NV5 Global, a leader in the engineering and consulting industry, recently announced a strong Q1 2024 performance. The company highlighted its organic growth, robust profitability, and a surge in cash flow. While the earnings call focused on their traditional strengths in infrastructure, geospatial services, and the booming data center sector, a subtle shift emerged: the quiet rise of NV5's software business.

While NV5 has historically relied on project-based revenue, there's a clear emphasis on transitioning towards a software and subscription-based revenue model. This shift signifies a potential move towards a less cyclical and more predictable future for the company.

Dickerson Wright, NV5's Executive Chairman, highlighted the VIS acquisition, a geospatial software company, as a prime example of their new recurring revenue strategy. VIS boasts an impressive 80% recurring revenue, stemming from its stable software offerings. This stands in stark contrast to NV5's traditional, more volatile project-based income, which is vulnerable to economic fluctuations and interest rate sensitivity.

"The implications of this software-centric approach extend beyond VIS. Wright hinted at the integration of 3D reality capture and digital twin technology across various service lines, further fueling the recurring revenue engine. The burgeoning audiovisual division within the Building and Technology group was also highlighted as a prime candidate for the subscription-based model."

Dan Levine, President of the Geospatial segment, emphasized the development of cloud-hosted software solutions like ENVI Connect and ENVI Inform, offered under a Software-as-a-Service (SaaS) licensing model. This signals a deliberate move towards recurring revenue within the Geospatial division.

NV5's Growing Recurring Revenue

While NV5's overall recurring revenue currently sits at a modest 10%, the company aims to significantly expand this figure in the coming years. This represents a potentially transformative shift for a company historically rooted in project-based work.

The implications of this potential software revolution are significant. Recurring revenue offers a level of predictability and stability that project-based work simply can't match. This translates to less vulnerability to economic downturns and interest rate fluctuations, ultimately leading to a more resilient and predictable business model.

"Key Numbers: * **80%**: Recurring revenue percentage for VIS acquisition. * **10%**: Estimated overall recurring revenue percentage for NV5. * **$50 million**: Estimated current recurring revenue in NV5's budget. * **$30 million**: Recurring revenue contributed by the VIS acquisition."

NV5 has a strong track record of successfully integrating new companies into its existing platform. If the company continues to pursue acquisitions within the software and subscription-based service space, the 10% recurring revenue figure could dramatically increase in the coming years.

While the future of NV5's software ambitions remains to be seen, the Q1 2024 earnings call hinted at a potential software revolution taking shape. Investors and analysts would be wise to pay close attention to this evolving narrative, as it may hold the key to unlocking NV5's long-term growth and stability.

"Fun Fact: NV5 was originally founded in 1949 as Nolte Associates, focusing on civil engineering. The company has come a long way since then, evolving into a multifaceted global leader in engineering and consulting services. This quiet evolution in its business model could mark another chapter in its remarkable journey."