes payable and other obligations	58,215			46,986
Current portion of notes payable and other obligations	(17,578		)	(17,139		)
Notes payable and other obligations, less current portion	40,638			29,847

As of September 28, 2019 and December 29, 2018, the carrying amount of debt obligations approximates their fair values based on Level 2 inputs as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.

Senior Credit Facility

On December 20, 2018, we entered into an amendment to a Credit Agreement (the “Credit Agreement”) dated December 7, 2016 with Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”). Pursuant to the amended Credit Agreement, Bank of America agreed to be the sole administrative agent for a five-year $125,000 Senior Secured Revolving Credit Facility (“Senior Credit Facility”) to the Company and, together with PNC Bank, National Association and Regions Bank as the other lenders under the Senior Credit Facility, has committed to lend to the Company all of the Senior Credit Facility, subject to certain terms and conditions. The Senior Credit Facility is secured by a first priority lien on substantially all of the assets of the Company. MLPFS has undertaken to act as sole lead arranger and sole book manager for the Senior Credit Facility. In addition, the Senior Credit Facility includes an accordion feature permitting the Company to request an increase in the Senior Credit Facility by an additional amount of up to $100,000. The Senior Credit Facility includes a $20,000 sublimit for the issuance of standby letters of credit and a $15,000 sublimit for swingline loans. The proceeds of the Senior Credit Facility are intended to be used (i) to finance permitted acquisitions, (ii) for capital expenditures, and (iii) for general corporate purposes.

Borrowings under the Credit Agreement are at variable rates which are, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate denominated in U.S. dollars. Interest rates are subject to change based on our Consolidated Senior Leverage Ratio (as defined in the Credit Agreement).

The Senior Credit Facility contains certain financial covenants, including a maximum leverage ratio of 4.0:1 and a minimum fixed charge coverage ratio of 1.20:1. Furthermore, the Senior Credit Facility also contains financial reporting covenant provisions and other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type. As of September 28, 2019 and December 29, 2018, the Company is in compliance with the financial covenants. As of September 28, 2019 there was $10,000 outstanding on the Senior Credit Facility. As of December 29, 2018, we had no outstanding balance on the Senior Credit Facility.

Other Obligations

On July 1, 2019, the Company acquired GeoDesign. The purchase price allowed for the payment of $425 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable on the first and second anniversary of July 1, 2019. At September 28, 2019, the outstanding balance of this obligation was $382.

On June 3, 2019, the Company acquired Page One. The purchase price allowed for the payment of $200 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable on the first anniversary of June 3, 2019. At September 28, 2019, the outstanding balance of this obligation was $181.

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On December 31, 2018, the Company acquired certain assets of Celtic. The purchase price allowed for the payment of $200 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable on the first anniversary of December 31, 2018. At September 28, 2019 the outstanding balance of this obligation was $181.

On November 2, 2018, the Company acquired CHI. The purchase price allowed for the payment of $3,000 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three equal annual installments. At September 28, 2019 and December 29, 2018, the outstanding balance of this obligation was $2,631.

On February 2, 2018, the Company acquired CSA. The purchase price allowed for the payment of $250 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two equal annual installments. At September 28, 2019 and December 29, 2018, the outstanding balance of this obligation was $111 and $222, respectively.

On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko. The purchase price allowed for the payment of $600 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two equal annual installments. At September 28, 2019 and December 29, 2018, the outstanding balance of this obligation was $267 and $534, respectively.

On September 6, 2017, the Company acquired all of the outstanding equity interest in Marron. The purchase price allowed for the payment of $133 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of September 28, 2019. At December 29, 2018, the outstanding balance of this obligation was $55.

On June 6, 2017, the Company acquired all of the outstanding equity interest in RDK. The purchase price allowed for the payment of $1,333 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in two equal annual installments. There was no outstanding balance on this obligation as of September 28, 2019. At December 29, 2018, the outstanding balance of this obligation $504.

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price allowed for the payment of $3,000 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable in three equal annual installments of $1,000. There was no outstanding balance on this obligation as of September 28, 2019. At December 29, 2018, the outstanding balance of this obligation was $936.

Uncollateralized Promissory Notes

On July 1, 2019, the Company acquired GeoDesign. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% (“GeoDesign Note”) and payable in four equal annual installments. The outstanding balance of the GeoDesign Note was $2,000 as of September 28, 2019.

On June 3, 2019, the Company acquired Alta. The purchase price included an uncollateralized $2,000 promissory note bearing interest at 4.0% (“Alta Note”) and payable in four equal annual installments. The outstanding balance of the Alta Note was $2,000 as of September 28, 2019.

On June 3, 2019, the Company acquired Page One. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% (“Page One Note”) and payable in three equal annual installments. The outstanding balance of the Page One Note was $1,000 as of September 28, 2019.

On March 22, 2019, the Company acquired The Sextant Group. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 4.0% (“The Sextant Group Note”) and payable in four equal annual installments. The outstanding balance of The Sextant Group Note was $4,000 as of September 28, 2019.

On December 31, 2018, the Company acquired certain assets of Celtic. The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the “Celtic Note”) payable in three equal annual installments. The outstanding balance of the Celtic note was $300 as of September 28, 2019.

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On November 2, 2018, the Company acquired CHI. The purchase price included an uncollateralized $15,000 promissory note bearing interest at 3.0% (the “CHI Note”) payable in four equal annual installments. The outstanding balance of the CHI Note was $15,000 as of September 28, 2019 and December 29, 2018.

On August 24, 2018, the Company acquired CALYX. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 3.75% (the “CALYX Note”) payable in four equal annual installments. The outstanding balance of the CALYX Note was $3,000 and $4,000 as of September 28, 2019 and December 29, 2018, respectively.

On February 2, 2018, the Company acquired CSA. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the “CSA Note”) payable in four equal annual installments. The outstanding balance of the CSA Note was $450 and $600 as of September 28, 2019 and December 29, 2018, respectively.

On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% (the “Butsko Note”) payable in four equal annual installments. The outstanding balance of the Butsko Note was $750 and $1,000 as of September 28, 2019 and December 29, 2018, respectively.

On September 6, 2017, the Company acquired all of the outstanding interests in Marron. The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the “Marron Note”) payable in three equal annual installments. The outstanding balance of the Marron Note was $100 and $200 as of September 28, 2019 and December 29, 2018, respectively.

On June 6, 2017, the Company acquired all of the outstanding equity interest in RDK. The purchase price included an uncollateralized $5,500 promissory note bearing interest at 3.0% (the “RDK Note”) payable in four equal annual installments. The outstanding balance of the RDK Note was $2,750 and $4,125 as of September 28, 2019 and December 29, 2018, respectively.

On May 4, 2017, the Company acquired all of the outstanding equity interest in H&K. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the “H&K Note”) payable in four equal annual installments. The outstanding balance of the H&K Note was $300 and $450 as of September 28, 2019 and December 29, 2018, respectively.

