Q4 2021 Construction Partners Inc Earnings Call
Speaker 1: Greetings and welcome to the Construction Partners Inc. fourth quarter earnings conference call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the construction Partners, Inc. Fourth quarter earnings Conference call. At this time, all participants are in a listen only mode a.
A brief question and answer session will follow the formal presentation.
Speaker 1: If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As reminder
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.
Speaker 1: It is now my pleasure to introduce your host, Rick Black of Eye Universal Relations. And thank you, Rick Black. You may begin.
It is now my pleasure to introduce your host Rick Black Investor Relations.
Thank you Rick Black you may begin.
Speaker 2: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners Conference call to review fourth quarter and fiscal year end results for fiscal year 2021.
Thank you operator, and good morning, everyone. We appreciate you joining us for the construction partners conference call to review fourth quarter and fiscal year end results for fiscal year 2021.
Speaker 2: This call is also being webcast and can be accessed through the audio link on the events and presentations page of the investor relations section of constructionpartners.net. Information recorded on this call speaks only as of today, November 23rd, 2021. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading.
This call is also being webcast and can be accessed through the audio link on the events and presentations page of the Investor Relations section of construction partners Dot net information.
Information recorded on this call speaks only as of today November 23, 2021. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.
Speaker 2: I would also like to remind you of the statements made in today's discussion that are not historical facts, including statements of expectations for future events or future financial performance are forward-looking statements made pursuant to the Safe Harbors provision for the Private Securities Litigation Reform Act of 1995.
I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations for future events or future financial performance.
Forward looking statements made pursuant to the Safe Harbor provisions for the private Securities Litigation Reform Act of 1095.
Speaker 2: We will be making forward-looking statements as part of today's call that, by their nature, are uncertain and outside of the company's control. Actual results may differ materially.
We will be making forward looking statements as part of today's call that 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 for our disclosure on forward looking statements. These factors and other risks and uncertainties are described.
Speaker 2: Please refer to the earnings press release that was issued today for our disclosure on forward-looking statements.
Speaker 2: These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
In detail in the Companys filings with the Securities and Exchange Commission.
Speaker 2: Management will also refer to non-GAAP measures, including adjusted net income, 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 statement.
Management will also refer to non-GAAP measures, including adjusted net income 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.
Speaker 2: And now I would like to turn the call over to construction partner CEO , Jewel Smith. Jewel.
And now I would like to turn the call over to construction partners CEO Jule Smith Joe.
Thank you Rick and good morning, everyone.
Speaker 2: 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.
With me on the call today are Alan Palmer, our Chief Financial Officer, and Ned Fleming, our executive Chairman.
Speaker 2: I'd like to begin today by thanking the over 3,000 employees of Construction Partners throughout the Southeast.
I'd like to begin today by thanking the over 3000 employees of construction partners throughout the southeast.
Speaker 2: for their hard work and dedication to making fiscal year 2021 a successful and safe year in a challenging environment.
Their hard work and dedication to making fiscal year 2021.
Cesspool in safety year in a challenging environment.
Speaker 2: I would also like to welcome all the town employees of 2 October acquisitions.
I'd also like to welcome all the talent employees of two October acquisition.
Speaker 2: King Asphalt, and J. Miller Construction, welcome to the CPI family.
Asphalt and J Miller construction well.
Come to the CPI bandwidth.
Speaker 2: I'll begin my remarks today with an overview of the fourth quarter and fiscal year 2021 before commenting on the current state of our business and expectations for fiscal year 2022.
I'll begin my remarks today with an overview of the fourth quarter and fiscal year 2021.
Before commenting on the current state of our business and expectations for fiscal year 2022.
Speaker 2: as well as some thoughts on the impact of the new federal infrastructure bill recently signed into law. Alan will then review the financial results.
As well as some thoughts on the impact of the new federal infrastructure Bill recently signed into law.
Alan will then review the financial results in more detail.
In the fourth quarter construction partners achieved a record quarterly revenue of $279 million.
Speaker 2: In the fourth quarter, Construction Partners achieved a record quarterly revenue of $279 million.
Speaker 2: a 24% increase compared to the same quarter last year, despite an excessive number of lost work days due to abnormally wet weather throughout all of our markets in the Southeast.
A 24% increase compared to the same quarter last year.
Despite an excessive number of lost work days due to abnormally wet weather.
All of our markets in the southeast.
Speaker 2: Revenue for fiscal year 2021 overall grew approximately 16% compared to fiscal year 2020.
Revenue for fiscal year 2021 overall.
<unk> grew approximately 16% compared to fiscal year 2020.
Speaker 2: consisting of approximately 5% organic growth and 11% acquisitive growth.
Consisting of approximately 5% organic growth and 11% acquisitive growth.
Speaker 2: Last quarter, we revised our FY 2021 outlook.
Last quarter, we revised our FY 2021 outlook.
Speaker 2: due to the labor market and supply chain constraints, which I described as ankle weights on our construction operations that suppress top-line revenue.
Due to the labor market and supply chain constraints, which I'll describe as ankle weights on our construction operations that suppressed topline revenue.
Speaker 2: While our adjustment largely covered those effects on our business in Q4, we could not foresee the extremely wet months that were to follow.
While our adjustment largely covered those effects on our business in Q4, we could not foresee the extremely wet months of where to follow.
Speaker 2: In each of our states, precipitation was up approximately 30 percent from July to September compared to typical rainfall levels for these months.
And each of our states precipitation was up.
Approximately 30% from July to September compared to typical rainfall levels for these months.
Speaker 2: This weather significantly impacted our fourth quarter and delayed approximately $30 to $35 million of revenue into next year.
This weather significantly impacted our fourth quarter and delayed approximately $30 million to $35 million of revenue into next year.
Speaker 2: We estimate that between seven to nine additional workdays over normal expectations were lost during the fourth quarter.
We estimate at between seven to nine additional work days over normal expectations, where loss during the fourth quarter.
Speaker 2: The good news is that this business is not lost, but rather moves forward into the current quarter as part of a record backlog that we have booked to begin our fiscal year 2022.
