Q4 2022 Construction Partners Inc Earnings Call
Greetings and welcome to the construction partners incorporated fourth quarter earnings conference call at.
At this time all participants are in a listen only mode.
A 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 Vietnam My pleasure to introduce your host Rick Black Investor Relations. Thank you Rick you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us for the construction partners conference call to review fourth quarter and year end results for fiscal 2020 to.
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 construction partners Dot net.
Information recorded on this call speaks only as of today November 22nd 2022. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.
So I'd 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.
Our 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 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 statements as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
Management will also refer to non-GAAP measures, including adjusted EBITDA reconciliations to the nearest GAAP measures can be found at the end of today's 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 partner C E O.
Joel 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 as well as other members of our senior management team.
I'd like to start by stating how proud I am of the entire team of 3800 dedicated employees throughout our five states in the southeast for their continued commitment and hard work to produce a record year at CPI.
With the acquisition announced yesterday I'm excited to welcome our sixth state of Tennessee.
And the talented new teammates that live and work in the Nashville Metro area.
In fiscal 2022 our team persevered through inflation that hit hard in the first half of the year and supply chain disruptions that persistent all year and continued to present numerous challenges to our productivity and profitability.
Even so we were able to gain momentum and increase profitability in the second half of fiscal 'twenty, two and we now look to carry that momentum into fiscal 'twenty three.
The company had a record fourth quarter for revenue adjusted EBITDA and backlog.
Compared to our fourth quarter last year, both revenue and adjusted EBITDA were up over 40% I would highlight that this marks our first double digit adjusted EBITDA margin in the last five quarters.
This reflects who we have worked through most of our pre inflationary backlog from one year ago, and we continue to manage through supply chain headwinds.
Similar to our third quarter abnormally hot contract adjustments for liquid asphalt pricing again inflated revenue of approximately $10 million.
As a reminder, this is effectively a dollar for dollar cost reimbursement that has no impact on margin dollars.
As we communicated last month in the last week of our quarter Hurricane.
And impacted three of our states.
While we were fortunate to not have had any loss of lifeboat property. The main effect was the Florida D. O T shut down all projects statewide most of that week to prepare for the storm's arrival.
We estimate the impact for me it was approximately $8 million of revenue.
Which is not lost but moves forward as part of our record backlog of $1 $4 billion.
In Q4 more than $400 million of new work was added tobacco and.
In FY 'twenty, two we grew backlog sequentially for both quarters about busy work season, which is not the historical norm at C. P O.
This reflects strong project demand and the added contribution of new markets. This year.
This new backlog continues to have both higher inflation factored in on the cost side.
While also steadily increasing profitability on the margin side.
Using backlog as one indicator of our future we began FY 'twenty three.
With a more resilient and profitable book of work on hand than we had one year ago.
Demand remained strong in both the public and commercial sectors.
LT funding programs at the state and federal levels are creating numerous public bidding opportunities and we're beginning to see the funding from the R. J a work its way into project Lettings.
We still see healthy commercial project opportunities throughout our geographic footprint.
Its migration to the south Eastern United States continues to drive growth.
As we begin 2023, our initial guidance was driven by three factors.
But first.
Our record backlog with strong project demand.
Second higher margins in our backlog and lastly, the continued economic uncertainty and potential productivity loss due to the supply chain challenges.
We expect the supply chain will begin to normalize over 2023.
The midpoint year over year reflects revenue growth of approximately 13%.
Adjusted EBITDA growth of 33% and double digit EBITDA margins.
This fiscal year should have our typical seasonality of revenue being realized approximately 40% in the first half of the year and 60% in the second half.
And our margins haven't cost under recovery in the first half of the year and over recovery in the second half of the year during our busy work season.
Turning now to acquisitions during.
During the past year, our record results were helped by the additional contributions of numerous new markets, we acquire including a platform company and a new state and several bolt on acquisitions.
Yesterday, we announced our first acquisition of FY 'twenty three adding.