On May 1, 2017, the Company acquired all of the outstanding equity interest in Lochrane. The purchase price included an uncollateralized $1,650 promissory note bearing interest at 3.0% (the “Lochrane Note”) payable in four equal annual installments. The outstanding balance of the Lochrane Note was $825 and $1,238 as of September 28, 2019 and December 29, 2018, respectively.

On December 6, 2016, the Company acquired all of the outstanding interests of CivilSource. The purchase price included an uncollateralized $3,500 promissory note bearing interest at 3.0% (the “CivilSource Note”) payable in four equal annual installments. The outstanding balance of the CivilSource Note was $1,606 and $2,625 as of September 28, 2019 and December 29, 2018, respectively.

On November 30, 2016, the Company acquired all of the outstanding interests of Hanna. The purchase price included an uncollateralized $2,700 promissory note bearing interest at 3.0% (the “Hanna Note”) payable in four equal annual installments. The outstanding balance of the Hanna Note was $1,350 as of September 28, 2019 and December 29, 2018.

On October 26, 2016, the Company acquired all of the outstanding interests of JBA. The purchase price included an uncollateralized $7,000 promissory note bearing interest at 3.0% (the “JBA Note”) payable in five equal annual installments. The outstanding balance of the JBA Note was $4,200 as of September 28, 2019 and December 29, 2018.

On September 12, 2016, the Company acquired certain assets of Weir. The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the “Weir Note”) payable in four equal annual installments. The outstanding balance of the Weir Note was $125 and $250 as of September 28, 2019 and December 29, 2018, respectively.

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the “Dade Moeller Notes”) payable in four equal annual installments. The outstanding balance of the Dade Moeller Notes was $1,497 and $3,036 as of September 28, 2019 and December 29, 2018, respectively.

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On July 1, 2015, the Company acquired all of the outstanding equity interests of RBA. The purchase price included an uncollateralized $4,000 promissory notes bearing interest at 3.0% (the “RBA Note”) payable in four equal annual installments. There was no outstanding balance on the RBA Note as of September 28, 2019. The outstanding balance of the RBA Note was $1,000 as of December 29, 2018.

On January 30, 2015, the Company acquired all of the outstanding equity interests of JLA. The purchase price included an uncollateralized $1,250 promissory note bearing interest at 3.5% (the “JLA Note”) payable in four equal annual installments. There was no outstanding balance on the JLA Note as of September 28, 2019. As of December 29, 2018, the outstanding balance of the JLA note was $313.

Note 11 – Contingent Consideration

The following table summarizes the changes in the carrying value of estimated contingent consideration:



	September 28, 2019			December 29, 2018
Contingent consideration, beginning of the year	$	4,698		$	1,890
Additions for acquisitions	2,737			3,112
Reduction of liability for payments made	(1,938		)	(728		)
Increase of liability related to re-measurement of fair value	49			424
Total contingent consideration, end of the period	5,546			4,698
Current portion of contingent consideration	(3,351		)	(1,845		)
Contingent consideration, less current portion	$	2,195		$	2,853

Note 12 – Commitments and Contingencies

Litigation, Claims and Assessments

We are subject to certain claims and lawsuits typically filed against the engineering, consulting and construction profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

Note 13 – Stock-Based Compensation

In October 2011, our stockholders approved the 2011 Equity Incentive Plan, which was subsequently amended and restated in March 2013 (as amended, the “2011 Equity Plan”). The 2011 Equity Plan provides directors, executive officers, and other employees of the Company with additional incentives by allowing them to acquire ownership interest in the business and, as a result, encouraging them to contribute to the Company’s success. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As of September 28, 2019, 1,256,403 shares of common stock are authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, by an amount equal to the smaller of (i) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by our Board of Directors. The restricted shares of common stock granted generally provide for service-based vesting after two to four years following the grant date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

The following summarizes the activity of restricted stock awards during the nine months ended September 28, 2019:



	Number of Unvested Restricted Shares of Common Stock and Restricted Stock Units	Weighted Average Grant Date Fair Value
December 29, 2018	626,911	$	39.81
Granted	248,694	$	72.98
Vested	(204,655)	$	20.24
Forfeited	(35,263)	$	51.84
September 28, 2019	635,687	$	58.42

Share-based compensation expense relating to restricted stock awards during the three and nine months ended September 28, 2019 was $2,822 and $6,989, respectively and $1,902 and $4,541, respectively, for the three and nine months ended September 29, 2018. Approximately $19,867 of deferred compensation, which is expected to be recognized over the remaining weighted average vesting period of 2.33 years, is unrecognized at September 28, 2019. The total fair value of restricted shares vested during the nine months ended September 28, 2019 and September 29, 2018 was $14,514 and $7,422, respectively.

Note 14 – Income Taxes

As of September 28, 2019 and December 29, 2018, we had net deferred income tax liabilities of $16,881 and $16,224, respectively. No valuation allowance against our deferred income tax assets is needed as of September 28, 2019 and December 29, 2018 as it is more-likely-than-not that the positions will be realized upon settlement. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where we have a future obligation for tax purposes.

Our consolidated effective income tax rate was 22.9% and 24.1%, respectively, for the three and nine months ended September 28, 2019 and 24.5% and 24.8%, respectively, for the three and nine months ended September 29, 2018. Our tax provision includes an income tax benefit related to the vesting of restricted stock totaling $121 and $2,593, respectively, for the three and nine months ended September 28, 2019 and $95 and $1,210, respectively, for the three and nine months ended September 29, 2018.

We evaluate tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. The California Franchise Tax Board (“CFTB”) challenged research and development tax credits generated for the years 2012 to 2014. Fiscal years 2012 through 2018 are considered open tax years in the State of California and 2015 through 2018 in the U.S. federal jurisdiction and other state jurisdictions. The evaluation by the CFTB is ongoing and at September 28, 2019 and December 29, 2018, we had $878 and $548, respectively, of unrecognized tax benefits, which if recognized would affect our effective tax rate. It is not expected that there will be a significant change in the unrecognized tax benefits in the next 12 months.

Note 15 – Reportable Segments

We report segment information in accordance with ASC Topic No. 280 “Segment Reporting” (“Topic No. 280”). Our Chief Executive Officer is the chief operating decision maker and organized the Company into two operating and reportable segments: Infrastructure (INF), which includes our engineering, civil program management, and construction quality assurance practices; and Building, Technology & Sciences (BTS), which includes our energy, environmental practices and buildings program management practices.

We evaluate the performance of these reportable segments based on their respective operating income before the effect of amortization expense related to acquisitions and other unallocated corporate expenses. We account for inter-segment revenues and transfers as if the sales and transfers were to third parties. All intercompany balances and transactions are eliminated in consolidation.

