Q2 2021 Construction Partners Inc Earnings Call
[music].
Greetings and welcome to the construction partners second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.
This conference is being recorded it is now my pleasure to introduce your host Rick Black Investor Relations. Thank you you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us for the construction partners conference call to review second quarter fiscal year 2021 results. This call is also being webcast and can be accessed through the audio link on the events and presentations page on the Investor Relations section and construction partners Dot net information.
And on this call speaks only as of today may seven 2021. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay.
Also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995, we will be making forward looking statements.
And as part of today's call day by their nature are uncertain and outside of the company's control actual results may differ materially. Please refer to the earnings press release that was issued today prior disclosures on forward looking statements. These factors and other risks and uncertainties can be found described in detail and the companies.
Filings with the Securities and Exchange Commission.
Management will also refer to non-GAAP measures, including adjusted net income adjusted net loss and adjusted EBITDA.
Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release construction partners assumes no obligation to publicly update or revise any forward looking statements.
And now I would like to turn the call over to construction partners CEO Jule Smith jewel.
Thank you Rick and good morning, everyone.
With me on the call today are Alan Palmer, our Chief Financial Officer, and Ned Fleming, our executive Chairman.
Let me begin by thanking our over 2500 employees throughout the southeast for their hard work dedication and commitment to maintaining safe work sites for themselves and their teammates.
Cost of them CPI is well positioned heading into the second half of the year to meet our year and goals.
We ended the quarter with record higher backlog and project Lettings are up and many of our markets.
Our core operations are performing well and our teams are motivated for the busy work season ahead.
We are maintaining our outlook for the fiscal year, and we see significant opportunities for both.
Both near term and long term.
And the second fiscal quarter revenue grew six 2% compared to the second quarter last year.
While adverse weather caused substantial project delays and the quarter that work is not lost but pushes forward and we plan to complete that work and the second half of our fiscal year.
Halfway through the year, we're just slightly below our historical revenue pattern of 40% and the first half and 60% and the second half even with the weather delays.
It's also important to note that we ended the quarter with a record high project backlog of $773 million, including a record amount of backlog to be completed and our third and fourth quarters.
Moving into the seasonally stronger second half of the year.
We continue to experience and extremely active bid environment due to strength and infrastructure funding programs and project lettings across our states and markets.
During the quarter, our core business performed very well.
Overall margins were pressured by acquired backlog from recent acquisitions and that was committed to by previous owners at lower margins.
Historically this is typical of new acquisitions, and we have consistently been able to increase project margins and grow market share and 12 months to 18 months.
Demand for our services, both public and private remains high.
In addition, the funding mechanisms in place at the state level of strengthening.
We currently expect and the next 12 months for potential upside of 20% overall and.
And year over year infrastructure spending across our states.
At the federal level, we remain optimistic about the prospect of a significant infrastructure bill considering the bipartisan support for infrastructure legislation.
We are confident that our nation's infrastructure investing will continue to be a primary focus for our country.
As an economic driver and is a critical component of public safety.
Turning now to acquisitions.
And the past six months, we have acquired a total of 13 hot mix asphalt plants and added more than 300 employees.
Looking forward our pipeline for future acquisitions is robust.
And within the states, where we operate we are having many conversations with potential sellers and will.
And so having discussions with companies and other states as we look for opportunities to grow our footprint.
Our leadership team is actively working to identify and engage companies that fit well into our strategy and future growth plans today.
Today, we see more opportunities than we ever have at CPI.
During the quarter, we have also extended our commitment to this future growth.
Evaluating and expanding our investment organization.
As a consolidator and our industry, we see more opportunities for bolt on and strategic acquisitions and.
And we must be prepared to seamlessly integrate them into CPR.
The most critical component of our success has always been and our people.
This means that we are investing and the people processes and technology to.
To take a larger and more geographically diverse company into the future.
It's an exciting time for CPI.
I would now like to turn the call over to Alan to discuss our financial results.
Thank you Julie and good morning, everyone.
I'll start by highlighting our key performance metrics from the second quarter fiscal 2020 and warm.
Compared to the second fiscal quarter of 2020 revenue was $179 $1 million up six 2% acquisitions completed to the second quarter of 2020 contributed $49 million of revenue.
<unk> profit was $18 $1 million down 10, 4% compared to the second quarter of last year.
