Q2 2024 Construction Partners Inc Earnings Call
Greetings and welcome to the construction partners second quarter of fiscal 2024 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Operator: Greetings and welcome to the Construction Partners second quarter fiscal 2024 earnings call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Rick Black, with Investor Relations. Thank you. You may begin.
As a reminder, this conference is being recorded.
Now my pleasure to introduce introduce your host Rick Black with Investor Relations. Thank you you may begin.
Rick Black: Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review the second quarter results for fiscal 2024. 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. However, information recorded on this call speaks only as of today, May 10, 2024. Please be advised that any time-sensitive information may no longer be accurate as of the date of your replay listening or transcript reading.
Rick Black: Thank you operator, and good morning, everyone. We appreciate you joining us for the construction partners conference call to review second quarter results for fiscal 2024.
Rick Black: 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, are considered forward-looking statements made pursuant to the Safe Harbors 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. However, actual results may differ materially.
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 May 10, 2024. Please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening or transcript reading.
Rick Black: 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 are considered forward looking statements made pursuant to the safe harbors provision.
Rick Black: Securities Litigation Reform Act of 1995.
Rick Black: 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.
Rick Black: Please refer to our earnings press release for our disclosure on forward-looking statements. These factors, 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 certain non-GAPMIS, including Adjusted EBITDA, and there are reconciliations to the nearest gap measures that can be found at the end of the earnings release.
Rick Black: Please refer to our earnings press release for our disclosure on forward looking statements. These factors as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
Rick Black: Management will also we're very well refer to certain non-GAAP measures, including adjusted EBITDA.
Rick Black: And there are reconciliations to the nearest GAAP measures that can be found at the end of the earnings release construction partners assumes no obligation to publicly update or revise any forward looking statements.
Rick Black: Construction Partners assumes no obligation to publicly update or revise any forward-looking statement. And now, I would like to turn the call over to Construction Partners CEO, Jewel Smith.
Rick Black: And now I would like to turn the call over to construction partner CEO Jule Smith jewel.
Fred Julius Smith: Thank you, Rick, and good morning, everyone. Joining me on the call today are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I want to begin by thanking all of our 4,400 employees across the CPI family of companies for their hard work, dedication to safety, and outstanding operational performance in the second quarter. While this winter quarter is the slowest financially for our seasonal business, it's a crucial time of preparation for the busy work season in the third and fourth quarters.
Fred Julius Smith: Thank you Rick and good morning, everyone.
Fred Julius Smith: Joining me on the call today are Greg Hopkins, our Chief Financial Officer, and Ned Fleming, our executive Chairman.
Fred Julius Smith: I want to begin by thanking all of our 4400 employees across the C. P. A family of companies for their hard work dedication to safety and outstanding operational performance in the second quarter.
Fred Julius Smith: The CPI team did an outstanding job of training our work crews, repairing our fleet of construction equipment, and preparing our asphalt plants to run both day and night, which is now happening throughout the southeast as we have now entered our heavy work season. Strong operational performance in our second quarter led to growth in revenue, gross profits, adjusted EBITDA, and adjusted EBITDA margin that were all up substantially compared to last year, and we remain on pace for another strong year of growth.
Fred Julius Smith: While this winter quarters, the slowest financially in our seasonal business. It's a crucial time of preparation for the busy work season in the third and fourth quarters.
Fred Julius Smith: C. P. I team did an outstanding job of training our work crews repairing a fleet of construction equipment.
Fred Julius Smith: Preparing our asphalt plants to run both day and night.
Fred Julius Smith: Which now in early May is happening throughout the southeast as we have now entered a heavy work season.
Fred Julius Smith: Strong operational performance in our second quarter.
Fred Julius Smith: Led to growth in revenue gross profits.
Adjusted EBITDA and adjusted EBITDA margin were all up substantially compared to last year and we remain on pace for another strong year of growth.
Fred Julius Smith: As we look to the balance of fiscal 'twenty 'twenty four project demand remains extremely hot.
Fred Julius Smith: As we look to the balance of fiscal 2024, project demand remains extremely high, supported by elevated federal and state infrastructure funding, as well as a healthy commercial market in our state. All of these factors taken together give us confidence at our mid-year to raise guidance for FY 2024. Our backlog of $1.79 billion is a reflection of the continued strong demand environment for both public and private work. Some of the significant increase in backlog in the second quarter was simply due to the timing of each state's DOT letting, as larger delays commonly occur in the winter months in advance of the summer work season.
Fred Julius Smith: Supported by elevated federal or state infrastructure funding as well as a healthy commercial market in our states.
Fred Julius Smith: All of these factors taken together give us confidence at our mid year to raise guidance for FY 2024.
Fred Julius Smith: Our backlog of $1.79 billion is a reflection of the continued strong demand environment for both public and private work.
Fred Julius Smith: Some of the significant increase in backlog in the second quarter was simply due to the timing of each state's D. O T lettings as larger lettings, commonly occur in the winter months in advance of the summer work season.
Fred Julius Smith: One benefit of our strong backlog continues to give us is the ability to bid patiently and continue to add work at healthy margins in this active bidding them back.
Fred Julius Smith: One benefit our strong backlog continues to give us is the ability to bid patiently and continue to add work at healthy margins in this active bidding environment. This keeps us on track toward the goals laid out in our roadmap 2027. Now turning to our view of the current market conditions, the story remains the same.
Fred Julius Smith: This keeps us on track toward the goals laid out in our road map 2027.
Fred Julius Smith: Now turning to our view of the current market conditions. The story remains the same.
Fred Julius Smith: We continue to benefit from strong public investment across a variety of infrastructure types, which includes not only highways and bridges but also airports, railroads, and military bases. We continue to see IJA funding translate into work in the field. In the commercial markets, the pace of projects and letting opportunities has remained strong across our state. Areas of particular strength in the private markets are manufacturing, Corporate Site Development, Large Economic Development Projects, and Residential.
Fred Julius Smith: We continue to benefit from strong public investment across a variety of infrastructure types.
Fred Julius Smith: Which includes not only highways and bridges, but also airports railroads and military basis.
Fred Julius Smith: We continue to see that a J a funding translating to work in the field.
Fred Julius Smith: In the commercial markets the pace of projects and letting opportunities has remained strong across our states.
Fred Julius Smith: Areas of particular strength in the private markets are manufacturing.
Fred Julius Smith: Corporate site development large economic development projects and residential.
Fred Julius Smith: Our mix of public and private work so far this year is actually about 1% higher for private work than last year, evidence that our markets continue to benefit from strong migration to the southeastern United States. These are business-friendly environments that attract companies and residents to many of the local markets that comprise our footprint.
