Q1 2023 Construction Partners Inc Earnings Call
Good morning, and welcome.
Two construction partners incorporated first quarter earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded its now my pleasure to introduce your host Rick Black Investor Relations. Thank.
Sir you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us for the construction partners conference call to review the first quarter results for fiscal 2023.
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 recorded on this call speaks only as of today February 10th 2023. So please be advised that any time sensitive information.
No longer be accurate as of the date of any replay or transcript reading.
I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance.
Our forward looking statements made pursuant to the safe Harbor provision of the <unk>.
But 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 yesterday's earnings press release for our disclosures on forward looking statements. These factors and other risks and uncertainties are described in detail in the Companys filings with the Securities 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 our earnings press release construction partners assumes no obligation to publicly update or revise any forward looking statements and now I would like to turn the call over to construction partners CEO Joe Smith.
Sure.
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 thanking our approximately 4000 dedicated employees throughout our now six states in the southeast for their focus on safety and taking care of their teammates each day at our job sites and plant sites.
I believe our talented workforce is our most valuable asset and we'll continue to create a competitive advantage for our company.
<unk> had a good first quarter to begin our fiscal year 2023 with revenue growth of 20% year over year.
A positive sign that our efforts to capture inflation in new bids is working.
And will continue throughout the year to positively impact the results.
This quarter throughout our footprint, we experienced inclement weather for two thirds of the quarter.
With above average precipitation in November and December resulting in a reduced number of productive work days.
These weather impacts show up mainly in fixed cost recovery at our plants and fleet and create extra project costs.
We approximate and abnormal weather impact in Q1 of approximately $4 million.
However, weather impacts can go both ways such as last years first quarter, which had below average precipitation that allowed us to over recover our fixed assets.
And a lot of work usually over the course of a full year the weather tends to even out.
Another factor this quarter that we did plan for was the completion of the majority of our remaining low gross margin projects from our pre inflationary backlog that was bid prior to October one 2021.
Our customers typically need their projects to complete the final paving before winter.
So as expected most of these older projects wrapped up construction in our first quarter and represented approximately $50 million of revenue with little or no gross profit.
And our annual financial plan for FY2023 the combination of completing these older projects in the first half of the year and then moving almost exclusively to higher margin backlog during the work season.
Creates a margin profile more heavily weighted towards the second half than normal.
Over the past five years CPI has averaged split of EBITDA has been 33% in the first half of the year and 67% in the second half of the year.
In FY2023 we anticipate this being close to 27% in the first half and 73% in the second half.
We are right on track with our plan for the year and our external environment is slowly, but surely returning to normal.
Both of these factors give us confidence today to revise our annual guidance and raised the midpoint for revenue EBITDA and net income.
We are pleased to report another record backlog this quarter, a 1.4 dollars 7 billion demonstrating that the demand environment remained strong in both the public and private sectors.
Public infrastructure Lettings are beginning to deploy that JA.
<unk> funding impacting each of our six states for their highway and bridge projects airport renovations and expansions and other types of infrastructure.
Over the last two years CPI has focused on preparing our organization and workforce and we're now ready to capitalize on this generational investment in infrastructure over the next six to eight years.
We continued to see a steady amount of commercial bid opportunities on both nonresidential and residential projects.
We believe the private markets will continue to be bolstered and our southeast footprint by the strong migration of new residents and businesses into these states.
This month, our National Association of Realtors study measure the top states in 2022 for net migration gangs.
And five of the top six where Cps states.
This strong demand for our services not only continues to keep revenue backlog ha, but also has allow pricing and the new backlog to remain at the higher margins in line with backlog added the previous three quarters.
We will continue to leverage this demand environment and our southeastern footprint to add future work at attractive margins.
During the first quarter, we also integrated two strategic acquisitions.
A bolt on company in Nashville, Tennessee.
Our first interest into that state and a new platform company in North Carolina.
Both of these expansions represent excellent new markets, where CPR, adding six asphalt plants, while expanding our workforce.
We will compare Big Corporation, and a 150, new teammates to the CPI family as a platform company in the Charlotte Metro area in Western North Carolina.
The fair became has an impressive group of construction professionals and the company will continue to be led by Chris and David Fairbanks.