As we have stated before acquisitions and initially created a headwind to our operating margins with four acquisitions from the previous quarter normal low volumes and this quarter and the acquisitions being in the challenging North Carolina market. These acquisitions had a negative $3 million margin and the quarter on quarter.
$2 million of revenue.
General and administrative expenses were $24 $5 million, consisting of a non recurring $42 million legal settlement unrelated to the company's core operations associated legal expenses.
$7 million and $26 million of other general and administrative expenses. This compares to a $21 million G&A expense and the first quarter of fiscal 2021.
General and administrative expenses were $16 $8 million from the first full second quarter of 2020.
In addition to the legal and settlement expenses, the sequential increase and general and administrative expenses was primarily due to a $1 million increase related to acquisitions made subsequent for the second quarter of 2020, and payroll expenses related to new corporate positions and compensation initiatives.
On a GAAP basis, the company had a net loss of $4 9 million and the fiscal second quarter compared to a net income of $1 $5 million from the second quarter last year.
On a non-GAAP basis, adjusted net loss was $2 million and the fiscal 2021 second quarter compared to an adjusted net income of $1 6 million and.
And the second quarter last year.
Adjusted EBITDA for the fiscal second quarter of 2021 was $11 million compared to $14 $3 million from second quarter last year.
You can find GAAP to non-GAAP reconciliations of adjusted net loss adjusted net income and adjusted.
EBITDA financial measures at the end of today's press release.
As expected, we experienced price increases on liquid asphalt and diesel fuel beer and most of this quarter, but we are seeing some stabilization and prices for both of these products.
Turning now to the balance sheet at March 31, 2021, we had $33 $8 million of cash and $38 $6 million of availability under our revolving credit facility.
After the reduction for outstanding letters of credit.
As of the end of our quarter, our debt to trailing 12 months EBITDA ratio was one zero.
This liquidity provides financial flexibility and capital for potential near term acquisitions, allowing us to respond to growth opportunities when they arise.
Cash provided by operating activities was $2 $4 million from the six months ended March 31, 2021 compared to $26 million for the same period last year.
Capital expenditures through the first half of 2021 or $26 $9 million, we still anticipate total capital expenditures for the year of 47% to $50 million.
We are reporting a record back log as of March 31, 2021 of $773 3 million.
Compared to $655 6 million at December 31, 2020, and $579 8 million at March 31 2020.
And only 79% of the backlog will be completed in fiscal year 2021.
And as Joel mentioned, we are maintaining our fiscal year 2021 and outlook for the year.
In summary, we are pleased with our second quarter results and recent acquisitions and our project backlog I'll now turn the call over to our executive Chairman and Ned Fleming net.
Thank you Alan before we open the call for your questions and want to reiterate that the company is performing well despite some weather delay.
Expenses, the company and tracking towards internal targets for the year and we are pleased to maintain the fiscal 2021 outlook.
The company is very well positioned for growth and a highly fragmented market with strong industry demand and growing infrastructure funding.
We continue to execute our proven strategy of profitable disciplined growth as a result, our relative market share and the rapidly growing southeastern United States.
This growth.
It is also important to note that the southeast has grown at a faster pace and the rest of the country for over the last decade.
We believe the effects of the recovery since the pandemic.
It actually accelerated that demographic growth pattern.
Today, we continue to review more attractive acquisition targets, then and any other point and the company's history.
Last week and.
And the Berkshire Hathaway annual meeting Mr. Buffett mentioned, that's back mergers have increased prices of potential acquisitions.
But given the unique dynamics and our industry and our specific criteria valuation multiples have not changed.
We plan to stay disciplined in this regard and we are confident that our long term strategy will continue to provide value to all our stakeholders.
With that we will now take questions operator.
Thank you we will now be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate that your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question is from Andy Wittmann with Baird. Please proceed with your question.
Okay.
Great and good morning, everyone.
And I wanted to start out by asking a little bit on this backlog, obviously the numbers up a lot sequentially.
And I guess, Alan and your comments I think you mentioned, 79% of this is can be burned and fiscal 'twenty one.
I guess just given that it has increased a lot I was trying to get a little bit more detail on the composition of that backlog in terms of the size and the duration of the projects in it.
Just to hopefully get some more confidence around the attain ability of the 2021 is this 79% of this backlog unusually high or low for this time is the year in terms of how much can be completed still and this fiscal year.