Adding three hot mix asphalt plants, and our construction operation and the Nashville Metro area purchase from Bluewater industries.
These new assets and employees will be integrated as a bolt on acquisition to our Alabama based platform company wide grass construction.
Well, our glass maintains an outstanding a well managed operation in North, Alabama, Huntsville with close within close proximity to the Nashville Metro area.
We expect to take advantage of the growth opportunities and one of the fastest growing regions in the country.
In connection with this transaction, we also received cash and transferred ownership of the Dougherty Springs Quarry in North Carolina to Bluewater industries, one of the leading aggregate producers in the South East.
We believe this strategic transaction with blue water strengthens both of our organizations.
Creating a partnership in two dynamic markets that retained aggregate sourcing rights and allows each company to focus on their core area of expertise.
As we move into a new year, we continue to have conversations with potential sellers, both inside and outside of our current states and we remain patient and focused on finding the best strategic acquisitions that expand our footprint and relative market share.
We strengthened our operations also to building Greenfield such as the HMA plant. We recently opened a bench in North Carolina.
An additional example is a greenfield investment we are making to enhance our vertical integration strategy, our new liquid asphalt terminal under construction in northern Alabama.
It is expected to be operational this spring.
Hands full facility will supply 10 hot mix asphalt plants in Alabama, as well as the three acquired Tennessee asphalt plants.
This new terminal captures the margin between wholesale and retail for liquid asphalt used in our construction activities just as we've done successfully at our first liquid asphalt terminal on the Gulf Coast in Panama City.
These greenfields require an initial cash investment as does the double digit real organic growth, we have achieved in our existing markets.
Before turning the call over to Alan to review, the financials and 2023 outlook.
I want to reiterate our optimism for the future of CPR.
In 2022.
The team successfully managed through numerous challenges and set the table for new year of growth all while not losing sight of C. P. S strategic model.
C. P are we know who we are and what we do.
Our company is well positioned for the numerous opportunities on the road ahead, and we are committed to staying focused and working hard to build value for all of our stakeholders.
I'd now like to turn the call over to Alan.
Thank you Jill and good morning, everyone.
I will begin with a review of our key performance metrics in fiscal 2022 before discussing our outlook for fiscal 2020 three.
Revenue was $1 $3 billion up 43% compared to the prior year.
Acquisitions completed during or subsequent to the fiscal year end of 2021 contributed $174 million of revenue and we had an increase of $225 million of revenue in our existing markets.
The mix of our total revenue growth for the year was approximately 24, 2% organic revenue and approximately 18, 7% from recent acquisitions.
Gross profit was $139 $3 million, an increase of $19.4 million compared to the prior year due to the factors that Joel discussed during his remarks.
General and administrative expenses were $107.6 million, an increase of $15.7 million or 17% compared to last year.
This increase was primarily $11 $1 million of expenses associated with the operation of businesses acquired in fiscal 2020 two.
Equity based compensation.
Affectional fees and various other expenses.
G&A as a percentage of total revenue was eight 3% in fiscal 2022 compared to 10, 1% last year.
In fiscal 2023, we expect general and administrative expenses as a percentage of revenue to be in the eight three to eight 5% range.
Yeah.
Net income was $21 $4 million, an increase of five 9% compared to net income of $22 million in the prior year.
Adjusted EBITDA for fiscal 2022 was $111 $2 million, an increase of 23% compared to last year.
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.
Turning now to the balance sheet at September 32022, we had $35.5 million of cash.
271, $9 million of principal outstanding under the term loan and a $105 $1 million of principal outstanding under the revolving credit facility.
We have availability of $208 $6 million under our credit facility.
Net of a reduction for outstanding letters of credit.
As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 2.7.
This liquidity provides financial flexibility and capital capacity for potential near term acquisitions, allowing us to respond to growth opportunities when they arise.