Throughout <unk> history, a platform company. Once established has served as a catalyst for dynamic growth through out of state or region as demonstrated last year with the addition of King asphalt and South Carolina.
We're excited that with fairly corporation, we now have a well run platform company with a great reputation and one of the fastest growing regions in the country.
Right before Thanksgiving in our last earnings call CPI in the Nashville Metro area with the purchase of three HMA plants and our construction operation from Bluewater industries.
I am pleased to report that the initial integration led by our <unk> construction team and nearby Huntsville has gone very well.
The construction operation is staffed with experienced and talented personnel and.
And we will be entering the first heavy work season in Tennessee with a full backlog of good work.
And as you would expect in the fast growing Nashville suburbs.
We are pleased with the amount of bidding opportunities and potential for future organic growth.
Turning now to growth initiatives, we continue to evaluate attractive investment opportunities in all three of our levers for growth.
First organic growth in our existing markets as such as last year's 24% organic growth and eight 7% in the first quarter.
Secondly, greenfield investments in new asphalt plants and vertical integration facilities.
Such as the new asphalt terminal in Alabama, we announced last quarter.
And finally strategic acquisitions in new markets.
Such as our recent entry into Charlotte Nashville, CPI will continue to carefully evaluate each opportunity.
To use all three of these types of growth and making smart long term investments that continue to grow the company.
To fund these growth investments.
We will continue to generate strong cash flow from ongoing operations.
CPI throughout its history has generated strong free cash flow.
With a typical free cash flow conversion rate in the range of 50% to 60% of adjusted EBITDA.
Over the last few years CPI has invested this cash flow with the numerous attractive long term investments, which have generated 22% adjusted EBITDA growth last fiscal year. Despite a challenging macro environment and this year is on track to generate 35% to 40% growth in adjusted EBITDA.
As CPI expands its footprint and continues to consolidate markets margins will increase growth will continue and shareholder value will compound.
As CPI grows we benefit from scale in our fixed cost.
After significant investments in our organization to prepare for growth over the last two years, we now anticipate in our revised outlook and a general and administrative expense will be in the range of eight to eight 2% or 20 to 30 basis points lower than last year.
As a growth company, we must stay ahead of the curve and preparing and investing for future growth as we did in FY 'twenty, one and FY 'twenty two.
This will allow us to capitalize on the efficiencies of scale at CPI overtime and expand Bottomline margins.
Finally, this fiscal year should have our typical seasonality.
Revenue being realized approximately 40% in the first half of the year and 60% in the second half and our fixed asset recovery, having a normal under recovery in the first half of the year and over recovery in the second half of the year during our busy work season.
We are excited for the year ahead, and we expect to achieve significant topline and bottom line growth supported by strong customer demand and project funding.
I'd now like to turn the call over to Alan.
Thank you Julie and good morning, everyone I will begin with a review of our key performance metrics in the first quarter of fiscal 2023 before discussing our revised 2023 outlook.
Revenue was $341.8 million up 20% compared to the prior year quarter. The mix of our total revenue growth for the quarter was approximately eight 7% organic revenue and approximately 11, 3% from our recent acquisitions.
Gross profit was $35 million in the first quarter compared to $33 million in the same quarter last year due to the factors that Joel discussed during his remarks.
General and administrative expense as a percentage of total revenue in the quarter was eight 7% compared to eight 8% in the same quarter last year.
Net income was $1 $9 million in the first quarter compared to $5 $5 million in the same quarter last year.
Adjusted EBITDA in the first quarter was 27 $6 million, an increase of four 7% compared to the same quarter last year.
You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's press release.
Turning now to the balance sheet at December 31, two.
2022, we had $43 $5 million of cash $269 million of principal outstanding under the term loan at $158 million of principal outstanding under the revolving credit facility, we have availability of $182 million under the credit facility net of <unk>.
Duction for outstanding letters of credit.
As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 296.
This liquidity provides financial flexibility and capital capacity for potential near term acquisitions, allowing us to respond to growth opportunities when they arise.
During the three months ended December 31, 2022 cash used in investing activities was $77 million of which $77 $2 million related to acquisitions completed in the period.
$31 $6 million was invested in property plant and equipment, partially offset by $1 $6 million of proceeds from the sale of the property plant and equipment and $36 4 million of net proceeds from the facility exchange.
