Welcome to the Atlas Technical Consultants First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . Please note this conference is being recorded. I will now turn the conference over to your host, David Quinn. Mr. Quinn, you may begin.

Thank you for joining our first quarter 2021 earnings conference call. We hope that you've seen our earnings release issued after the market today. Please note that we also posted a presentation in support of this call, which can be found in the Investor section of our website at oneatlas.com.

Thank you, David. I am pleased to report that we have a strong start to 2021, thanks to the quality of our technical resources and their commitment to providing first grade services to our customers. I'm also excited to share a number of proof points with you today that demonstrate our focus and discipline to execute on our strategy and continue to create long term value for our stakeholders. For the first quarter, we received nearly 13% revenue growth and a 13% increase in adjusted EBITDA, driven by return to mid-single digit organic growth. Our results and achievements in the first quarter exceeded plan and positioned us to deliver growth and increased profitability for the balance of the year and beyond. In March, we announced these strategic acquisitions of AEL, a full-service materials testing, inspection, and engineering firm in the New York and New Jersey markets. That transaction closed in mid-April, and will contribute to our results beginning the second quarter of 2021. As you all know, a primary focus of this management team has been to optimize our capital structure in order to position the company for long term growth.

Thanks, Joe. And good afternoon, everyone. Please turn to Slide 11. Before I discuss our results for the quarter, I wanted to address the SEC’s recent comments about warrants issued by SPAC, which will have no impact on our current or future results. In April of this year, the SEC issued a statement regarding accounting and reporting considerations for the reclassification of SPAC warrants from equity to liabilities. Given that we completed the exchange of 100% of our warrants for common stock in November of 2020, there is no impacts to our financials for the first quarter of ’21 or expected moving forward. A more detailed summary of our assessment of the historical periods related to this can be found in our 10 Q. Now returning to the discussion of our results. In the first quarter, gross revenues of $123.3 million or up 13% compared to the prior year quarter, driven by strong execution in all of our service lines, and attributed to both organic execution and contributions from recent acquisitions. Growth was strongest in our engineering and design services line this quarter making up approximately 18% of our overall revenue, as we see the benefit of larger project and program opportunities converting and answering our portfolio. Net revenue of $101.6 million was 12.3% higher than the prior year period, and represented approximately 82% of gross revenues, continuing to reflect our strategy to cross sell and sell perform more work. Due to the seasonality inherent in our operations, utilization levels were down modestly in the first quarter, but are showing improvements in the early spring as the field intensive season begins to ramp up. Like many businesses across the country, we are feeling some impact from resource pressure and scarcity. In response to this, we have expanded our internal recruiting…

Great, thank you, David. We are proud of how Atlas has performed since becoming a public company. Our business delivered another solid quarter results in Q1 and organic growth efforts are gaining steam as we grow our revenue synergies. We believe in performance continues to validate our resilient business model and the strength of our leadership team to adapt, scale and be successful in all market environments. Our execution and unrelenting commitment to safety gives us confidence that we remain extremely well positioned to capitalize on the nation's continuing economic recovery, and particularly the growing national commitment to infrastructure investment. I firmly believe in the power of this organization, and our ability to deliver strong margin performance and continued earnings growth, all by rapidly deleveraging our balance sheet. I look forward to continuing our positive momentum for full year 2021 and beyond. So thank you again for joining us. Operator, we can now open up the lines for Q&A please.

Thank you. At this time, we will be conducting a question-and-answer session. . Our first question is from Brent Thielmann with D.A. Davidson. Please proceed with your question.

Great, thanks. Good evening. Congrats on a good start to the year.

Thanks, Brent. Appreciate that.

Yeah, I guess first question, just the thoughts around the raise in the guidance. Early on to start the year, you obviously have the AEL contributions. Just wanted to get a sense how much is related to that, and how much reflects really just more optimistic outlook for the business?