Cash provided by operating activities net of acquisitions was $16 $5 million for the 12 months ended September 32022, compared to $48 $5 million for the same period last year.
Capital expenditures for fiscal 2022 were $68 $9 million, we expect capital expenditures for fiscal 'twenty 'twenty three to be in the range of $75 million to $80 million.
This includes maintenance Capex of approximately 3.25 to three 5% of revenue. So the remaining cash is invested.
And funding growth initiatives.
Initiatives.
Today, we are announcing our fiscal year 2023 outlook, we expect revenue in the range of one $4 billion to $1.55 billion net.
Net income in the range of 24.6 to $38 $4 million.
And adjusted EBITA in the range of $135 million to $160 million.
And finally as Joel mentioned, we are reporting a record project backlog that was $1 $4 billion at September 30 of 2022 compared to $966 million at September 30th 'twenty, 'twenty, one and $1 $3 billion at June 32022.
And with that we're now ready to take your questions operator.
Thank you we will now be conducting a question and answer session.
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Yeah.
Our first questions come from the line of Tyler Brown with Raymond James. Please proceed with your questions.
Hey, good morning, guys.
Good morning, Alan.
Hey, I just wanted to.
Start with the guidance. So it seems that the 25 million range for EBITDA fairly wide I think that's certainly understandable given the environment, but just curious if you could talk about what are some of the key factors that kind of gets you to the high end what gets you to the low end when we think about the scenarios.
For example, like do you are you assuming on the high end, if there's additional M&A or diesel coming off just any color there would be helpful.
Yeah Tyler.
The guidance that we gave it its wider because we're in an uncertain environment.
For sure So you know.
The low end of the guidance.
<unk> assumes.
As soon as we have some uncertainty out there.
<unk> supply chain.
The first two articles I read today were about.
A potential railroad strike and a potential diesel fuel allocation. So that's the world we're operating in.
But you know the the upper end assumes things go well you know that we avoid some of those scenarios.
We operate well we have good organic growth.
And favorable in a reasonably good weather.
We don't put any speculative.
M&A in our guidance if theres a deal that is pending that's eminent that we're very sure of we may include that in the upper end of the range, but we don't just put speculative.
Opportunities in the guidance.
Okay perfect that's super helpful and since we're on that Allen So it's more of a modeling question.
Based on all the deals that have been done today is that 75 to 100 million of rollover benefit from M&A. I think you mentioned that last quarter is that right or does that pick up inclusive of the blue water transaction.
Yes that would be inclusive of blue water that was baked Dan because we knew we were going to close it. So any additional picked up with the 75 to 100 million would be up or continue to be our estimate of.
Acquisitions, because with blue water, we're actually losing some revenue with the core that we trade.
Traded, but we're picking up more revenue in Tennessee.
Right. Okay. Okay. That's helpful. And then just kind of maybe talking about the balance sheet and sort of talk a little bit about deal I think you indeed trailing EBITDA, maybe around three times, you talked a little bit about the capacity on the balance sheet, but I am curious about your approach.
Given the interest rate environment do you feel somewhat restricted.
And deals with just free cash flow or are you willing to temporarily lever up for the right type of deal.
Yeah.
I mean, we certainly are willing to I mean, our credit facility allows us to go as high as three and a half and an even higher.
A larger deal or not.
Nine months, but we're comfortable being at a three times leverage but one thing that's not reflected in the number you gave us.
We get because of the acquisition activity, we get credit for pro forma EBITDA because of the number of deals that we're doing so our actual calculation under our bank Covenant is 279, a little bit lower than what you are and then the transaction that we just completed.
<unk>.
We received $28 million of cash and that net transaction, so that would be available to be redeployed for future acquisitions. So the blue water when we swapped assets and we received $28 million worth of cash out of that.
Okay perfect. Thank you for the 28 million that's helpful I will.
Turning it over and hop back if you want.
Alright, Thank you Tyler.
Okay.
Thank you. Our next question is come from the line of Stanley Elliott with Stifel. Please proceed with your questions.