The company's interest rate swap contract is that a sofa or rate of 185%, which makes the company's interest rate during the quarter at three 7% on 300 million of our debt.
The mature security date of this swap is June 32027.
During the three months ended December 31, 2022 cash provided by financing activities was $49 $7 million, we received $53 million of proceeds from our revolving credit facility primarily used for acquisitions completed in the period. This cash flow was offset by three.
$1 million of principal payments of long term debt.
Cash provided by operating activities net of acquisitions was $28 $9 million for the three months ended December 31, 2022, compared to a use of $6 million for the same period last year.
Capital expenditures were $31 $6 million, we expect capital expenditures for fiscal 2023 to be in the range of $85 million to $90 million.
This includes maintenance capex of approximately 3.25% of revenue.
So the remaining cash invested as funding growth initiatives.
Today, we're revising our fiscal year 2023 outlook by raising the lower end of our estimates we expect revenue in the range of 1.4 dollars $75 billion to $1.55 billion.
Net income in the range of $30 million to $40 million and adjusted EBITDA in the range of $145 million to $160 million.
And finally as Joe mentioned, we are reporting a record project backlog of $1 $47 billion at December 31, 2022.
And with that we're ready to take your questions operator.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Our first question is from Stanley Elliott with Stifel. Please proceed.
Hey, good morning, guys. Thank you all for taking the question.
Good morning Stan.
Can you talk about and I apologize if you mentioned upfront I'd had a bunch of things chug along this morning.
Some of the material shortages that the industry had seen kind of last year does that seem like that's going to be another headwind for you guys in the coming year or any sort of update on that would be great.
Yes Stanley.
I did mention that our external environments normalizing and thats part of it we see that slowly but surely.
You know a lot of supply chain issues. The Kinks are starting to get worked out it's nowhere near normal yet, but it's getting better.
We've mentioned in the past cement in South Carolina, and rock in Georgia and Florida.
All of those.
These suppliers, who want to sell their products. So the market forces that you would expect to solve those theyre working it just takes time, but I would say, we see things getting better and we don't anticipate those being a headwind this year.
Great and then in terms of like bidding activity I mean, do you still see pretty normal bidding activity.
Ross the market just curious if if and maybe some of the softness in the headline numbers, we see in the residential market is causing increased bidding activity in some of your core like highway highway and some of that.
Sure.
No Stanley you know.
Bidding is still very busy.
Let's take the public markets. The infrastructure Act is in full swing now and so we're seeing.
Very healthy public.
Lettings.
The dose level and with airports.
Just a lot of infrastructure on the public side and Thats, good and we'd been expecting that and it's now hitting.
On the private side, you're seeing a lot of you.
Industrial and retail.
Bids as you as we have.
<unk> been watching the residential market and thinking okay is it going to fall off.
And we just haven't really seen a big falloff, we've seen maybe where two years ago, a developer would say.
We want to build this whole subdivision and bring on hundreds of blocks upfront what we're seeing now as they say we want to start and build phase one and bring all 50 lots and just take it in.
More bite size pieces.
But I think I mentioned, the migration to the south I think that thats, helping the residential market.
Maybe just go from white hot to good and steady, but we really haven't seen a big drop off in residential.
Markets yet.
Great guys. Thanks for the color and best of luck.
Alright, Thanks Stanley.
Our next question is from Andy Wittmann with Baird. Please proceed.
Oh, great. Thanks for taking my questions and good morning, everyone.
Just a point of clarification. When you mentioned that weather was a $4 million impact I'm guessing that's EBITDA not revenue is.
Alright, yes.
Yes, that's correct.
Yes.
Yes.
Can you estimate what the revenue was from that as well or maybe any more detail on that.
I'll, let Alan take a stab at that Andy.
Andy.
As you can see on our revenue.
I think where weather hurt us.
Our internal production of like asphalt and our own equipment use so.
If we had had.
Those weather days that were impacted we probably would have seen $10 million to $15 million more.
Top line revenue, but the bigger impact was on the number of tons, we ran through our asphalt plants and equipment usage utilization that we got so that $4 million, we're talking about is under absorption.
Fixed cost at our asphalt plants and our own equipment use so it's not as much revenue as it is that utilization of those hot mix asphalt plants and that fixed cost recovery.
Okay. That's a good answer that makes that makes sense.