The good news is that this business is not lost but rather moves forward.
The current quarter as part of a record backlog that we have book to begin our fiscal year 2022.
Speaker 2: Including the two companies acquired in October , we begin our new fiscal year with a record backlog of $1 billion, the largest
Including the two companies acquired in October.
We began our new fiscal year with a record backlog of $1 billion.
The largest in the company's history.
Speaker 2: In addition, we believe profit margins in our backlog can continue to grow with the expanded bidding opportunities and infrastructure.
In addition.
We believe profit margins in our backlog can continue to grow with the expanded bidding opportunities in infrastructure.
From a margin perspective fiscal year 2021, adjusted EBITDA margin was nine 9% a decrease compared to 12, 5% in fiscal year 2020.
Speaker 2: From a margin perspective, fiscal year 2021 adjusted EBITDA margin with 9.9%, a decrease compared to 12.5% in fiscal year 2020. There were three primary factors.
There were three primary factors affecting margins.
Speaker 2: First, excessive loss of workdays in the fourth quarter due to the 30% abnormal precipitation increase does hurt fixed cost recovery and absorption of our fleet and asphalt plan.
First excess of loss of work days in the fourth quarter due to the 30% abnormal precipitation inquiries, thus our fixed cost recovery and absorption of our fleet in asphalt plants.
Speaker 2: So while the revenue moves forward and it's not lost, margins are impacted by extremely wet weather.
So while the revenue moves forward and it's not lost margins are impacted by extremely wet weather.
Speaker 2: Second, the significant and atypical inflation felt throughout the economy has been a drag on markets.
Second the significant and atypical inflation.
Throughout the economy has been a drag on margins.
Speaker 2: Typically, our short project durations allow normal inflation to be passed on in our bid.
Typically our short project durations allowed normal inflation to be passed on in our bids.
Speaker 2: However, given the sudden and sharp input costs being felt throughout the economy, we were not able to pass along all of the materials, energy, wages,
However, given the sudden and sharp input costs being felt throughout the economy.
We were not able to pass along all of the materials.
Energy wages and transportation costs.
Speaker 2: We anticipate continuing inflation in fiscal year 2022, and our pass-through mechanisms and contingencies and bids have been adjusted accordingly.
We anticipate continuing inflation in fiscal year, 2022, and our pass through mechanisms and contingencies and bids have been adjusted accordingly.
Speaker 2: And third, as CPI integrates acquisitions, the acquired backlog comes with lower margins, which typically take 12 to 18 months to raise to the CPI level.
And third as CPI integrates acquisitions, the acquired backlog comes with lower margins, which typically take 12 to 18 months to raise to the CPI level.
Speaker 2: Longer term, we are expanding our footprint into new and growing markets that will continue to drive future organic growth and margin expansion over time.
Longer term, we are expanding our footprint into new and growing markets that will continue to drive future organic growth and margin expansion over time.
At CPI, we have managed to these economic headwinds and extremely rarely fourth quarter.
Speaker 2: And now we end our new fiscal year as a larger, stronger, and more resilient business.
And now we enter our new fiscal year as a larger.
<unk> a more resilient business.
Speaker 2: We begin the new year with a record backlog of work and organization prepared for higher levels of infrastructure investment to come.
We begin the new year with a record backlog of work in the organization prepared for higher levels of infrastructure investment to come.
We remain bullish about both organic and acquisitive growth prospects moving forward as reflected in our fiscal year 2022 outlook.
Speaker 2: We remain bullish about both organic and acquisitive growth prospects moving forward as reflected in our fiscal year 2022 outlook.
Speaker 2: Although we don't know when the labor market and supply chain constraints will ease, we have adapted and are managing the disruptions and will pass the cost through until market dynamics ultimately return business to normal.
Although we don't know when the labor market and supply chain constraints will lease we have adapted and are managing the disruptions and we'll pass the cost through until market dynamics ultimately return business to norm.
Speaker 2: And finally, having invested in our organization in FY 2021 to prepare for growth, we expect those efforts to result in lower G&A costs as a percentage of revenue this year.
And finally, we have invested in our organization in FY 2021 to prepare for growth.
We expect those efforts to result in lower G&A costs as a percentage of revenues this year.
Turning now to acquisitions.
Speaker 2: As we begin our fiscal year 2022, on October 4th, we announced an exciting platform acquisition in South Carolina with the purchase of King Asphalt.
As we began our fiscal year 2022 on October four.
We announced an exciting platform acquisition in South Carolina with a purchase of King asphalt.
Speaker 2: King is a full-service hot-mix asphalt and paving company with three hot-mix asphalt plants in the Greenville-Spartanburg metro area.
King is a full service hot mix asphalt and paving company with three hot mix asphalt plants and.
In the Greenville, Spartanburg Metropolitan area.
Speaker 2: King provides asphalt contracting services for a variety of public, commercial, and residential projects.
<unk> provides asphalt contracting services for a variety of public commercial and residential projects.
Speaker 2: under the continuing leadership of Mike Crenshaw and his talented team.
Under the continuing leadership of Mike Crenshaw and his talented team.
Speaker 2: We believe King is well-positioned to participate in the dynamic economy and rapid growth occurring in the upstate region of South Carolina.
We believe <unk> is well positioned to participate in the dynamic economy and rapid growth occurring in the upstate region of South Carolina.
Speaker 2: Our second FY22 acquisition announced on October 18 was a strategic purchase that further enhances our vertical integration of construction services in the rapidly growing Florida Panhandle.
Our second FY 'twenty two acquisition announced on October 18 was a strategic purchase that further enhances our vertical integration of construction services and the rapidly growing Florida Panhandle.
Speaker 2: Jay Miller Construction is a well-respected grading and site work contractor in the greater Pensacola area and will allow us to bid a wide array of projects in that market.
J Miller construction is a well respected grading and site work contractor and the greater Pensacola area and will allow us to bid a wider array of projects in that market.
Speaker 2: As a consolidator in a fragmented industry segment, we continue to strategically acquire businesses that expand our footprint and increase both our manufacturing and construction services vertical integration.
