TIC Solutions, Inc.

Current report

We provide services to the U.S. government as well as entities funded directly and indirectly by the U.S. government. The U.S. government’s inability to agree on a long-term budget and deficit reduction plan has resulted, and may again in the future result, in a continuing resolution or shutdown. In addition, federal government employees recently have been subject to termination in connection with cost reduction efforts. If a prolonged government continuing resolution, shutdown or significant reduction in force of federal government employees continues, government agencies may delay or forgo the procurement of services, which could have a material adverse effect on our business and future revenue.

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Risks Related to NV5

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Demand from state and local government and private clients is cyclical and vulnerable to economic downturns. If the economy weakens or client spending declines, NV5’s financial results may be impacted.

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Demand for services from state and local government and private clients is cyclical and vulnerable to economic downturns, which may result in clients delaying, curtailing, or canceling proposed and existing projects. NV5’s business traditionally lags the overall recovery in the economy and therefore, NV5’s business may not recover immediately when the economy improves. If the economy weakens or client spending declines further, then NV5’s revenue, profits, and overall financial condition may deteriorate.

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State and local government clients may face budget deficits that prohibit them from funding new or existing projects. In addition, NV5’s existing and potential clients may either postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some of NV5’s clients to demand better pricing terms or delay payments for services they perform, thereby increasing the average number of days NV5’s receivables are outstanding and the potential of increased credit losses on uncollectible invoices. Further, these conditions may result in the inability of some of NV5’s clients to pay them for services that they have already performed. If NV5 is not able to reduce its costs quickly enough to respond to the revenue decline from these clients, NV5’s operating results may be adversely affected. Accordingly, these factors affect NV5’s ability to forecast its future revenue and earnings from business areas that may be adversely impacted by market conditions.

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NV5 derives a majority of its gross revenues from public and quasi-public governmental agencies, and any disruption in government funding or in its relationship with those agencies could adversely affect its business.

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During fiscal 2024, approximately 63% of NV5’s gross revenues were attributable to public and quasi-public sector clients. A significant amount of NV5’s revenues are derived under multi-year contracts, many of which are appropriated on an annual basis. As a result, at the beginning of a project, the related contract may be only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by numerous factors as noted below.

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The demand for NV5’s government-related services is generally driven by the level of government program funding. Accordingly, the success and further development of NV5’s business depends, in large part, upon the continued funding of these government programs and upon its ability to obtain contracts and perform well under these programs. There are several factors that could materially affect NV5’s government contracting business, including the following:

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•changes in and delays or cancellations of government programs, requirements, or appropriations,

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•budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services NV5 provides,

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•re-competes of government contracts,

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•the timing and amount of tax revenue received by federal, state, and local governments, and the overall level of government expenditures,

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•curtailment in the use of government contracting firms,

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•delays associated with insufficient numbers of government staff to oversee contracts,

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•the increasing preference by government agencies for contracting with small and disadvantaged businesses, including the imposition of set percentages of prime and subcontracts to be awarded to such businesses for which NV5 would not qualify,

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•competing political priorities and changes in the political climate with regard to the funding or operation of the services NV5 provides,

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•the adoption of new laws or regulations affecting NV5’s contracting relationships with the federal, state, or local governments,

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•public sector contracts may be modified, curtailed, or terminated at any time, which could prevent NV5 from recognizing all of its potential revenue and profits from such contracts,

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•a dispute with, or improper activity by, any of NV5’s subcontractors, and

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•general economic or political conditions.

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These and other factors could cause government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their rights to terminate contracts, or not to exercise contract options for renewals or extensions. Any of these actions could have a material adverse effect on NV5’s revenue or timing of contract payments from these agencies.

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NV5’s failure to win new contracts and renew existing contracts with private and public sector clients may adversely affect its business operations and financial results.

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NV5’s business depends on its ability to win new contracts and renew existing contracts with private and public sector clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors. These factors include market conditions, financing arrangements, prevailing interest rates, and required governmental approvals. For example, a client may require NV5 to provide a bond or letter of credit to protect the client should it fail to perform under the terms of the contract. If negative market conditions arise, or if NV5 fails to secure adequate financial arrangements or the required government approvals, NV5 may not be able to pursue particular projects, which could adversely affect its profitability.

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Losses under lump-sum contracts may adversely impact NV5’s business operations and financial results.

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Lump-sum contracts typically require the performance of all the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. During fiscal 2024, 2023, and 2022, approximately 52%, 49%, and 44% of NV5’s revenue was recognized under lump-sum contracts. Lump-sum contracts expose NV5 to a number of risks not inherent in cost-plus and time and material contracts, including underestimation of costs, ambiguities in specifications, unforeseen costs or difficulties, problems with new technologies, delays beyond NV5’s control, failures of subcontractors to perform, and economic or other changes that may occur during the contract period. Losses under lump-sum contracts could adversely impact NV5’s results of operations.

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Weather conditions and seasonal revenue fluctuations may adversely impact on NV5’s financial results.

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NV5’s financial results during the months of November through March may be impacted by adverse weather conditions and the holiday season. As a result, NV5’s revenue and net income for the first and fourth quarters of NV5’s fiscal year may be lower when compared to NV5’s results for the second and third quarters of NV5’s fiscal year. If NV5 were to experience lower-than-expected revenues during any such period, NV5’s expenses may not be offset.

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NV5’s inability to win or renew government contracts during regulated procurement processes or preferences granted to certain bidders for which NV5 would not qualify could harm NV5’s operations and significantly reduce or eliminate NV5’s profits.