Yeah.
I mean, it's pretty typical as far as what percentage, we're going to complete in this year is just because it's larger and obviously represents a lot more dollars, but maybe to answer what I think your question and he is Andy.
At this point of the remaining revenue that we think we're going to need to get to a contract revenue that we're going to need to get to the guidance that we've given it's 91% of that were last year. At this time, we only had 82% of our remaining near backlog.
<unk>.
And Peter.
So it is.
And at the highest and several years as far as a percentage of the remaining contract revenue to get to our our guidance. So.
But 78 generally at this point of the year.
<unk>.
70, 75% to 80% completed and the next six months is not unusual.
Okay.
Alright Thats helpful.
I guess the next question I had is.
Wanted to dig into jaw comment that you had and in your prepared remarks talking about how in the states where you're operating debt.
And down potentially a 20%.
Increase in infrastructure spending.
I was just hoping you could elaborate a little bit more on that I hadn't heard you guys say that number before and just kind of wondering where you are.
Got that and some of the things that are contributing to that outlook for your states and and.
And frankly and how certain is this are these initiatives had already passed or user fees that are already there or are they waiting for legislation and or other.
Corporations to to achieve that.
Sure Andy Good morning.
The 20% increase year over year is really looking forward into the next 12 months and as we've studied the state that we're in what we're really seeing is the economic activity at the state levels. Their state budgets are still healthy, but really it's the several different.
COVID-19 relief.
Bills the money that was passed that helped the states and.
And that's really starting to flow through if you remember when they passed we said it typically takes nine months to a year. So when we start to see what the states are forecasting to let and their state fiscal year 2022.
That money is really starting to have an impact and we think it will.
Increased project Lettings overall, 20% now.
Some states like Florida, and Georgia, It's a higher percentage that we think.
North care, and North Carolina and Alabama.
So a little less but overall it looks like about a 20% increase looking over the next 12 months.
Got it.
I'll do one more here and some other ones maybe for later, if they don't get asked but I guess I will.
Wanted to ask on the.
The recently acquired companies and as it relates to their profit margins I think I heard you say that they were minus $3 million.
Hit to EBITDA and this quarter and I was just wondering.
If there isn't anything unusual etcetera. If these companies that you acquired typically run at an EBITDA loss and.
And the March quarter.
As well as your prospects and the timeline for.
Getting those margins back to more typical construction partners type levels.
Yes, Andy and.
Good question.
I wanted to convey is that typically we make acquisitions and multiple times during the year and we've always talked about when we acquire them. There's a headwind there backlog is lower and some of their fixed cost kick in earlier.
But.
And the reason for pointing it out with these as having made for that obviously is magnified four times as much but there is nothing unusual and these that we don't experience the <unk>.
Backlog, we acquire.
Acquire is lower than our profit margins you put on a lot of additional fixed expense those.
Companies, the backlog and made a little profit, but we had the worst we have a bad quarter always for all of the operating company and the quarter January <unk> through March and because thats. When we typically only do about 20% of our business. So the gross profit loss that day experience.
All was the underutilization of running tons through the asphalt plant.
Typically you do a lot less asphalt paving work and the winter because not just from a range, but coal and then it was also the underutilization.
Underutilization of their equipment.
On the jobs had a profit it was as.
And as we've said before less and what we typically would have on that type of backlog, but it was also those fixed cost is really what drove that negative gross profit.
Slow.
And conditions that we had and this quarter.
Andy I, just want to add as far as those for acquisitions.
We're excited about their prospects long term and that's why we make acquisitions just for the long term but.
Whether it's the sand hills markets or the northeast Rose brothers territories without of banks, we are seeing a lot of opportunities there for growth and grow and the relative market share of those markets. So long term, we're really excited about being there.
Okay.
Leave it there thanks, guys and might circle back later.
And gaming.
Thank you. Our next question comes from Stanley Elliott with Stifel. Please proceed with your question.
Hey, good morning, guys. Thank you all for taking the question.
Is there a way to kind of parse out.
The 230 basis points on EBITDA, how much of that was weather versus how much was kind of a lower mix coming in from from the the other businesses and then.
Do we think that debt.
You mentioned kind of 12 to 18 months in terms of when things would normalize I mean do we think that this backlog that you have is it going to be disproportionately at a lower.
Margin versus the core business.