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

The following tables set forth summarized financial information concerning our reportable segments:



	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Gross revenues
INF	$	89,035		$	64,053		$	250,354		$	180,611
BTS	43,060			41,441			128,706			125,344
Elimination of inter- segment revenues	(1,063		)	(1,309		)	(2,720		)	(3,218		)
Total gross revenues	$	131,032		$	104,185		$	376,340		$	302,737


Segment income before taxes
INF	$	14,008		$	11,108		$	41,273		$	28,951
BTS	6,871			7,236			20,287			21,069
Total Segment income before taxes	20,879			18,344			61,560			50,020
Corporate ⁽¹⁾	(13,476		)	(8,821		)	(37,958		)	(26,107		)
Total income before taxes	$	7,403		$	9,523		$	23,602		$	23,913


⁽¹⁾	Includes amortization of intangibles of $5,234 and 15,317 for the three and nine months ended September 28, 2019, respectively and $2,980 and $8,549 for the three and nine months ended September 29, 2018, respectively.

Upon adoption of Topic 606, we disaggregate our gross revenues from contracts with customers by geographic location, customer-type and contract-type for each of our reportable segments. Disaggregated revenues include the elimination of inter-segment revenues which has been allocated to each segment. We believe this best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.



	Three Months Ended September 28, 2019						Nine Months Ended September 28, 2019
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Geographic Location
United States	$	87,572	$	41,872	$	129,444	$	247,634	$	121,829	$	369,463
Foreign	—		1,588		1,588		—		6,877		6,877
Total gross revenues	$	87,572	$	43,460	$	131,032	$	247,634	$	128,706	$	376,340

	Three Months Ended September 29, 2018						Nine Months Ended September 29, 2018
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Geographic Location
United States	$	63,514	$	38,678	$	102,192	$	178,531	$	115,371	$	293,902
Foreign	—		1,993		1,993		—		8,835		8,835
Total gross revenues	$	63,514	$	40,671	$	104,185	$	178,531	$	124,206	$	302,737

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)



	Three Months Ended September 28, 2019						Nine Months Ended September 28, 2019
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Customer
Public and quasi-public sector	$	69,297	$	17,899	$	87,196	$	209,837	$	50,471	$	260,308
Private sector	18,275		25,561		43,836		37,797		78,235		116,032
Total gross revenues	$	87,572	$	43,460	$	131,032	$	247,634	$	128,706	$	376,340

	Three Months Ended September 29, 2018						Nine Months Ended September 29, 2018
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Customer
Public and quasi-public sector	$	58,157	$	15,469	$	73,626	$	162,193	$	49,519	$	211,712
Private sector	5,357		25,202		30,559		16,338		74,687		91,025
Total gross revenues	$	63,514	$	40,671	$	104,185	$	178,531	$	124,206	$	302,737



	Three Months Ended September 28, 2019						Nine Months Ended September 28, 2019
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Contract Type
Cost-reimbursable contracts	$	84,426	$	31,797	$	116,223	$	240,166	$	99,935	$	340,101
Fixed-unit price contracts	3,146		11,663		14,809		7,468		28,771		36,239
Total gross revenues	$	87,572	$	43,460	$	131,032	$	247,634	$	128,706	$	376,340

	Three Months Ended September 29, 2018						Nine Months Ended September 29, 2018
	INF		BTS		Total		INF		BTS		Total
Gross revenues by Contract Type
Cost-reimbursable contracts	$	63,507	$	32,196	$	95,703	$	178,255	$	98,756	$	277,011
Fixed-unit price contracts	7		8,475		8,482		276		25,450		25,726
Total gross revenues	$	63,514	$	40,671	$	104,185	$	178,531	$	124,206	$	302,737

Note 16 – Leases

Our operating leases consist of various office facilities, which we lease from unrelated parties. We use a portfolio approach to account for such leases due to the similarities in characteristics and apply an incremental borrowing rate equal to the interest rate of our existing secured line of credit. Our office leases with an initial term of 12 months or less are not recorded on the balance sheet. We account for lease components (e.g. fixed payments including rent, real estate taxes and common area maintenance costs) as a single lease component. Some of our leases include one or more options to renew the lease term at our sole discretion; however, these are not included in the calculation of our lease liability or ROU lease asset because they are not reasonably certain of exercise.

We also lease vehicles through a fleet leasing program. The payments for the vehicles are based on the terms selected. We have determined that it is reasonably certain that the leased vehicles will be held beyond the period in which the entire capitalized value of the vehicle has been paid to the lessor. As such, the capitalized value is the delivered price of the vehicle. Our vehicle leases are classified as financing leases.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)



Leases	Classification	September 28, 2019
Assets
Operating lease assets	Right-of-use lease asset, net (1)	$	42,366
Finance lease assets	Property and equipment, net (1)	2,311
Total leased assets		$	44,677
Liabilities
Current
Operating	Accrued liabilities	$	10,768

Finance	Current portion of notes payable and other obligations	896
Noncurrent
Operating	Long-term lease liability	32,781

Finance	Notes payable and other obligations, less current portion	1,780
Total lease liabilities		$	46,225

(1): At September 28, 2019, operating right of-use lease assets and finance lease assets are recorded net of accumulated amortization of $6,770 and $1,365, respectively.



		Three Months Ended		Nine Months Ended
Lease Cost	Classification	September 28, 2019		September 28, 2019
Operating lease cost	Facilities and facilities related	$	2,995	$	8,237
Finance lease cost
Amortization of financing lease assets	Depreciation and amortization	193		517
Interest on lease liabilities	Interest expense	26		71
Total lease cost		$	3,214	$	8,825



Maturity of Lease Liabilities	Operating Leases		Finance Leases
2019	$	3,257	$	234
2020	11,742		975
2021	10,079		874
2022	7,325		611
2023	5,934		353
Thereafter	9,965		103
Total lease payments	48,302		3,150
Less: Interest	4,753		474
Present value of lease liabilities	$	43,549	$	2,676

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)



Weighted - Average Remaining Lease Term (Years)		September 28, 2019
Operating leases		5.3
Finance leases		2.7
Weighted - Average Discount Rate
Operating leases		4%
Finance leases		7%



	Nine Months Ended
Supplemental Cash Flow Information	September 28, 2019
Operating cash flows from operating leases	$	7,833
Financing cash flows from finance leases	$	543
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	14,251

Future minimum payments under non-cancelable operating leases as of December 29, 2018 were as follows:



Years Ended	Amount
2019	$	9,506
2020	8,054
2021	7,224
2022	5,364
2023	4,504
Thereafter	7,704
Total minimum lease payments	$	42,356

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NV5 Global, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except share data)

