Bowman Consulting Group Ltd

1. Nature of Business and Basis of Presentation

Nature of Business

Bowman Consulting Group Ltd. and consolidated subsidiaries (“Bowman” or “we” or the “Company”) incorporated in the Commonwealth of Virginia on June 5, 1995 and reincorporated in the State of Delaware on November 13, 2020. Bowman is a professional services firm delivering innovative solutions to the marketplace of customers who own, develop and maintain the built environment. Within that arena, we provide planning, design, engineering, geospatial, survey, construction management, environmental consulting and land procurement services to markets that encompass the buildings in which people live, work and learn in. As well as the systems that provide water, electricity and other vital services, and the roads, bridges, and transportation systems used to get from place to place. We provide services to customers through fixed-price and time-and-material based contracts containing multiple milestones and independently priced deliverables. Typically, contract awards are on a negotiated basis, ranging in value from a few thousand dollars to multiple millions of dollars and can have varying durations depending on the size, scope, and complexity of the project.

The Company’s workforce typically provides the full scope of engineering and other contract services. However, with respect to certain specialty services or other compliance requirements within a particular contract we may engage third-party sub-consultants. The Company’s headquarters is located in Reston, VA and the Company has over 95 offices throughout the United States andone office in Mexico.

Common Stock Offering

On February 11, 2022, the Company closed on an offering of common stock in which it issued and sold 900,000 shares at an offering price of $16.00 per share, resulting in net proceeds of $13.7 million after deducting underwriting discounts and commissions, but before expenses of the offering. In addition, Gary Bowman, our President, Chairman and Chief Executive Officer, sold 150,000 shares of common stock.

On February 28, 2022, the underwriters exercised their option to purchase an additional 157,500 shares of the Company’s common stock at an offering price of $16.00 per share, resulting in additional gross proceeds of approximately $2.5 million. After giving effect to this exercise of the overallotment option, the total number of shares sold by the Company in this common stock offering increased to 1,057,500 shares with total gross proceeds of approximately $16.9 million. The exercise of the over-allotment option closed on March 2, 2022, at which time the Company received net proceeds of $2.4 million after underwriting discounts and commissions.

Deferred offering costs consist primarily of accounting, legal and other fees related to the common stock offering. Prior to the offering, all deferred offering costs were capitalized within prepaid and other current assets in the consolidated balance sheet. No deferred offering costs was capitalized in the consolidated balance sheet as of December 31, 2023.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates and assumptions that were used.

Basis of Presentation

The accompanying consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

2. Significant Accounting Policies

The following is a summary of the significant accounting policies and principles used in the preparation of the consolidated financial statements:

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is either not an emerging growth company or, an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

Revenue Recognition

As discussed in Note 1, the Company provides a variety of engineering and related professional services to customers located throughout the United States. The Company enters into agreements with clients that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled as services transfer to the customer. It is customary practice for the Company to have written agreements with its customers and revenue on oral or implied arrangements is generally not recognized. The Company recognizes revenue based on the consideration specified in the applicable agreement. Excluded from the transaction price are amounts collected on behalf of third parties for sales and similar taxes.

Long-term contracts typically contain billing terms that provide for invoicing once a month and payment on a net 30-day basis. Exceptions to monthly billing terms are to ensure that the Company performs satisfactorily rather than representing a significant financing component. For example, fixed price contracts may provide for milestone billings based upon the attainment of specific project objectives to ensure the Company meets its contractual requirements rather than having billing monthly. Additionally, contracts may include retentions or holdbacks paid at the end of a project to ensure that Company meets the contract requirements. The Company does not assess whether a contract contains a significant financing component if the Company expects, at contract inception, that the period between payment by the customer and the transfer of promised services to the customer will be less than one year.

As a professional services engineering firm, the Company generally recognizes revenue over time as control transfers to a customer based upon the extent of progress towards satisfaction of the performance obligation.

For services delivered under fixed price contracts, the Company uses the ratio of actual costs incurred to total estimated costs since costs incurred (an input method) represents a reasonable measure of progress towards the satisfaction of a performance obligation in order to estimate the portion of revenue earned. This method faithfully depicts the transfer of value to the customer when the Company is satisfying a performance obligation that entails a number of interrelated tasks or activities for a combined output that requires the Company to coordinate the work of employees and sub-consultants. Contract costs typically include direct labor, subcontract and consultant costs, materials and indirect costs related to contract performance. Changes in estimated costs to complete these obligations result in adjustments to revenue on a cumulative catch-up basis, which causes the effect of revised estimates to be recognized in the current period. Changes in estimates can routinely occur over the contract term for a variety of reasons including, changes in scope, unanticipated costs, delays or favorable or unfavorable progress than original expectations. In situations where the estimated costs to perform exceeds the consideration to be received, the Company accrues the entire estimated loss during the period the loss becomes known.

When a performance obligation is billed using a time-and-material type contract, the Company measures its progress to complete based upon the hours incurred for the period times contractually agreed upon billing rates plus any materials delivered or consumed in the project. When applicable, the Company will recognize revenue under these contracts as invoiced under the practical expedient.

In certain situations, it is possible that two or more contracts should be combined and accounted for as a single contract, or a single contract should be accounted for as multiple performance obligations. This requires significant judgment and could impact the amount and timing of revenue recognition. Such determinations are made using management’s best estimate and knowledge of contracts and related performance obligations.

The Company’s contracts may contain variable consideration in the form of unpriced or pending change orders or claims that either increase or decrease the contract price. Variable consideration is generally estimated using the expected value method but may from time to time be estimated using the most likely amount method depending on the circumstance. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends.

The Company recognizes claims against vendors, sub-consultants, and others as a reduction in costs when the contract establishes enforceability, and the amounts of recovery are reasonably estimable and probable. Reduction in costs are recognized at the lesser of the amount management expects to recover or costs incurred.

Contract related assets and liabilities are classified as current assets and current liabilities. Significant balance sheet accounts related to the revenue cycle are as follows:

Accounts receivables, net:

Accounts receivable, net (contract receivables) includes amounts billed under the contract terms. The amounts are stated at their net realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated number of receivables that will not be collected. The Company considers several factors in its estimated expected credit losses including the related ages of past due receivables, including knowledge of a client’s financial condition, its historical collection experience, and other factors relevant to assessing the collectability of such receivables. No single client accounted for more than 10% of the Company's outstanding receivables at December 31, 2023 and 2022.

Contract Assets:

Contract Assets are recorded when progress to completion revenue earned on contracts exceeds amounts billed under the contract. It may also include contract retainages that can be billed once contract stipulations are satisfied.