Our mix of public and private work so far this year, it's actually about 1% higher for private work than last year.
Fred Julius Smith: Evidence that our markets continue to benefit from strong migration to the south eastern United States.
Fred Julius Smith: These are business friendly environments that attract companies and residents to many of the local markets that comprise our footprint.
Fred Julius Smith: The bidding opportunities are numerous, and though we have most of this year's revenue on the books already, our local teams in all 70-plus markets are busy adding both public and private work for next year. Turning now to our strategic growth model, our primary focus remains organic growth and the expansion of market share in our current and adjacent markets. Recently, in several of our markets, we have invested in our fleet, equipment, and additional paving crews to meet the large and growing demand throughout our organization. This will not only drive more revenue but also drive throughput volume at our asphalt plants, aggregate facilities, and liquid A.C. terminals.
Fred Julius Smith: The bidding opportunities are numerous and now we have most of this year's revenue on the books already.
Fred Julius Smith: Our local teams in all 70, plus markets are busy adding both public and private work for next year.
Fred Julius Smith: Turning now to our strategic growth model, our primary focus remains organic growth and the expansion of market share in our current and adjacent markets.
Fred Julius Smith: The other part of our growth model is acquisition. So far this fiscal year, we've completed five strategic acquisitions that have allowed us to enter new areas, expand current market share, and add capacity services and talented new team members to the CPI family. Last week, we announced the acquisition of Sunbelt asphalt surfaces in North Georgia in the suburbs of Atlanta. We acquired one active hot mix asphalt plant in Auburn, Georgia, and one Greenfield Hot Mix Asphalt plant in Commerce, Georgia that we expect to begin operating later this year.
Fred Julius Smith: Recently and several of our markets, we have invested in our fleet equipment and additional paving crews for the large and growing demand throughout our organization.
Fred Julius Smith: This will not only drive more revenue, but also drive throughput volume at our asphalt plants aggregate facilities in liquid AC terminals.
Fred Julius Smith: The other part of our growth bottles acquisitions, and so far this fiscal year, we've completed five strategic acquisitions.
Fred Julius Smith: Allowed us to enter new areas and expand current market share in.
Fred Julius Smith: And add capacity services and talented new team members to the CPI family.
Fred Julius Smith: Last week, we announced the acquisition of Sunbelt asphalt surfaces in North, Georgia, and the suburbs of Atlanta.
Fred Julius Smith: We acquired one active hot mix asphalt plant in Auburn, Georgia.
Fred Julius Smith: One Greenfield Hot mix asphalt plant Commerce, Georgia that we expect to begin operating later this year.
Fred Julius Smith: We added crews and equipment to support our operations in these marks, as well as a talented young management team to lead our operations and future growth in this dynamic region. This acquisition allows us to grow our market coverage of a highly active Interstate 85 corridor from Atlanta to Charlotte, which continues to be a key strategic area, a geographic focus. Sunbelt will operate as a new branded division of our Georgia platform company, the Scruggs Company, under its Sunbelt Asphalt Surfaces name, reinforcing the solid reputation for quality and dependability that Sunbelt has built in North Georgia.
Fred Julius Smith: We added crews and equipment to support operations in these markets as well as our talented young management team to lead our operations and future growth in this dynamic region.
Fred Julius Smith: This acquisition allows us to grow our market coverage of the highly active Interstate 85 corridor from Atlanta, Charlotte, which continues to be a key strategic area.
Fred Julius Smith: The geographic focus for us.
Sunbelt will operate as a new branded division of our GA platform Company describes company under a sunbelt asphalt surfaces, ne reinforcing the solid reputation for quality and dependability that somehow has built in north Georgia.
Fred Julius Smith: We are pleased to welcome the sunbelt employees into our growing C. P I family.
Fred Julius Smith: We are pleased to welcome the Sunbelt employees into our growing CPI family. This is an active time on the acquisition front as we are having numerous conversations with potential sellers both inside and outside of our current state. The opportunities in our highly fragmented industry are substantial. However, we remain patient and focused on finding the best strategic acquisition while maintaining and adding to the great culture of the CPI family of companies. As we grow through acquisitions, we want to maintain our reputation as the buyer of choice in our industry by treating sellers fairly and by providing attractive career opportunities and taking care of their employees.
Fred Julius Smith: This is an active time on the acquisition front as we were having numerous conversations with potential sellers, both inside and outside of our current states.
Fred Julius Smith: The opportunities in a highly fragmented industry are substantial.
Fred Julius Smith: However, we remain patient and focused on finding the best strategic acquisitions, while maintaining and adding to the great culture of the CPI family of companies.
Fred Julius Smith: As we grow through acquisitions, we want to maintain our reputation as the buyer of choice in our industry.
Fred Julius Smith: Treating sellers fairly and by providing attractive career opportunities and taking care of their employees.
Fred Julius Smith: Overall, our strategy remains the same and straightforward. The need for the nation and our states to invest in deferred infrastructure maintenance and capacity has never been greater. CPI is well positioned for profitable growth, as we organize in a growing number of local markets to perform this recurring revenue work for repeat customers. In addition, our industry is going through a generational transition. And we're the leader in building a scalable business by acquiring great, privately-held construction companies.
Fred Julius Smith: Overall, our strategy remains the same and straightforward.
Fred Julius Smith: The need for the nation, and our states to invest in deferred infrastructure maintenance and capacity has never been greater.
Fred Julius Smith: CPI is well positioned for profitable growth as we organize in a growing number of local markets.
I'm just recurring revenue work for repeat customers.
Fred Julius Smith: In addition, our industry is going through a generational transition.
Fred Julius Smith: And we are the leader in building a scalable business by acquired Great probably held construction capex.
Fred Julius Smith: We remain on track toward our roadmap 2027 goal of annual revenue growth at 15-20% and EBITDA margins in the range of 13-14% by 2027. In summary, we had a great second quarter, and we're optimistic about the markets and current bidding. We are now well into our active spring work season. Our teams are focused on safety, excellence, and operations and delivering on our raised guidance for fiscal year 2024. I'd now like to turn the call over to Greg.
Fred Julius Smith: We remain on track toward our roadmap 2027 dough.
Fred Julius Smith: The annual revenue growth of 15% to 20% and EBITDA margins in the range of 13% to 14% about 2027.
In summary, we had a great second quarter, and we're optimistic about the markets and current bidding.
Fred Julius Smith: We are now well into our active spring work season, our teams are focused on safety.
Fred Julius Smith: Excellence in operations and delivering on our raised guidance for fiscal year 2024.
Fred Julius Smith: I'd now like to turn the call over to Greg.
Greg Hopkins: Thank you Jill and good morning, everyone.