Note 17 – Subsequent Events

On November 6, 2019, the Company and one of its direct subsidiaries (“Merger Sub,” and together with NV5, the “NV5 Parties”), and Geospatial Holdings Inc. (“Geospatial”) and Arlington Capital Partners III, L.P., a Delaware limited partnership, solely in its capacity as representative for the stockholders and optionholders of Geospatial, entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, at the effective time and upon the terms and subject to the conditions set forth therein and in accordance with applicable law, Merger Sub will merge with and into Geospatial (the “Merger”) with Geospatial continuing as the surviving entity after the Merger and a direct, wholly-owned subsidiary of the Company. The board of directors of NV5 approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The Merger is structured as an all cash transaction, and the Company estimates that its aggregate obligations under the Merger Agreement will be approximately $303 million. In connection with the Merger, the Company entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A., BofA Securities, Inc., PNC Bank, National Association and PNC Capital Markets LLC (collectively, the “Lead Arrangers”) to amend the Senior Credit Facility to provide additional borrowing facilities (the “Incremental Facility”), including a $150 million term loan tranche and a $90 million increase in the existing $125 million revolving facility, for a total availability of $365 million. The funding of the Incremental Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to (i) execution and delivery of definitive documentation with respect to the Incremental Facility in accordance with the terms set forth in the Commitment Letter, and (ii) consummation of the merger in accordance with the executed merger agreement provided to the Lead Arrangers not earlier than December 20, 2019.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the financial condition and results of operations of NV5 Global, Inc. and its subsidiaries (collectively, the “Company,” “we,” “our,” “us” or “NV5 Global”) should be read in conjunction with the financial statements included elsewhere in this Quarterly Report and the audited financial statements for the year ended December 29, 2018, included in our Annual Report on Form 10-K. This Quarterly Report contains, in addition to unaudited historical information, forward-looking statements, which involve risk and uncertainties. The words “believe,” “expect,” “estimate,” “may,” “will,” “could,” “plan,” or “continue” and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from the results those anticipated in such forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, those discussed under the headings “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2018 and this Quarterly Report on Form 10-Q, if any. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q. Amounts presented are in thousands, except per share data.

Overview

We are a provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, energy, construction, real estate, and environmental markets. We primarily focus on the following business service verticals: construction quality assurance, infrastructure, energy, program management, and environmental solutions. Our primary clients include U.S. federal, state, municipal, and local government agencies, and military and defense clients. We also serve quasi-public and private sector clients from the education, healthcare, energy, and public utilities, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large to small energy producers.

Recent Acquisitions

On July 1, 2019, the Company acquired GeoDesign, Inc. (“GeoDesign”), a geotechnical, environmental, geological, mining and pavement engineering company serving Washington, Oregon and California. The aggregate purchase price is up to $12,800, including $8,500 of cash, $2,000 in promissory note (bearing interest at 4%), payable in four equal installments of $500 due on the first, second, third and fourth anniversaries of July 1, 2019 and $375 of the Company’s common stock (4,731 shares) issued at the closing date. The purchase price also includes $425 of the Company’s common stock payable on the first and second anniversary of July 1, 2019. Further, the purchase price includes a $1,500 earn-out of cash , which was recorded at an estimated fair value of $1,456. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for GeoDesign, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

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On June 3, 2019, the Company acquired Page One Consultants (“Page One”), a program management and construction quality assurance firm based in Orlando, Florida. The aggregate purchase price is up to $3,900, including $2,000 of cash, $1,000 in promissory note (bearing interest at 3%), payable in three equal installments of $333 due on the first, second and third anniversaries of June 3, 2019 and $200 of the Company’s common stock (2,647 shares) issued at the closing date. The purchase price also includes $200 of the Company’s common stock payable on the first anniversary of June 3, 2019. Further, the purchase price includes a $500 earn-out of cash, which was recorded at an estimated fair value of $448. In order to determine the fair values of tangible and intangible assets acquired and liabilities assumed for Page One, the Company engaged a third-party independent valuation specialist to assist in the determination of fair values. The Company expects to finalize the purchase price allocation with respect to this transaction by the end of the fourth quarter 2019.

Segments

Our operations are organized into two reportable segments:


•	Infrastructure (INF) - includes our engineering, civil program management, and construction quality assurance, testing and inspection practices


•	Building, Technology & Sciences (BTS) – includes our energy, environmental and buildings program management practices

For additional information regarding our reportable segments, see "Reportable Segments" of the "Notes to Consolidated Financial Statements" included elsewhere herein.

Critical Accounting Policies and Estimates

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in the 2018 Form 10-K.

Results of Operations

Consolidated Results of Operations

The following table represents our condensed results of operations for the periods indicated (dollars in thousands):

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	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018

Gross revenues	$	131,032		$	104,185		$	376,340		$	302,737
Less sub-consultant services and other direct costs	(27,111		)	(19,736		)	(82,213		)	(56,888		)

Net revenues ⁽¹⁾	103,921			84,449			294,127			245,849
Direct salary and wages costs	40,426			34,475			113,762			98,542

Gross profit	63,496			49,974			180,365			147,307

Operating expenses	55,671			40,000			155,533			121,682

Income from operations	7,825			9,974			24,832			25,625

Interest expense	(421		)	(451		)	(1,230		)	(1,712		)

Income tax expense	(1,560		)	(2,238		)	(3,422		)	(4,716		)

Net income	$	5,843		$	7,285		$	20,180		$	19,197

⁽¹⁾

Net Revenues is not a measure of financial performance under GAAP. Gross revenues include sub-consultant costs and other direct costs which are generally pass-through costs. The Company believes that Net Revenues, which is a non-U.S. GAAP financial measure commonly used in our industry, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

Three Months Ended September 28, 2019 Compared to the Three Months Ended September 29, 2018.

Gross and Net Revenues

Our consolidated gross revenues increased by $26,847, or 26% in the three months ended September 28, 2019 compared to the three months ended September 29, 2018. Our consolidated net revenues increased by $19,472, or 23% in the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The increase in gross and net revenues was primarily due to the contribution from acquisitions completed since the third quarter of 2018. The growth in revenues was attributable to increases in the following:

•Energy distribution services


•	Infrastructure engineering services


•	Energy and environmental services


•	Civil and building program management services

Gross Profit

As a percentage of gross revenues, our gross profit margin was 48.5% and 48.0% for the three months ended September 28, 2019 and September 29, 2018, respectively.

Operating expenses

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Our operating expenses increased $15,671, or 39% for the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The increases in operating expenses were primarily due to increases in payroll related costs of $8,531, general and administrative costs of $3,472 and depreciation and amortization of $2,494. The increases in costs support our increases in revenues and are related primarily to the operating expenses of our acquired entities.

Income taxes

Our consolidated effective income tax rate was 22.9% and 24.5% for the three months ended September 28, 2019 and September 29, 2018, respectively. Our tax provision includes an income tax benefit related to the vesting of restricted stock totaling $121 and $95 for the three months ended September 28, 2019 and September 29, 2018, respectively.

Nine Months Ended September 28, 2019 Compared to the Nine Months Ended September 29, 2018.