As a consolidator in a fragmented industry segment, we continued to strategically acquire.
Businesses that expand our footprint and increase both our manufacturing and construction services vertical integration.
Speaker 2: This strategy leads to growth of our relative market share while also allowing us to capture more margin along the value chain of services.
This strategy leads to growth of our relative market share.
While also allowing us to capture more margin along the value chain of services.
Speaker 2: Looking forward, the acquisition pipeline continues to be very strong.
Looking forward the acquisition pipeline continues to be very strong.
Speaker 2: We have made organizational investments in people and technology, and we have the capital structure that provides financial flexibility for us to continue executing the CPI strategy of profitable and disciplined growth.
We have made the organizational investments in people and technology and we have the capital structure that provides financial flexibility.
To continue to execute in the CPI strategy.
<unk> and disciplined growth.
Speaker 2: Turning now to the federal funding for infrastructure in our industry. The new infrastructure
Turning now to the federal funding for infrastructure industry.
The new infrastructure Bill signed into law last week.
Speaker 2: is a transformational investment in the roads, bridges, airports, and ports of our nation.
Is a transformational investment and the roads bridges airports and ports of our nation.
Speaker 2: and our five states federal infrastructure project funding for the next five years.
In our five states federal infrastructure project funding for the next five years.
Speaker 2: will increase approximately 50% over the current baseline.
Will increase approximately 50% over the current baseline.
We estimate that this legislation will stimulate economic growth and job creation.
Speaker 2: We estimate that this legislation will stimulate economic growth and job creation.
Speaker 2: while also driving meaningful project demand beginning in late 2022 and beyond.
While also driving meaningful project demand beginning in late 2022 and beyond.
Speaker 2: Our investments in the organization, its technology, and people have prepared us to capitalize on this increased infrastructure funding.
Our investments in the organization is technology and people have prepared us to capitalize on this increased infrastructure funding.
Speaker 2: I'd now like to turn the call over to Alan to discuss our financial results and fiscal year 2022 outlook in greater detail. Thank you, Julian.
I would now like to turn the call over to Alan to discuss our financial results and fiscal year 2022 outlook in greater detail.
Thank you Jill and good morning, everyone.
Speaker 3: I will begin with a review of our key performance metrics in Fiscal 2021 before discussing our outlook for Fiscal 2022.
I will begin with a review of our key performance metrics in fiscal 2021 before discussing our outlook for fiscal 2022.
Speaker 3: Revenue was $910.7 million, up 15.9% compared to the prior year.
Revenue was $910 $7 million up 15, 9% compared to the prior year.
Speaker 3: Acquisitions completed or subsequent to the fiscal year ended September 30, 2020 contributed $87.4 million of revenue, and we had an increase of $37.6 million of revenue in our existing markets.
Acquisitions completed subsequent to the fiscal year ended September 30.
2020 contributed 87 $4 million of revenue and we had an increase of 47 $6 million of revenue in our existing markets.
Speaker 3: Gross profit was $119.9 million, a decrease compared to $122.2 million in the prior year due to the factors that Jewell discussed during his remarks.
Gross profit was $119 $9 million.
A decrease compared to $122 2 million in the prior year due to the factors that Joe discussed during his remarks.
Speaker 3: General and administrative expenses were $91.9 million compared to $68.6 million in the prior year. Approximately $17 million of the increase was related to management personnel payroll and benefits, a legal settlement and related fees, and other professional fees primarily driven by business acquisition expenses, information technology expenses, and increased accounting and consulting fees.
General and administrative expenses were $91 9 million compared.
Compared to $68 6 million in the prior year.
Approximately $17 million of the increase was related to management personnel payroll and benefits a legal settlement and related fees and other professional fees, primarily driven by business acquisition expenses information technology expenses and increased accounting and consulting fees.
Speaker 3: In fiscal year 2022, we expect general and administrative expenses as a percentage of revenue to return to eight and a half to nine percent.
In fiscal year 2022, we expect general and administrative expenses as a percentage of revenue to return to eight 5% to 9%.
Net income was $20 2 million for fiscal 2021 compared to net income of $40 3 million in the prior year.
Adjusted net income in fiscal 2021 was $24 million after an adjustment of $3 $8 million for the legal settlement and legal fees previously discussed.
Speaker 3: Adjusted EBITDA for fiscal 2021 was $90.1 million compared to $98.8 million for the prior year.
Adjusted EBITDA for fiscal 2021 was $90 $1 million compared to $98 8 million for the prior year.
Speaker 3: You can find GAAP to non-GAAP reconciliations of adjusted net income and adjusted EBITDA financial measures at the end of today's press release.
You can find GAAP to non-GAAP reconciliations of adjusted net income and adjusted EBITDA financial measures at the end of today's press release.
Speaker 3: Turning now to the balance sheet at September 30, 2021, we had $57 million of cash and $197.5 million of availability under our revolving credit facility after the reduction for outstanding letters of credit.
Turning now to the balance sheet at September 32021, we had $57 million of cash and 197 $5 million of availability under our revolving credit facility. After the reduction for outstanding letters of credit.
Speaker 3: As of the end of the quarter, our debt to trailing 12 months EBIT dollar ratio was 1.99.
As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was one nine.
Speaker 3: This liquidity provides financial flexibility and capital capacity for potential near-term acquisitions, allowing us to respond to growth opportunities when they arise.
This liquidity provides financial flexibility and capital capacity potential for potential near term acquisitions, allowing us to respond to growth opportunities when they arise.
Speaker 3: Cash provided by Operating Activities was $48.5 million for the 12 months ended September 30, 2021, compared to $105.2 million for the same period last year.
Cash provided by operating activities was $48 $5 million for the 12 months ended September 32021, compared to $105 2 million for the same period last year.
Speaker 3: Capital expenditures for fiscal 2021 were $56.3 million.
Capital expenditures for fiscal 2021 were $56 $3 million.
Speaker 3: We are reporting a record project backlog at September 30th, 2021 of $966 million excluding the two acquisitions in October , compared to $608.1 million at September 30th, 2020 and $823 million at June 30th, 2021.