I just thought maybe I'd ask about some of the other external factors juul that that you'd cited previously and try to get your updated thoughts on isn't specifically regarding labor.
Its availability.
Are you able to keep the man hours that you need in the rate per hour.
As expected in.
And maybe some of the other things like some of the trucking costs and nowhere for.
For a while there were getting kind of tight so I thought maybe have your address.
Have you address those.
Yeah Andy.
On the labor markets I would say.
<unk>.
It's gotten a lot better since it.
The summer of 2021, when that really was some of the ankle weights, we talked about I.
I think part of it getting better is the.
The housing market as it does slow down a little bit eats a lot of labor up part of as more people are coming back to work after COVID-19 and part of it as I told you we would adjust to.
To make sure that we had the labor we did so we put a lot of programs in place that are working.
We offer great benefits.
Great pay and then we try to create a career path for all these.
Employees and so I think all of that's working together, so I really don't hear about a lot about labor.
Now I think I think we're doing a good job staffing our crews that's really not an impact.
Oh trucking cost part of the labor.
Thing is I think truck drivers or not quite.
As hard to get as they were back when you you just.
A year ago, it was very difficult to get truck drivers.
And so thats helpful. But I do think you asked about trucking costs I think it's important we don't anticipate construction inflation.
Moderating to normal quickly.
Reading the inflation in the <unk>.
<unk> papers about inflation moderating construction inflation I think is at a different scale and different timing.
And I think with the amount of money.
Flowing through for infrastructure.
We are certainly not letting our guard down on getting inflation in our bids and making sure we pass that along and I think it will be elevated more than the top line CPI number.
So.
That's that's the Carlyle will have around inflation.
That's super helpful. And then I guess, just kind of my final question dovetails on that last one a little bit which was on these acquisitions and what is in this one in North Carolina, obviously larger platform I guess I was hoping maybe Alan first if you could comment on how much backlog was acquired or maybe.
Any guidepost you want to give us on how much revenue you expect but maybe.
As important maybe more important.
With the dynamic inflationary environments and the challenge is about about getting margin can you talk about how well you're able to scrub that backlog and the confidence you have in the newly acquired backlog and instability.
To deliver product.
Margins in line or above kind of what CPI would've done on its own.
Yes, Andy.
As far as the backlog I think juul in his comments stated that it was a very strong backlog both in North Carolina.
Carolina platform acquisition in Tennessee, So we were very pleased with that and then the.
We had opportunities in both of those markets as you can imagine.
Our extremely good even post acquisition so.
The total backlog from both of them was in the range of about $70 million.
We're in there evaluating that backlog, but what we're seeing is good healthy backlog.
We don't see.
We are having just a dollar amount, it's not going to have a significant impact on our overall margin but.
We don't see it being anything a lot of problems that we've got to work through Fortunately they were kind of in the same place that we were bidding that we're.
Like we do these are shorter duration contracts. So they've got a cost built into them. We're seeing that they have not bid on that pre inflation calls they've got accelerators in them just like we put in so that was very pleasing. So we think it's going to be.
This strong healthy backlog again, it fits as part of this they were at the same place in the cycle and have the same sequence of completing jobs quickly that we do.
That's really helpful context, thanks, a lot and have a great one.
A weekend guys.
Alright, Thank you Andy.
Our next question is from Tyler Brown with Raymond James. Please proceed.
Hey, good morning, guys.
Hey, good morning.
Hey, well lots of good stuff in the preamble, but did you kind of wanted to go back to margins. So I. Appreciate you guys reported call. It 28 million of EBITDA, but that does include a gain on sale and I know there are gains time to time, but maybe not to the magnitude of this so clearly theres a lot of moving parts in EBITDA, but I don't know.
If you've done this but if you were to normalize the games normalize the weather and the $50 million of gross profit revenue do you have any idea of what that cleaned up Q1 margin might have been I mean, my my simple math would maybe indicate that margins more flat year over year, but just any color there would be super.
Yes for us the gross profit margins.
Youre exactly right.
$50 million of revenue if you just say on the low side that would have been about 10% gross profit that would have added about another one 5%. So that gets you to about.
10, and a half and then the.
Compared to last year, the 4 million that you mentioned about the.
The weather impact on cost recovery.
Another one 2% so you get that will get us right about.
At the same margin we had last year.