Gross and Net Revenues

Our consolidated gross revenues increased by $73,603, or 24% in the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. Our consolidated net revenues increased by $48,278, or 20% in the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The increase in gross and net revenues was primarily due to the contribution from acquisitions completed since the second quarter of 2018. The growth in revenues was attributable to increases in the following:

•Energy distribution services


•	Infrastructure engineering services


•	Energy and environmental services


•	Civil and building program management services

Gross Profit

As a percentage of gross revenues, our gross profit margin was 47.9% and 48.7% for the nine months ended September 28, 2019 and September 29, 2018, respectively. The decrease in gross profit margin was due to an increased use of sub-consultants as well as higher other direct costs in 2019 compared to 2018.

Operating expenses

Our operating expenses increased $33,851, or 28% for the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The increases in operating expenses were primarily a result of increases in payroll related costs of $17,309, general and administrative costs of $7,438 and depreciation and amortization of $7,248. The increases in costs support our increases in revenues and are related primarily to the operating expenses of our acquired entities.

Income taxes

Our consolidated effective income tax rate was 24.1% and 25.0% for the nine months ended September 28, 2019 and September 29, 2018, respectively. Our tax provision includes an income tax benefit related to the vesting of restricted stock totaling $2,592 and $1,210 for the nine months ended September 28, 2019 and September 29, 2018, respectively.

Segment Results of Operations

The following tables set forth summarized financial information concerning our reportable segments (dollars in thousands):

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	Three Months Ended				Nine Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Gross revenues
INF	$	89,035	$	64,053	$	250,354	$	180,611
BTS	$	43,060	$	41,441	$	128,706	$	125,344
Segment income before taxes
INF	$	14,008	$	11,108	$	41,273	$	28,951
BTS	$	6,871	$	7,236	$	20,287	$	21,069

For additional information regarding our reportable segments, see Note 15 of the notes to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Three Months Ended September 28, 2019 Compared to Three Months Ended September 29, 2018

INF Segment

Our gross revenues from INF reportable segment increased $24,982, or 39% during the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The increase in gross revenues is due to the contribution from acquisitions completed since thethird quarter of 2018. The growth in revenues was attributable to increases in:


•	Energy distribution services


•	Infrastructure engineering services


•	Civil program management services

Segment Income before Taxes from INF increased $2,900, or 26% during the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The increase was primarily due to acquisitions completed since the third quarter of 2018.

BTS Segment

Our gross revenues from BTS increased $1,619, or 4% during the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The increase in gross revenues was primarily due to the contribution from acquisitions completed since the third quarter of 2018, partially offset by lower revenues from our international operations.

Segment Income before Taxes from BTS decreased $365, or 5% during the three months ended September 28, 2019 compared to the three months ended September 29, 2018. The decrease was primarily the result of lower earnings from our international operations.

Nine Months Ended September 28, 2019 Compared to Nine Months Ended September 29, 2018

INF Segment

Our gross revenues from INF reportable segment increased $69,743, or 39% during the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The increase in gross revenues is due to the contribution from acquisitions completed since the third quarter of 2018. The growth in revenues was attributable to increases in:


•	Energy distribution services


•	Infrastructure engineering services


•	Civil program management services

Segment Income before Taxes from INF increased $12,322, or 43% during the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The increase was primarily due to contributions from acquisitions completed since the third quarter of 2018.

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BTS Segment

Our gross revenues from BTS increased $3,362, or 3% during the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The increase in gross revenues is due to the contribution from acquisitions completed since the third quarter of 2018.

Segment Income before Taxes from BTS decreased $782, or 4% during the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018. The decrease was primarily a result of a slowdown in the gaming industry and our international operations, partially offset by increases in revenues associated with building program management and mechanical, electrical and plumbing services.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents balances, cash flows from operations, borrowing capacity under our Senior Credit Facility, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition expenditures. We believe our sources of liquidity, including cash flows from operations, existing cash and cash equivalents and borrowing capacity under our Senior Credit Facility (as proposed to be amended) will be sufficient to meet our projected cash requirements for at least the next twelve months. We will monitor our capital requirements thereafter to ensure our needs are in line with available capital resources.

Operating activities

Our business provided $21,557 of net cash from operations during the nine months ended September 28, 2019, an increase of $3,987, or 23% compared to $17,570 during the nine months ended September 29, 2018. The change was primarily due to higher earnings after adding back non-cash adjustments, which totaled $17,997, partially offset by a $14,010 change in working capital compared to the nine months ended September 29, 2018.

Investing activities

During the nine months ended September 28, 2019 and September 29, 2018, net cash used in investing activities totaled $31,175 and $30,042, respectively. The increase in cash used in investing activities was primarily a result of increased acquisition activity.

Financing activities

Cash flows provided by financing activities during the nine months ended September 28, 2019 totaled $304 compared to net cash provided by financing activities of $49,923 during the nine months ended September 29, 2018. The decrease was primarily due to the net proceeds from the August 2018 public offering of $93,469 offset by principal repayments of $43,910 towards the Senior Credit Facility and notes payable during the nine months ended September 29, 2018.

Financing

Senior Credit Facility

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The Senior Credit Facility contains certain financial covenants, including a maximum leverage ratio of 4.0:1and a minimum fixed charge coverage ratio of 1.20:1. Furthermore, the Senior Credit Facility also contains financial reporting covenant provisions and other covenants, representations, warranties, indemnities, and events of default that are customary for facilities of this type. As of September 28, 2019 and December 29, 2018, the Company is in compliance with the financial covenants. As of September 28, 2019, there was $10,000 outstanding on the Senior Credit Facility. As of December 29, 2018, we had no outstanding balance on the Senior Credit Facility.

In connection with a pending acquisition, the Company entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A., BofA Securities, Inc., PNC Bank, National Association and PNC Capital Markets LLC (collectively, the “Lead Arrangers”) to amend the Senior Credit Facility to provide additional borrowing facilities (the “Incremental Facility”), including a $150 million term loan tranche and a $90 million increase in the existing $125 million revolving facility, for a total availability of $365 million. The funding of the Incremental Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to (i) execution and delivery of definitive documentation with respect to the Incremental Facility in accordance with the terms set forth in the Commitment Letter, and (ii) consummation of the merger in accordance with the executed merger agreement provided to the Lead Arrangers not earlier than December 20, 2019.

Other Obligations

On December 31, 2018, the Company acquired certain assets of Celtic. The purchase price allowed for the payment of $200 in shares of the Company’s stock or a combination of cash and shares of the Company’s stock, at our discretion, payable on the first anniversary of December 31, 2018. At September 28, 2019, the outstanding balance of this obligation was $181.

Uncollateralized Promissory Notes

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On March 22, 2019, we acquired The Sextant Group. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 4% (“The Sextant Group Note”) and payable in four equal annual installments. The outstanding balance of The Sextant Group Note was $4,000 as of September 28, 2019.

On December 31, 2018, we acquired certain assets of Celtic. The purchase price included an uncollateralized $300 promissory note bearing interest at 3% (the “Celtic Note”) payable in three equal annual installments. The outstanding balance of the Celtic note was $300 as of September 28, 2019.

