Hello and welcome to the Atlas Technical Consultants Second Quarter 2021 Conference Call. Currently, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the call over to your host, Mr. David Quinn, Chief Financial Officer of Atlas. Thank you. You may begin Mr. Quinn.

Thank you for joining our second quarter 2021 earnings conference call. I hope that you have seen our earnings release issued after the market close today. Please note that we have also posted a presentation in support of this call, which can be found in the Investors section of our website at oneatlas.com. Before we begin, I'd like to remind you that today's call may include forward-looking statements. And statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts and assumptions are forward-looking statements. Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to update publicly any forward-looking statements. In addition, we will be discussing and providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income and adjusted EPS. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. Moving to our agenda on slide three, I am joined today by our Chief Executive Officer Joe Boyer, who will provide an overview of our business and give an operating update. I will continue with the discussion of our financial results and the outlook before we open up the call for questions. At this point, I'll turn the call over to Joe to pick up on slide four.

Thank you, David, and good afternoon and welcome investors. This truly is an exciting time for all of us. In my 32-plus years, this may be the best market that I've had the opportunity to participate in. And we're seeing drivers aligned to produce tremendous demand for renewed investment in our aging infrastructure in the natural environment. Things I haven't seen in my entire career. And I’m excited to be leading Atlas into it. Our company is purpose-built to ensure quality, longevity and sustainability in our nation's public and private investment in the natural and built environments. I’m proud to represent 3,600-plus Atlas associates working hard on mission-critical projects across the US, such as the Neutrino Facility at the South Dakota Sanford Underground Research complex, which demonstrates the expanding range of our technical capabilities. And it's just one of many critical infrastructure projects across the country, where our teams are making a purposeful impact on our world. Now today, I'll detail three key themes, which not only reinforced the purposeful work that we perform, but also the earnings power of our business and the value creates for our shareholders. First, our positive 2Q results demonstrate the predictability of the Atlas platform through solid execution by our teams, delivering record revenue and margin growth through the cross-selling of integrated acquisitions. Secondly, Atlas is focused and well-positioned in growing public and private end markets that are being propelled by strong and expanding macro tailwinds that are in addition to those proposed in the federal infrastructure bill. And lastly, our ability to successfully win work in all service areas and to consistently advance our acquisition integration strategy, are contributing to our growth and our record backlog, which provides confidence in our outlook in the second half and into 2022 and beyond. Now let's…

Thanks, Joe, and good afternoon, everyone. Please turn to slide 11. Overall, we are very pleased to deliver another quarter of growth and predictability for the business. We grew revenues and increase margins and cash flow. Our longer term perspective is bright, as we continue to grow our backlog, with over $150 million recent awards, pending contract, not yet included in the $751 million we reported. Now for the details of the quarter, gross revenues of $131.6 million were up 16.7% compared to the prior year quarter, driven by strong execution across all of our service offerings. We delivered both organic and acquisitive growth, which contributed to the notable double digit jump over the prior year. Environmental solutions services saw the biggest gains in the quarter as we continue to see larger projects and programs enter our portfolio. Net revenue of $106.3 million was up 16% for the prior year period and represented approximately 81% of gross revenues, consistent with our strategy to cross-sell and sell perform more work. We realized improve utilization rates, even as we grew our workforce during the quarter. Like many businesses we are feeling some labor capacity constraints and have expanded our internal and external recruiting resources to ensure clients demand is met. Adjusted EBITDA of $18.2 million represented 17.1% of net revenue up 30 basis points from 16.8% in the prior year quarter. Higher revenue was the primary driver of EBITDA growth which helped offset project mix, wage and onboarding cost impacts as we move into our busier work season. For the second quarter 2021, we produced adjusted net income of $3.5 million and adjusted EPS of $0.11 versus $0.07 in the prior year quarter with some differential related to Class A share bounce between the periods. Moving to Slide 12, as we mentioned…

Great. Thank you again, David. We are all proud of our accomplishments since becoming a public company. This has once again delivered solid results in Q2 and our organic growth efforts are gaining steam complemented by the additions of AEl and OSG. We believe the performance continues to validate our resilient business model and the alignment of our business to strong key market tailwinds. 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 while rapidly deleveraging our balance sheet. I look forward to continuing our positive momentum in the second half of 2021 and many years to come. Thank you, again, for joining us. Operator, we can now open the lines for Q&A please.

At this time, we'll be conducting a question-and-answer session. First question comes from a line of Rob Brown with Lake Street Capital Markets. You may proceed with your question.

Good afternoon.

Good afternoon Rob.

Hi Rob.

I just want to follow-up on the Infrastructure Bill and get your view on how you see that flowing through if it gets approved and through your experience in the past and how these programs work and how quickly the impact can flow through?