Gregory A. Hoffman: Thank you, Jewel, and good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal second quarter compared to the fiscal second quarter of 2020. Revenue was $371.4 million, up 14.3%. The increase included $25.1 million of revenue from acquisitions, completed during and subsequent to the three months ended March 31, 2023, and an increase of approximately $21.4 million of revenue in our Existing Markets from Contract Work and Sales of HMA and Aggregates, the Third Part.
Gregory A. Hoffman: The mix of total revenue growth for the quarter was approximately 6.6% organic revenue and approximately 7.7% from these recent acquisitions. Gross profit was $38.8 million, or 10.4% of revenue, compared to $26.3 million, or 8.1% of revenue in Q2 2023. General and administrative expenses were $36.7 million, and as a percentage of revenue, they were flat compared to the same period last year.
Greg Hopkins: I'll begin with a review of our key performance metrics for the fiscal second quarter compared to the fiscal second quarter in 2023.
Greg Hopkins: Revenue was 371 $4 million up 14, 3%.
Greg Hopkins: The increase included $25 $1 million of revenue from acquisitions completed during and subsequent to the three months ended March 31 2023.
Greg Hopkins: And an increase of approximately $21 $4 million of revenue in our existing markets from contract work and sales of HMA and aggregates to third parties.
Greg Hopkins: The mix of total revenue growth for the quarter was approximately six 6% organic revenue and approximately seven 7% from these recent acquisitions.
Greg Hopkins: Gross profit was $38 $8 million or 10, 4% of revenue.
Greg Hopkins: Compared to $26 $3 million or eight 1% of revenue in Q2 2023.
Greg Hopkins: General and administrative expenses were $36 $7 million and as a percentage of revenue were flat compared to the same period last year.
Gregory A. Hoffman: We remain on pace for G&A expenses to end the fiscal year in approximately 8% of... Net loss for the quarter was $1.1 million, compared to a net loss of $5.5 million in the same quarter last year. Adjusted EVADA was $29.5 million, an increase of $45.5 million. Adjusted EBITDA margins for the quarter were 7.9%, compared to 6.3% in the second quarter last year. You can find a reconciliation of In addition, we grew Project Backlog to $1.79 billion on March 31, up from $1.62 billion at the end of last quarter.
Greg Hopkins: We remain on pace for G&A expenses to end the fiscal year and approximately 8% of revenue.
Greg Hopkins: Net loss for the quarter was $1 $1 million compared to a net loss of $5 $5 million in the same quarter last year.
Greg Hopkins: Adjusted EBITDA was $29 $5 million, an increase of 45%.
Greg Hopkins: Adjusted EBITDA margin for the quarter was seven 9%.
Greg Hopkins: Paired to six 3% in the second quarter last year.
Greg Hopkins: You can find a reconciliation net income to adjusted EBITDA financial measures in today's earnings release.
Greg Hopkins: In addition, we grew project backlog to $179 billion at March 31st.
From $162 billion at the end of last quarter.
Gregory A. Hoffman: We now estimate that we have 80 to 85% of the next 12 months' contract revenue booked in backlog, which is up from 70 to 75% at this time last year. As a reminder, historically, CPI's backlog has declined sequentially during our heavy spring and summer work.
Greg Hopkins: We now estimate that we have 80.
Greg Hopkins: 85% of the next 12 months contract revenue booked in backlog, which is up from 70% to 75% at this time last year.
Greg Hopkins: As a reminder, historically CPI as backlog has declined sequentially during a heavy spring and summer work season.
Greg Hopkins: Turning now to the balance sheet.
Operator: Turning now to The Balance. We had $47.9 million of cash and cash equivalents and $154 million available under the credit facility, net of a reduction for outstanding letters of credit. In addition, we have the ability to establish an incremental revolving credit facility up to an additional $200 million. As we have $276 million of principal outstanding under the term loan and $163 million outstanding under the revolving credit facility, we continue to have flexibility and capacity for potential near-term acquisitions and high-value growth opportunities.
Greg Hopkins: We had $47 $9 million of cash and cash equivalents and $154 million available under the credit facility net of a reduction for outstanding letters of credit.
Greg Hopkins: In addition, we have the ability to establish an incremental revolving credit facility up to an additional $200 million.
Greg Hopkins: We have $276 million of principal outstanding under the term loan and $163 million outstanding under the revolving credit facility.
Greg Hopkins: We continue to have flexibility and capacity for potential near term acquisitions and high value growth opportunities.
Operator: As of the end of the quarter, our debt to trailing 12-month EBITDA ratio was 1.81 times. Our expectation is that the leverage ratio will maintain a range of 1.5 to 2.5 times while continuing to add sustained profitable growth. Cash provided by operating activities was $18.2 million. Year-to-date cash provided by operating activities for fiscal 2024 and 2023 was $78.6 million and $45.7 million, respectively. Trailing 12 months return on capital employed was just below 11% as of March 31st.
Greg Hopkins: As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.81 times. Our expectation is the leverage ratio will maintain a range of one five to two five times, while continuing to add sustained profitable growth.
Greg Hopkins: Cash provided by operating activities was $18 $2 million.
Greg Hopkins: Year to date cash provided by operating activities for fiscal 2024, and 2023 was $78 $6 million and $45 $7 million respectively.
Trailing 12 months return on capital employed.
Greg Hopkins: Just below 11% as of March 31.
Greg Hopkins: Net capital expenditures year to date were $56 million.
Operator: Net capital expenditures year-to-date were $50.6 million. We expect net capital expenditures for fiscal 2024 to be in the range of $90 to $95 million. This includes maintenance CapEx of approximately 3.25% of revenue, with the remaining amount invested in high-return growth. Today, we are raising our fiscal 2024 outlook. We expect revenue in the range of $1.81 to $1.85 billion, net income in the range of $71 to $75 million, and Adjusted EBITDA in the range of $211 to $225 million.
Greg Hopkins: We expect net capital expenditures for fiscal 2024 at the end.
Greg Hopkins: The range of $90 million to $95 million.
Greg Hopkins: This includes maintenance maintenance capex of approximately $3 two 5% of revenue with the remaining amount invested in high return growth initiatives.
Greg Hopkins: Today, we are raising our fiscal 'twenty 'twenty four outlook.
Greg Hopkins: We expect revenue in the range of $1.81 billion to $185 billion.
Greg Hopkins: Net income in the range of $71 million to $75 million and.
Greg Hopkins: And adjusted EBITDA in the range of $211 million to $225 million.
Operator: This indicates an adjusted EBITDA margin for Fiscal 24 in the range of $11.7 to $12.2 percent. We anticipate the revenue and adjusted EBITDA splits between Q3 and Q4 to be similar to fiscal year 2020. Operator?