Ill try and answer both questions, Eric Stanley and means for us the backlog.
That we've got there was fortunately and one hand, there was minimal backlog that we acquired with these acquisitions, because they are and North Carolina and last year and North Carolina.
On the last 110th of their normal so they were faced with the same conditions that we were on our North Carolina operations, but with calls a substantial amount of their work was D. O T and they didn't do a lot of private work or other things like we do where we're vertically integrated.
They were impacted pretty significantly on their backlog and profit.
And so.
That was part of the impact and then the work that they've picked up since then.
And we're beginning to see and improvement and the bid margins and North Carolina, So as far as this backlog at March 31.
Very little of that was acquired backlog from these acquisitions, we completed and the part of the first quarter that we had we owned them and and this net last quarter and a substantial portion of the inherited backlog so the.
On the backlog going forward when factored in with the backlog of all of the rest of the company.
Pretty insignificant.
So we don't see that as a big problem.
I gave the $3 million negative gross profit.
Of course on an EBITDA basis that would not all flow down you'd add back depreciation, but it had a pretty substantial impact on our net income and our.
EBITDA.
The other core operations, although their revenue was down slightly this quarter compared to.
The prior year due to the weather that affected our core operations and these acquisitions and on our margins there and our EBITDA there were right in line.
With the <unk>.
Higher year, so most of the EBITDA line impact was the.
The impact of these acquisitions with $3 million of the gross profit line was and and we disclosed there was in this quarter. There was approximately $1 million worth of overhead that was added that was related to these acquisitions and the one acquisition that was made in March of last year. So.
<unk> had a significant impact but.
One thing I, just want to indicate from our expectations for.
And for what we would do revenue wise and what we would do profit wise because we.
Paid it all of this with the new acquisitions.
We are very close to what our expectation was from both revenue and EBITDA at this time and Thats one of the reasons that we maintained our guidance because while these acquisitions.
Significantly impacted this quarter.
And the full year theyre going to have a positive impact as Joel alluded to earlier nothing has changed there, but we recognize that that you don't have all of that detail about the sequence of the earnings and the revenue of these acquisitions and.
So.
We're still very happy with them.
And that's good that's fantastic color.
And then thinking about kind of.
And the rest of the year in terms of the capital spend piece.
Are you all having problems are Oems, having problems or delays getting machinery to you or that you would need.
For the heart of the construction season, just curious.
A lot of those guys are having backlogs big backlogs as well so even some supply chain issues.
Yes Stanley that's a good question.
We are clearly see and supply chains.
And a lot of areas of pressure.
We have great relationships with equipment suppliers, and we're managing through it but there is definitely a delay and getting construction equipment. We have made the decision to delay the <unk>.
Normal pace of disposals, and holding on to our equipment to make sure that we can do this backlog.
So.
It's a factor, but it has not affected our business but.
You hear about this and a number of industries and its certainly affecting ours.
And staying on one comment there we are definitely ordering equipment earlier post the lead time to get it in as longer so even the capex.
Spent last this year at this point and we have and the prior year due to that delay, but as Julie said, we have the benefit of keeping the equipment, we have and continuing to run it and then disposing of it after we get the new P sand.
Perfect guys. That's great. Thank you very much and best of luck.
Thanks, Dan.
Thank you. Our next question comes from Josh Wilson with Raymond James. Please proceed with your question.
Good morning, Thanks for taking my questions.
Good morning, Josh Josh.
Wanted to.
Dig into the guidance assumptions, a little more I think last quarter, you said for the full year sales growth you saw half of it would come from the core business and half will come from the acquisitions is that still the case or is the balance between the two changed.
Yes, that's pretty much what our projection internal projection shows for the rest of the year is that the acquisitions will be on target with what we had initially expected and that the.
<unk>.
Organic growth will be consistent with what we originally expected.
And in terms of the increase and the potential M&A pipeline.
Is that mostly bolt ons or are you seeing the potential for platform acquisitions increase as well.
Yes, Josh so as I've said in the prepared remarks, we're having a lot of conversations and the states we're in with potential bolt on acquisitions and.
And we feel very good about that and we're also having conversations and adjacent states with potential platform acquisitions and so.
They are really both.
Very active right now.
And last one from me could you give us an update on what Youre seeing in terms of private activity in each state and maybe what your outlook is there.
Well.
Bid environment is very active right now.