We are reporting a record project backlog at September 32021 of $966 million, excluding the two acquisitions in October compared to $608 one.
$1 million at September 32020, and $823 million at June 32021.
Speaker 3: Today we're announcing our fiscal year 2022 outlook for the year with regard to revenue, adjusted net income, and adjusted EBIT dollars.
Today, we are announcing our fiscal year 2020 to outlook for the year with regard to revenue adjusted net income and adjusted EBITDA.
Speaker 3: We now expect revenue in the range of $1,075,000,000 to $1,150,000,000.
We now expect revenue in the range of $1 billion $75 million to $1 billion $150 million.
Speaker 3: adjusted net income in the range of $34.7 million to $41.8 million, and adjusted EBITDA in the range of $122 million to $132 million.
Adjusted net income in the range of 34, 7% to $41 8 million.
And adjusted EBITDA in the range of $122 million to $132 million.
The company's outlook does not assume any impact from the recently passed infrastructure investment and jobs act or future acquisitions that the company has not already completed.
Speaker 3: The company's outlook does not assume any impact from the recently passed Infrastructure Investment and Jobs Act or future acquisitions that the company has not already completed.
Speaker 3: In summary, despite a challenging environment and excessive rain at the end of our fiscal year during our highest production quarter, we are pleased with our overall growth, recent acquisitions, and record high project backlog. I'll now turn the call back.
In summary, despite a challenging environment and excessive rain at the end of our fiscal year during our highest production quarter. We are pleased with our overall growth.
Recent acquisitions and record high project backlog.
I'll now turn the call back over to Julie.
Thank you Alan in summary, we are often running in our new fiscal year.
Speaker 2: Thank you, Alan. In summary, we are off and running in our new fiscal year with a full plate of work on hand, a transformative investment in our industry, and margin expansion opportunities ahead of us.
With a full play to work on hand.
A transformative investment in our industry and margin expansion opportunities ahead of us.
Speaker 2: Our team is prepared to execute on the bright future we see ahead to continue growing the company and delivering value for our stakeholders. With that, we'll now take questions. Operator?
Our team is prepared to execute on the bright future. We see ahead to continue growing the company.
Delivering value for our stakeholders.
With that we'll now take questions operator.
Thank you we will now be conducting a question and answer session.
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Speaker 1: We also ask that each person limit themselves only one question and one follow-up question due to time.
Also ask that each person limit themselves only one question and one follow up question each time.
Hi.
One moment, please pull for questions.
Speaker 1: And our first question comes from the line of Stanley Elliott with Diegel. Please proceed with your.
And our first question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Speaker 4: Hey, good morning, everyone. Thank you all for taking the question. Good morning, Stanley. In the release, you guys mentioned profit margins in the backlog can continue to grow with bidding. What exactly did you guys mean by that? Are you all repricing contracts? Do you have material escalators? Just curious how to think about that dynamic.
Hey, good morning, everyone and thank you all for taking the question.
The Morgan Stanley lease in the release you guys mentioned profit margins in the backlog can continue to grow.
Pardon me with with bidding what exactly did you guys mean by that are you all repricing contracts do you have material escalators, just curious how to think about that dynamic.
Yes Stanley of so what we mean by that is.
Speaker 2: Yes, Stanley. So, what we mean by that is, as we continue to bid work, and we see.
As we continue to bid work and we see bid.
Speaker 2: bidding opportunities ahead, and we have a lot of bidding opportunities, we feel like we're going to continue to expand the margins as we put on new work. Our current work
Bidding opportunities ahead, and we have a lot of bidding opportunities we feel like we're going to continue to expand the margins as we put on new work.
Our current work we do have.
Speaker 2: contingencies built in our bids now, just dealing with the supply chain issues and inflation.
Contingencies built in our bids now just dealing with the supply chain issues.
And inflation.
Speaker 2: But what we really mean by that is, you know, due to the short duration of our projects, we're constantly turning over and putting new work on to our books and finishing old work. And so we just see the, the economy.
But what we really mean by that is due to the short duration of our projects, we're constantly turning over and putting new work onto our books and finishing old work and so we just see the the economy.
Speaker 2: and the bidding opportunities and the funding allowing us to expand margins just consistently over time.
And the bidding opportunities in the funding allow us, allowing us to expand margins just consistently over time.
Perfect and then thinking about the M&A plans for the coming years, you've done two acquisitions I guess since the quarter close youre right around two times not including those how should we think about the M&A activity into next year.
Speaker 4: Perfect. And then, you know, thinking about the M&A plans for the coming year, you've done two acquisitions, I guess, since the quarter closed. You're right around two times not including those. How should we think about the M&A activity into next year with the kind of the premise you guys are tracking above two times EBITDA right now? Do you want to be aggressive in this market? You know, curious just kind of where your head's at there.
With the kind of the premise you guys are tracking above two times EBITDA right now.
Do you want to be aggressive in this market.
I'm curious just kind of where your heads out there.
Speaker 2: Yeah, you know, Stanley, I would say we're going to continue to execute our strategy. You know, acquisitions are a large part of our DNA at CPI. But we want to just have controlled, profitable growth. And so we're going to continue to build relationships with potential sellers. We're going to talk to them. We're going to look for bolt-on acquisitions that help us build relative market share in the states we're in.
Yes, Stanley I would say, we're going to continue to execute our strategy.
Acquisitions are a large part of our DNA at CPI.
We wanted to just have controlled profitable growth and so we're going to continue to build relationships with potential sellers, we're going to talk to them. We're going to look for bolt on acquisitions that help us build relative market share in the states we're in.
Speaker 3: And we're going to continue to talk to folks in adjacent states and get to know them, but, you know, we're not, we're not going to go too fast, but acquisitions are going to continue to be a big part of what we do moving forward.
And we're going to continue to talk to folks in adjacent state and get to know one but.
We're not we're not going to go too fast but.
The acquisition is going to continue to be a big part of what we do moving forward.
Great guys. Thank you very much.
Speaker 1: And our next question comes from the line of Andy Whitman with Baird. Please proceed with your question.
And our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.
Speaker 5: Thank you, and good morning, everyone. I guess.