Sure. So, let me say, I guess, first of all that I'm glad to be having this conversation for us to be -- what I believe to be close to closing a transaction and a federal Infrastructure Bill which I think is long overdue. Rob, according to what we've read, where the administration is focused in the end markets of transportation, housing, education, and water and utilities, those are end markets that our firm is really well-positioned for and currently are in our core business and end markets. We believe that all of our services, testing and inspection, environmental solutions through program construction, quality management and lastly engineering design, all those core services directly aligned with the proposed ending of the bill. So we feel really great, that we're well positioned. And if there is that bill was to be passed. Obviously, we'd benefit tremendously from those services. I'd say, although, it's really tough to say, how this ending may flow through, likely to come through states and municipalities is my experience, timing on that. It really is just very speculative, Rob, I would say, certainly, if something was to be passed as relatively soon here, you're looking at late-2022, before you'd see any kind of, lettings and transactions going out and most of the revenue really probably coming in around 2023.

Great, thank you. And then, just in terms of the new business environment you cited a number of areas in particular seeing strength. But it really is, is it a state level, you're seeing kind of a higher I assume of your organic growth rates. But is it state level spending that's coming through? And are there other things that I think you mentioned a number of projects. But what what's really driving that state level spending increase at this point.

Well. Let me say, I believe that, you know, as I had mentioned, there's a number of really key market tailwinds that are driving this business side. We're continuing to see the continued outsourcing of services from municipalities to the private sector. And I think that's due to staffing levels, but also just the level of infrastructure investment that's going in, so clearly seeing that as well. I'd say as far as our growth, we saw a fairly even distribution of our growth in both, public and private markets, Rob. I think, really, a little bit slower in the transportation area, than we anticipated. And of course, the federal markets are slow to get started. But we did see some changes in our service mix. And I think that's really attributed to our testing and inspection and certification business in-bound and the commercial amrekts which is acceptable -- I mean, expected there. Our environmental solutions grew. And that's were pickup from our Building Sciences and our Industrial Hygiene Group that had been down in the past. But I think that's really driven by our clients really interested in healthy buildings and our focus on that. And then, property transactions is really where our Environmental Services Group, the quarter. We have seen overall, a growth in our program, construction and quality management. And they're really coming mainly in the public sector. But it's on this renewed focus on quality of construction quality and design quality review. So, a market area that we have seen substantial growth in, obviously, as you've seen from some of our wins for the key -- in the quarter were substantial in the area of PCQM. And then lastly, just our engineering design business has been relatively steady. That help you out?

Yeah. Very helpful, thank you, and then, last question just on the, on the M&A environment. Again, very good free cash flow in the quarter and should continue in the back half of the year, but how does that sort of influence your M&A activity at this point? And what's sort of the outlook for the rest of the year?

Yeah. Great Rob, so from a cash flow standpoint correct, we had a very solid quarter delivered, just about $8 million of operating cash flow. At the same time, we paid down about $12 million on our revolver and increased liquidity by about 30%. And you couple this with the delayed term loan that we have in place, that's really going to continue to find our active investment in M&A. Pipelines flush right now, and we've got several opportunities that are looking really good. As a result, it's got us on a pretty confident track relative to driving the business to less than three times net leverage and achieve in 5.5 times net leverage which is about a full term reduction for the year the time we get to the end of ‘21.

Rob while you just -- he asked about the M&A pipeline, I think, let me just comment on that, in addition to that base comments. So we feel really great about our pipeline both the depth and the width of our pipeline opportunities. I think that our deal -- our deals are mainly proprietary opportunities so they're not driven by the most part -- not driven by broker led opportunities. So, we're excited about that. We feel that we've sort of made a name and continue to be an acquirer of choice with the success we've had and bringing on smaller firms onto our platform and growing those businesses. So, we like our opportunities for growth, where we're focused in some key geographies and some -- and continuing in the service expansion area that I talked about. So we like and we'll continue to really focus on our M&A activities going forward.

Great. Thank you, very helpful. Nice shove in the quarter. I'll turn it over.

Thanks Rob.

Next question comes from a line of Noelle Dilts with Stifel. You may proceed with your question.

Hi guys. Congrats on the next quarter particularly the backlog. On that note and sorry if I missed it. But I was curious how much of the backlog in the quarter was acquired, versus organic?

Yeah, great question. So, again the differential we went from $689 million to $751 million, so we saw a $62 million increase and about $45 million of that was acquired additions to our backlog, about $17 million of that related to organic growth.

Noel I want to add, you got some notes on our slide there, we have $150 million dollars of contracts we have been awarded that have yet to be signed and when they're signed, they will be moved to backlog. So that's in addition to the $751 million just want to make sure I was clear on that.