Greg Hopkins: This indicates adjusted EBITDA margin for fiscal 'twenty four in the range of 11.7 to 12, 2%.
Greg Hopkins: We anticipate the revenue and adjusted EBITDA split between Q3, and Q4 to be similar to fiscal year 2023.
Speaker Change: And with that we are now ready to take your questions operator.
Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Kim you.
Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. Our first question comes from the line of Adam Thalhimer with Thompson, Davis & Company. Please proceed with your question.
Speaker Change: You May press star two if you'd like to remove your question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of I Havent thought Harmer, Wisconsin Davis and company. Please proceed with your question.
Adam Robert Thalhimer: Hey, good morning, guys. Great quarter. Good morning, Adam.
Speaker Change: Hey, good morning, guys great quarter.
Speaker Change: Adam Good morning.
Adam Robert Thalhimer: Can you give us a little more detail on the Sunbelt acquisition, possibly the revenue contribution? Also, it would be helpful to maybe the mix just between HMA and construction for them.
Speaker Change: Can you give us a little more detail on the Sunbelt acquisition.
Speaker Change: Possibly the revenue contribution.
Speaker Change: But also it would be helpful. As maybe the mix just between HMA and construction for them.
Adam: Well I'll start with just telling you a little bit about sunbelt that I'll, let Greg give you the specifics on how much revenue, we think will get.
Fred Julius Smith: Well, I'll start by telling you a little bit about Sunbelt, then I'll let Greg give you the specifics on, you know, how much revenue we think we'll get. This is just a great private company. We've gotten to know these guys for a couple years now.
Greg Hopkins: This is just a great private company, we've gotten to know these guys for a couple of years now.
Fred Julius Smith: And so they really just have a great market north of Atlanta and Auburn, right along I-85, and it's just a really great addition to be in North Georgia with them. They have a great young management team led by Jeremy Heidel, who's staying on as the president of Sunbelt. And so we're just excited. They really benefit from the growth emanating out from Atlanta and moving up along that I-85 corridor. So we're really excited. They're going to contribute some to this year, I'm going to let Greg give you what he thinks are the specifics there. Okay, Greg? Yeah,
Greg Hopkins: And so they really just have a great market north of Atlanta.
Greg Hopkins: In Auburn right, along I 85, and.
Greg Hopkins: Just.
Greg Hopkins: A really great addition to be in north, Georgia with them. They are a great young management team led by Jeremy Heidel who's staying on as the president.
Greg Hopkins: Sunbelt.
Greg Hopkins: And so we're just excited they really just.
Greg Hopkins: Just benefit from the growth emanating out from Atlanta, and moving up all along that I 85 corridor. So we're really excited they're going to contribute some to this year I will let Greg give you what he thinks of this specific saying, Greg yeah, so they're going to contribute approximately $20 million.
Gregory A. Hoffman: Yeah, so they're going to contribute approximately $20 million in revenue for the remainder of the year. And their typical bolt-on, Adam, you know... conducting business, winning work, the same and similar to what we already are doing ourselves. So a good fit for us and a good real addition to that particular area of our Mark.
Greg Hopkins: And revenue for the remainder of the year.
Greg Hopkins: And their typical bolt on Adam.
Yes.
Greg Hopkins: Inducting business.
Greg Hopkins: Winning work are the same and similar to what we already are doing ourselves. So good fit for us and a good real addition to that particular area.
Greg Hopkins: Of our of our market.
Speaker Change: Great and then.
Adam Robert Thalhimer: Great. And then, just as I'm trying to think through the comp for next year, you guys probably had a little bit of a weather hit in the second quarter. I mean, I know it's a solid beat, but that was with a weather impact, I think.
Speaker Change: Then.
Speaker Change: Just as I'm trying to think through the comp for next year, you guys, probably had a little bit of a weather hit in the second quarter and I know, it's a solid beat but that was with the weather impact I think.
Speaker Change: Yes, Adam.
Fred Julius Smith: Yeah, Adam, you know, um... This quarter we really experienced both extremes with weather. January was really tough, March was wet, you know, somewhat, but February was great. And you know, we talk about the weather evening out, and we saw that this quarter. We had just had a historically dry February, and we were able to work and be productive. So you know, probably all in all, when you add it in, there might have been some weather impact this quarter, but we saw that weather really impacts us at fixed cost recovery at our plants and at our fleet.
Speaker Change:
Speaker Change: This quarter, we really experienced two both extremes with weather January was really tough March was wet.
Adam: Yes, somewhat but February was great and you know we talk about weather, even it out and we saw that this quarter.
Adam: We had just had a historically dry February and we're able to work and be productive so.
Adam: Yes, probably all in all when you add at the end there might've been some weather impact this quarter.
Adam: But we saw you know whether really impacts us at fixed cost recovery at our plants in our fleet and so there was some of that.
Fred Julius Smith: And so there was some of that. But what we really like to see, and what we did see was that our guys cruised throughout the southeast in a lot of markets, had great performance on projects, so we were able to really make some gains with them beating their budgets and production on projects. And so that really helped offset, you know, the impact of the fixed cost recovery. And that's typical for CPI, you know, as we've gotten into backlog, as we've talked about now for almost a year, and it's really good to see that.
Adam: But what we really like to see and what we did see was that.
Adam: Our guys are crews throughout the southeast and a lot of markets had.
Adam: Had great performance on projects. So we were able to really make some gains with them, beating their budgets and productions on projects.
Adam: And so that really helped offset.
Adam: The impact of the fixed cost recovery and Thats typical for CPI you know.
Adam: As we've gotten into backlog. That's you know as we've talked about now for almost a year and it's really good to see that.
Speaker Change: Okay. Good color thanks, guys.
Adam Robert Thalhimer: Okay, good color. Thanks, guys. Idam, thank you.
Speaker Change: Thank you.
Yes.
Operator: Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Patrick Tyler Brown: Hey, good morning, guys.
Patrick Tyler Brown: Good morning, Tyler now borne intelligible, hey, so Julia you noted the M&A pipeline looks good both inside and outside your states I thought the comments about outside your states it's quite interesting.
Patrick Tyler Brown: Morning, Tyler. Morning, Tyler. Hey, Jewel.
Patrick Tyler Brown: Hey, Jewel, you noted the M&A pipeline looks good both inside and outside your states. I thought the comments about outside your states were quite interesting. Would you be looking at more of a larger platform outside those core states? Just trying to understand what you're signaling there.
Patrick Tyler Brown: Would you be looking at more of a larger platform outside those core states just trying to understand what you're signaling here.
Julia: Yeah, Tyler I'll give me just a little bit of color would the current acquisition strategy now.