On the public side, but on the private side as well and a lot of on markets and as Nick said, the southeast is growing and we're seeing that.
There is a lot of residential activity, but there's also a lot of commercial activity.
Warehouses data centers.
So.
There's continued to be a lot there and also.
And when we say infrastructure.
The spending the time and with infrastructure is more than just roads and we're bidding a lot of airport work.
Railroad work so.
It's very busy on.
Lot of fronts right now.
Public and private.
That's good to hear good luck with the next quarter.
And Josh.
Thank you. Our next question is coming from the line of Adam Palomar with Thompson Davis. Please proceed with your question.
Okay.
Hey, good morning, guys.
Good morning on that day.
The okay.
So we feel good about revenue because so much of that revenue for the back half because so much of that already is in backlog.
Yes.
Help us gauge your confidence on the margins for the back half.
Well, what we're seeing and our backlog margin is virtually no change.
So we feel good about that.
And the area, where we will pick up a lot of margin and the second half.
And currently we're at 38% of our annual revenue when we do that 62% and the back half than the asphalt plants.
Equipment accounts all of those are going to show a very strong.
Add to that gross profit because we're going to be utilizing them at a much faster rate and they have pretty significant.
Fixed cost so.
I would say we have a high confidence level that we can get near that.
<unk> of that backlog that we've got scheduled that will have a very positive impact of that.
<unk>.
And we talked about some of the headwinds with rising petroleum prices and we experienced that a little bit and this quarter, which is what we anticipated and we've certainly seen that stabilize.
And towards the end of the quarter at those levels and going into this quarter. So I'd say, we have a pretty high confidence level and being able to get to that margin debt.
Kipp and that guidance.
And.
Okay.
Good answer and then on the North Carolina acquisitions is it fair to say that when you look at the near term outlook is really good for those businesses and they probably wouldn't have sold.
Is that fair to say I mean, youre willing to take the long view.
Well, Adam I would say this.
We do take the long view on.
Acquisitions.
Most of the people the sellers, we deal with are really doing more strategic family planning versus making just near term decisions and I would say that was the case with these four it really was relationships that we've had for a long time and when they felt like it was and their families best interest to sell.
We'll see.
CPI was able to take advantage of that and to create a win win situation for them. So I think we're very excited to be there. These markets have great long term upside.
Clearly North Carolina has had a tough last 12 months, but we see.
We see the bidding environment there.
He is letting work and a normal pace now.
As Alan said, we see the margins getting back to normal.
And now and so we're very excited about those four acquisitions and what theyre going to add to CPI and the future.
And it's just another point, there and apples come and attack.
And Apple is gum and the town that is that.
And that is really an exciting thing for the Raleigh Durham area.
<unk>.
<unk> done most of the work.
The last 10 years and the research Triangle Park, so that is going to create.
Huge amount of opportunity for our North Carolina markets.
And then last question there so much.
I can't you said something on the stimulus and it takes nine months, but I cant theres been so much stimulus I don't even know what.
What that was referring to and then.
I'm curious on the one nine trillion the Bible just did a lot of that was supposed to go to municipalities with hundreds of billions of dollars.
I was thinking that could help you guys.
Yes for some kind of muni or town projects.
Maybe you can just roll through some on some.
Some of the stimulus used in and help break it down for us.
And you're exactly right.
It gets a little confused and looking back to the what passed in March of 2020, what path to December what past just recently in March.
They all have different cash flow streams to the states and to the cities and we're seeing that helped in the near term.
The different plans at the federal level that are going around Washington, right now can be a little confusing and I am trying to keep up with it and.
Talk to folks in Washington between Republican plans, the Democrat plan, the house and Senate.
Different timeframes somewhat five years, some are eight years, but overall the big picture is that there is bipartisan support to have a significant investment and infrastructure.
And whether it's.
Resurfacing and surface transportation or airports railroads, where money to municipalities if its going to infrastructure, that's going to be a good thing for CPI.
Okay.
Okay, but that specific comment, which bill is that where you said it was a nine month lag.
Okay.
That was the stimulus bill that put I think it was 100 and something million vehicles.
Yes. It was it had $10 billion and money to the states for transportation and about 1 billion in December of last year I got it that's right exactly we're starting to see the Dot's actually.
Give us.
There are indications of what projects and when they're going to spend that money and that's that's a significant part of what we're seeing this 20% increase and state spending over the next year is just some of that COVID-19 relief money finally, making its way to project Lettings.