On November 2, 2018, we acquired CHI. The purchase price included an uncollateralized $15,000 promissory note bearing interest at 3% (the “CHI Note”) payable in four equal annual installments. The outstanding balance of the CHI Note was $15,000 as of September 28, 2019 and December 29, 2018.

On August 24, 2018, the Company acquired CALYX. The purchase price included an uncollateralized $4,000 promissory note bearing interest at 3.75% (the “CALYX Note”) payable in four equal annual installments of $1,000. The outstanding balance of the CALYX Note was $3,000 and $4,000 as of September 28, 2019 and December 29, 2018, respectively.

On February 2, 2018, the Company acquired CSA. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the “CSA Note”) payable in four equal annual installments of $150. The outstanding balance of the CSA Note was $450 and $600 as of September 28, 2019 and December 29, 2018, respectively.

On January 12, 2018, the Company acquired all of the outstanding equity interest in Butsko. The purchase price included an uncollateralized $1,000 promissory note bearing interest at 3.0% (the “Butsko Note”) payable in four equal annual installments of $250. The outstanding balance of the Butsko Note was $750 and $1,000 as of September 28, 2019 and December 29, 2018, respectively.

On September 6, 2017, the Company acquired all of the outstanding interests in Marron. The purchase price included an uncollateralized $300 promissory note bearing interest at 3.0% (the “Marron Note”) payable in three equal annual installments of $100. The outstanding balance of the Marron Note was $100 and $200 as of September 28, 2019 and December 29, 2018, respectively.

On June 6, 2017, the Company acquired all of the outstanding equity interest in RDK. The purchase price included an uncollateralized $5,500 promissory note bearing interest at 3.0% (the “RDK Note”) payable in four equal annual installments of $1,375. The outstanding balance of the RDK Note was $2,750 and $4,125 as of September 28, 2019 and December 29, 2018, respectively.

On May 4, 2017, the Company acquired all of the outstanding equity interest in H&K. The purchase price included an uncollateralized $600 promissory note bearing interest at 3.0% (the “H&K Note”) payable in four equal annual installments of $150. The outstanding balance of the H&K Note was $300 and $450 as of September 28, 2019 and December 29, 2018, respectively.

On May 1, 2017, the Company acquired all of the outstanding equity interest in Lochrane. The purchase price included an uncollateralized $1,650 promissory note bearing interest at 3.0% (the “Lochrane Note”) payable in four equal annual installments of $413. The outstanding balance of the Lochrane Note was $825 and $1,238 as of September 28, 2019 and December 29, 2018, respectively.

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installments of $875. The outstanding balance of the CivilSource Note was $1,606 and $2,625 as of September 28, 2019 and December 29, 2018, respectively.

On November 30, 2016, the Company acquired all of the outstanding interests of Hanna. The purchase price included an uncollateralized $2,700 promissory note bearing interest at 3.0% (the “Hanna Note”) payable in four equal annual installments of $675. The outstanding balance of the Hanna Note was $1,350 as of September 28, 2019 and December 29, 2018.

On October 26, 2016, the Company acquired all of the outstanding interests of JBA. The purchase price included an uncollateralized $7,000 promissory note bearing interest at 3.0% (the “JBA Note”) payable in five equal annual installments of $1,400. The outstanding balance of the JBA Note was $4,200 as of September 28, 2019 and December 29, 2018.

On September 12, 2016, the Company acquired certain assets of Weir. The purchase price included an uncollateralized $500 promissory note bearing interest at 3.0% (the “Weir Note”) payable in four equal annual installments of $125. The outstanding balance of the Weir Note was $125 and $250 as of September 28, 2019 and December 29, 2018, respectively.

On May 20, 2016, the Company acquired all of the outstanding equity interests of Dade Moeller. The purchase price included an aggregate of $6,000 of uncollateralized promissory notes bearing interest at 3.0% (the “Dade Moeller Notes”) payable in four equal annual installments of $1,500. The outstanding balance of the Dade Moeller Notes was $1,497 and $3,036 as of September 28, 2019 and December 29, 2018, respectively.

On January 30, 2015, the Company acquired all of the outstanding equity interests of JLA. The purchase price included an uncollateralized $1,250 promissory note bearing interest at 3.5% (the “JLA Note”) payable in four equal annual installments of $313. There was no outstanding balance on the JLA Note as of September 28, 2019. As of December 29, 2018, the outstanding balance of the JLA note was $313.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 28, 2019.

Effects of Inflation

Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Recently Issued Accounting Pronouncements

For information on recently issued accounting pronouncements, see Note 3 of the notes to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Cautionary Statement about Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q, contain “forward-looking” statements within the meaning of Section 27A of the Securities Act Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Forward-looking statements include, statements regarding our “expectations,” “hopes,” “beliefs,” “intentions,” or “strategies” regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “predict,” “project,” “may,” “might,” “should,” “would,” “will,” “likely,” “will likely result,” “continue,” “could,” “future,” “plan,” “possible,” “potential,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning, but the absence of these words does not mean that a statement is not forward looking. The forward-looking statements in this Current Report on Form 10-Q reflect the Company’s current views with respect to future events and financial performance.

Forward-looking statements are not historical factors and should not be read as a guarantee or assurance of future performance or results, and will not necessarily be accurate indications of the times at, or by, or if such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith beliefs, expectations and assumptions as of that time with respect to future events. Because forward-looking statements relate to the future, they are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include:

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•	our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;


•	changes in demand from the local and state government and private clients that we serve;


•	general economic conditions, nationally and globally, and their effect on the demand and market for our services;


•	fluctuations in our results of operations;


•	the government’s funding and budgetary approval process;


•	the possibility that our contracts may be terminated by our clients;


•	our ability to win new contracts and renew existing contracts;


•	our dependence on a limited number of clients;


•	our ability to complete projects timely, in accordance with our customers’ expectations, or profitability;


•	our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business;


•	our ability to successfully manage our growth strategy;


•	our ability to raise capital in the future;


•	competitive pressures and trends in our industry and our ability to successfully compete with our competitors;


•	our ability to avoid losses under fixed-price contracts;


•	the credit and collection risks associated with our clients;


•	our ability to comply with procurement laws and regulations;


•	changes in laws, regulations, or policies;


•	the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services;


•	our ability to complete our backlog of uncompleted projects as currently projected;


•	the risk of employee misconduct or our failure to comply with laws and regulations;


•	our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties;


•	our need to comply with a number of restrictive covenants and similar provisions in our senior credit facility that generally limit our ability to (among other things) incur additional indebtedness, create liens, make acquisitions, pay dividends and undergo certain changes in control, which could affect our ability to finance future operations, acquisitions or capital needs;


•	significant influence by our principal stockholder and the existence of certain anti-takeover measures in our governing documents; and


•	other factors identified throughout this Current Report on Form 10-Q, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”