Good morning, everybody. Thank you all for the question.
Good morning, Michael.
Can you guys talk about kind of what you're seeing on the labor front I mean consistently hearing about issues. There, but you guys are posting strong double digit organic growth really throughout the year.
Just trying to kind of size, what what's happening versus some of the other issues, we're hearing and in other parts of the market.
Yes Stanley you know the labor.
Market is still tight there is still not enough workers and it's a challenge.
You know if you go back almost two years ago, when the Covid the economy opened up from Covid.
We look around and you know we saw a shortage of workers just like everyone else. If you remember I talked about ankle weights on productivity.
But we saw that we also saw the growth opportunities come in right at us. So we just rolled up our sleeves. If you remember I said, we're going to do what it takes to attract and retain a workforce and so we've just done a lot of work attracting workers and so I would say the labor market is still tight but.
We've done a great job our team has done a great job in each state.
Putting initiatives in place, having the right culture, the right compensation initiatives in the right career opportunities to attract folks to come work with us and I think that's showing up in the top line.
That's great.
You talked about the seasonality of the business and I apologize. If you. If you said it but in terms of the margin progression through the year kind of looking at the 10%.
The midpoint in the release you talked about steady increases.
Any more color that you could share and help us maybe kind of even with like an exit run rate and in the September quarter next year.
Thanks.
Yeah.
I'll give a high level and then let Alan maybe give more detailed numbers, but we clearly are in the first quarter. We have late November and December included in that and then the second quarter. We have the winter months. So the marginal new jobs doesn't change, but what happens is we just have.
Under recovery at our plants and in our fleet just because you have less utilization and then the opposite happens in the third and fourth quarter, where we over recover almost fixed assets. So.
Our gross margin profile is not even throughout the year.
Yes.
Historically, we've said N a.
A normal year and we haven't had one of those on a couple of years.
Relation and things like that but in a normal year the spread between our margin due to the under and over absorption in the 40% revenue in the 60% revenue is usually in the range of 200 to 250 basis points between the what we would make in the first six months and then the last six.
Much and again as Joel said, the jobs perform equally well all through that cycle, but you've got a lot of fixed cost that lower that margin when you're not charging all of those out too.
So the jobs and recovering them and then you have over recovery in the last six months, but that spread between them.
Any one quarter in the first six months in the second six and normal stabilized kind of times, that's about 250 basis points.
Perfect guys. Thanks for the color happy Thanksgiving and we'll talk to you soon.
Staying with thank you.
Yeah.
Thank you. Our next question is coming from the line of Andy Wittmann with Baird. Please proceed with your questions.
Yeah good morning.
I hope you're all in good morning, Andy I guess, hey, guys I just wanted to.
Talk a little bit more about free cash flow here Alan.
Looks like.
I mean I guess the question is it is the tax and interest rate.
That's in your EBITDA bridge are those reflective of cash numbers as well as the accounting numbers.
And do you also see is there a potential to have outsized collections and working capital in 'twenty three year Dsos up a little bit and so I was just wonder.
If you thought there was an opportunity there because when I put it together with the Capex guidance that you gave here if those GAAP numbers on interest and tax reflect the cash numbers I'm getting a free cash flow in the in the maybe 10 $15 million range. I was just wondering if you had a comment on I know dishes topics.
Yeah, I'd be glad to Andy in 'twenty, two 'twenty three.
The interest in 2023.
Would be reflective of cash interest in 2022 we had about a $2 million credit to interest expense, which was a noncash credit due to marking the swap to market.
When we entered the new $300 million swap in June of this year, that's going through other comprehensive income. So it doesn't show up in that interest expense number that you're looking at so that would represent pretty much cash interest during that period I think one of the things that.
You are seeing and you alluded to it in his remarks about the free cash flow, we've got a fairly substantial amount of capital expenditures in 2023 that are related to some long term growth initiatives, Joe mentioned, the liquid asphalt terminal and will.