Okay Crystal clear. Thank you guys to talk to you later.
Thank you. Our next question is coming from the line of Michael Feniger with Bank of America. Please proceed with your question.
Yes, thanks for taking taking my questions just to put a finer and finer point on this to be clear that day.
Backlog.
The acquisitions, where historically the margins are lower.
For ICU at all and television no going into the guidance. After you guys completed those acquisitions that.
That was the that was going to be the mix, but the margins and when do we cycle off of those those lower margin projects.
Yes, Michael and.
And our due diligence and when we put together our.
Forecast for this year, we had completed all four of those acquisitions. So we knew what the backlog was that we were acquiring and so the amount of backlog the margins and that was non any surprise and as I've said earlier on the projects themselves, we made at or near the.
The profit margin that we.
Expected and that was in the backlog because thats, what we built our.
And budget for the year on <unk>.
Impacted us the most was.
Again, if we had bought those acquisitions at the end of March when we're starting our busy season, we would have had positive impact on the gross profit line from the plants and equipment. So the negative impact is the same kind of impact that we have on our existing operations, which is the difference between our winter time Mark.
And on our Summertime margin has nothing to do with the backlog of the projects, we complete and it has to do the fixed cost at the plants and the equipment level and the G&A. So there were not huge surprises there are always surprises, but they were not significant surprises with the amount of backlog and the first and second quarter on.
North Carolina operations, we completed about $14 million of backlog of contract backlog about $19 million of total revenue. So.
We've completed a substantial portion of what we acquired.
We started reading, obviously and those markets and we're picking up backlog going forward, but it was non acquired.
No.
And $3 32.
131 backlog had all of the acquired backlog already and our backlog everything we picked up since then and.
And those markets and all of the others has been newbie and work and so.
The amount of acquired backlog and our <unk>.
Excuse me $3 31, 21 backlog is fairly minimal from those acquisitions, because as I've said earlier, they had a pretty small backlog compared to historical.
Typically they would have five to six months of backlog most of the small companies like that these probably had about three months of normal month backlog. So we've completed a substantial portion of that as of March 31, and it was.
It was the backlog and we acquired what we have mostly now and those markets as what we've bid ourselves.
Okay, and I mean, the quarter ended obviously and March we're now and.
Mid may are you seeing the absorption starting to recover do you feel confident I understand that you are going into your <unk>.
He's anymore.
And part of the current fiscal year here. So are you starting to see that the absorption is starting to pick up or is that still too early for us to see right now.
Yes.
We saw that in March.
March was a very good revenue month for us because that's usually what we call a swing month, depending on the weather. So we saw in March and getting our volume up were in January and February, especially February we had extremely low volume. So we began to see that in March and certainly.
Our volume and April while we haven't completely closed out and the books, we know what our revenue is and so once that revenue gets up the jobs.
The job portion is fairly consistent throughout the year.
<unk> plants and equipment and.
Net fixed cost recovery that that really moves that margin needle and.
And we saw a significant improvement and March over what we had seen and December January and February and that's what we will continue throughout the rest of this year.
And.
Okay fair enough and just to.
And just be clear that 20% pickup in and infrastructure spending you guys are talking about that doesn't that does not include.
On the federal package, that's being talked about now and.
And I guess, how and how should we think about the fact that you could be growing your top line.
At 30% to 40% in the fourth quarter, you can be exited and the year with 30% to 40%.
Revenue growth Youre talking about 20% pickup on infrastructure spending.
In the states I mean.
Are we are we entering are we thinking about the starting point for 2022 really like 15%, 20% is that what we should be kind of thinking about on organic basis, just with some of these numbers that we're starting to talk about throwing around and given what youre exiting the year at.
Yes, Michael just there.
Good question.
The 20% increase.
Year over year and state spending is really looking out forward and it's really just the state budget. So it doesn't have anything to do with the federal.
Discussions that are ongoing.
<unk>.
As far as a revenue.
And we try to grow year over year and the.
High single digits, and low double digits, clearly with the amount of government investment and infrastructure.
Good.
And we're bullish and optimistic about what the future is but.
And that our guidance.
Really is not that 20% is really looking out into the future. The next 12 months most of our backlog for 2021 is already sold.
Okay, and then I guess.