For that and as Joel said that was a very.
Very positive first quarter for us.
Or because of weather and the other thing with cost recovery. So you would be pretty comparable to that same margin at the gross profit and then that takes out the gain and that would get you.
Probably slightly higher on that.
EBITDA margin, but the gross profit margin.
It would get you higher and then of course, we said the G&A is about 20 basis points lower than last year or so.
Right. Okay. So just big picture, though if we think about and specifically EBITDA margins you would kind of expect those to start trending up year over year. Starting here in Q2 Q3 Q4 is that is that right.
Yes, yes, more three Q3 and Q4.
Q2, I think we've kind of given you some idea the backend of this year is going to be.
More loaded.
As far as the.
So it's kind of change in the margin profile from a boarding pass through the second half, but that's certainly what we expect.
<unk> said, we've got about 35 million more of this.
No margin backlog that will be spread out over the moral of the full year than it was in this first quarter, but a.
A real strong margin improvement so our second half of the year compared to those same periods last year.
We're starting to see a pretty big difference in the world.
Margin.
Okay, and then a couple of other quick modeling. So I think asphalt was still up about 30% year over year. In Q1 do you have what the asphalt index adjustment revenue was in the quarter.
Yeah, we had $4 $7 million in this quarter and a lot of that is related to those older projects. So.
Expect that to drop off pretty significantly.
Okay.
Good projects that we're beginning to do that so is that really.
<unk> September 30, 21 backlog.
Goes away.
Indexes will go the other way.
<unk>.
Staff and that could possibly even.
Liquid asphalt.
Stays down it could start taking some revenue away from us right, Hey, Tyler Okay Jules.
One of the things that we did in our prepared remarks.
We gave.
Sort of the first half and back half spread of EBITDA, which we really haven't done before but it's really hard to look at this business quarterly we look at it annually, we give annual guidance, but we do look at the first half in the second half and we saw that this year was weighted more towards the second half and we wanted to communicate that clearly.
To you.
So.
Just.
It's a little different this year and overall, we're right on track with annual plan, it's just waited a little differently and.
So that's.
Thats the reason we gave that color.
Yeah No no. It's extremely helpful. Blayne I'm very helpful. On the modeling side. So one other question, though just kind of a final question is around cash flow and you guys kind of addressed it up in the in the phone. So I think you said, 50% to 60% conversion is that right is that free cash flow.
Madness.
Hey, Tyler.
We will go ahead.
Well no I was just going to I was going to say so that's from a free cash flow basis, which has capex, obviously and but when we think about cash from operations as I've gotten this question a lot about the working capital consumption in the business is there something around the acquisition.
It requires some of that working capital consumption, just trying to understand how to think about particularly the cash from operations, whether it's as a percentage of EBITDA or just some some kind of construct to think about going forward.
Yes, Tyler we wanted to share from a big picture standpoint, and then I'll, let Allen give more of the details, but you know CPI throughout its history has generated strong cash from operations.
And in past years, where we haven't done a lot of acquisitions or growth initiatives cash builds up very quickly and we thought it was important to communicate that because if.
If we have this cash building up and we have these growth opportunities that we think are good for the shareholders. We think it's smart to invest in that and we've done a lot of that the last two years.
But when you take and you just say what does it take to maintain the business.
The EBITDA and you pay your.
Taxes and interest and then you just maintenance you have maintenance capex that creates about 50% to 60%.
Your cash flow from operations is spring and we just within the amount of opportunities we've had.
We feel like it's the smart thing to do to invest that for long term compounding of shareholder value I'll, let Allen give more of the details about that.
Something we felt was important to start communicating.
Yeah.
I would just point out and I think this quarter of this year compared to the same quarter of last year. There is a real. Good example of something that I've been saying before that the timing of when we get our revenue in the quarter. The first month and second month of the quarter versus the last month of the.
Quarter.
As a big impact on that because we bill a 100% of our revenue after the end of the quarter. After the end of the month, but if you look last year, we had better margins as we've talked about.
We had real strong revenue last year.
In December .
Less than October and real strong in November this year as we've said.
The weather impacted us more in November and December . So what you look at is the cash flow from operations. This year, because December and even November or slower months in the quarter was $29 million last year. It was a negative cash flow from operations because we did so.