Thank you and good morning, everyone.
I guess.
Speaker 5: where I'm going to start. I'll start with the cash flow actually, Ellen. You know, 48 million dollars of cash flow from Ops is not a huge number this year, but I know that when you guys do acquisitions, correct me if I'm wrong, you guys typically do not buy the working capital associated with those acquisitions and therefore you have to fund the entire working capital from this from the day when you acquire it.
We're going to start I'll start with them.
Cash flow actually Ellen.
$48 million of cash flow from ops is not huge.
A huge number this year, but I know that when you guys do acquisitions correct me if I'm wrong, you guys typically do not buy at the working capital associated with those acquisitions and therefore, you have to fund.
Tire working capital from the from the day when you acquire it.
Speaker 5: Given that, can you tell us what the drag on working capital was as it was reported in your financial statements so that we could get a better sense of kind of what the underlying cash flow of the business might be?
Given that can you tell us what the drag on working capital was as it was reported in your financial statements. So that we could get a better sense of kind of what the underlying cash flow of the business might be.
Yes. Good question of course, one of the big drivers of the decline was lower profit that was about $20 million of the decline from last year. So.
Speaker 3: Yeah, and a good question. Of course, one of the big drivers of the decline was lower profit. That was about 20 million of the decline from last year. So, you know, going into 2022, we expect to be able to significantly improve that number. But as you mentioned, when we make acquisitions.
Going into 2022, we expect to be able to significantly improve that number but as you mentioned when we make acquisitions typically.
Speaker 3: Typically, other than if it's a platform acquisition, we're not acquiring in the purchase price.
Other than if it's a platform acquisition, we're not acquiring in the purchase price.
Speaker 3: the receivables, payables, and a lot of the working capital. So, we have to fund those from day one out of our immediate operations. The two largest items besides the profit that caused the decline in the cash flow,
Receivables payables and a lot of the working capital. So we have to fund those from day, one out of our immediate operations.
The two largest.
Items besides the profit.
Cause the decline in the cash flow this year.
Speaker 3: were accounts receivable, which is one of those items that we have to build from the acquisitions, and then our work in progress. And both of those are really a function somewhat of the shift. We changed the percentage of work that we're doing, private work compared to public work, over the last couple of years, to take advantage of the opportunities.
Our accounts receivable, which is one of those items that we have to build from the acquisitions.
And then our work in progress in both of those are really a function somewhat of the shift we change the percentage of work that we're doing private work.
Paired to public work over the last couple of years to take advantage of the opportunities and that generally stretches out. Your receivables you also have retained <unk> on <unk>.
Speaker 3: and that generally stretches out your receivables, you also have retainage.
Speaker 3: on non-public jobs, so those are the things that this year and then of course we've had inflation just like everyone else in our material costs, so to have the same quantity of inventory on hand, we've got a lot more invested in inventory. So those are really the two or three things that have contributed. We feel like with
Non public jobs. So those are the things that this year and then of course.
We've had inflation just like everyone else in our material costs. So to have the same quantity of inventory on hand.
A lot more invested in inventory. So those are really the two or three things that have contributed we feel like with.
Speaker 3: you know, the acquisitions working capital behind us 2022 should return to a much better cash flow from operation.
<unk>.
The acquisitions working capital behind US 2022 should return to a much better cash.
Cash flow from operations and.
Speaker 2: And Andy, I just would add, as we said in our remarks, the fourth quarter was extremely wet. And so $30 to $35 million of revenue and some fixed cost recovery were impacted. But that revenue moves into Q1 of this year.
And Andy I, just would add.
As we said in the room.
Marks the fourth quarter was extremely wet.
So 30% to $35 million of revenue and some fixed cost recovery were impacted but that revenue moves into Q1 of this year.
Yeah, right that makes sense, just kind of I guess, along that I wanted to follow up with this question, which is trying to get a little bit better sense of what the underlying organic growth rate thats baked into this 22 outlook I guess I heard you guys say that.
Speaker 5: Yeah, right. That makes sense. Well, I just kind of, I guess, along that I wanted to follow up with this question, which is trying to get a little bit better sense about the underlying organic growth rate that's baked into this 22 outlook. I guess I heard you guys say that clearly here, which was great that that the guidance does not include any acquisitions that have not yet been closed as of today. So, so that's clear. But, but there's obviously these, these two deals that you closed in October , which are contributing to revenue. So Alan, can you talk about what the low end and the high end of your revenue range implies for the organic growth rate in the business?
Clearly here, which was great that that.
The guidance does not include any acquisitions that have not yet been closed as of today, So thats clear, but theres. Obviously these these two deals that you closed in October which are contributing some revenue. So Alan can you talk about what the low end and the high end of your revenue range implies for the organic growth rate in the business.
Speaker 2: Andy, I'll take a stab at that first. The, you know, our range, we are focused on organic growth. And in our Outlook range, our organic growth has a range there of 5 to 10 percent.
Andy.
Take a stab at that first.
Our range.
We are focused on organic growth and in our outlook range.
<unk> growth has a range there 5% to 10%.
Speaker 2: And so, and then inquisitively, the inquisitive growth is a range of 13 to 16% in our range. So, we're focused on both of them, the two new acquisitions. We did add that backlog to the 966 on September 30th because we felt like that's really a more accurate reflection of the backlog that we're going to be taking into the year to, you know, accomplish this outlook.
And.
So and then acquisitive Lee the acquisitive growth has a range of 13% to 16% and our range. So we're focused on both of them.
Two new acquisitions, we did add that backlog too.
To the <unk> 66 on September 30, because we felt like that's really a more accurate reflection of the backlog that we're going to be.
Taking into the year to two.
Countless this outlook.
Andy and if thats in the.
Any follow up on that.
Speaker 5: I'll cue back in, I'm happy to keep going here, but I was doing one question and one follow up. So I'll cue back in and if you take me later, that'd be fine.
I will queue back in.
To keep going here, but two in one question and one follow up so I'll kick back in and if you take the later that'd be fine.
Okay, Andy Thank you.
Yes.