[noise] spans $17 million to $20 million of Capex in 2023.
That will only begin operation for about five months. So as we've demonstrated when we purchased the one in Panama City, a few years ago with substantially adds to the margin.
While it doesn't raise revenue very much but in this case since we're constructing it from the ground up it's a pretty substantial capex, but.
Typical <unk>.
Maintenance Capex is still about 3.25% to 3.5%.
But that amount over that includes that liquid asphalt terminal and some other growth initiatives that we've got out there that are adding a fairly substantial amount that will pay off in margin in future years, and a little bit this year as well as revenue growth.
Hey, Andy word this is Ned otherwise happy Thanksgiving to you and your family, but we're still at the beginning stages of being able to reinvest our cash flow and high return.
Projects and we're going to continue to do that as we grow this business.
If you look at it whether it's a return on capital employed basis with the assets are dislocated and as Alan just did with margins. We have a lot of opportunity to continue to grow and build this business.
Through reinvesting cash flow at high return and high return opportunities.
Yeah fair enough that makes sense and then just for a follow up here just on Bluewater.
So you are giving up a quarry, you're getting cash and three HMA plants in our construction operation.
Think I understood that all correctly, maybe al what's the net difference in revenue from this that you expect it sounds like the HMA plants in our construction operations are expected to generate more revenue than you're giving up but what's the what's the net change on that transaction or anything else you can help us.
Tell us to help us understand how that how that deal works.
Yeah. The first year the net change in revenues about $15 million, we think that will grow.
Because we're entering a very dynamic market.
We have a lot of opportunity is what we do in most acquisitions that we make to grow.
<unk> revenue after that first year so.
But in 2023, the net change in revenue was about $15 million.
Yes.
Okay, great I'm going to leave it there I have a happy Thanksgiving.
Alright, Thank you Andy.
Thank you our next questions come from the line of Adam Thalheimer with Thompson Davis. Please proceed with your questions.
Hey, good morning, guys nice quarter.
Hey, Adam.
What kind of trends you're seeing in the private construction in your markets.
You know Adam and indicated we're still seeing it pretty strong in the in the southeast we haven't seen a lot of change there we anticipate it may come.
We're seeing a lot of bidding opportunities I think.
Residential is we're anticipating that slowing down, but there's a lot of opportunities in commercial and industrial on the private sector and as we've said several times.
The public funding. This there if the private economy slows down significantly our backlog is going to give US you know almost a year window to see it.
And we'll just simply deploy those resources and assets to work on public funded jobs.
But we really haven't seen a really big falloff in bidding opportunities on the private side yet.
Okay and this is net of the demographic trends for our part of the country you are actually getting stronger.
More people are moving into the southeast.
Uh huh.
Excuse me is still struggling to find homes.
We don't anticipate that changing.
Okay.
And then maybe it's hard to make a broad comment on this but how would you characterize it.
Competitor behavior right now.
Well, obviously, we see it every week as we're bidding projects I would say Adam.
Fact that we're adding to backlog is strong as we are we're getting pricing up in our backlog that's continuing to happen.
That tells me that our competitors also have healthy backlogs our competitors also have.
Gotten more efficient at passing through inflation in their bids.
So I feel like that it's a.
It's a good environment, good strong demand environment, and I think our competitors are taking advantage of that as well.
And we're in 60 plus different markets.
Right, so each market's a little different and we pay attention to as Alan has said before to every single market and growing relative market share in all markets.
So it's hard sometimes those questions get asked to be to generalize it but recognize we pay attention to every single market.
Right.
Alright, and then just lastly thoughts on your on the public side thoughts on your.
Your top five I guess now six states what are the budgets look like for next year.
Adam.
You know the budget some pretty healthy in all the states, they're not all equal, but they're pretty healthy and each state's getting that out Jay a funding.