Contract Liabilities:

Contract Liabilities are recorded when amounts billed under a contract exceeds the progress to completion revenue earned under the contract.

Cash and Cash Equivalent

The Company considers cash on deposit and all highly liquid investments with original maturities of three months or less when purchased to be cash and cash equivalents. Cash consists primarily of cash in accounts held at a financial institution. Certain of these accounts are designated as zero balance accounts wherein the balance is swept out nightly to reduce the Company’s line of credit balance, if any.

Concentration of Credit Risk and other Concentrations

The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and accounts receivable.

Cash balances at various times during the year may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company’s cash deposits are held in institutions whose credit ratings are monitored by management, and the Company has not incurred any losses related to such deposits.

The Company can, at times, be subject to a concentration of credit risk with respect to outstanding accounts receivable. However, the Company believes no such concentration existed during the years ended December 31, 2023 and 2022. The Company’s customers are located throughout the United States. Although the Company generally grants credit without collateral, management believes that its contract acceptance, billing, and collection policies are adequate to minimize material credit risk. Also, for non-governmental customers, the Company can often place mechanics liens against the real property associated with the contract in the event of non-payment.

Allowance for Doubtful Accounts and Expected Credit Losses

The Company records accounts receivable net of an allowance for doubtful accounts. The allowance is determined based upon management’s review of the estimated collectability of the specific accounts receivable, client type, client credit worthiness, plus a general provision based upon the historical loss experience and existing economic conditions. The Company charges off uncollectible amounts against the allowance for doubtful accounts once management determines the amount, or a portion thereof, to be worthless. Upon determination that a specific receivable is uncollectible, the receivable is written off against the allowance for expected credit losses. As of December 31, 2023 and 2022, the balance in the allowance for expected credit losses was $2.2 million and $2.2 million, respectively.

Property and Equipment

Property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is reported in the combined statements of operations. Depreciation is provided for using the straight-line method over the estimated useful lives as follows for the major classes of assets:

For the years ended December 31, 2023 and 2022, the Company recognized a $0.4 million and a $0.1 million gain, respectively, from the disposal of certain pieces of property and equipment in connection with sale-leaseback transactions. This amount is recorded within gain on sale on the accompanying consolidated financial statements.

Pension and Post-retirement

Accounting and reporting for the Company's defined benefit plans requires the use of assumptions. These assumptions are reviewed annually based on reviews of current plan information and consultation with the Company's independent actuary. If these assumptions differ materially from actual results, the Company's obligations under the defined benefit plans could also differ materially, potentially requiring the Company to record an additional liability. The Company's defined benefit plan liabilities are developed from actuarial valuations, which are performed every year.

We use a corridor approach to amortize actuarial gains and losses, with any excess amortized over the average remaining future working lifetime of the plan participants.

Leases

The Company enters into contractual arrangements primarily for the use of real estate facilities, information technology equipment, vehicles, and certain other equipment. These arrangements contain a lease when the Company controls the underlying asset and has the right to obtain substantially all of the economic benefits or outputs from the asset. The Company has variable leases, short term leases, operating leases, and finance leases.

The Company accounts for leases in accordance with ASC 842, Leases("ASC 842"). ASC 842 requires lessees to recognize assets and liabilities for most leases. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract, and (2) the customer has the right to control the use of the identified asset. Lessees are required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an

effective interest method or on a straight-line basis over the term of the lease.

The Company has elected the “Package of three” practical expedients as outlined in ASC 842-10-65-1f which permits the Company not to reassess whether existing or expired contracts are or contain leases, the classification of leases or whether any initial direct costs previously capitalized continue to qualify for capitalization. The Company has elected to adopt the practical expedient not to separate non-lease components from the related lease components and to account for them as a single component. However, multiple lease components within a contract will still be accounted for separately. This expedient has been elected for all classes of underlying assets. The Company has elected the practical expedient to apply the lease recognition guidance for short-term leases defined as twelve months or less. Operating lease arrangements may contain options to extend the lease term or for early termination. The Company accounts for these options when it is reasonably certain they will be exercised. Right-of-use assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets. Operating lease expense is recognized on a straight-line basis over the lease term and is recorded primarily within selling, general, and administrative expenses on the consolidated income statements.

The Company records a right-of-use asset and lease liability as of the lease commencement date equal to the present value of the remaining lease payments for its operating and finance leases. Most leases do not provide an implicit rate that can be readily determined. Therefore, the discount rate used is based on the Company’s incremental borrowing rate, which is determined using the Company’s credit rating and information available as of the commencement date. The right-of-use asset is then adjusted for initial direct costs and certain lease incentives included in the contractual arrangement.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting, which requires recognition separately from goodwill, the assets acquired, and the liabilities assumed at their acquisition date fair values. While best estimates and assumptions are used to calculate the fair value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, when applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments that are based on new information obtained about facts and circumstances that existed as of the acquisition date are recorded to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the final determination of the values of assets acquired or liabilities assumed, any subsequent adjustments are recognized in the consolidated income statements. For any equity consideration in a business combination, the Company has valued the equity utilizing the average (mean) closing price of the Company’s common stock on Nasdaq for the twenty (20) trading days prior to closing date, weighted for volume of each trading day.

Goodwill and Intangible Assets

The purchase price of an acquired business is allocated to the tangible assets and separately identifiable intangible assets acquired, less liabilities assumed, based upon their respective fair values with any excess purchase price over such fair values being recorded as goodwill. Goodwill and intangible assets acquired in a business combination and determined to have indefinite useful life are not amortized, but instead are reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with estimable useful lives are amortized over such lives and reviewed for impairment if indicators are present.

The Company performs its annual impairment assessment October 1st of each year. As its business is highly integrated and its components have similar economic characteristics, the Company has concluded it hasone reporting unit at the combined entity level. The Company does not amortize goodwill, but rather evaluates goodwill for potential impairment on an annual basis or at other times during the year if indicators of impairment exist. The Company evaluates goodwill for potential impairment by comparing the carrying value of the reporting unit to its fair value. When the Company evaluates goodwill for potential impairment, generally, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company determines qualitatively that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or if the Company decides to bypass the qualitative assessment, the Company performs a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, including goodwill. The estimated fair value is based on forward-looking estimates of performance and cash flows of the reporting unit, which are based on historical operating results, adjusted for current and expected future market conditions, as well as various internal projections and external sources. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss would be recognized in the Company's consolidated income statements in an amount equal to the excess of the carrying value over the estimated fair value, limited to the total amount of goodwill.

The Company performed an impairment analysis for the years ended December 31, 2023 and 2022 and concluded that the fair value of the reporting unit was in excess of its carrying amount, and as such, no impairment was required.