The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those expressed or

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implied by these forward-looking statements. These risks and uncertainties include, those factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2018. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports filed with the SEC. Our Annual Report on Form 10-K filing for the fiscal year ended December 29, 2018 listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995, as amended. Readers can find them in “Item 1A. Risk Factors” of that filing and under the same heading of this filing. You may obtain a copy of our Annual Report on Form 10-K through our website, www.nv5.com. Information contained on our website is not incorporated into this report. In addition to visiting our website, you may read and copy any document we file with the SEC at www.sec.gov.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to certain market risks from transactions that are entered into during the normal course of business. We have not entered into derivative financial instruments for trading purposes. We have no significant market risk exposure to interest rate changes related to the promissory notes related to acquisitions since these contain fixed interest rates. Our only debt subject to interest rate risk is the Senior Credit Facility which rates are variable, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate denominated in U.S. dollars. Interest rates are subject to change based on our Consolidated Senior Leverage Ratio (as defined in the Credit Agreement). As of September 28, 2019, there was $10,000 outstanding on the Senior Credit Facility. A one percentage point change in the assumed interest rate of the Senior Credit Facility would not have a material impact on our market risk.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

In connection with management’s evaluation of the effectiveness of our internal control over financial reporting as of December 29, 2018, we identified a material weakness in our internal control over financial reporting related to revenues. This material weakness related solely to internal control deficiencies over the initial set up of project contracts in our project management system and adequate documentation to support the analysis of certain percentage of completion projects. The material weakness described herein did not result in a material misstatement to the Company’s previously issued consolidated financial statements, nor in the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 29, 2018.

The Company has made progress toward remediating this material weakness (as described below under “Remediation Status of Reported Material Weakness”). As of September 28, 2019, the Company had not completed its remediation.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Although our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as a result of a material weakness in our internal control over financial reporting, remedial steps have been taken in the to address the weakness and improve the process. The material weakness described herein did not result in a material misstatement to the Company’s previously issued consolidated financial statements, nor in the condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q.

Remediation Status of Reported Material Weakness

Management continues to execute its plan to remediate the material weakness. As of September 28, 2019, management had performed the following activities:


•	The Company completed its examination and analysis of the facts and circumstances giving rise to the material weakness under the supervision of the Chairman of the Audit Committee. The Company is addressing the examination findings through ongoing remediation. The Company continues to believe the remediation plan remains appropriate;

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•	The Company has enhanced its processes over the initial set up of project contracts and adequate documentation to support the analysis of percentage of completion projects and has made system enhancements to its project management system; and


•	The Company has enhanced its processes for analyzing trends in margins in order to strengthen controls for the proper recognition of revenue.

The remediation steps outlined above are expected to strengthen the Company’s internal control over financial reporting. Management has begun testing the ongoing operating effectiveness of all new and modified controls and will consider the material weakness remediated after the applicable controls operate effectively for a sufficient period.

Changes in Internal Control Over Financial Reporting

There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) that occurred during the quarter ended September 28, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting other than as described above.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.

ITEM 1A. RISK FACTORS.

There have been no material changes to any of the principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 29, 2018, except as set forth below:

Risks Related to our Pending Acquisition of Geospatial Holdings Inc.

The failure to successfully integrate Geospatial’s business and operations in the expected time frame may adversely affect the combined company’s future results.

On November 6, 2019, NV5 and one of its direct subsidiaries (“Merger Sub,” and together with NV5, the “NV5 Parties”), and Geospatial Holdings Inc. (“Geospatial”) and Arlington Capital Partners III, L.P., a Delaware limited partnership, solely in its capacity as representative for the stockholders and optionholders of Geospatial, entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into Geospatial (the “Merger”). NV5 believes that the acquisition of Geospatial will result in certain benefits, including certain cost synergies, significant new service offerings and operational efficiencies. However, to realize these anticipated benefits, the businesses of NV5 and Geospatial must be successfully combined. The success of the Merger will depend on the combined company’s ability to realize these anticipated benefits from combining the businesses of NV5 and Geospatial. The combined company may fail to realize the anticipated benefits of the Merger for a variety of reasons, including the following:


•	unanticipated issues in integration of information, communications, and other systems;


•	unanticipated incompatibility of logistics, marketing, and administration methods;


•	maintaining employee morale and retaining key employees;


•	integrating the business cultures of both companies;


•	preserving important strategic client relationships;


•	consolidating corporate and administrative infrastructures and eliminating duplicative operations; and


•	coordinating geographically separate organizations

In addition, even if the operations of Geospatial are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all.

We expect to fund the Geospatial acquisition with significant additional indebtedness, which may not be available when we are obligated to consummate the Merger. In addition, if we are unable to generate or borrow sufficient cash to make payments on

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our indebtedness, our financial condition would be materially harmed, our business could fail, and shareholders may lose all of their investment.

In connection with the pending Merger, NV5 obtained a financing commitment to provide an incremental loan facility in the original principal amount of $240 million (the “Incremental Facility”) to fund the Merger under its existing credit facility, pursuant to a commitment letter (the “Commitment Letter”) from Bank of America, N.A., BofA Securities, Inc., PNC Bank, National Association and PNC Capital Markets LLC. The funding of the Incremental Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to (i) execution and delivery of definitive documentation with respect to the Incremental Facility in accordance with the terms set forth in the Commitment Letter, and (ii) consummation of the Merger in accordance with the Merger Agreement not earlier than December 20, 2019. The actual documentation governing the Incremental Facility has not been finalized, and accordingly, the actual terms may differ from the description of such terms in the Commitment Letter. Additionally, pursuant to the Merger Agreement, we may become obligated to consummate the Merger as soon as December 6, 2019, which may result in our inability to close such acquisition unless we obtain relevant waivers from either Geospatial or the Lead Arrangers. While we believe the risk of such a timing issue is low, it is possible we will be obligated to complete the Merger prior to the availability of financing pursuant to the Commitment Letter.

Our ability to make scheduled payments on or to refinance our obligations under our amended Senior Credit Facility will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets. We cannot assure you that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

Unavailability or cancellation of third-party insurance representation and warranty coverage regarding the Merger Agreement would increase our overall risk exposure as well as result in the unavailability of the Incremental Facility.

One of the conditions to the closing of the Merger is NV5 having secured representation and warranty insurance coverage regarding the Merger Agreement, which is our only recourse in the event the representations and warranties in the Merger Agreement prove to be inaccurate subsequent to the Merger. Pursuant to the Commitment Letter, we are obligated to consummate the Merger on the terms set forth in the Merger Agreement, without certain waivers that would adversely affect the interests of the lenders under the Incremental Facility. If we are unable to obtain such insurance coverage from third-party insurers as part consummating the Merger, Geospatial may seek our waiver of such condition, which if granted would result in the unavailability of the Incremental Facility. In addition, such representation and warranty insurance will likely include certain deductibles and exclusions, which may result in our being directly subject to the risk associated with any such inaccuracies in the Merger Agreement. If the third-party insurer providing the coverage fails, suddenly cancels our coverage, or is otherwise unable to provide us with adequate insurance coverage, our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

During the three months ended September 28, 2019, we issued the following securities that were not registered under the Securities Act:

In September 2019, we issued 4,731 shares of our common stock as partial consideration for our acqusition of GeoDesign.