Okay. Perfect, yeah that that came across I just wasn't sure, if I missed the other part. And then just as a pandemic related sluggishness that you're seeing, I'm just kind of curious if you know the Delta variant is worsening this, you know were you're starting to see some relief and then it's kind of coming back. I'm just curious sort of the trends you're seeing and how this is playing into your thinking about the rest of the year?

No, well what -- that's a fair question. We are seeing it ourselves. We had the highest COVID impact for probably six or eight months just this last prior month. So we are seeing our own employees impacted by the variant or at least renewed wave, if you would. It's helped obviously to -- we just continued and we have never left our procedures in regards to monitoring temperature. Still having procedures in place and monitoring those with potential exposure and unoccupied office spaces with us. So we have seen impacts there in the marketplace. We have seen impacts continue with the COVID environment. I can tell you that knowing the public and pouty markets is still, have yet to see our clients come back in full force. They're continuing to work from home which is driving later lettings and also later executions I believe at 150 million that we have pending out currently is a direct reflection of COVID and not being able to get those contracts through procurement and get signed. So we're continuing to see that. Watching it closely, I don’t know, Dave, you want to add anything else that you'd say to that I think.

Well, I think what we're talking to sort of this generalized pandemic related sluggishness and what is unique that we're seeing is a level of activity around bidding and winning work is like nothing we've ever seen. As you can see, we're following up quarter after quarter with record backlog and if you look at 150 million Joe referenced, and the size of the awards within that, they're bigger than we've ever seen. And there's no risk to our risk tolerance profile relative to the work we're taking on. They're just bigger opportunities. So, the business is fine. It’s operating well. It's just -- it's not throttling up and breaking out the way we would have anticipated by now. So, we're continuing to bring resources on and push driving volume in the third quarter and just based on the wave of work that has to get done, it's not if, it's really when.

Right. That makes a lot of sense. And then I guess just my last question, with all this work that's that you have in backlog, that's pending, you talked about investing in resources to try and on recruitment and that sort of thing. Just curious, I mean, do you see yourselves ramping now for a few quarters as you really tried to meet that demand. I guess my question really surrounds, how are you thinking about building resources and the resultant if there's a little bit of a drag on margin. Should we expect that, just as you kind of prepare to do a lot of this work that's out there, both that you've been awarded and that you made a couple of months.

So, Noelle, that's exactly our focus that has been for the last two quarters as we -- coming out of COVID, seen our markets increase. We've been adding on resources. Obviously, there's, as I've always said that this industry has always had tight labor, so we knew this on and knew this early on and rely heavily on our internal recruiters to help us stay ahead of our demand. We've added another recruiter on to that staff, and also gone to outside recruiters to help us stay ahead. So it will be a continual focus for us because we anticipate the growth of not all these market drivers that I've talked about, but if and when the federal infrastructure bill comes through that will also be a further demand for us. So high on our priority list and we deal with that on a weekly basis.

Perfect. All right. Thank you very much. Thanks, Noelle.

Our next question comes from the line of Brent Thielmann with D.A. Davidson. You may proceed with your question.

Great. Thanks. Hey Joe and David. The 150 million in pending awards, I guess I'd heard you guys kind of quoted a number like that before. Can you give us a feel for what that compares too, is it abnormally high, kind of what you expect post quarter, just trying to get some perspective on that?

Yeah, that's a good question, Rob. And I think I wouldn't compare it to the past, it certainly is higher, and it's taken longer for instance to get these contracts signed, that's why I can't recall being out there $150 million, and pending award. I will tell you that we just signed an $8 million contract out of that 150 this week, so we're looking to drive that along and I think because our Department of Transportation clients are starting to really gear up for the new fiscal year. So, it seems to me to be high, I can't tell you that I know exactly what it is. I mean, Dave, do you want to?

Yes. Brent, I would – so here's a couple of points relative to this. Typically, we'd see what we call our selections pending contract. Rolling somewhere between $80 million to $100 million. What's significant about this is that $80 million to 100 million, average contract size was maybe $1 million, right. What we're seeing now is certainly an increase, as we jump into $150 million. But if you look at the magnitude of the top four contracts in there that we're excited to hopefully, be talking about next quarter and maybe the early fourth quarter. There are multiples, multiples, larger than what we've seen before and the tens of millions. So we're really starting to see a shift where strategy through the platform is playing out. We're bringing fine relationships together and we’re going after bigger opportunities in securing them. And with this, it's improving with these larger projects and programs, it's improving our visibility, as we look out not just in next six months, but into 2022 and 2023.

Okay. And then I guess, on the, I guess with the new acquisitions you've done kind of pretty large book of business, could sizable depending on warrants. I guess I'm just wondering, why you wouldn't have better visibility in the year end and hence move the guidance either at . Just some caution around COVID and the ways at the customer level primarily, is there anything else I'm missing there?