Definite-lived intangible assets that were acquired through asset acquisitions or business combinations include customer relationships, contract rights, and favorable leaseholds. These intangible assets are amortized over their estimated useful lives ranging fromtwo tothirteen years using a straight-line method as it approximates the accelerated method.

The Company is required to review long-lived assets and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. We report assets to be disposed of at the lower of the carrying amount or fair value, less cost to sell. There wereno impairment indicators of long-lived assets or definite lived intangibles for the years ended December 31, 2023 and 2022.

Stock-based Compensation

Shares originating from the granting of restricted stock bonus awards, stock options and the sale of stock to employees at prices below fair value are subject to Accounting Standards Codification Topic 718, Compensation – Stock Compensation (“ASC Topic 718”) from the date of issuance until retirement.

For ASC Topic 718 stock-based awards classified as permanent equity, the Company generally recognizes non-cash compensation expense on a ratable basis over the applicable service period based on the award date fair value. The Company has elected to use the Black-Scholes-Merton option-pricing model to determine the grant date fair value of stock options. The Company accounts for forfeitures when they occur.

Non-recourse Notes Treated as Substantive Options

Certain stock subscription notes receivable of the Company are non-recourse. As such, these notes are substantive options under ASC Topic 718 subject to the Black-Scholes-Merton method of computing compensation cost. The option strike price is calculated as the purchase price of the shares plus the estimated interest per share expected to be collected during the term of the note. Because at any time the notes may be pre-paid, the Company recognizes the total calculated compensation cost at the time of issuance. Pursuant to the terms of the notes, the Company collects payments through payroll deductions. The Company considers the payments to be periodic exercises of the options. The Company accounts for stock purchases through exercise in accordance with ASC Topic 718. No note receivable exists for these non-recourse notes.

Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides the framework for measuring and reporting financial assets and liabilities at fair value. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The codification establishes a three-level disclosure hierarchy to indicate the level of judgment used to estimate fair value measurements:

Level 1: Quoted prices in active markets for identical assets or liabilities as of the reporting date;

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices (such as interest rate and yield curves);

Level 3: Uses inputs that are unobservable, supported by little or no market activity and reflect significant management judgment.

As of December 31, 2023 and 2022:

•The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short duration of these instruments.

•The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local financial institutions for arrangements with similar terms to industry peers with comparable credit characteristics. Accordingly, the debt obligations involve Level 3 fair value inputs.

Fair value measurements relating to our business combinations are made primarily using Level 3 inputs including discounted cash flow and to the extent applicable, Monte Carlo simulation techniques. Fair value for the identified intangible assets is generally estimated using inputs primarily for the income approach using the multiple period excess earnings method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rates and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as property, plant and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation. The fair value of the contingent consideration is estimated using published treasury rates in the Wall St. Journal and discounting the present value along with other significant assumptions which include projections of revenue, and probabilities of meeting those projections, as well as Monte Carlo simulation techniques.

The following is a summary of change in contingent consideration:

The change in fair value consideration is included in Other Expense in the Consolidated Income Statement.

Advertising Expense

The Company expenses the cost of advertising as incurred. Advertising expense was $0.2 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively.

Income Taxes

The Company recognizes deferred income tax assets or liabilities for expected future tax consequences of events recognized in the consolidated financial statements or tax returns. Under this method, deferred income tax assets or liabilities are determined based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates expected to apply when the differences settle or become realized. Valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable or recoverable in the future.

The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in income in the period that includes the enactment date. The Company’s effective tax rate for the years ended December 31, 2023 and 2022 was (2.7)% and (195.4)%.

The Company assesses uncertain tax positions to determine whether the position will more likely than not be sustained upon examination by the Internal Revenue Service (IRS) or other taxing authorities. If the Company cannot reach a more-likely-than-not determination, no benefit is recorded. If the Company determines that the tax position is more likely than not to be sustained, the Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.

The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. Based on the timing of the filing of certain tax returns, the Company’s federal income tax returns for tax years 2020 and thereafter remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.

Segments

The Company operates inone segment based upon the financial information used by its chief operating decision maker in evaluating the financial performance of its business and allocating resources. The single segment represents the Company’s core business of providing engineering and related professional services to its customers.

Recently Issued Accounting Guidance

Accounting guidance recently adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) to replace the incurred loss impairment methodology under U.S. GAAP. This ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which could result in earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model will require the Company to use a forward-looking expected credit loss impairment methodology for the recognition of credit losses for financial instruments at the time the financial asset is originated or acquired, and require a loss be incurred before it is recognized. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The new standard will apply to accounts receivable, loans, and other financial instruments. This standard is effective for the Company beginning January 1, 2023. Adoption of ASU 2016-13 has been applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company adopted the new guidance starting January 1, 2023. The impact of this ASU is reflected in the consolidated financial statements and was not material.

Accounting guidance not yet adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Improvements to Reportable Segment Disclosures, which requires disclosure of significant segment expenses and other segment items in annual and interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impacts of the new standard.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and should be applied prospectively. Retrospective application is permitted. We are currently evaluating the impacts of the new standard.

The Company does not believe that any recently issued standards other than those noted above as material would have a material effect on its consolidated financial statements.

3.(Loss) Earnings Per Share and Certain Related Information

Basic (loss) earnings per share is calculated by dividing net (loss) income attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the years ended December 31, 2023 and 2022. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were either exercised or converted into common stock or resulted in the issuance of common stock that would share in the earnings of the Company. The dilutive effect of options is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of performance based restricted stock units, which are considered contingently issuable shares, is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of shares to be purchased under the Company’s Employee Stock Purchase Plan is reflected in diluted earnings per share by the weighted-average number of shares outstanding that would have been outstanding during the period. The dilutive effect of convertible debt is reflected in diluted earnings per share by application of the if-converted method. The Company uses the two-class method to determine earnings per share.

For calculating basic loss per share, for the year ended December 31, 2023, the weighted average number of shares outstanding exclude 1,796,615 non-vested restricted shares and 7,900 unexercised substantive options. The computation of diluted loss per share for the year ended December 31, 2023 did not assume the effect to all potential dilutive common stock equivalents outstanding for the period.

For calculating basic earnings per share, for the year ended December 31, 2022, the weighted average number of shares outstanding exclude 2,004,944 non-vested restricted shares and 12,830 unexercised substantive options. The computation of diluted earnings per share for the year ended December 31, 2022 did assume the effect of restricted shares or substantive options because the effects were antidilutive.