<unk> revenue in December which was the last month of the quarter, but back on a bigger scale and <unk>.
Pointed something out there when we acquired therapy.
It was at the very end of the quarter. It was in the first of December because it was a acquisition that included their working capital. We did not have a fund that working capital, which would have been nine or $10 million roughly out of our cash.
Cash flow from operating activities. It was part of down in the purchase price where last other periods. If we buy a company and it's we're not buying the working capital then it shows up as working capital we have to fund out of that first month and that ends up in that first that.
First quarter that we report so that say.
Say $10 million difference that would have come out of operating cash flow ESPN had not.
That a platform company, where we acquire the working capital. So those are things nuances that can make a difference but.
Again last year the organic.
Revenue was higher in the quarter and again, if it happens at the end of the quarter.
That working capital cash flow doesn't show up until the next following quarter.
Yeah, No I appreciate all the detail I'm still kind of figuring it all out here, but just very helpful to cash generative model and I was just trying to understand that better. So thank you got so much.
Thank you.
Our next question is from Michael Feniger with Bank of America. Please proceed.
Yeah. Thanks, guys for taking my question can you just help us understand where liquid asphalt is today.
Rolled over pretty hard I realize Alan it might take a bite out of your revenue in the back half, but does it help your margin maybe you can just remind us how to think about that lag between your price and liquid asphalt how that rolls through.
Yes, it has to do with when we bid the job.
Sure.
If we get like this quarter, we got $4 $7 million worth of revenue related to paying us for the higher cost liquids compared to when we bid the job. So it adds revenue, but zero profit on that so when it's adding revenue it has a slight impact.
One your margin for $7 million.
If there is no margin in your average margins, 10% and Thats $500000, it's not that huge but NASA.
Any impact if that is going down again, you take away the revenue, but you still have the margin on that because the margin you just offsetting cost dollar for dollar. Unfortunately, you have to run it through as revenue because of the way the contract works. So it has a.
Slight.
Improvement in your and your margin it really is a bigger impact on how much your revenue and what's your overall margin because you're.
It's $5 million or $4 7 million out of $341 million.
But it's it goes both ways.
It's what we refer to as a slight tailwind.
Cost are going down and we have cost on non indexed jobs and <unk> sales that when its going up that is a headwind.
And margin.
And when it's going down it's a tailwind in the market.
Now that's helpful.
I mean just on that.
I realize there's been a lot of moving parts.
Uh huh.
Lot of moving parts impacting the gross margin over the years, if we look pretty pandemics. So before COVID-19 surge in cost inflation. Your gross margin was 15% to 16% is there anything structurally challenging the business preventing you from getting back there over time thanks, everyone.
Michael This is Joe.
Theres nothing structurally.
Preventing us from getting back there and as I've said for a while now we're on the road back to there and the best indicator of our future as our backlog and our backlog margin.
So we had another good quarter of adding backlog at healthy margins.
So that blend is continuing to move in the right direction.
So that's a good indicator of it and then we continue to vertically integrate.
The terminal in Panama City continues to add really good margin.
And we're looking forward to getting a new terminal in northern Alabama online in late spring so.
When you take the backlog margin.
Our vertical integration that adds to it and you get a normal external environment, where our guys have a fair shot at every job to grow margin.
You're going to see those margins return.
I saw that it was very positive in the first quarter.
Is more jobs.
Finished higher margin than lower.
Than I've seen in a while it finished at a higher than bid margin.
And that's throughout CPI history, more jobs have finished better than bid margin than lower.
But as you could expect in the last two years with inflation hitting.
It's like asking a football team to score touchdown, but every driver you've got to start first in 'twenty.
And so now as this newer backlog gets worked down.
Starting to see it revert to normal where.
We can actually execute in the field find ways to gain margin those are the things all of those things add up to where.
Those margins could get back to that that range.
I'd say one thing structurally because you ask is there anything structurally one thing that we believe structurally that helps us to respond much quicker to things even as abnormal is what this cost inflation was is our shorter duration projects.
That turnover quicker so we're not sitting here talking about we've got.
$1 billion worth of projects that will be it.
Faster turnover allows us to respond quicker to positive things, but even more important to negative things because we are re bidding jobs, we're bidding jobs on a continuous basis and burning off backlog and replacing it with backlog. That's got those factors built into it so that's the <unk>.