And you know one thing to remember with that while some of the funding comes from grants and that's sporadic and project based in each state most of the funding from now JA. It comes from the Formula That's always been used by the federal government for their surface transportation. So it comes to the states.
Formula It has to be used in allocated in that federal fiscal years, so they can't afford it or save it for some big project then.
And that helps us because it gives us a good steady demand for work they deployed on maintenance projects, which are our bread and butter.
One thing that I would say indicates a good healthy.
State budgets, if you look at the states that don't use their funding.
He gets reallocated to other states and I'd noticed just last week.
Of the top 10 states in the nation for receiving reallocated funds three out of the top 10 of our states of North Carolina, South Carolina, Florida.
So that tells me that they've got healthy budgets, they're able to use their dollars and match additional dollars coming to their states.
Great. Okay. Thanks, guys.
All right Adam.
Yeah.
Thank you. Our next question is coming from the line of Michael Feniger with Bank of America. Please proceed with your questions.
Hey, guys. Thanks for taking my question can you just help quantify how much were the cost up in 2022 for 2021 on liquid diesel alone and what you're kind of embedding for that increase in 2023.
Yeah, well, we talked about last quarter that are.
Good indicator of liquid asphalt is how much do we get back.
Through the indexes and we shared last quarter, we got.
Third our third quarter, we got an unprecedented amount over $10 million, where we got over $10 million in the fourth quarter, so year to date.
24 million.
Millions of dollars, but the you know the cost of liquid asphalt.
A ton of last fall.
Has gone up probably on average for the year are about 40%. So we've seen aggregate has gone up.
If you go with the full year last year and the full year this year around.
Around 12% those are two of our main components that go in and of course, we've seen increases on everything.
As we talked about in Juul as mentioned the first six months of the year. Most of that increase came out of our profit in that suppressed our margins as we began to be at that.
And our lighter work and most of the work that we're carrying into 2023, we've got that built in but I'd say on average if you take everything labor and all from October .
October one of last year to October one of this year, it's probably.
An average of 10% to 12% our.
Total inquiries Oh.
You know Michael I would just say.
One thing that tells me that even with growing that we're doing a good job of getting these costs in our bids in the fourth quarter, we generated $26 million of cash from operations. So that's a good healthy sign even with good topline growth that we're generating cash.
Fair enough. Thanks, Thanks, everyone and just lastly, like you're growing double digits, and we're not really even seen the IAA JA yet so just help unpack like.
What what's the timeline here like when do you see the IAG funding finally get to the state level, how long before the states.
Do a leading and that becomes a projected book in the backlog and then you recognized for revenue is that more of a 2024 story.
Yeah.
No good question Michael.
JA too longer than most people anticipated to start rolling out, but it's definitely coming out now it's in the project Lettings.
I see that continuing in a steady way.
You know as I said, a year ago, almost a year and a half ago. The COVID-19 relief money inflated the state budgets for the last year and a half and now the I J a is really just going to replace that.
And we will continue to we will see healthy project lettings for quite a while the states as I said earlier have to use that money.
We're seeing it across the board.
And all of our states, there's just good healthy Lettings next.
Next month, our Alabama as having one of the largest lettings in its history I think so.
You know I envision that just see that for the next six to seven years as these this money flows through the states are just going to be making.
Significant investments in their infrastructure.
And we're going to participate not only on the roads, but the airports have a significant investment railroads ports.
You know, we're going to we're going to see a lot of that.
Going on.
Great. Thanks, everyone.
Thank you Michael.
Thank you. Our next question is coming from the line of Brian Russo with Sidoti. Please proceed with your questions.
Yes.
Hi, Hi, good morning.
Good morning, Brian .
Hey, just a follow up on the entry into Tennessee.
The three HMA plants and.
And how that kind of triangulates with your M&A strategy.
What's it going to take to get.
You're growing now growing presence in Tennessee to kind of resemble the vertically integrated strategy you have in the other states in terms of scale and scope do you need more more labor or.
More scale and our scope.