Fred Julius Smith: Yeah, Tyler, I'll give you just a little bit of color on the current acquisition strategy. I'd love for Ned to just weigh in with just some thoughts on the overall growth strategy. We continue to have a lot of conversations with sellers, both inside our states and outside our states. And we say that, but it's really true. You know, we just continue to build relationships. We're not in a hurry to necessarily go to another state if the opportunity presents itself to find a good platform company in a new state.
Julia: I'd love for NAD to just weigh in with just some thoughts on overall growth strategy.
NAD: We continue to have a lot of conversations with sellers, both inside our states and outside of our states and we say that.
NAD: But it's really true.
We just continue to.
NAD: Build relationships, we're not in a hurry to necessarily go to another state if the opportunity presents itself to find a good platform company and a new state.
Fred Julius Smith: You know, that we're going to take that opportunity. But at the same time, there's a lot of just great white space, as you know, from your heat map, in many, many of the states we're already in. So, you know, we're we're just as happy to. We're looking for good, profitable growth wherever it is. Ned, would you like to add just some color to that? Thank you.
NAD: You know that we're going to take that opportunity, but at the same time, there's a lot of just great White space as you know from your heat map in many many of the states we're already in so.
NAD: We're just as happy to we were looking for good profitable growth.
NAD: Wherever it is Ned would you like to add.
Ned Nelson Fleming: Just some color on that.
Ned Nelson Fleming: Sure, Jewel. Thank you very much.
Ned Nelson Fleming: Sure Joel Thank you very much.
Ned Nelson Fleming: You know, Tyler, the plan all along has been to grow both our relative market share in the states we're in but also to grow and expand geographically. With geographic expansion, it opens up a lot more opportunities. So we're always looking to move down and through throughout the whole Sun Belt here, you know, areas where we can continue to build roads 12 months out of the year.
Ned Nelson Fleming: Tyler the plan all along has been to grow both our relative market share in the states. We're in but also to grow and expand geographically with geographic expansion. It opens up a lot more opportunities. So we're always looking to move down and fruit throughout the whole sunbelt in here you know areas, where we can continue to build.
Ned Nelson Fleming: Roads 12 months out of the year.
Patrick Tyler Brown: So if I think about it, we are better suited today organizationally. We've got the people, the money, and the plan to take advantage of this opportunity. We want to continue to grow geographically as well as increase our relative market share. When we grow geographically, we have the first business in a new state, and that has to be a platform that we can continue to do bolt-ons and add-ons. So when you ask that question, that is correct.
Ned Nelson Fleming: So if I think about it we are better suited today organizationally.
Ned Nelson Fleming: Financially strategically to take advantage of this opportunity.
Ned Nelson Fleming: So to kind of boil it down we've got the people the money in the plan to take advantage of this opportunity we want to continue to grow.
Ned Nelson Fleming:
Ned Nelson Fleming: Geographically as well as increase our relative market share when we grow geographically.
Ned Nelson Fleming: We have the first business and a new state that is has to be a platform that we can continue to do bolt ons and add ons. So when you asked that question that is correct. We would be looking for a company that has a history of success as an understanding of growth has the capacity to do bolt ons. So we think that opportunity is throughout.
Patrick Tyler Brown: We would be looking for a company that has a history of success, has an understanding of growth, and has the capacity to do bolt-ons. So we think that opportunity is throughout the Sun Belt, and we will continue to take advantage of the opportunities to grow geographically when we can with the right people.
Ned Nelson Fleming: The Sun belt, and we will continue to take advantage of the opportunities to grow geographically, what we can with the right people.
Gregory A. Hoffman: Yeah, no, that's extremely helpful. Thank you for that, Ned.
Speaker Change: Yeah No. That's that's extremely helpful. Thank you for that and then.
Patrick Tyler Brown: Greg, real quick, correct me if I'm wrong, but was weather really tough last Q3? I believe it was, and can you help us shape the expectations for the second half, maybe just from a simple revenue perspective? Would we expect the year-over-year growth to accelerate in Q3 and then step back down in Q4? I mean, basically, would we expect both Q3 and Q4 to be roughly equal in terms of revenue, roughly, based on the guidance?
Speaker Change: Greg Real quick hockey, if I'm wrong, but.
Speaker Change: Was weather a really was weather really tough last Q3.
I believe it was and can you help us shape the expectations for the second half maybe just from a simple revenue perspective would we expect the year over year growth to accelerate in Q3, and then step back down in Q4, I mean, basically would we expect both Q3 and four to kind of be equal in terms of revenue roughly based on the guidance.
Speaker Change: Yes, So Q3 and Q4 of last year are both really good month, and we got really good quarter. So.
Gregory A. Hoffman: Yeah, so Q3 and Q4 of last year were both really good months, really good quarters, so you know, it's going to be an interesting comparison compared to those two quarters. You know, we're again, as we always do when we think of our business, looking at the first half of the year and the second half of the year, and we have to, since we play an outside game, think that we just have to accept the normal weather patterns, and that's how we think through it.
Speaker Change: It's going to be an interesting comp compared to those two quarters.
Speaker Change: We're again as we always do when we think of our business looking at the first half of the year in the second half of the year and we have juices, we playing outside game. You know think that we just have to accept a normal weather patterns and that's how that's how we think through it. So I guess then from.
Gregory A. Hoffman: So I guess then from what we think the Q3 and Q4 to play out is very similar to 23 as it relates to the step up in revenue and EBITDA from Q3 to Q4.
Speaker Change: What we what we think the Q3 and Q4 to play out.
Speaker Change: Very similar to 'twenty three as it relates to the step up in revenue and EBITDA from Q3 to Q4.
Patrick Tyler Brown: Okay, okay that's helpful. And then my last one here, so Jewel, it looks like you raised the midpoint of the margins by say 30 basis points. Curious just what you're seeing there; what's the key driver? Are you seeing some easing of cost pressures, maybe in labor? Are you having success bidding better given some of the analytical tools you're implementing? Just any color would be helpful there, and more specifically where you are on that analytics journey.
Speaker Change: Okay. Okay. That's helpful. And then my last one here so dual it looks like you raised the midpoint of the margins by say 30 30 basis points I'm curious just what youre seeing there and what's the key driver or are you seeing some easing cost pressures maybe in labor are you having success getting better given some of the analytical tools, you're implementing just any color.
Speaker Change: <unk> would be helpful. There and more specifically where you are in that analytics journey I know that was something you talked about at the analyst day. Thank you guys.
Fred Julius Smith: Yes, Tyler. Great question. There are a couple of different facets there. First, I think our annual EBITDA margin is going to benefit from just the first two quarters, you know, just being normal quarters, building, you know, post-inflationary backlog, and we've seen that now. And so, as we move into the third and fourth quarters, we really see our business just operating as normal. We really had a great third and fourth quarter last year, and we don't see anything different ahead of us.