Structural thing that we feel like distinguishes us from companies that do significant number of four to five year long term design build type projects, which we've just found is not our.
The way, we do our business.
Yes.
Okay.
Our next question is from Brian Russo with Sidoti and company. Please proceed.
Hi, good morning.
Hey, Bryan good morning.
Thank you for all the information just one question or two.
What is the M&A environment like you did two acquisitions in.
Early December .
At about two nine times leverage up from $2 79 times last quarter.
Your thoughts as you move through the year are you should we expect.
More active.
Level of acquisitions relative to the last couple of years, maybe the type of profile now that you are in six different states.
Yeah, Brian I'll give the answer for the short term and then letting.
Ned.
Sort of a bigger picture.
Outlook.
We continue to have really good conversations.
As we always have had throughout our footprint in some adjacent states.
We're continuing to build relationships and talk to potential sellers.
And.
We're looking at opportunities.
We feel like our leverage ratio is going to moderate down through the course of the year as we.
Execute and deliver on that.
The year that we've put forward in our annual guidance.
I look more to making sure our organization can handle the acquisitions and they fit well strategically so net.
Well I think the big thing is this continues to be a very large growing market with Washington, what they have done with the infrastructure Act, it's even larger but it also continues to be highly fragmented with a lot of family businesses that has not changed so we have lots of opportunities inside our footprint and just directly beside our foot.
Print.
The other piece that.
I would not get confused by is one of the things that's happening is as we vertically integrate.
Participate in more of the value chain from work to road it creates more acquisition opportunities.
Some of the best what we would think of as greenfields or acquisition opportunities or things like new liquid asphalt terminals.
Businesses that we buy that may only be integrating business and we bring them into the asphalt business and we get another crew. So the vertical integration throughout the value chain has given us opportunities.
Really are very not just revenue enhancing but some of them are just margin enhancing quite frankly, so I think.
As these families get older and you move from the first to the second to the third and many times, we're talking to families of a fourth and fifth generation.
We see more opportunities and a longer runway ahead of us.
That we've seen before quite frankly, so I think the big picture opportunity, particularly within demand rising.
Like it is in pretty much every state I don't know about you, but I don't go anywhere that the roads are really good.
And that's going to continue to create demand and opportunity for us.
Yes.
Understood and then just just real quickly any any quick comments.
The whether you've seen.
January to date.
Understanding the seasonality in the business just trying to get a better feel for.
Kind of where you are in.
Under recovery of costs fixed costs et cetera.
Yeah, Bryan I saw an analysis. This morning that I thought it was pretty accurate.
Ed You know January been what you would expect in the winter it's Ben.
When some places drier than others in our footprint.
So it's about what we expected in January nothing nothing out of the ordinary.
Alright, great. Thank you very much.
Thank you Brian .
Our next question is from Brent Thielman with D. A Davidson. Please proceed.
Hey, Thanks, good morning, guys.
There might be for <unk>.
Hey, Joel <unk>.
The guidance for the full year includes an interest expense component to it that would imply kind of a higher quarterly run rate than we saw in the first fiscal quarter I'm. Just wondering if that's based on an assumption for higher rates or do you expect it to.
The credit facility and add more debt to fund the growth you're seeing or maybe it's both.
Yeah. Good question I mean, obviously, we indicated we borrowed.
Little over $50 million in this quarter and that was at the very end of this quarter. So that will be that were.
We are paying interest on the.
The rest of the year it has anticipated.
Increases for the portion of our debt that is not covered by the swap we've got $300 million that fixes the rate of that much of our debt, but any incremental debt that we have borrowed which is what we borrowed in the fourth quarter, but the guidance does not answer.
Dissipate any future borrowings for.
Internal purposes.
Or for <unk>.
Acquisitions.
Does.
Talked about the liquid asphalt terminal there is a small amount of borrowings that were likely to do as we finish it up but our normal capex we.
We pay that out of our our internally generated cash so pretty much that that we've got on the books now.
Kerry, but again it is higher than the last three quarters because of the borrowing that we did for the.
Sure.
Fair via acquisition.
Yes.
The $2 96 leverage ratio, that's that's factoring in any contribution from the deals you've done and to that trailing 12 EBITDA.
That is that that is correct, we get credit for that in that calculation with our.