Another parts of the value chain there.
Yeah, Brian first of all let me say, we are excited to be in Tennessee, where in Si side to be a Nashville.
When I first went to look at those asphalt plants I wrote around Nashville for de and I Couldnt believe all the construction activity in cranes I saw and I live in Raleigh, North Carolina. So that shows you how much is going on there.
And I noticed that the roads around the Nashville Metro area.
<unk> got a lot of work to keep up with that growth and so that was exciting to me.
Bluewater industries approaches with what I thought it was a bearish.
The strategic opportunity.
To you know to to partner with them in two states.
<unk> been very impressed just dealing with that whole organization Ted.
Ted Baker and his group.
And so we're excited to be there and be partnered with them. These three asphalt plant sit in their cars.
I see a lot of growth opportunities in Nashville.
One of the things you asked was the vertical integration.
I think this is a perfect example of that.
That new liquid asphalt terminal, we're building in north Alabama.
Once we bought good hope last year that gave us the critical mass to start really thinking about <unk>.
Adding a liquid asphalt terminal there with.
With these three asphalt plants are going to be able to just drive more throughput through that facility. So we're going to be able to supply that and capture more margin for that work in Nashville, just by adding this liquid asphalt terminal in northern Alabama. So it's just that's a great example of how as we build relative market share of that.
<unk> integration just allows us to capture more of that margin.
On the construction side.
You know with our proximity to our North Alabama operations. Some of the other construction services that they're not doing like now we will be able to immediately begin to be able to do in that market and support it just like we would have greenfield one week.
I'll do a greenfield with an asphalt plant in a contiguous market and then is that part of our work some of those items that they have been sub contracting out we'll be able to grow the construction services side of that vertical integration also by doing it over the next couple of years in supporting that.
From having that north Alabama operations, just across the state line.
Okay got it and then just.
On your public end market exposure I think it's been running maybe around 70% of total revenue or the total business.
Do you see that increasing relative to the private side just given the <unk>.
L E D O T lettings.
And the.
The accelerating II funds.
Funding.
Just wanted to get a get a better sense, whereas just the whole pie getting bigger and youre going to maintain that kind of.
Ratio between public and private.
Yeah actually the.
The ratio has been a little bit closer to 65 35.
We see that probably trending up just a little bit closer to the 70 30.
And.
Again at this point, we don't see it moving a lot from the 65 35, right now residential which is going to be the first part of the private work that sees a slowdown is really only about 5% of our revenue so that cut in half you might move from six.
$5 35 to 67.
33, but the strong demand we're seeing in other private work in our markets. We don't see that shifting back to I'd say, our long term average is 70 30, but we really haven't been we've been a little bit closer to the 65 or even below that in some periods, especially.
2020, and a little bit in 'twenty, one when North Carolina was not letting any.
Public work, but not a huge shift in historically, even in a significant downturn in the private work, we don't get to maybe four 5% more one way or the other.
Okay, Great and then just on the balance sheet to follow up.
It seems as if you are comfortable where leverage is now and obviously you've got.
Or.
Tractive.
Consolidation rollout bolt on type growth strategy should we assume that leverage comes down not from absolute debt reduction but from.
EBITDA growth and cash flow generation.
You've given the opportunities that you see out in the marketplace.
Yes, exactly you really nailed it right there.
We're rolling Awesome.
22, the first and second quarter of 2022.
We're kind of at the beginning of some of those <unk>.
Significant margin compressions, which obviously grow the EBITDA down so quarters, we're going to be rolling on are going to be much more oh rich in profit compared to last year, because our margins as we've talked about or are growing where last year. They were beginning of the time that kind of bottomed out at the end.
More so we're going to roll off to a declining quarters in 'twenty two.
Increasing our margin quarters in 'twenty, three and that's going to drop that leverage ratio closer to the two five times that we would like for it to get to and then we can gain I mentioned earlier, we have about $28 million of cash that will Uh huh.