Fred Julius Smith: I know that was Yes, Tyler, a great answer.
Patrick Tyler Brown: Hey, Tyler.
Patrick Tyler Brown: Great question, there's a couple of different fastest there.
Speaker Change: First I think our annual EBITDA margin is going to benefit from just the first two quarters are just be a normal quarters building post inflationary backlog and we've seen that now and so we move into the third and fourth quarter, we really see our business just operating as normal we really.
Speaker Change: Had a great third and fourth quarter last year, and we don't see anything different ahead of us we're continuing to add backlog at healthy margins. So and we're just passing through our models a pass through model and so we're seeing that we are hard at work.
Fred Julius Smith: We're continuing to add backlog at healthy margins. So, and we're just passing through. You know, our model is a pass-through model. And so we're seeing that. We are hard at work, just trying to use technology in a lot of our different facets of our business, but certainly analytics as to what, you know, how we bid and how we approach pricing is something we're hard at work on. So we did raise the midpoint.
Speaker Change: Trying to use technology in a lot of our different.
Speaker Change: Facets of our business, but certainly analytics as to what.
Speaker Change: You know, how we bid and how we approach pricing is something we're hard at work on so.
Speaker Change: We did raise the mid point and like Gregg said, you know, we're expecting a good third and fourth quarter and we're growing.
Fred Julius Smith: And like Greg said, you know, we're expecting a good third and fourth quarter, and we're growing, you know, so that's reflected in the updated guidance. We're in more markets, and we're experiencing real organic growth. So I think all that factors in.
So that's reflected in that.
Speaker Change: Updated guidance, we're in more markets and we're experienced some real organic growth. So I think all of that factors in.
Perfect. Thanks, guys.
Speaker Change: Yeah.
Speaker Change: Thanks Tyler.
Speaker Change: Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your question.
Kathryn Ingram Thompson: Hi, thank you for taking my questions today. I'm just going to see if you could clarify the balance of price versus volumes in the quarter and, along with that, how that plays into your outlook for 2024.
Kathryn Ingram Thompson: Alright, Thank you for taking my questions.
Kathryn Ingram Thompson: Hum.
Kathryn Ingram Thompson: Violence of price versus volumes in the quarter.
Kathryn Ingram Thompson: And then along with that how that plays and teams or your outlook for all through 'twenty four.
Kathryn Ingram Thompson: Yeah.
Fred Julius Smith: Yeah, Kathryn, as I just said with Tyler, and I'll get Greg to give a little more specifics on that. We are growing, you know, and we talk about 15 to 20% annual growth, and typically, it's split about evenly between acquisitive and organic growth. You know, some years organic or acquisitive growth could be a little higher, but typically, it's about roughly half and half. And so, we are seeing real organic growth.
Catherine: Yes Catherine.
Speaker Change: As I, just said with Tyler.
Speaker Change: Get Greg to give a little more specifics with it.
Speaker Change: We are growing you know when we talk about 15% to 20%.
Speaker Change: Annual growth.
Speaker Change: No.
Speaker Change: Typically it's split about evenly between acquisitive and organic some years or organic or acquisitive could be a little higher but typically it's about roughly half and half.
And so we are we are seeing a real organic growth clearly our model passage through prices. So as prices go up in the construction industry, whether it be from a materials aggregates, we just reflect that in our price, but so I would say of all organic growth.
Fred Julius Smith: Clearly, our model passes through prices, so as prices go up in the construction industry, whether it be from materials or aggregates, we just reflect that in our price. But, so, I would say about organic growth, part of it is just price increases, and part of it is real organic growth. I'll let Greg give some, you know, just some numbers to help, you know, show you what we're seeing there. Greg? Yeah, so...
Speaker Change: Part of it is just price increases and part of it is real organic growth I'll, let Greg give some just some numbers to help.
Speaker Change: Show you, what we're seeing there Greg yes, so if we're thinking about the guidance as it relates to the mid point I think I addressed a little bit of this minute ago in terms of the acquisitive side.
Gregory A. Hoffman: Yeah, so if we're thinking about the guidance as it relates to the midpoint, I think I addressed a little bit of this a minute ago in terms of the acquisitive side, I'll go ahead and give you that. Just, you know, we said last quarter that we were $120,000,000, $125,000,000, through that particular quarter, and added another 20. That's going to be in the neighborhood of 9.3%, 9.6% acquisitive growth. And then Jewel talking about organic growth, that's going to be in the neighborhood of 7.5% to 7.8%. So yeah, as we're getting the price increases that we're seeing throughout our space, we're passing those along. And at the same time, we're raising prices in March.
And give you that just said.
Greg Hopkins: <unk> said last quarter that were 120 $125 million.
Greg Hopkins: Through that particular quarter added another 20, that's going to be in the neighborhood of 9.396%.
Greg Hopkins: Acquisitive growth and then.
Greg Hopkins: Jewel talking about organic growth, that's going to be in the neighborhood of seven five to seven 8%. So yes, we're getting the price increases that we're seeing throughout.
Greg Hopkins: Our space, we're passing those along and then at.
Greg Hopkins: At the same time we're.
Greg Hopkins: Raising our.
Greg Hopkins: Our margins.
Greg Hopkins: Okay.
Kathryn Ingram Thompson: Okay, and thanks for that, Collar. In your prepared commentary, you said that you have 80 to 85 backlogs booked versus 70 to 75 percent last year. Yeah. Maybe how much of that is driven by some of the larger private work that you outlined versus your traditional public? And what is really driving that delta overall in that percentage value?
Speaker Change: Thanks for that color and there you know prepared commentary you said that you have 80 to 85 backlog booked versus 70% to 75% last year.
Greg Hopkins: Yes.
Greg Hopkins: Maybe.
Greg Hopkins: How much of that is driven by some of the larger private work.
Greg Hopkins: Outlined.
Greg Hopkins: Versus your traditional public.
And what is really what is really driving that I'm just.
Greg Hopkins: Delta overall.
Greg Hopkins: <unk> balance.
Greg Hopkins: Gasoline.
Fred Julius Smith: Kathryn, you know, we've always said that our backlog, you know, we don't want to be at 100% of the next 12 months of revenue on backlog; we want to be able to take care of customers that have book and burn work. But our backlog has trended up, which we see is a good thing. It gives us a lot of visibility, allows us to bid patiently. And so.
We've always said that our backlogs.
Greg Hopkins: We don't want to beat 100% of the next 12 months.
Greg Hopkins: Revenue.