Sure. So, well of course, we're monitoring what COVID is doing, right and it certainly hasn't helped recently. But I would remind you that we did raise guidance in Q1. We moved revenue up by $20 million, and adjusted EBITDA by $3.5 million at the midpoint, and we've closed AEL prior to reporting, so we talked about that. Now OSG is a terrific addition to our platform and this data to 90 person firm. At this stage in the year really when you break it down, it fits within the guidance that we had previously provided. I think the more important point here though Brent is. As we started to really focus in on the earnings power and momentum of the business going into 2022. And again, if you look at our adjusted EBITDA on a pro forma run rate basis, assuming we had AEL and OSG done at the beginning of the year, we’re looking at annualized adjusted EBITDA ranges of $76 million to 83 million, so you know we're quite optimistic as we look ahead to next year.

Okay. Just the last one that the jump up in operating expenses this quarter. I mean it looks like there's sort of 5 million-ish kind of one-time items in there but now if you back that out, is this the sort of run rate, you'd expect as cost kind of come back into the business post-pandemic?

Yeah. I mean, Q2 definitely was a heavy investment quarter for us. We had $2.4 million of M&A related transaction costs for AEL and OSG. We had a couple million that came through, non-cash related to a fair value adjustment related turn outs on acquisitions, we had a million related to non-cash equity comp. I would point out Brent that not for those items if you back them out and look at our operating expenses as a percentage of revenue, we're actually down. So the business is operating efficiently, but not for these one-time items, you're really looking at something closer to a normalized operating expense run rate for us moving ahead.

Got it. Okay. Thank you. Best of luck.

Thanks, Brent.

The next question comes to line of Kathryn Thompson with Thompson Research Group. You may proceed with your question.

Hey, good afternoon. This is actually Brian on for Kathryn. Thank you for taking my questions. I guess, I wanted to see where the building science services stands now compared to pre-COVID levels. I think before it was hit pretty hard during COVID and then last quarter saw a nice rebound I think like 75% of pre-COVID levels, as people came back to high rises, education started to come back. I guess can you talk about where that is now and maybe the potential for the delta variant of COVID taking that back down at all?

Yeah. I'd say that in a little bit speculating here, but I'd say we're very close back to pre-COVID level, so that group we have added to it, I will tell you that we have active positions open in industrial hygiene now currently because of anticipated growth and expansion of those services into Q3 and Q4. So very close to pre-COVID levels. We might be right back out where we were, but anticipated growth in that in Q3 and Q4. Does that help?

It does, yeah. And then, are you seeing -- I guess what's the downside potential if the delta variant things go backwards, do that drop as, as far as it did at the initial COVID level or are we not going to see that level of decline?

Well, I think I'd have to speculate a little bit, I don't want to do that. But I would say this, the two areas that really hit us in COVID was as you mentioned was our Building Sciences group because people were coming out of the high rises and we had school shutdowns and that that's impacted our business tremendously. And we didn't have environmental transaction because the financial markets tied up originally. So, those markets are now continuing on and our environmental transaction business is actually doing quite well as the financial markets are rolling. I think, you know, with -- where the schools are in dealing with exposures and master -- I can't really say where that's going to go. But I just feel that that the school systems are more used to dealing with it. And so they're worth continuing on as a lot of our work is maintenance and sort of continuation of code that you can't really pass up. So I don't believe we'll be sit as if it was the turn. I don't think we'd see this, sort of, turned down that we experienced in the first COVID experience in March, April and May of last year.

Okay. Very helpful. Thank you. And second follow-up, I guess, is post-COVID world now has that had any meaningful impact to DoT pace of outsourcing work? Because are you seeing more increasing amount of work because of COVID? Is that not really factoring into DoT's outsourcing decisions?

I would say that -- and this is a generalization because obviously I can't speak for all the state DoT’s, but we did see that during COVID, I think, in order to keep the resources, busy, they sort of didn't rely as much on outsourcing in the first couple quarters of this year that we anticipated. I think that's now picking up as funding is anticipated. You got your new fiscal years rolling. So, I don't anticipate that there'll be much change. I should say this way we're going to see an increase going into Q3 and Q4 from our current transportation business as the outsourcing will now pick-up as the projects are picking up levels and they don't have the staffing levels to support. So more outsourcing is what I suspect is headed our way.

Got it. Thank you.

Sure.

Ladies and gentlemen, we have reached the -- today's question-and-answer session. I would like to turn this call back over to Mr. Joe Boyer for closing remarks.

Thank you very much. Appreciate everyone joining us today. We appreciate your support of Atlas and look forward to updating you on our progress next quarter. So thank you very much and have a great afternoon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.