With that calculation also that we can apply to that debt or invest in assets that add EBITDA.
Brian just to speak a little bit about growth opportunities just last week, we had our strategic planning retreat.
And I, just I'm really encouraged and just reminded of how many opportunities we have in the states we're in and we.
Whether it would be for acquisitions greenfields.
And so you know we're.
We're going to be able to keep our leverage ratio down and.
And still execute our growth plan as long as we just execute on our plan and build our backlog so.
We don't see that being mutually exclusive and we plan on doing both.
Okay, great. Thank you very much.
Thank you Brian .
Thank you. Our next question is coming from the line of Brent Thielman with D. A Davidson. Please proceed with your questions.
Okay, great Thanks, and good morning.
Good morning, Brett.
Hey.
If I look at it over the last five years or so your.
Forward 12 month revenue backlog, the average somewhere around call. It one more time the guidance for this year represents something quite a bit below that just based on where your backlog what the.
September I recognize you know one embed some conservatism kind of things we can't see but just wondering if theres any.
Anything different about the composition of the backlog things, we ought to consider just in the context of that.
No no Brent there's really been no change in our.
Typical project size or duration.
We do have a higher percentage of our guidance on backlog now.
Thank you.
Youre right about that I think that.
What that really reflects is just more uncertainty as we look out into the year than we typically have had.
And as we see the year unfold.
Usually at mid year, we update our guidance and we will know a lot more about you.
You know just the macro environment, we're dealing in.
Yeah.
Brent just to add to that we have historically if you go back for 20 years.
Typically what we have on backlog that we're going to complete in the next 12 months would represent 2060 at the most 65% of our next 12 months revenue and then we would have about 15% to 20% of what we have on backlog that's going to be.
Pleaded in more than 12 months and that percent that we're going to complete and more than 12 more than 12 months from now is up a little bit.
But what's up significantly is that we've got a proximately 85% of our.
Revenue contract revenue that we're going to do in 2023 that we've got already on backlog and that represents the highest percentage that we've ever had and that's just a.
You know reflection of how strong the market is right now so but what we used to refer to as we're gonna have to book and burn about.
40% of our next 12 months revenue.
That's down to more like 15%.
And the state suggest continued to put work out there.
Private work is still strong but.
It really comes down to how much can we complete.
On a 12 month period, and that's obviously, how we came up with what our revenue.
Our projection is for next year, but what that does in Juul has said this a number of times is when you have that strong of a backlog. It gives you an opportunity to work on bidding with better margins, making sure you've got cost contingencies in there.
So you don't have the margin compression like we had this year and that's the part about 2023 I think that's very exciting for us as we can be very disciplined in our bidding.
And make sure that we get a reasonable margin on any project that we'd add to backlog.
Okay got it very helpful.
As a follow up.
Based on.
Everything you're talking about and what would seem to be seen in the bidding environment right. Now honestly is really really strong.
Hum.
See the potential for any shift in what you're willing or wanting to take on because the profile. The bad margins just look increasingly more appealing and would you be more willing to pursue projects with greater size and scale to leverage shake people and equipment.
Brent.
That's an interesting question.
As the margins go up.
You can get distracted, but we're going to stay focused.
What we do you know as I've said in the prepared remarks, we know who we are and what we do.
And we feel like the projects that we go after.
Bring less risk bring a higher margin profile.
Then the big Mega projects that you could go after and so.
We just see there's no reason to not stay disciplined and focused on our strategy. There is more work than we can bid on now.
Got it through the inflation from last year, and we just see plenty of opportunity ahead, just doing what we've always done so we're going to stay focused on that.
Okay, Okay, great well, thanks, guys best of luck.
Thank you Brent.
Yeah.
Thank you there are no further questions at this time I'd like to turn the floor back over to management for any closing comments.
Well, we'd just like to thank everyone for participating on the call today and wish everyone a happy Thanksgiving.
Yeah.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Have a wonderful day.