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 for the years ended December 31, 2023 and 2022 (in thousands, except share data):

Share Repurchases

On November 10, 2022, our board of directors authorized a program, to spend up to $10.0 million for the repurchase of our common stock (the "2022 Repurchase Authorization"). The common stock may be purchased from time to time depending upon market conditions and may be purchased in the open market and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan did not obligate the Company to repurchase any specific number or any specific dollar amount of shares. The authorization expired on November 10, 2023.

On November 17, 2023, the board of directors authorized a new $10 million share repurchase program under which the Company may repurchase up to $10 million of our common stock (the "2023 Repurchase Authorization"). The authorization is effective from November 17, 2023, through November 16, 2024. The execution of the repurchase program is expected to be consistent with the Company’s strategic initiatives which prioritize investments in organic and acquisitive growth. The timing and amount of any share repurchases will be determined by management at its discretion based on several factors including share price, market conditions and capital allocation priorities. Shares may be repurchased from time to time through open market purchases, in privately negotiated transactions or by other means, including the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The share repurchase program does not obligate Bowman to acquire a specific number of shares of common stock and may be suspended, modified, or discontinued at any time without notice.

At December 31, 2023, the Company has $10.0 million remaining under the 2023 Repurchase Authorization.

The following tables summarizes repurchase activity under the 2022 Repurchase Authorization through December 31, 2023. There has beenno repurchases of common stock under the 2023 Repurchase Authorization as of December 31, 2023.

1 Includes commissions paid and calculated at the average price per share

4. Acquisitions

Business Combinations

During 2023, the Company completed eleven acquisitions, diversifying across geographic regions and services. The Company paid total consideration of $75.7 million which was comprised of combinations of cash, promissory notes, convertible notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 5.00% to 11.00% and are payable in quarterly payments of principal and interest beginning February 2023 and ending in December 2026. Convertible notes bear a simple interest rate ranging from 7.00% to 8.00% and are payable in lump sum payments or quarterly payments of principal and interest beginning December 2024 and ending in September 2027; see Note 12 Notes Payable for additional information regarding the convertible notes payable. For tax purposes, dependent on the transaction, the acquisitions were treated either as an asset, stock or a merger. Forsix of the acquisitions, the purchase agreement includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and non-negotiable promissory notes, based on certain financial performance thresholds. The final settlement amount will depend on ongoing operations of the acquired company. The payout amounts range between $0 and $3.0 million; see Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration. In connection with these acquisitions, the Company recognized $1.2 million of acquisition related expenses within Other Income and Expenses in the consolidated statement of income for the year ended December 31, 2023, including legal fees, consulting fees, and other miscellaneous expenses associated with acquisitions. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes.

During 2022, the Company completed nine acquisitions. The Company paid total consideration of $47.5 million which was comprised of any combination of cash, promissory notes, convertible notes, shares of common stock and assumed liabilities. No cash was acquired with these acquisitions. Shares of common stock are subject to a six-month lock-up. Promissory notes bear a simple interest rate ranging from 3.50% to 7.00% and is payable in lump sum payments or in quarterly payments of principal and interest beginning May 2022 and ending in May 2027. Convertible notes bear a simple interest rate ranging from 4.75% to 7.00% and is payable in quarterly payments of principal and interest beginning November 2022 and ending in May 2027; see Note 12 Notes Payablefor information regarding the convertible notes payable. For tax purposes, the acquisitions were treated as asset acquisitions, resulting in a step up in tax basis. Accordingly, there are no material deferred tax assets or liabilities to be recorded through purchase accounting. The purchase agreement forone of the acquisitions includes a contingent consideration feature, which affords the sellers the opportunity to earn additional consideration in the form of the Company's common stock, cash and a non-negotiable promissory note, based on certain financial performance thresholds. The payout amount ranges between $0 and $3.0 million; see Note 2 Fair Value Measurements for additional information regarding the fair value of contingent consideration. Goodwill results from an assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes. The purchase price allocations have been completed and the amounts are deemed final.

The purchase price allocations at fair value, for 2023 and 2022 acquisitions as of December 31, 2023 and 2022 are presented below:

For the year ended December 31, 2023, the Company recorded measurement period adjustments of $0.1 million increase to prepaid and other current assets, $0.3 million increase to contract assets, $3.2 million increase to goodwill and intangible assets offset by $3.7 million increase to deferred tax liability and $0.1 million decrease to contract liabilities and accrued liabilities. If the change in provisional amounts had been recorded at the acquisition date it would have resulted in a decrease in revenue by $0.4 million in prior periods.

The amounts in the tables above represent the preliminary purchase allocation for the 2023 acquisitions. The purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

Definite-lived intangible assets that were acquired through asset acquisitions or business combinations include customer relationships, contract rights, and favorable leaseholds. These intangible assets are amortized over their estimated useful lives ranging fromtwo tothirteen years using a straight-line method as it approximates the accelerated method.

The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2023 and 2022:

Results from Acquisitions

The consolidated financial statements of the Company include the results of operations from any business acquired from their respective dates of acquisition. The following table presents the results of operations of companies acquired during 2023 from their respective dates of acquisition for the year ended December 31, 2023 (in thousands):

1 Gross contract revenue includes adjustments as required by ASC 606, Revenue from Contracts with Customers based on opening balance sheet provided by the acquired companies. There is no assurance these adjustments will be consistent in future periods. Opening balance sheet balances are subject to adjustment prior to being finalized.

3 Pre-tax Net Income excludes corporate overhead allocation.

The following table presents the unaudited, pro forma consolidated results of operations for the year ended December 31, 2023 and December 31, 2022 assuming that the companies acquired in 2023, described above, occurred on January 1, 2022. The unaudited pro forma results are presented for informational purposes only and are not meant to represent actual operating results that would have been achieved had the related events occurred on such date (in thousands):

2 Gross contract revenue in these pro forma financials does not conform to GAAP as required by ASC 606, Revenue from Contract with Customers, as it is impracticable to obtain the historical information necessary to apply this accounting standard. The historical estimates required to be able to accurately determine the percent complete accounting on the contracts that comprise the revenue is not available for the required periods.

5. Disaggregation of Revenue and Contract Balances

The Company disaggregates revenues by contract type, see Revenue Recognition in Note 2 for further details. For the year ended December 31, 2023 and 2022, the Company derived 89.4% and 93.9% of its revenue from contracts classified as lump sum, and 10.6% and 6.1% of its revenue from exclusively time and material contracts, respectively. The Company had approximately $227.3 million in remaining performance obligations as of December 31, 2023 of which it expects to recognize approximately 87.5% within the next twelve months and the remaining 12.5% thereafter.