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Government contracts are awarded through a regulated procurement process. The U.S. Federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as indefinite delivery/indefinite quantity (“IDIQ”) contracts, which generally require those contractors who have previously been awarded the IDIQ to engage in an additional competitive bidding process before a task order is issued. The increased competition may require NV5 to make sustained efforts to reduce costs to realize revenue and profits under government contracts. If NV5 is not successful in reducing the amount of costs it incurs, NV5’s profitability on government contracts will be negatively impacted. The U.S. Federal government has also increased its use of IDIQs in which the client qualifies multiple contractors for a specific program and then awards specific task orders or projects among the qualified contractors. As a result, new work awards tend to be smaller and of shorter duration, since the orders represent individual tasks rather than large, programmatic assignments. In addition, even if NV5 is qualified to work on a government contract, it may not be awarded certain contracts because of existing government policies designed to protect small businesses and underrepresented minority contractors. The federal government has in the past announced specific statutory goals regarding awarding prime and subcontracts to small businesses, women-owned small businesses, and small disadvantaged businesses, which may obligate NV5 to involve such businesses as subcontractors with respect to these contracts at lower margins than when NV5 uses its own professionals.

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If NV5 fails to complete a project in a timely manner, miss a required performance standard, or otherwise fails to adequately perform on a project, then it may incur a loss on that project, which may reduce or eliminate its overall profitability.

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NV5’s engagements often involve large-scale, complex projects. The quality of NV5’s performance on such projects depends in large part upon its ability to manage the relationship with its clients and its ability to effectively manage the project and deploy appropriate resources, including third-party contractors and NV5’s own personnel, in a timely manner. If a project is not completed by the scheduled date or fails to meet required performance standards, NV5 may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The performance of projects can be affected by a number of factors including unavoidable delays from government inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by NV5’s clients, industrial accidents, environmental hazards, and labor disruptions. To the extent these events occur, the total costs of the project could exceed NV5’s estimates and they could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate NV5’s overall profitability. Further, any defects or errors, or failures to meet NV5’s clients’ expectations, could result in claims for damages against NV5. NV5’s contracts generally limit NV5’s liability for damages that arise from negligent acts, errors, mistakes, or omissions in rendering services to NV5’s clients. However, NV5 cannot be sure that these contractual provisions will protect them from liability for damages in the event they are sued.

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Failure of NV5’s sub-consultants to satisfy their obligations to NV5 or other parties, or the inability to maintain these relationships, may adversely impact NV5’s business operations and financial results.

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NV5 depends on sub-consultants in conducting its business. There is a risk that NV5 may have disputes with its sub-consultants arising from, among other things, the quality and timeliness of work performed, client concerns, or failure to extend existing task orders or issue new task orders under a subcontract. In addition, if any of NV5’s sub-consultants fail to deliver on a timely basis the agreed-upon supplies, go out of business, or fail to perform on a project, NV5’s ability to fulfill its obligations may be jeopardized and NV5 may be contractually responsible for the work performed. The absence of qualified sub-consultants with which NV5 has a satisfactory relationship could adversely affect the quality of its service and its ability to perform under some of its contracts.

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NV5 also relies on relationships with other contractors when it acts as their sub-consultants or joint venture partner. NV5’s future revenue and growth prospects could be adversely affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with NV5 or if a government agency terminates or reduces these other contractors’ programs, does not award them new contracts, or refuses to pay under a contract.

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State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect NV5’s ability to compete for contracts and may have an adverse effect on NV5’s financial results.

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State and other public employee unions have challenged the validity of propositions, legislation, charters, and other government regulations that allow public agencies to contract with private firms to provide services in the fields of engineering, design, and construction of public improvements that might otherwise be provided by public employees. These challenges could have the effect of eliminating or severely restricting the ability of municipalities to hire private firms and otherwise require them to use union employees to perform the services. If a state or other public employee union is successful in its challenge, this may result in additional litigation which could affect NV5’s ability to compete for contracts.

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The loss of key personnel or NV5’s inability to attract and retain qualified personnel could significantly disrupt NV5’s business.

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As a provider of technology, conformity assessment, and consulting solutions, NV5’s business is labor intensive and, therefore, NV5’s ability to attract, retain, and expand its senior management, sales personnel, and professional and technical staff is an important factor in determining NV5’s future success. The market for qualified scientists, engineers, and sales personnel is competitive and NV5 may not be able to attract and retain such professionals. It may also be difficult to attract and retain qualified individuals in the timeframe demanded by NV5’s clients. Furthermore, some of NV5’s government contracts may require NV5 to employ only individuals who have particular government security clearance levels. NV5’s failure to attract and retain key individuals could impair NV5’s ability to provide services to its clients and conduct its business effectively. The loss of the services of any key personnel could adversely affect NV5’s business.

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NV5’s business activities may require its employees to travel to and work in countries where there are high security risks, which may result in employee death or injury, repatriation costs or other unforeseen costs.

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Certain contracts require that NV5’s employees travel to, and work in, high-risk countries that are undergoing political, social and economic upheavals resulting from war, civil unrest, criminal activity, acts of terrorism or public heath crises. As a result, NV5 risks loss of or injury to its employees and may be subject to costs related to employee death or injury, repatriation or other unforeseen circumstances. NV5 may choose or be forced to leave a country with little or no warning due to physical security risks.

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Employee, agent or partner misconduct or NV5’s overall failure to comply with laws or regulations may adversely impact NV5’s reputation and financial results as well as subject NV5 to criminal and civil enforcement actions.