Speaker 1: And our next question comes from the line of Adam Thalimer with Thomas Davis. Please proceed with your question.
And our next question comes from the line of Adam <unk> with Thomas David.
Please proceed with your question.
Hey, good morning, guys.
Speaker 6: Morning Adam. Can you help us a little bit on the...
Morning, Adam.
Can you help us a little bit on the.
Speaker 6: how you see the cadence of EBITDA playing out in fiscal 22?
How do you see the cadence of EBITDA playing out in fiscal 'twenty two.
Speaker 6: Adam, do you mean just from how it's spread out over the year, we typically say... I know you don't give quarterly guidance, but since we do have some projects deferred specifically into Q1, I'm just kind of curious how you see start in the year versus finish.
Adam do you mean, just from a how it how it's spread out over the year.
We.
Chip.
I don't want to I know you don't give quarterly guidance, but since we do have this some projects deferred specifically into Q1.
Kind of curious.
Kind of how you see start in the year versus finishing the year.
Yes, well, we do see and I'll.
Speaker 2: Yeah, well, we do see our and I'll let Alan get specifics in a minute, but we do see in 2022, our typical 40% of revenue.
Let Alan give specifics in a minute, but we do see in 2022, our typical 40% of revenue.
In the first half of the year and 60% in the second half of the year is.
Normally we anticipate that.
As far as the EBITDA.
Obviously in the winter, we don't get as much recovery on our fixed assets as we do in the summer so that tends to be more rear loaded to our busy seasons.
Speaker 3: Yeah, this is Alan. I'll, I'll add to what you said, you know, this year, we had the year that just finished, we had a slightly higher percentage.
Yes. This is Alan I'll I'll add to what <unk> said this year.
This year that just finished we had a slightly higher.
<unk> of revenue in the first six months, primarily as a result of just not being able to get our revenue in the last half, but next year, we do see at least from our budget standpoint.
Speaker 3: of revenue in the first six months, primarily as a result of just, you know, not being able to get the revenue in the last half. But next year, we do see, at least from our budget standpoint,
Speaker 3: pretty much a 40-60 split. As Jewel said, the fixed cost recovery is not full in the first six months because you're only doing 40% of that revenue. So we see a higher EBITDA margin in the second half of the year, but pretty much a return to normal there when you look at it over a 40-60 split for the year. Okay, that's perfect.
Much of a 40 60 split.
As Joel said the fixed cost recovery is not full in the first six months, because you're only doing 40% of that revenue. So we see a higher EBITDA margin in the second half of the year, but pretty much a return to normal Bayer when you look at it over a 40 60.
<unk> for the year.
Okay that's perfect.
And then.
Speaker 6: As a follow up, I just wanted to ask about EBITDA margins. And
As a follow up I just wanted to ask about EBITDA margins.
And.
I'm, just curious I guess on the past.
Speaker 6: back to, because you had about a 12 percent average margin in 2019 and 2020. I'm just curious on the, and I know you're not going to do that in 22, at least you're not committing to that today, but what would be your the path back to those kinds of
Back to you.
Had about a 12% average margin in 2019 and 2020 I'm just curious on that and I know youre not going to do that in 'twenty two.
Please I'm not committing to that today, but for the year the path back to those kinds of margins.
Hello.
Speaker 3: Well, I mean, I think in 20 as we shared last year, and as we shared going into this year, we had some items in 20 with the declining oil prices, significant changes, some of the shutdowns related to COVID that gave us higher productivity because there was no one on the roads that made that, you know, spike up. And we knew coming into this year, there would be a decline.
I think in 'twenty as we shared last year and as we shared going into this year, we had some.
Items in 'twenty with the declining oil prices significant changes some of the shutdowns related to Covid that gave us higher productivity because there was no one on the roads that made that.
Spike up and we knew coming into this year, there would be a decline.
Speaker 3: I think what Jewel has talked about, the challenges for 2022.
I think what juul has talked about the challenges for 2022.
Speaker 3: We've kind of reset our expectations and our job pricing, and we feel like we can start moving back to that.
We've kind of reset our expectations and our job pricing.
And we feel like we can start moving back to that.
Speaker 3: you know, approximately 12% or better.
Approximately 12% or better.
Speaker 3: you know, give it down margin. Part of that is, as he said, and I said, you know, we're kind of with that higher revenue, it lowers our G&A expense as a percentage. And if we get to that higher end of the revenue,
EBITDA margin.
Part of that is.
As he said and I said, we're kind of.
With that higher revenue it lowers our G&A expense as a percentage and if we get to that higher end of our revenue.
Speaker 3: That drops from about 9% on the lower end to about 8.5%, so that adds, you know, half a percent to that EBITDA margin, but, you know, our guidance for this year gets us, you know, substantially back to that, on the high end, back to that 12% range that we've been in before.
That drops from.
About 9% on the lower end to about eight 5% so that adds half a percent to that EBITDA margin, but.
Our guidance for this year gets us.
Substantially back to that on the high end back to that 12% range that we've been in before.
Speaker 2: And Adam, I would just add to that, you know, as we execute on our strategy and we build relative market share in the states we're in, it gives us an opportunity not only to bid at higher margins, but we get to take advantage of the vertical integration we have and just like the Gulf Coast Terminal and the aggregate facilities we have, and that just gives us a chance to expand margins. Thank you.
And Adam I would just add to that is.
As we are.
We executed on our strategy and we build relative market share.
In the states. We're in it gives us an opportunity not only to bid at higher margins, but we get to <unk>.
The advantage of the vertical integration we have.
And then just like the Gulf Coast terminal and the aggregate facilities, we have and that just gives us a chance to expand margins. So we.
Speaker 2: We do feel like moving forward, you know, we're going to return to those EBITDA margins and just by executing the strategy we have. Okay.
And we do feel like moving forward.
We're going to return to those EBITDA margins.
And just by executing the strategy we have.
Okay. Good color thanks, guys.
Alright, Thank you Adam.
Speaker 1: Our next question comes from the line of Zain Karimi with D.A. Davidson. Please proceed with your question.
Our next question comes from the line of Zane Karimi with D. A Davidson.