Disaggregated revenues by contract type were as follows (in thousands):

The Company recognized $3.1 million of revenue for the year ended December 31, 2023, which was included in the contract liabilities balance as of December 31, 2022.

6. Contracts in Progress

The following table reflects the calculation of the net balance of contract assets and contract liabilities. Costs and estimated earnings on contracts in progress consist of the following (in thousands):

7. Notes Receivable

The Company has unsecured notes receivable from related parties, certain non-executive officers of the Company and an unrelated third party. The maturity dates for certain notes from officers, employees and affiliated entities have been extended until January 2026. The following is a summary of these notes receivable (in thousands):

1 Notes initiated prior to the Company's initial public offering.

Each borrower may prepay all or part of the outstanding balance at any time prior to the date of maturity. During the year ended December 31, 2023, interest accrued on the notes receivable at the stipulated rates between 0.0% and 5.50%.

8. Property and Equipment, Net

Property and equipment for fixed assets are as follows (in thousands):

1 assets acquired which will be re-financed under the Company's finance lease facilities

Depreciation expense for fixed assets for the years ended December 31, 2023 and 2022 was $2.5 million and $1.6 million, respectively.

Property and equipment for finance leased assets are as follows (in thousands):

Amortization expense for finance leased assets for the years ended December 31, 2023 and 2022 was $7.3 million and $6.8 million, respectively.

9. Goodwill

The following is a summary of goodwill resulting from business acquisitions held by the Company at December 31, 2023 (in thousands):

10. Intangible Assets

Total intangible assets consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):

The domain name and licensing rights acquired during the year ended December 31, 2022 totaled $1.0 million and has an indefinite useful life. No such assets were acquired during the year ended December 31, 2023.

The following table summarizes the total weighted average useful lives of intangible assets by asset class used for expense purposes:

Amortization expense for the years ended December 31, 2023 and 2022 was $9.0 million and $3.9 million, respectively.

Future amortization is as follows for the years ending December 31 (in thousands):

11. Revolving Credit Facility and Fixed Credit Facilities

The Company hasone revolving credit facility (the “Revolving Credit Facility”) andthree non-revolving credit facilities (“Fixed Line 1”, Fixed Line 2” and “Fixed Line 4” collectively, the “Fixed Lines”) with Bank of America, N.A. On December 31, 2023 and December 31, 2022, the interest rate on the Revolving Credit Facility was 9.60% and 8.50%, respectively. All outstanding principal on the Revolving Credit Facility is due on July 31, 2025. On December 31, 2023 and December 31, 2022, there was $45.3 million andno outstanding balance on the Revolving Credit Facility, respectively.

On November 11, 2022, the Company and certain of its subsidiaries, as guarantors, entered into an Amended and Restated Credit Agreement with Bank of America, N.A. (the "Amended and Restated Agreement") as well as an Amended and Restated Pledge and Security Agreement. The Amended and Restated Agreement increases the maximum principal amount of the Revolving Credit Facility to $50 million, is secured by all the assets of the Company and the subsidiary guarantors and has a maturity date of September 30, 2024. Under the Amended and Restated Agreement, the Company is required to comply with certain covenants, including covenant on indebtedness, investments, liens and restricted payments, as well as maintain certain financial covenants, including a fixed charge coverage ratio and leverage ratio of debt to EBITDA (as defined in the Amended and Restated Agreement). On August 2, 2023, the Company entered into a First Amendment to the Amended and Restated Credit Agreement whereby the maximum principal amount of the Revolving Credit Facility was increased to $70 million, the term was extended to July 31, 2025, and certain provisions relating to interest rate spreads and used fees were modified.

Fixed Line #1 has a maximum advance of $1.0 million, does not allow for re-borrowings and is included in Notes Payable (see Note 12). The Company pays interest on a monthly basis at a rate equal to SOFR Simple ARR plus 2.0%. On December 31, 2023 and December 31, 2022, the interest rate was 7.40% and 6.30%, respectively. Commencing the earlier of i) the dateno remaining amount is available under the Fixed Line or, ii) August 31, 2018, the Company is obligated to pay the then outstanding principal balance insixty equal monthly installments through maturity in August 2023. As of December 31, 2023, Fixed Line #1 was paid in full and there was no outstanding balance. As of December 31, 2022, the outstanding balance on Fixed Line #1 was $0.1 million.

Fixed Line #2 has a maximum advance of $1.0 million, does not allow for re-borrowings and is included in Notes Payable (see Note 12). Commencing the earlier of i) the dateno remaining amount is available under the Fixed Line or, ii) August 31, 2020, the Company is obligated to pay the then outstanding principal balance insixty equal monthly installments through maturity in September 2025. On December 31, 2023 and 2022, the outstanding balance on Fixed Line #2 was $0.3 million and $0.5 million, respectively.

Facility #4 is a term loan with a principal loan amount of $1.0 million and is included in Notes Payable (see Note 12). The loan was to be repaid over thirty-six months beginning April 13, 2020 through maturity on March 13, 2023. The interest rate on this loan was 3.49%. On December 31, 2023, Facility #4 was paid in full and there was no outstanding balance. As of December 31, 2022, the outstanding balance on Facility #4 was $0.1 million.

The Company secures its obligations under the Amended and Restated Agreement with substantially all assets of the Company. Obligations of the Company to certain other shareholders of the Company are subordinated to the Company’s obligations under the Amended and Restated Agreement and Fixed Line loans. The Company must maintain, on a combined basis certain financial covenants defined in the Amended and Restated Agreement

Interest expense on the Revolving Credit Facility and Fixed Lines totaled $1.5 million and $43,000 during the years ended December 31, 2023 and 2022, respectively.

12. Notes Payable

Notes payable consist of the following (in thousands):

1 Includes notes payable to all owners irrespective of current relationship with the Company.

The Company’s chairman and Chief Executive Officer guarantees certain of the notes payable, and certain of the notes payable are subordinate to the terms of the Credit Agreement disclosed in Note 11.

Interest expense attributable to the notes payable totaled $2.1 million and $1.0 million for the years ended December 31, 2023 and 2022, respectively.

Future principal payments on notes payable are as follows for the years ending December 31 (in thousands):

Convertible Notes Payable

In July 2022, the Company issued a $4.0 million 4.75% unsubordinated convertible note with a maturity date in July 2027 as partial consideration for the acquisition of Project Design Consultants, LLC (see Note 4 Acquisitions). The convertible note will be convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $14.00 per share upon proper notice. Subject to the exercise of the conversion, the convertible note will be payable in quarterly payments of principal, interest or both beginning in October 2022 and ending in April 2027. At any time, uponten (10) business days’ notice to the Company, the holders may request that a prepayment of the principal or all or part of a regularly scheduled quarterly payment of the principal be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. If the request is made with respect to a regularly scheduled quarterly payment of principal, then the accrued interest shall be paid in cash. Elections were made by the holders, and as of December 31, 2023, $1.3 million of the note was converted to 96,004 shares of common stock at $14.00 per share.