Bank.
So that will roll off each quarter, we have to replace it with a real.
EBITDA.
Okay, and then just Directionally, where we.
Where would you like to see that leverage ratio I know EBITDA margins are compressed and thats going to change.
I'd like to take it.
Yeah, we'd like to get it get it down in the low twos.
Do you feel like projection, we've got we'll get down into the two one to 2.2 range by the end of the year.
Yes, okay.
And then just.
This might be for you, but there's a lot of infrastructure work getting released around the country and maybe the best market I mean, clearly in your areas, but elsewhere excuse me the best micro we've seen in a long long time.
And I guess going through what you've had to go through the last couple of years with supply chain I was curious on the liquid asphalt market is there is there any concern about availability or future availability just given this kind of national pull in demand and then maybe what what youre doing to ensure you get what you need.
Yes.
Yeah.
We haven't heard of any supply chain or supply issues with liquid asphalt.
So, but you know one of the things that we've done that I think helps hedge against that potential risk as we have.
One terminal that we will have two terminals here in the next few months and so.
We were able to store a lot of liquid asphalt and manage our own supply.
In our wholesale environment not retail so that helps us.
If there is a potential supply issues, there, but I haven't heard of any <unk>.
Concern there.
Okay.
And last one sorry, just on the M&A pipeline.
Which obviously continues.
Here they are in their issues and availability and just cost of new equipment is that coming up in your conversations with folks that.
It may potentially be wanted to partner up with you.
Yes, Brent.
Yeah, It's a good question.
Obviously, when I'm building relationships with potential sellers, we talk about the last two years.
Lithia together and so you can imagine there's a lot of small talk about supply chain every contract has experienced it but I would tell you.
Our potential sellers the people that we're talking to they're really making their decisions more based upon what's best for their family and long term planning and that Hasnt changed.
They are getting.
Some of them have been running the business a long time, they're getting ready for retirement.
They've got a new generation that may not want to be in the asphalt business or the construction business and so it's really what's best for their families driving their decisions they've lived through.
Macro challenges before so I would say that's still driving our M&A discussions.
Okay, Hey, great. Thanks for taking my questions best of luck here.
Okay. Thank you.
Our final question is from Kevin <unk> with Thompson Davis. Please proceed.
Hey, guys. This is Kevin on for Anna Thanks for taking the question.
Okay.
I wanted to know if you can maybe provide some more detail on maybe the FRB acquisition did it have is there any kind of vertical integration there already.
Well, we're very excited for the therapies to join to CPI family of companies.
It really enjoyed getting to know them their organization is very impressive.
Hey, there from Charlotte.
Their business is growing up there and so they really know that market well.
I've been very impressed also with the market.
From a vertical integration standpoint, one of the things that's really impressive about them is they do a lot of crushed concrete and making aggregate base that really helps them and so that's just been.
Something that they are really good at and so we're looking and I'm sure throughout the CPI footprint.
Their sister companies, you'll be talking to them and trying to learn from that expertise. So we consider that a vertical integration they do and do very well.
And they do on the services side, the same things, we do the grading and different things like that so very common to what we have of course, we've said they've got their own asphalt plant which was.
Very helpful. So.
Not a lot of difference there.
There is for us though.
Vertical integration things, but.
They do all the types of construction services that we typically do in our companies.
Thank you.
I think you mentioned two.
They do both of them do seven combined it was $70 million in rents is there a split that you can provide for between.
The blue water and the Fermi.
Yeah.
I think the $70 million was in response to how much backlog. They had date of acquisition, we've not really given us a revenue number that I recall.
But typically to answer the question a platform acquisition for US is always a larger acquisition.
Then a bolt on and the Tennessee.
Their size was such that they were a bolt on to our Alabama operations wire grass and so they are integrated into that.
But.
Backlog overall.
Present typically.
We've got about nine months worth of revenue and backlog and our companies at any one time slightly higher for most of our companies right now so you could kind of.
Back into that and say Thats total revenue would probably be about.
That backlog divided by say, 75% to 80%.
Okay.
Alright, perfect that's all I've got.
Thank you guys for the time.
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
Yes, just like to thank everybody for joining us today, we're right on track and looking forward to a great year hope everyone has a good weekend. Thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
[music].
Yes.
Yes.
[music].
Okay.