With your question.
Hey, good morning, gentlemen.
Good morning Zane.
Speaker 7: So regarding the record backlog here, from a margin perspective, what sort of gap are you seeing between the new acquisitions and a normalized level? And what portion of the backlog is new from acquisitions? And when do you think that will be completely worked through by?
Regarding the record backlog here from a margin perspective, what sort of gap are you seeing between the new acquisition and a normalized level.
And what portion of the backlog is new from acquisition and when do you think that will be completely worked through by.
Zane.
<unk>.
Okay.
Speaker 2: Acquisitions always come with a little lower backlog margin, and typically it takes about 12 months to normalize those to CPI.
Acquisitions always come with a low lower backlog margin and typically it takes about 12 months.
To normalize those to CPI margins.
Speaker 2: We have been able to expand our backlog margin as we go into this year, and it's something we see will continue that trend into 2022. We think that the healthy economy in the Southeast and the funding situation is going to allow us to continue to expand backlog margin.
We have been able to expand our backlog margin.
As we go into this year and is something we see will continue that trend into 2022.
We think that the healthy economy in the southeast and the funding situation is going to allow us to continue to expand backlog margin.
Speaker 2: But the acquisition backlog does get worked through and we're putting new work on the books in those markets.
The acquisition backlog does get worked through and we're putting new work and those on the books in those markets.
Speaker 2: And we take about 12 months and get those margins up to normal.
We take about 12 months and get those margins up to normal.
Okay. Thank you and I know you guys talked about atypical inflation, but are you guys able to quantify the impact that it had on your quarterly results.
Speaker 7: Thank you. I know you guys talked about atypical inflation, but are you guys able to quantify the impact that it had on your quarterly results?
Speaker 2: It's hard to quantify exactly, Zane. You know, as I said in my remarks, there's three things that really affected margins for the quarter. Part of it's weather and the fixed-cost recovery that the abnormal precipitation caused. Part of it is inflation. Inflation, you know, normally is a pass-through cost for us, and nothing's changed there. It's just we're dealing with atypical inflation that the supply chain and the labor market causes.
It's hard to quantify exactly zain as I've said in my remarks, there's three things that really affected.
Margins for the quarter part of it is weather and the fixed cost recovery that.
The abnormal precipitation caused part of it is inflation.
Inflation normally is a pass through cost for us and nothing has changed there is just we're dealing with a typical inflation that the supply chain and the labor market causes and.
Speaker 2: So we've had to adjust our pass-through mechanisms and speed it up to adjust for that atypical inflation. We've had to start adding contingencies in our bids to deal with the uncertainty.
So we've had to adjust our pass through mechanisms and speeded up to adjust for that atypical inflation, we've had to start adding contingencies in our bids to deal with the uncertainty.
Speaker 2: So we really see once those, once these economic realities smooth out in the future, and we don't know exactly when that's gonna be, inflation will continue to be a pass-through cost for us, but it has definitely been an atypical environment the last six months, and that does affect margins.
So we really see once those.
Once these economic realities smooth out in the future and we don't know exactly when that's going to be inflation will continue to be a pass through cost for us, but it has definitely been an atypical environment. The last six months and that does affect margins.
I appreciate the color.
Okay.
Alright, Thanks, a lot.
Yeah.
Speaker 1: Our next question comes from the line of Andy Whitman with Baird. Please proceed with your question.
Our next question comes from the line of Andy Wittmann with Baird. Please.
Please proceed with your question.
Speaker 5: I just kind of want to build on the last thing, and obviously, you know, labor was something you guys mentioned last quarter, and you guys even said that this is going to be something that's probably going to stick into your fiscal 22. And so I was just wondering if you're able, how you are on the staffing levels here. Have you been able to at least get the number of people and the quality of the people that you need to execute the plan? Or are you having to dip into overtime for the people that you already have to do the work? And I was just wondering kind of.
Yeah, just kind of want to build on.
Last thing obviously labor was something you guys mentioned last quarter and you guys have been said that this is.
Can be something that's probably going to stick into your fiscal 'twenty two and so I was just wondering if you're able to how you are in the staffing levels here have you been able to at least get the number of people and the quality of the people that you need to execute the plan or are you having to dip into over time for the people that you already have to do the work and I was just wondering.
Speaker 5: of what your outlook is on this front specifically in 2022 as it relates to your profit market.
Kind of what's your outlook is on this front specifically in 2022 as it relates to your profit margin.
Yes, Andy.
Speaker 2: Yeah, Andy, good question. Labor is definitely a challenge for throughout the economy now. And at CPI, we are continuing to fight to retain our workforce.
Good question Labor is definitely a challenge for throughout the economy now.
And at CPI, we are continuing to fight to retain our workforce.
Speaker 2: I will say and we, you know, we anticipate that it'll get better over time. We just don't know when.
I will.
<unk>.
We anticipate that it will get better over time, we just don't know when.
Speaker 2: But one of the things I will say that on labor, I feel like CPI's model is faring better in this environment. And what I mean by that is
But one of the things I will say that on labor.
I feel like Cps model is faring better.
In this environment and what I mean by that is.
Speaker 2: Our local workforce model allows people to spend every night at home with their families.
Our local workforce model allows people to spend every night at home with their families.
Speaker 2: Our reoccurring work and the nature of our work is steady, so people have a steady paycheck.
Reoccurring work and the nature of our work is steady.
So people have a steady pace.
Paycheck.
Speaker 2: Our scale allows us to offer great benefits, and that's helping us compete in this labor market.
Our scale allows us to offer great benefits and Thats, helping us compete in this labor market.
Speaker 2: And then the fact that we're a growing company, you know, the thing I hear and the thing we're focused on is showing people that this is not just a job, but they can make it a career. And so the labor market is definitely tight. We are competing for workers, but we're going to continue to press those advantages as we go through 2022.
And then the fact that we're a growing company you know the thing I hear in the thing. We're focused on is showing people that this is not just a job, but they can make it a career.
And so the labor market is definitely tight we are competing for workers, but we're going to continue to press those advantages.
As we go through 2022.
It's really helpful and just a follow up here too.