Greg Hopkins: On backlog, we want to be able to take care of customers that have book and burn work.
Greg Hopkins: But our backlog has trended up which we see as a good thing it gives us a lot of visibility allows us to bid patiently and so.
Fred Julius Smith: But as far as what's driving it, um, we're still adding to backlog projects that are very typical for us, you know, working with the same customers, doing a lot of recurring work in our markets. We're not seeing any real big shift in our project sizes. Every now and then, we add a larger project, but that's typical for us. We really still see that we're adding projects on average between three and five million dollars for a duration of six to nine months.
Greg Hopkins: But as far as what's driving it we're still adding to backlog projects that are very typical for us working with the same customers doing a lot of recurring work in our markets.
Greg Hopkins: We're not seeing any real big shift in our project sizes. Every now and then we add a larger project, but that's typical for us, but we really still see we're adding projects on average between three and $5 million and a duration of six to nine months.
Fred Julius Smith: I do think because of the strong demand environment that the customers that our industry and companies like us work for are more patient. And so we're able to bid and have more flexible schedules to do it. That gives us the comfort to add work to the backlog. Um, so that's really.
Greg Hopkins: I do think because of the strong demand environment.
Greg Hopkins: The customers that are our industry and companies like us work for are more patient.
Greg Hopkins: So we're able to bid and have more flexible schedules to do it and that gives us comfort to add work to the backlog.
Greg Hopkins: So that's really.
Fred Julius Smith: Why it's a little higher percentage than normal, but we're going to continue to be patient and add work that's profitable. We're not chasing backlog. We're looking at our crews and equipment. As I said, we're growing in our capacity to do work, which is just a normal part of our organization growing, but we would rather get the right projects than just add backlog data.
Greg Hopkins: Why it's a little higher percentage than normal where you know, but we're going to continue to be patient and add work that's profitable we're not trying we're not.
Greg Hopkins: Chasing backlog.
Greg Hopkins: Where we're looking at our crews and equipment as I said, we're growing in our.
Greg Hopkins: <unk> to do work, which is just a normal part of our organization growing.
Greg Hopkins: But we would we would rather get the right projects and just get it.
Greg Hopkins: Just to add backlog bad.
Kathryn Ingram Thompson: Perfect. And then just one clarification, just given the dynamic nature of cost and pricing in that backlog, do you have, I mean, what How do you approach pricing and managing inflation?
Speaker Change: Perfect and then just one clarification.
Speaker Change: Just given the dynamic nature of cost and pricing.
Speaker Change: In that backlog do you have any what.
Speaker Change: How do you approach pricing and managing inflation.
Speaker Change: Yeah. So we learned a couple of years ago.
Fred Julius Smith: You know, so we learned a couple years ago when inflation hit that even though our model had always been a pass-through model, when inflation hit, we simply had to speed up and increase the input updates. And so all of our 70 plus markets and our area managers and their estimators adapted very well. But we certainly learned a valuable lesson. I give Ned credit.
Speaker Change: When inflation hits that even though our model had always been a pass through model when inflation hit we simply had to speed up and increase.
Speaker Change: The input.
Speaker Change: Dates and so.
Speaker Change: All of our 70 plus markets in our area managers in their estimates.
Speaker Change: Adapted very well, but we certainly learned a valuable lesson.
Speaker Change: I'll give net credit he theres one thing he reminds me all the time, it's inflation has not gone away, especially in our industry with the demand out there and so that keeps us on our toes to just we're still even though it has moderated from what it was certainly not out of hand, but.
Fred Julius Smith: There's one thing he reminds me all the time. It's inflation, which has not gone away, especially in our industry with the demand out there. And so that keeps us on our toes to just, we're still, even though it's moderated from what it was, certainly not out of hand, but we make sure that we're passing through the costs. And so that's reflected in our backlog. The bids that we have, the projects we have on backlog now still have the same escalators, assumptions of labor and material increases that we started adding in the summer of 2021 when inflation hit. So, you know, tough times make good habits. And I think certainly we learned from that, and our pass-through model's more effective now. Perfect, thanks.
Speaker Change: We make sure that we're passing through the cost and so that's reflected in our backlog.
Speaker Change: Bids that we have the projects we have on backlog now still have the same escalators assumptions of labor and material increases.
Speaker Change: That we started adding in the summer of 2021, when the inflation hit so in a.
Speaker Change: Tough times make good habits, and I think certainly we learned from that and our pass through models more effective now.
Speaker Change: Perfect. Thanks, so much.
Kathryn Ingram Thompson: Perfect. Thanks so much.
Speaker Change: Thank you Catherine.
Catherine: Thank you. Our next question comes from the line of Michael Feniger with Bank of America. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Michael Feniger with Bank of America. Please proceed with your question.
Michael J. Feniger: Hey everyone, thanks for taking my questions. I'm just curious; I know it was a really strong Q3, Q4. I was kind of just looking at the guidance. Are we kind of implying no margin expansion in the second half? Is that because of the mix, a little bit more M&A? Is it anything to do with diesel or liquid asphalt? Just curious, you know, you're seeing strong growth in the back half. Just curious on that, how that will flow through to Evita and the margins there.
Michael J. Feniger: Hey, everyone. Thanks for taking my my questions I'm, just curious I know I know it was a really strong Q3 Q4 I was kind of just looking at the.
Michael J. Feniger: Guidance is there are we kind of implying no margin expansion in the second half.
Michael J. Feniger: Is that because of mix a little bit more M&A.
Michael J. Feniger: With diesel and liquid asphalt just curious you know you're seeing strong growth in the back half just curious on that on that flow through to EBITDA.
Michael J. Feniger: The margins there.
Fred Julius Smith: Yeah Michael, good question and we thought about that and looked at it because as you know the last four quarters at least we've seen really good gross margin expansion and so and frankly we're still seeing that. One of the things that we see in the third and fourth quarter this year that was different than last year is we've been very active on the M&A front and we've done five acquisitions and there could be more between now and the end of the year and so but certainly when you do acquisitions as we've always said you're acquiring backlog and you're acquiring backlog that you didn't bid that you're inheriting and so while we certainly don't see any problems in the backlog that we've inherited we know that we're going to have to build that and get our hands around it and so we're just trying to account for that in our guidance is that we're going to be you know working through that and and just as we've always said these acquisitions you know we certainly come in and put in the technology and the bidding mechanisms and so those margins quickly get to what CPI historically has. You know, I think our guidance is just a reflection, we've been busy on the M&A front.
Speaker Change: Yes, Michael.
Michael J. Feniger: Good question, and we thought about that and looked at it because as you know the last.
Speaker Change: Four quarters at least we've seen.