In August 2022, the Company issued a $1.1 million 5.50% unsubordinated convertible note with a maturity date in May 2027 as partial consideration for the acquisition of Anchor Consultants, LLC (see Note 4 Acquisitions). The convertible note will be convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $18.00 per share upon proper notice. Subject to the exercise of the conversion, the convertible note will have quarterly payments of principal, interest or both beginning in November 2022 and ending in May 2027. At any time, uponten (10) business days’ notice to the Company, the holders may request that a prepayment of the principal or all or part of a regularly scheduled quarterly payment of the principal be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. If the request is made with respect to a regularly scheduled quarterly payment of principal, then the accrued interest shall be paid in cash. As of December 31, 2023, there has been no election by the holders to convert any portions of the convertible note to common stock.

In December 2022, the Company issued a $1.6 million 7.00% unsubordinated convertible note with a maturity date in September 2027 as partial consideration for the acquisition of H2H Geoscience Engineering, PLLC (see Note 4 Acquisitions). The convertible note will be convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $18.00 per share upon proper notice. Subject to the exercise of the conversion, the convertible note will have quarterly payments of principal, interest or both beginning in December 2024 and ending in September 2027. At any time, uponten (10) business days’ notice to the Company, the holders may request that a prepayment of the principal or all or part of a regularly scheduled quarterly payment of the principal be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. If the request is made with respect to a regularly scheduled quarterly payment of principal, then the accrued interest shall be paid in cash. As of December 31, 2023, there has been no election by the holders to convert any portions of the convertible note to common stock.

In November 2023, the Company issued a $1.3 million 8.00% unsubordinated convertible note with a maturity date in May 2024 as partial consideration for the acquisition of High Mesa Consulting Group, Inc. (see Note 4 Acquisitions). The convertible note will be convertible into shares of common stock at the option of the holders, at any time, at a conversion price of $28.13 per share upon proper notice. Subject to the exercise of the conversion, the convertible note and the accrued interest shall be payable in May 2024. At any time, uponten (10) business days’ notice to the Company, the holders may request that a prepayment of all or part of the unpaid principal amount and accrued interest be made in the form of common stock of the Company, with the number of shares of common stock equal to the amount of the requested prepayment divided by the stock conversion price. As of December 31, 2023, there has been no election by the holders to convert any portions of the convertible note to common stock.

13. Pension and Post-retirement Benefit Obligations

In 2022, the Company acquired various non-qualified defined benefit pension plans in the U.S. (the "Plan"). Individual benefits under the Plan generally are based on the employee’s years of creditable service and compliance with non-compete agreements. The plan is unfunded and there are no plan assets. The pension benefit obligations were measured as of December 31, 2023 and 2022. There were no contributions made to the Plan as of December 31, 2023 and 2022.

The following tables provide reconciliations of the changes in the Plans’ benefit obligations as of December 31, 2023 and 2022:

The following table sets forth the amounts recognized in the consolidated balance sheets as of December 31, 2023 and 2022:

The net periodic benefit expense for the Company's pension plans for the year ended December 31, 2023 and 2022 was $0.3 million and $0.2 million, respectively.

The change in benefit obligations recognized in other comprehensive income during the year was a net gain of $10,000 and $0.8 million for the year ended December 31, 2023 and 2022, respectively.

The amount of applicable deferred income taxes included in other comprehensive income arising from a change in net prior service cost and net (loss) income was $2,000 and $0.2 million for the year ended December 31, 2023 and 2022, respectively.

The following table provides additional information for pension plans with accumulated benefit obligations in excess of plan assets as of December 31, 2023 and 2022:

There areno required minimum contributions for the pension plans.

The following table provides the expected future benefit payments:

The following are the underlying assumptions for the pension plans as of December 31, 2023 and 2022:

Pension costs are determined using the assumptions as of the beginning of the plan year.

14. Related Party Transactions

The Company leases commercial office space from BCG Chantilly, LLC (BCC), an entity in which Mr. Bowman, Mr. Bruen and Mr. Hickey collectively own a 63.6% interest. As of December 31, 2023 and 2022, there wereno amounts due to or receivables due from BCC. Rent expense for years ended December 31, 2023 and 2022 was $0.1 million and $0.1 million, respectively.

Bowman Lansdowne Development, LLC (BLD) is an entity in which Mr. Bowman has an ownership interest. On December 31, 2023 and 2022, the Company’s notes receivable included $0.5 million and $0.5 million, respectively, from BLD, with a maturity date of December 31, 2025.

Lansdowne Development Group, LLC (LDG) is an entity in which BLD has a minority ownership interest. On December 31, 2023 and 2022, our accounts receivable included $0.1 million and $0.1 million, respectively, due from LDG. On December 31, 2023 and 2022, notes receivable included $0.4 million and $0.4 million, respectively, from LDG, with a maturity date of December 31, 2025.

Bowman Realty Investments 2010, LLC (BR10) is an entity in which Mr. Bowman has an ownership interest. On December 31, 2023 and 2022, the Company’s notes receivable included $0.2 million and $0.2 million, respectively, from BR10, with a maturity date of December 31, 2025.

Alwington Farm Developers, LLC (AFD) is an entity in which BR10 has a minority ownership interest. On December 31, 2023 and 2022, notes receivable included $1.2 million and $1.2 million, respectively, from AFD, with a maturity date of December 31, 2024.

MREC Shenandoah VA, LLC (“MREC Shenandoah”) is an entity in which Lake Frederick Holdings, LLC (“Lake Frederick Holdings”) owns a 92% interest and Shenandoah Station Partners LLC, an entity owned in part by Bowman Lansdowne and in part by Bowman Realty 2013, owns an 8% interest. Mr. Bowman owns a 100% interest in, and is the manager of, Lake Frederick Holdings. Mr. Bowman is the sole member of Bowman Realty 2013. Since 2020, the Company has provided engineering services to MREC Shenandoah in exchange for cash payments. During the years ended December 31, 2023 and 2022, the Company invoiced $0.2 million and $0.7 million, respectively, and received payments of $0.2 million and $0.3 million, respectively.

During the years ended December 31, 2023 and 2022, the Company provided administrative, accounting and project management services to certain of the related party entities. The cost of these services was $0.1 million and $0.1 million, respectively. These entities were billed $0.1 million and $0.1 million, respectively.