Yeah, so it's sort of our practice not to disclose specific details on financials related to bolt on acquisitions slide. To give me a sense of scale for the business Brent, is about a 275-person firm. If you look at the business’s equity, the volume they generate won't be too far off from what we currently do. Well, let me just give you a little more of an appreciation of what our thinking was relative to driving the guide. So first of all, we delivered a better-than-expected organic growth level in the first quarter. I think the last time we spoke with you we said, we expected to pierce through and recommence organic growth in the first quarter we delivered 6% so, think about that. We really evaluated our backlog thoroughly, and the timing of our expected work in 2021, so we take them outside relative to that, particularly in the resilience of our government related transportation infrastructure business. And we're also seeing increased opportunities as we're putting the full suite of our environmental solutions capabilities to market. I'd also mention were confident that we're well positioned to benefit from expanding federal, state and local infrastructure investments. However, we haven't included any stimulus dollars in the guidance that we provided. And of course, to your point, lastly, we did build in the contribution of AEL. We've got that done in April and we're calling them they're going to deliver quick revenue synergies as they join the platform.

Okay, very good. And then maybe a little more color on the regions of the units driving that 6% organic growth this quarter. And then I love that I think the environmental services piece of the business had been more impacted by sort of COVID and COVID protocols, maybe where that business since today.

Yeah, so we're seeing a natural movement back to pre-COVID operating model experiment, so it was just solid momentum pent-up. That's a really based on that. We are seeing really a gradual increase across the board, for the businesses. We've seen a nice rebound with our environmental and building sciences business, which was one of the components of the company that took a harder hit at the outset of COVID. And I would also just mention that we are really seeing the benefit of our strategy in revenue synergies prove out as well across the platform. We are pursuing larger projects and programs. And we're securing larger projects and programs. And I think this will be further evidenced, as we move through the second and third quarter. The magnitude of some recent selections on contracts, and contracts that, we bet that we have high confidence we will win is really going to further cement the real underlying value of the synergies of bringing these companies in.

Brent, let me add a couple things to that, this is Joe. I think it's fair to say that the administrations push on, on really renewables and sustainability, we are working on a few projects now that have come out of that renewables projects in the southeast, particularly through early engineering services, site civil engineering, inspection type work, and development of some solar fields, both in Georgia, and a larger one called Twin Solar Farm. So basically, the renewables getting into our backlog that we hadn't had previously.

Okay, that's interesting. And maybe the last one would just be, I caught a few comments in the opening commentary just around costs, maybe some inflationary pressures out there, and maybe just your thoughts on the implications to margins, if any move through the year?

So, to start with, we definitely are seeing increased pressure on securing talent recently. It changed quite a bit more to get people in the door. Our response to this has been to double our in-house recruiters, to identify and securing the right talent for our projects, particularly as we're growing and wrapping up in advance of the field intensive season. We believe we do have an additive relative to this. As a company, we're very focused on the culture and growth and data sets and inside the projects. And, when I was dealing with student technical talent, they’re attracted to these types of things. So, this is what we're going to continue to promote. But Joe, I think you probably have a couple things to add.

So, Brent, we are experiencing pressures on wages, particularly, really, since the first time that I’ve seen in a while is really around a technician level position. So, we all have been paid a bit more than in the past to find and attract first level technician and absolutely been coming out of corporate worlds, having seen that impact. Remind you that our contracts are majority of the contracts are trying materials and cost reimbursable. So, although we might see a little bit of a tighter on margins, just short term, our contracts typically get adjusted on an annual basis. We get that cost-of-living increase, if you will, on our labor. So, we’ll pick up that over time. I think it’s a short issue. But that being said, we don’t see the long term and our recruiters are being able to locate the talent to stay a little longer than in the past.

Okay, great. Well, thank you for taking the question.

Thank you. Our next question is from Noelle Dilts with Stifel. Please proceed with your question.

Hi, guys, thanks for taking my question. And congrats on a good quarter. Earlier in the -- sure thanks. Earlier in the call, you mentioned, I think a little bit about some supply chain challenges. And we’re hearing about that a lot within construction, obviously. Again, understanding your cost plus, I understand that aspect of the model, but can you kind of comment on how you’re thinking about just these higher raw material costs, and if their -- and also availability, and if they could impact the timing of projects and things if things might push to the right things?