I'd like to get a feel for us and inflation is a big topic, you guys discuss raw materials.
And we're seeing with asphalt prices and diesel it sounds like it's in line with what you guys are kind of expecting.
If we're going into higher growth environment can you start to be more selective can we can we think about what are the inflationary pressures we have to think about with the road maintenance business and if you are going to see this higher increase of federal investment can you be more selective.
And can we see pricing power actually come through with that with what youre going to be bidding on going forward.
Michael I'll I'll answer something on that I mean.
Historically, if you go back 20 years, when there has been and abundance of work then margins generally are higher bid margins are generally higher.
And when you have the situation was in North Carolina last year. When there is a extreme shortage of projects or even a significant shortage of projects to bid and margins are much more compressed because everybody has got to get some more so.
And your point.
History has shown that if there is a significant surge and the amount of work that's out there and margins go up.
Historically and Thats, what we would anticipate.
It's a function of how fast and the market.
Meet that demand versus what kind of price can they get at the bid table and eventually margins come back down as more capacity is added just like any other business, but for a period of time.
If there is a extremely significant amount of additional money.
Going in and then it's not that you're more selective it's just that.
Youre working everyone harder and Europe.
You are able to bid and a little bit better margin because if you don't get that project there'll be another one coming on.
Yeah.
Thank you we'll move onto our next question, which is coming from the line of Zane Karimi with D. A Davidson. Please proceed with your question.
Hey, good morning, and thank you for taking my questions.
Yes, one zone.
So real quick we did talk about weather earlier on and the <unk>.
Marks, but understand and other work that wasn't able to be completed and 10-Q and feel like the weather is still available can you quantify how much revenue or EBITDA was pushed into the second half from these weather impacts and our.
You're going be able to complete all or most of that and the third quarter and how would that impact fourth quarter as well.
Yes.
Zane I mean, roughly $20 million of revenue, we would have liked to have completed and the first six months about $20 million more revenue. So.
And most of that was.
And the second quarter, where we had anticipated being able to grow our revenue slightly over the first quarter. So there was about $20 million of contract revenue that we did not do that move forward.
Historically when that happens earlier in the year.
Well to make that and the.
Third and fourth quarter and.
And so that's what we have our expectation is now our crews or we've got them all in good shape, we're ready to move and in fact as said earlier in April we saw a significant increase and the amount of work that we've completed so right.
Right now we feel.
Fairly confident that we can complete that and get to our.
Guide us as far as revenue.
And we certainly have as Julie said and I have we've got the backlog to do to do that so.
And we're confident that we've got we had six months to make it up and it will.
And all will be made up and the third quarter some of that and go into the fourth quarter, but.
We feel good about the amount we've got one day.
And Zane I would just add.
Not saying that blindly.
We typically do we always at the mid year, the midpoint as we forecast and assess where we are.
And so are maintaining our guidance is based upon that assessment at mid year.
And so we feel good about being able to complete that work and the next two quarters.
Of course, and then I also I appreciate the color on SG&A earlier, and the reasons for the elevated levels this quarter, but given the payroll increases should we assume that SG&A and I'll ask legal fees and whatnot as a percentage of revenue would remain over 11% moving forward.
No. It will it will go down significantly as that that revenue.
<unk> Russo.
And.
Part of that is not just to increase but generally our SG&A is fairly consistent.
Throughout the year.
Other than when we make acquisitions and they come in and other mid year things that typically happen, but it should drop back down too much.
Such more historical level.
And then what you see and this short period, when it's always significantly elevated percentage wise.
On a run rate for the last two quarters will be higher than it was and the first two quarters and just absolute dollars.
Also some initiatives that we've done you will mentioned.
And we commented about.
Building the management team and everything for our future growth that we see we can't wait until we make acquisitions, where we have that organic growth staff for that so we generally try to do that ahead of time.
And those cost and up and and G&A until all of that.
It comes into being but.
As a percentage of revenue it will go down significantly because we will do 60% of our revenue was 62% and the last six months with relatively flat overhead cost.
Okay. Thank you and good luck with the rest of Macquarie.
Thanks Zane.
Thank you we have no additional questions at this time, so I would like to turn the floor black over to management for any additional closing comments.
Okay. Thank you operator, I just want to thank everyone for joining today's call and we look forward to speaking with you on the next conference call.
Ladies and gentlemen, we thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
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