Gregory Bowman, the son of Mr. Bowman, is a full-time employee of the Company. Gregory Bowman was paid $0.2 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively.

Bowman Realty Investments 2013 LLC (BR13) is an entity in which Mr. Bowman has an ownership interest.

On December 31, 2023 and 2022, the Company was due $48,000 and $0.1 million, respectively, from shareholders under the terms of stock subscription notes receivable.

On December 31, 2023 and 2022, the Company owed $0.1 million and $0.2 million, respectively to the estate of a retired shareholder and former director in connection with a 2015 acquisition.

In August of 2022, the Company agreed to reimburse Mr. Bowman at a fixed hourly rate for the business use of an aircraft owned by Sunrise Asset Management, a company owned 100% by Mr. Bowman. The Company paid $0.4 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively.

15. Income Taxes

The provision (benefit) for income taxes consisted of the following (in thousands):

The Company measures deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Components of the Company’s deferred tax asset and liability are as follows (in thousands):

Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the TCJA, deferred tax assets reflect approximately $105 million and $82 million of pre-tax capitalized and amortizable research and development costs for the years ended December 31, 2023 and 2022, respectively.

The Company’s tax attributes, including net operating losses and credits, are subject to any ownership changes as defined under the Internal Revenue Code Sections 382 and 383. A change in ownership could affect the Company’s ability to utilize its net operating losses and credits. The Company has recognized the portion of net operating losses and research and development credits acquired that will not be limited and more likely than not to be realized.

Based on the Company’s operating history and management’s expectation regarding future profitability, management believes the Company’s deferred tax assets are more likely than not to be realizable under ASC 740, Income Taxes. Accordingly, no valuation allowance exists as of December 31, 2023, and December 31, 2022.

Income tax expense (benefit) differed from the amounts computed by applying the federal statutory income tax rate of 21% to pretax income due to the following adjustments (in thousands):

The adjustment to the statutory rate from state income taxes for the year ended December 31, 2023, and December 31, 2022, respectively, are the result of state and local income tax expense, including tax rate and apportionment factor changes.

The adjustment to the statutory rate from Internal Revenue Code Section 162(m) for the year ended December 31, 2023, and December 31, 2022, are the result of permanent differences created by the annual disallowance of certain executive compensation exceeding $1.0 million.

The adjustment to the statutory rate from stock compensation for the year ended December 31, 2023, and 2022, are the result of permanent differences recognized for the tax deduction in excess of book amortization on the exercise and vesting of stock-based compensation.

The adjustment to the statutory rate from research and development credits for the year ended December 31, 2023, and 2022 are the result of application of research and development tax credits earned generated by the Company in connection with certain at-risk work performed on behalf of our customers.

The Company has elected to record tax-related penalties and interest as current income tax expense. For the year ended December 31, 2023, total penalties and interest related to uncertain tax positions is $4.8 million, including $4.6 million related to IRC Section 174 research and development expenditures.

A reconciliation of the beginning balance and ending amounts of unrecognized tax benefits (excluding interest and penalties) is as follows for the year ended December 31, 2023, and 2022 (in thousands):

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2023, and December 31, 2022, is $0.9 million and $0.7 million, respectively.

The amount of the unrecognized tax benefits expected to reverse within the next 12 months is $9.5 million.

For the period ending December 31, 2023, the Company recorded interest and penalties of $0.6 million and $4.0 million, respectively, related to uncertain tax positions, which were recognized as a component of income tax expense. For the period ending December 31, 2022, the Company didnot record any interest and penalties related to uncertain tax positions.

For the periods ending December 31, 2023, and December 31, 2022, the Company has an ending uncertain tax position of $38.0 million and $14.5 million, respectively, against its IRC Section 174 research and development expenditures. The Company reported this uncertain tax position given its position that its costs are deductible currently and therefore should not be capitalized and amortized over five years. This uncertain tax position represents a timing difference with no impact to overall income tax expense or benefit.

For the periods ending December 31, 2023, and December 31, 2022, the Company has an ending uncertain tax position of $0.6 million and $0.4 million, respectively, against its research and development expenditures credit.

For the period ending December 31, 2022, the Company submitted a Voluntary Disclosure Agreement to the state of Florida that was accepted in 2022, that resulted in a settlement and full release of the previously recorded uncertain tax position.

For the period ending December 31, 2022, the Company recorded an uncertain tax position of$1.9 million for employing on an impermissible method in deducting stock-based compensation expense for income tax purposes consistent with the timing as recognized for book purposes. The Company filed a Form 3115, Application for Change in Accounting Method, with the Internal Revenue Service requesting to change from the impermissible method to a permissible method, which was approved during 2022 and resulted in a reversal of the uncertain tax position to a deferred tax liability.

For the period ending December 31, 2022, the Company recorded an uncertain tax position of $0.4 million related to the annual limitation on the deductibility of executive compensation claimed on its 2021 U.S. federal income tax return, filed during 2022.

The Company files income tax returns in the U.S. federal jurisdiction and certain states in which it operates. The Company’s federal income tax returns for tax years 2020 and thereafter remain subject to examination by the U.S. Internal Revenue Service. The statute of limitations on the Company’s state income tax returns generally conforms to the federal three-year statute of limitations.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company deferred employer payroll taxes under the CARES Act, which was satisfied in full during the period ending December 31, 2022, without impact to our income tax benefit.

16. Employee Stock Purchase and Stock Incentive Plans

Employee Stock Purchase Plan

Effective April 30, 2021, the Company established the Bowman Consulting Group Ltd. 2021 Employee Stock Purchase Plan (“ESPP”). Under the Company’s Employee Stock Purchase Plan, eligible employees who elect to participate are granted the right to purchase shares of common stock at a 15% discount of the weighted average selling price of the Company stock for the 30 days prior to the last day of the offering period.

The following table summarizes the stock issuance activity under the Employee Stock Purchase Plan for the year ended December 31, 2023 (in thousands, except share data):

For the year ended December 31, 2023, stock compensation expense for ESPP was $1.0 million.

Stock Options

Effective May 11, 2021 the Company established the Bowman Consulting Group Ltd. 2021 Omnibus Equity Incentive Plan (“the Plan”). The plan is administered by the Board of Directors through which they can grant stock options, including Incentive Stock Options (“ISO”), and non-qualified stock options (“NQSO”). The purpose of the Plan is to grant equity incentive awards to eligible participants to attract, motivate and retain key personnel. The Plan supersedes and replaces any prior plan for stock options except that the prior plan shall remain in effect with respect to options granted under such prior plan until such options have been exercised, expired or canceled.