These shares were issued in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. For a description of these acquisitions, see Note 5, Business Acquisitions, to the consolidated interim financial statements appearing under Part I of this Quarterly Report on Form 10-Q.

Issuer Purchase of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Agreement and Plan of Merger

On November 6, 2019, we and one of our direct subsidiaries (“Merger Sub,” and together with NV5, the “NV5 Parties”), and Geospatial Holdings Inc. (“Geospatial”) and Arlington Capital Partners III, L.P., a Delaware limited partnership, solely in its capacity as representative for the stockholders and optionholders of Geospatial, entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, at the effective time and upon the terms and subject to the conditions set forth therein and in accordance with applicable law, Merger Sub will merge with and into Geospatial (the “Merger”) with Geospatial continuing as the surviving entity after the Merger. The board of directors of NV5 approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, immediately prior to the effective time of the Merger, each issued and outstanding share of Series A preferred stock of Geospatial shall be automatically converted into Geospatial Common Shares (as defined below) and be entitled to the payment of certain accrued or declared but unpaid dividends as provided in Geospatial’s current certificate of incorporation.



			Immediately thereafter, at the effective time of the Merger, each issued and outstanding share of common stock, par value $0.01 per share, of Geospatial (“Geospatial Common Shares”) (other than shares as to which the holder shall have exercised appraisal rights in accordance with Delaware law, any such shares being “Dissenting Shares”) will be converted into the right to receive a pro rata portion (the “Per Share Merger Consideration”) of the aggregate of (i) $302.5 million in cash, plus (ii) the aggregate exercise price of all in-the-money options (based on the Per Share Merger Consideration) to purchase Geospatial Common Shares as of the closing date (the “Closing Date”), plus (iii) the amount of cash held by Geospatial as of the Closing Date, less (iv) the aggregate indebtedness of Geospatial as of the Closing Date, less (v) transaction expenses of both NV5 and Geospatial (together with certain working capital adjustments as of the Closing Date and escrowed expense amounts, collectively, the “Merger Consideration”); and



			Immediately prior to the effective time of the Merger, each vested in-the-money option to purchase Geospatial Common Shares granted under the Geospatial equity incentive plan will be automatically cancelled and replaced with the right to receive at the closing of the Merger the excess, if any, of the Per Share Merger Consideration over the exercise price of each such in-the-money option and all vested out-of-the-money options and unvested options of Geospatial Common Shares granted under the Geospatial equity incentive plan will be cancelled and forfeited for no consideration.

The NV5 Parties and Geospatial have made certain customary representations and warranties in the Merger Agreement and have agreed to customary covenants, including, among others, a representation by NV5 that it will have at the Closing Date sufficient cash available to pay the Merger Consideration and all related fees and expenses in connection with the Merger and certain related transactions, covenants by Geospatial with respect to the conduct of its business during the period between execution of the Merger Agreement and the closing of the Merger, a covenant by NV5 to obtain a customary representation and warranty insurance policy, and covenants by both parties regarding regulatory clearance of the Merger by appropriate anti-trust authorities, including. (in the case of NV5) divesting entities, facilities or assets, terminating, amending or assigning existing contractual rights, obligations or relationships or terminating, amending or assigning existing licenses or other agreements and entering into new licenses or other agreements as is necessary or reasonably advisable as a condition to obtaining such regulatory clearance.

The completion of the Merger is subject to various customary closing conditions, including, among others: (i) clearance by appropriate anti-trust authorities; (ii) the absence of a material adverse effect on Geospatial between signing and closing of the Merger; and (iii) that no more than 5% of Geospatial’s Common Shares shall be Dissenting Shares.

The Merger Agreement may be terminated under certain circumstances, including by either party (i) if the Merger has not been consummated on or before February 6, 2020 (unless the terminating party is in material breach of the Merger Agreement that is the cause of, or results in the failure of the Merger to close), (ii) if a final and non-appealable order, decree or ruling is entered prohibiting or restraining the Merger, or (iii) upon a material uncured breach by the other party that would cause the closing conditions not to be satisfied.

A copy of the Merger Agreement is filed herewith as Exhibit 2.1 and is incorporated herein by reference. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement. The Merger Agreement has been filed to provide investors with information regarding its terms. It is not intended to provide any other factual information about the NV5 Parties or Geospatial. In particular, the assertions embodied in the representations and warranties in the Merger Agreement were made as of a specified date, are modified or qualified by information in confidential disclosure letters provided by each party to the other in connection with the signing of the Merger Agreement, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Merger Agreement are not necessarily characterizations of the actual state of facts about the NV5 Parties or Geospatial at the time they were made or otherwise and should only be read in conjunction with the other information that NV5 makes publicly available in reports, statements and other documents filed with the SEC.

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Commitment Letter

In connection with the pending Merger, NV5 obtained a financing commitment to provide an incremental loan facility in the original principal amount of $240 million (the “Incremental Facility”) to fund the Merger under its existing credit facility, pursuant to a commitment letter (the “Commitment Letter”) from Bank of America, N.A., BofA Securities, Inc., PNC Bank, National Association and PNC Capital Markets LLC. The Incremental Facility includes a $150 million term loan tranche and a $90 million increase in NV5’s existing $125 million revolving facility, for a total availability of $365 million. The funding of the Incremental Facility provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including but not limited to (i) execution and delivery of definitive documentation with respect to the Incremental Facility in accordance with the terms set forth in the Commitment Letter, and (ii) consummation of the Merger in accordance with the Merger Agreement not earlier than December 20, 2019. The actual documentation governing the Incremental Facility has not been finalized, and accordingly, the actual terms may differ from the description of such terms in the Commitment Letter.

A copy of the Commitment Letter is filed herewith as Exhibit 10.1 and is incorporated herein by reference. The foregoing description of the Commitment Letter does not purport to be complete and it is qualified in its entirety by reference to the full text of the Commitment Letter.

ITEM 6. EXHIBITS.



Number		Description

2.1		Agreement and Plan of Merger by and among NV5 Global, Inc., NV5 Merger Sub Corp., Geospatial Holdings Inc. and Arlington Capital Partners III, L.P., dated as of November 6, 2019. *

10.1		Commitment Letter, dated as of November 6, 2019, by and among NV5 Global, Inc., Bank of America, N.A., BofA Securities, Inc., PNC Bank, National Association and PNC Capital Markets LLC.

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 **

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document


*	Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.

Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	NV5 GLOBAL, INC.

	By: /s/ Edward Codispoti
Date: November 7, 2019	Edward Codispoti Chief Financial Officer (Principal Financial and Accounting Officer)