Absolutely. Noelle, what we are experiencing directly to us is not so much our issues, our materials, and our labor costs outside of fuel has recently hit us as a cost increase to us. But what we are seeing is material shortages at some of our project sites, which are impacting delays. I’m giving an example in the Midwest, there is a pretty significant shortage of revenue and supply line filled ladders, landfill liners, which we do QA inspects he CQA inspections on the wires. And right now, those products have been delayed about going on in the second month. And we expected to get back to those projects. But it still might be another quarter or so. So that’s impacted us as one of the issues we’re facing. Obviously, the other materials are really client driven costs. So, we haven’t seen a significant delay, I just would say postponed to the right into the right and project delays for continuation.

Okay thank you. And…

Let me say one more thing I receive, we actually felt a lot of issues we’re facing, is obviously just the availability and trust are defined with microchips and SaaS, so we’re hanging on to our trust a little bit longer than we had planned, but we’re dealing with that as well.

Okay, great, really helpful. And then I know that you mentioned that most of your business units would benefit from an infrastructure bill. But given that a fair amount of your work is, maintenance and kind of recurring, to really think about this as impacting the 30% more tied to new build. Just any additional color on how to think about kind of the size and where to think about the most benefit going to the company would be would be helpful, thanks.

Sure, I think David mentioned that, we don’t have any of the infrastructure bill would involve in our guidance. I would say, in general, first of all, I’m pleased to see the bill. It’s long overdue, but a lot of out there, I think we do a lot to improve our nation’s infrastructure. We’re well suited for it, because our services are completely aligned, and we’re already doing it in the significant amount of the investments going into transportation, which is a huge number. They revamp 20,000 miles of roads and bridges. We do those inspections every single day, is in our wheelhouse. So, it’s also talking about upgrades of ports and airports. And we’re working right now as well. So, really, again, and as we pass them. When they are licensed at $370 billion that’s going to housing and education, that’s an area we’re strong in and helps our building sciences group as well. So, it’s another area that I think it’s completely in our wheelhouse of strength. And as we think we can help our clients in those areas as well. So, we see about half of that bill as accessible to really strong Atlas services. Hopefully, that it comes through right, of course, is anything that is fortunately environmental, less than a third of our business as well.

Right. Okay, that’s great. And then, I know we’ve kind of talked about this before, but any guidance on how given all of the changes in the capital structure, so can you give us any guidance on how you’re expecting interest expense to shake out for the year?

I’m sorry, how we’re expecting what?

Interest expense.

Interest expense. Yeah, interest expense for the year will end up being when we say excluding the deferred financing running off, will be somewhere around $35 million $36 million for the year -- for full year.

Okay, perfect. Thanks very much.

Thank you. Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed with your question.

Good afternoon, and my congratulations for the quarter.

Thank you, Rob. Appreciate that.

The first question is on M&A. Could you help us kind of characterize the M&A pipeline, in terms of the types of companies you’re looking at, maybe the sectors you’re looking at and sort of the size of the acquisitions in the pipeline?

Sure, so let me say that just characterizing the pipeline to start off with. We’re -- it’s exceptionally strong, probably the biggest bit, I’ve seen it since we started. I think, we’re becoming more of a choir choice, as I mentioned in the past. And regarding the firms are still we’ve seen right in the sweet spot of the services we’re looking to perform, which is the set of structure services that environmental. There’s -- I wouldn’t say that the size of those firms are anywhere from, are typical $5 million EBITDA to a much higher into a more substantial acquisitions that are all in that range. I think one thing to note in the M&A pipeline is that we’re still in our model of being have cash have the stocks, it’s still an attractive model for permitting the departments in our pipeline. They’re excellent technical capabilities that meet our performance goals. And they do have a match in our culture. So, very, very important what we’re looking for in regards to that. I think one thing I have noticed is, within the last year, a slight increase in multiples, particularly in the space -- in the transportation services space is slightly higher. Other than that, there hasn’t been a lot of change I think in the model that we’ve laid out and that the success a lot in the past. So, with our expanded capital, Rob, in the AEL, we just secured in our new capital structure. We have a lot of activity and expect to really be able to exceed our acquisition contributions that we realized in 2020.