The number of shares for which each option shall be granted, whether the option is an ISO or NQSO, the option price, the exercisability of the option, and all other terms and conditions of the option are determined by the Board at the time the option is granted. The options generally vest over a period betweentwo andfive years.

For the years ended December 31, 2023 and 2022, no new option shares were granted.

A summary of the status of stock options exercised, including the substantive options discussed in Note 3, is as follows:

The following summarizes information about options outstanding and exercisable at December 31, 2023 and December 31, 2022:

The intrinsic value of these options on December 31, 2023 and 2022 was $29.24 and $15.57, respectively.

The Company received cash payments of $29,203 and $29,203 from the exercise of options under the Stock Option Plan in the years ended December 31, 2023 and 2022, respectively.

The Company didnot record any compensation cost related to stock options during the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, there isno unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Stock Option Plan. The remaining unexercised shares are from substantive options in which the non-recourse notes may be pre-paid, therefore the Company recognized the total calculated compensation expense at the time of issuance.

Stock Bonus Plan

Effective May 11, 2021, the Company established the Bowman Consulting Group Ltd. 2021 Omnibus Equity Incentive Plan (“the Plan”). The Plan is administered by the Board of Directors through which they can issue restricted stock awards. As of December 31, 2023,4,128,557 shares of common stock are authorized and reserved for issuance under the Plan. This reserve automatically increases on each January 1, for the duration of the Plan, in an amount equal to 5% of the total number of shares outstanding on December 31 st of the preceding calendar year. The Plan supersedes and replaces any prior plan for stock bonus grants to employees of the Company except that the prior plan shall remain in effect with respect to awards granted under such prior plan until such awards have been forfeited or fully vested.

During the year ended December 31, 2023, the Board granted 734,042 shares under the Plan. The shares have a vesting period of up tofive years during which there are certain restrictions as defined by the Plan and Stock Bonus Agreements. The grant date fair value of the award is the closing price of the Share on such date, or if there are no sales on such date, on the next preceding day on which there were sales.

Effective April 2003, the Company adopted the Bowman Consulting Group Ltd. Stock Bonus Plan (“the Stock Bonus Plan”), which allowed for the awarding of shares of common stock to employees. The Stock Bonus Plan was superseded by the Bowman Consulting Group Ltd. 2021 Omnibus Equity Incentive Plan except that the Stock Bonus Plan shall remain in effect with respect to awards granted under it until such awards have been forfeited or fully vested.

During the year ended December 31, 2023, no new restricted stock awards were granted under the Stock Bonus Plan.

The following table summarizes the activity of restricted shares subject to forfeiture:

On November 10, 2021 the Company’s Board of Directors adopted the 2021 Executive Officers Long Term Incentive Plan (“Officers LTIP”). The Officers LTIP is established under the Company’s 2021 Omnibus Equity Incentive Plan and is subject to the terms and conditions thereof. The purpose of this plan is to attract, retain and motivate key officers and employees through the grant of equity-based awards that reward Company performance over a period greater than one year and align their interests with long-term stockholder value.

During the year ended December 31, 2023, the compensation committee approved the grants of 245,710 performance based stock units to certain executive officers of the Company under the Officers LTIP. The performance based restricted stock units are subject to a market condition, with a vesting period of 2.91 years. The number of units earned is based on total shareholder return (“TSR”) of the Company’s common stock relative to the TSR of the components of a custom peer group during the performance period from February 10, 2023 to December 31, 2025. The performance stock units are valued using a Monte Carlo simulation with model inputs of opening average share value, valuation date stock price, expected volatilities, correlation coefficient, risk-free interest rate, and expected dividend yield for the Company and the custom peer group.

The following table summarizes the activity of performance stock units subject to forfeiture:

The Company recognizes forfeitures as they occur.

As of December 31, 2023, the Company had 2,412,758 of unvested stock awards that vest between January 1, 2024 and December 31, 2027.

For the years ended December 31, 2023, and 2022, stock compensation expense for the Stock Bonus Plan was $24.7 million and $13.7 million, respectively.

The future expense of the unvested awards by year is as follows (in thousands):

17. Employee Retirement Plan

The Company maintains a tax-deferred savings plan (the “Retirement Plan”) in accordance with section 401(k) of the Internal Revenue Code of 1986, as amended, which became effective January 1, 1996. In general, all full-time employees who have attained age eighteen are eligible to participate in the Retirement Plan on the first day of the month following the date of hire. Under terms of the Retirement Plan, the Company makes matching contributions to eligible employee wage deferrals into the Retirement Plan. Matching contributions are subject to a vesting period. Additionally, the Company may, at its discretion, make additional contributions to the Retirement Plan.

For the years ended December 31, 2023, and 2022, employer contributions totaled $4.1 million and $3.0 million, respectively.

18. Leases

We lease certain office space, equipment and vehicles. These leases are either non-cancelable, cancellable only by the payment of penalties or cancellable upon notice provided. All lease payments are based on the lapse of time and certain leases are subject to annual escalations for increases in base rents. The Company's lease terms includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

Operating and Finance Leases

The Company's operating leases primarily include material leases of buildings (consisting primarily of office lease commitments) and equipment. These leases are classified as operating leases and are recognized as right-of-use assets and operating lease liabilities on the consolidated balance sheets.

The Company's finance leases primarily include equipment and vehicles in certain contracts with payment terms on the lease agreements that range between 30 and 50 months.

The following tables present our operating and finance leases as of December 31, 2023, and 2022:

The following tables present selected financial information for the year ended December 31, 2023, and 2022:

Future minimum commitments under leases for the succeeding years are as follows (in thousands):

The future minimum commitments for finance leases are exclusive of the $3.0 million bargain purchase price associated with the $21.0 million total liability to finance leases as presented on the consolidated balance sheet.

19. Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the ultimate outcome of these matters will not be material to the Company’s combined financial position, results of operations or cash flows.

20. Subsequent Events

On February 2, 2024, the Company completed the acquisition of substantially all of the assets of TCE Group Holding Company, LLC pursuant to the Asset Purchase Agreement, dated February 2, 2024 (the “Agreement”), among the Company, TCE Group Holding Company and members. The aggregate consideration was approximately $3.7 million which consisted of cash, common stock and promissory note, subject to adjustment.

On February 16, 2024, the Company completed the acquisition of substantially all of the assets of Speece Lewis, Inc. pursuant to the Merger Agreement, dated February 16, 2024 (the “Agreement”), among the Company, Speece Lewis, Inc. and shareholders. The aggregate consideration was approximately $4.9 million which consisted of cash, common stock and promissory note, subject to adjustment.