Speaker 5: helpful and you'll just follow up here
Speaker 5: Much has been said and made about the North Carolina Department of Transportation and how it was kind of shut down for a while and coming back. And this last quarter, this was a big factor in kind of, you know, how 21 played out. And the expectation for 2022 was that North Carolina was going to come back. And in a pretty material way, frankly, that the acquisitions that you did there, which
Much has been said and made about the north the North Carolina Department of transportation and how it was kind of shut down for a while in coming back in this last quarter. This was a big factor in kind of how 'twenty. One played out and the expectation for 2022 was that North Carolina was going to come back and they are pretty good.
Serial way frankly that the acquisitions that you did there, which we're probably a little bit below plan to start out that they were going to kind of research and deliver.
Speaker 5: were probably a little bit below planned to start out, but they were going to kind of resurge and deliver a lot of the growth that's in 22. So my question is.
Much a lot of the growth that's in 'twenty two so my question is.
Speaker 5: uh... here today as you said no in twenty two
Here today as you sit now in 'twenty two.
Speaker 5: have the North Carolina acquisitions? Are they delivering? Do they have the backlog?
The North Carolina acquisitions are they delivering to they have the backlog.
Speaker 5: uh... to deliver the the growth that was kind of expected coming out of last quarter
To deliver the growth that was kind of expected coming out of last quarter.
Speaker 2: Yeah, Andy, you said that just right. I mean, when we bought those 4 acquisitions, it was abnormal times in North Carolina, but we took the long term view.
Yes, Andy you said that just right I mean, when we bought those four acquisitions. It was abnormal times in North Carolina, but we took the long term view.
Speaker 2: And as you said, North Carolina has really returned, not only to normal, but to a very robust program. I'm very pleased with the backlog that we've been able to build in those 13 new markets and the outlook for them. Even though it's not in the backlog we announced, just last week in the highway letting, we won two really nice projects.
And as you said North Carolina has really returned.
Not only to normal but to a very robust program I am very pleased with the backlog that we've been able to build in those 13, new markets and the outlook for them.
Even though it's not in the backlog, we announced just last week in the highway letting we want to really nice projects in those markets. So.
Speaker 2: in those markets. So, you know, it was definitely last year a very abnormal time throughout North Carolina with the DOT's issues, but they have rebounded strongly.
<unk>.
It was definitely last year, a very abnormal time throughout North Carolina with the Dot's issues, but they have rebounded strongly they've got a very healthy program.
Speaker 2: They've got a very healthy program, this Infrastructure Act.
This infrastructure Act is gone.
Speaker 2: is going to even add more to that and you know I just saw a presentation last week that the NCDOT's
Even add more to that.
Just saw presentation last week that the NCD.
Speaker 2: really planning well for how they're going to not only use the funded, the allocated money, but to apply for the grants available in the Infrastructure Act. So, we're very bullish on North Carolina moving forward. Okay, great. Thank you for that update. Have a good.
Really planning well for how they're going to not only use the funded the allocated money, but to apply for the grants available in infrastructure Act. So we're very bullish on North Carolina moving forward.
Okay, great. Thank you for that update have a good day.
Alright, Thank you Andy.
Speaker 1: And our next question comes from the line of Adam Thalheimer with Thomas Davis. Please proceed with your question. Oh, thanks. Just one more.
And our next question comes from the line of Adam Thalheimer with Thomas Davis. Please proceed with your question.
Yeah. Thanks, just one more I was just curious guys how.
Speaker 6: I'm still trying to figure out how are DOTs reacting to inflation, because you talked about some things you're doing with your contract.
I'm still trying to figure out how it dot's reacting to inflation, because you talked about some things you're doing.
With your contracts to help protect you.
Speaker 8: Is it harder to do that with D.O.T. customers versus private customers?
Is it harder to do that with Iot customers versus private customers.
Speaker 2: Well, Adam, you know, inflation for the DOT, where we really see them having to adjust is in their estimates and making sure that their estimates are keeping up with inflation. And that's been a challenge for them as well as the contractors.
Well Adam inflation for the Dod.
Where we really see them having to adjust as in their estimates and making sure that their estimates are keeping up with inflation and that's been a challenge for them as well as the contractors.
Speaker 2: And then also you see when they're looking out and they're programming, they're having to adjust that the projects in their program are going to cost more. And so they're having to plan that.
And then also you see when they're looking out and their programming, they're having to adjust that.
Projects in their program are going to cost more and so they are having to plan that.
But inflation.
Speaker 2: But, you know, inflation is a very real thing for all of us. We certainly anticipate that inflation is going to continue. And we've had to start and really adjust our mechanisms to pass it through to the customers. And in our outlook for 2022.
Inflation is a very real thing for all of us.
Certainly anticipate that inflation is going to continue and we've had to start.
And really adjust our mechanisms to pass it through to the customers and.
And our outlook for 2022.
Speaker 2: We've assumed that inflation is going to happen and that we
We've assumed that inflation is going to happen in that.
Speaker 2: We're going to continue to pass it through. You know, liquid and diesel fuel, you know, the DOTs have an index. So as liquid and energy costs go up, we're covered on that. But the DOTs end up spending more money. Just as if it drops, they save money.
We're going to continue to pass it through.
Liquid and diesel fuel.
<unk> have an index, so as liquid and energy costs go up we're covered on that but the dot's end up spending more money just as if it drops they save money so.
Speaker 6: Inflation is definitely an issue for our DOTs. Well, the good news is they've got more money to spend now.
Inflation is definitely an issue for our <unk>.
Well the good news is they've got more money to spend now.
Right.
Okay. Thanks, guys.
Thank you.
And Mr. Smith, there are no further questions at this time I would like to turn the floor back over to you for any closing comments.
Speaker 1: And Mr. Jules Smith, there are no further questions at this time. I'd like to turn the floor back over to you for any closing.
I'd just like to thank everyone for taking the time to be on our call today and I wish you and your family a happy and safe Thanksgiving.
Okay.
And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Speaker 1: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your line and have a wonderful day.
Okay.
Okay.
Okay.
Okay.
[music].