Okay, great, thank you. So, David you talked a little bit about your pipeline having more volume and size and talked about some of the things but I just want to dig a little bit on what’s driving the increased size of the projects that you’re bidding on or potentially winning? Is it really your cross-selling activity, or they’re just bigger projects in the market actually understand it?

So, I’d say Robert, with both. There clearly are more -- there’s more large projects picking in the transportation space, that are P3, budget type projects that are more of a consortium type are increased. As we add in firms to our platform, we’ve increased our service capabilities, as well as the depth and the width of our technical capabilities. So not a lot of firms that are fit that space. We’ve always had a strategy to pursue larger projects, which to us aren’t more riskier. Don’t forget, it’s still enough to send more receiving this year, but still in the space of low-risk time and materials. They squarely fit in our service model, their services we do in and out and have tremendous technical capabilities to perform that. And again, of course, we’re not taking on constructions. So, it’s still a lower risk project. So that would be larger. And we see them several of those opportunities every year.

Okay, great. Thank you. I’ll turn it over.

Thank you. Our final question is from Kathryn Thompson with Thompson Research Group. Please proceed with your question

Thanks for fitting in today. So, a lot of questions have been answered, but just clarification on a few points, and you went into this on backlogs. But if you’re going to step back, and look, how is the mix of backlogs today different versus 12 to 18 months ago? So in other words, different types of projects, or there’s different geographies. We’ve already talked about the size but giving more color in the change backlogs versus 12, 18 months ago? Thank you.

Yeah, sure. Thanks Kathryn. This is Dave and I’ll take that. So, there hasn’t really been a huge change in the mix. I would mention that we have seen an uptick in our engineering design, and PCQM related opportunities, probably not surprisingly based on our transportation, infrastructure, as proving strong through COVID. I will say that, again, looking back at the expansion of the platform, the increased capabilities of the platform and our reach, we’re much better positioned to go after bigger projects and programs. And as a result, we’re winning them. So, if I look at our current portfolio, and contract backlog, pick a number we’ve said a large project, a contract is $5 million for us. We’ve seen an increase from 16, just a year ago in the portfolio to 28 at this time. So, our market increase in the magnitude of projects and contracts that we’ve been able to bid, win and bring into the portfolio.

Okay, and I guess a follow on to that, would you say that, that is some of the primary force driving the 6% organic growth in the quarter, which is a magnitude better than had been previously?

Well, so, certainly, it contributes to that, right. But if you look at actually our backlog growth quarter over quarter, and again, part of it being under reassessing the long-term revenue capacity in our contracts, we that way actually grew 10% quarter over quarter. And we feel very good about this refresh that we made, and the ability is going to have to propel revenue through the balance of the year. Again, I think for the following year we’re looking at 6 -- probably 6% to 8% organic growth. And if you look at our projection at the minute on revenue, it’s like 13.5%. And of course, if you go to EBITDA, not only EBITDA out of it, we’re projecting a 22% EBITDA increase at the mid over our full year 2020. So, we are really pleased in terms of the year over year progress and momentum, we’re seeing the business.

Okay. And final question. Yeah. So, when we last spoke activity was largely back to pre-COVID levels, with the exception of your Environmental Building Science services in the Northeast because of the COVID lockdown restriction. Given no changes in the environment, palettes are trending now. And is there a chance that we rebound back and above pre COVID levels due to postpone work that needs to be completed? Or you’ll still see some of the constraints from labor that’ll keep that at a muted level?

Kathy this is Joe. So, I would say that our building sizes if you’re referring to, I would say right now is likely 70% to 75% capacity. Not so much related to wage issues or technical levels, but really clients live enough funding before in the Northeast funding and task order handout to us to complete that work so that some of it held up because the schools are still in progress. So, I would say that it would likely get up to well, and we’re hoping to look out at least COVID levels sometime in the next quarter. And lastly I think, we do anticipate growth in that sector as it relates to building sciences, code related issues. And anything that might come from the bill with regards to education is really going to benefit our building sciences second.

Okay, great. Thanks very much, and good quarter.

Thank you. Thank you, Kathryn.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Joe Boyer for closing remarks.

Thank you very much. I want to thank you everybody for joining us today. We appreciate your support of Atlas and look forward to updating you on our progress in the future. So, thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.