Michael J. Feniger: Good gross margin expansion and so and frankly, we're still seeing that one of the things that we see in the third and fourth quarter. This year that was different than last year is we've been very active on the M&A front and do we've done five acquisitions.
Michael J. Feniger: And there could be more between now and the end of the year and so.
Michael J. Feniger: Certainly when you do acquisitions as we've always said youre acquiring backlog and youre acquiring backlog that you didnt bid that you're inheriting.
Michael J. Feniger: And so while we certainly don't see any problems in the backlog that we've inherited we know that we're gonna have to build that and get our hands around it and so we're just trying to account for that in our guidance is that we're gonna be working through that and just as we've always said these acquisitions.
Michael J. Feniger: Oh, we certainly come in and put into technology.
Michael J. Feniger: The bidding mechanisms and so those margins quickly get to what CPI historically has but.
Michael J. Feniger: I think our guidance is just a reflection we have been busy on the M&A front.
Michael J. Feniger: That makes sense. And I, you know, it seems like you guys reiterated the CapEx. But you know, your cash from operations is up really strongly in the first half, I think it's up over 70% year over year in the first half, you're really converting a lot of that EBITDA to cash flow just like that. What are you kind of thinking in the back half there, you know, with the raise in EBITDA, is there a similar raise we should be thinking on the cash flow side? Just any thoughts there would be helpful.
Speaker Change: That makes that makes sense and I.
Speaker Change: It seems like you guys reiterated the capex.
Speaker Change: But you know your cash from ops operations is up really strongly in the first half I think it's up over 70% year over year in the first half you really converting a lot of that that EBITDA to cash flow.
Speaker Change: Is that.
Speaker Change: Cable what are your kind of thinking in the back half there.
Speaker Change: The raising the EBITDA.
Speaker Change: Is there a similar raise we should be thinking on on the cash flow side, just any thoughts there would be helpful. Yes, I think there is a relationship sure we've talked about 75% to 80% conversion of EBITDA.
Gregory A. Hoffman: Yeah, I think there's a relationship there. Sure.
Gregory A. Hoffman: We've talked about 75 to 80% conversion of EBITDA to cash flow from operations, and I still expect that. So the math there shows another 95, potentially 95 million in the back half. You know, I was talking a minute ago about, you know, kind of year over year and the guidance. So last year, the fourth quarter was extremely strong. And because of that strength, we certainly carried a lot of cash collection into the first quarter of 24 from that really strong quarter. So I think that's what set the year off really well. But yeah, I think we're still expecting that traditional conversion that I just discussed. Great.
Speaker Change: Cash flow from operations still still expect that so.
Speaker Change: The math there shows another 95 potentially $95 million in the back half.
Speaker Change: The.
Speaker Change: Joe was talking a minute ago about.
Speaker Change: Kind of year over year in the guidance.
Speaker Change: Last the fourth quarter was extremely strong.
Speaker Change: And because of that strength, we certainly carried a lot of cash collection.
Speaker Change: To the first quarter of 'twenty four from that really strong quarter. So.
Speaker Change: I think that's what set that set the year off really well, but yes, I think we're still expecting that that that traditional conversion that I just discussed.
Michael J. Feniger: Great. And I'm just, I'd like to squeeze one more in there.
Speaker Change: And I'm, just I'd like to squeeze one more in there just you know there is a concern out there that you know inflation's a little bit.
Speaker Change: Higher for longer rates can be higher for longer.
Speaker Change: I guess 612 months ago, I think we'd be surprises to the private markets holding up as they have and that could just be a phenomenon south east I'm. Just curious how you guys are thinking into 25, if we don't get relief from the fed on rates. What you guys are came on the ground on the private side as well the prior.
Michael J. Feniger: Just, you know, there is a concern out there that inflation is a little bit, you know, higher for longer, and rates could be higher for longer. You know, I guess six, 12 months ago, I think we'd be surprised to see the private markets holding up as they have, and that could just be a phenomenon in the Southeast. I'm just curious how you guys are thinking into 25, if we don't get relief from the Fed on rates, what you guys are hearing on the ground on the private side? Will the private side start to slow, or are there, you know, certain structural dynamics that you feel like are still holding up that part of the market and that business activity for you?
Speaker Change: But as I start to slow are there.
Speaker Change: Certain structural dynamics and do you feel like are still holding up that part of the market in that business that can be for you. Thanks, everyone.
Fred Julius Smith: Thanks, everyone. Here, Michael, that...
Speaker Change: Yeah.
Fred Julius Smith: Yeah, Michael, that's really the question that, you know, for over a year now, we've been watching, as we said, the private markets and the commercial markets closely. And this year, we could see it actually be a percent higher than it was last year.
Speaker Change: Yes, Michael that's that's really.
Speaker Change: The question that.
Speaker Change: For over a year now we've been watching as we said we watch the private markets and the commercial markets closely.
And this year.
Speaker Change: You know it.
Speaker Change: We could see it actually be a percent higher than it was last year and I think that reflects that.
Fred Julius Smith: And I think that reflects that our markets continue to have a lot of commercial activity. What's driving that, I think, as we've said, is that our states are attracting a lot of residents migrating there, but they're also attracting a lot of business. Whether that's businesses moving for the tax-friendly environment or reshoring, we're building a lot of data centers, corporate campuses, manufacturing facilities, and so that continues to just create a lot of commercial opportunities.
Speaker Change: Our markets continue to have a lot of commercial activity whats.
Speaker Change: What's driving that I think is as we've said that where our states are attracting a lot of residents migrate in there, but it is also attracting a lot of businesses.
Whether that business is moving for the tax friendly environment or re shoring.
Speaker Change: We're building a lot of data centers corporate campuses manufacturing facilities and so that continues to just.
Speaker Change: A lot of commercial opportunities.
Speaker Change: We certainly haven't seen any slowdown really taken hold yet, but as we've always said our resources are flexible and so to the extent the commercial market were to slow down in 'twenty five we would simply.
Fred Julius Smith: We certainly haven't seen any slowdown really take hold yet, but as we've always said, our resources are flexible. And so to the extent the commercial market were to slow down in 25, we would simply just move over and do more public work because of the demand on the public side. We can't get to all the work that's out there now anyway, and so the split has held constant for the last couple years. If anything, the private side is a little stronger, but should something slow down on that side in a year or two, we would simply just do more public work.
Speaker Change: My move over and do more public work because the demand on the public side.
Speaker Change: We can't get to all the work that's out there now anyway and so.
Speaker Change: The split is.
Speaker Change: Held constant.
Speaker Change: For the last couple of years, if anything that private side, so a little stronger but.
Speaker Change: Should something slowdown on that side in a year or two we would simply just do more public work.
Speaker Change: Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Stanley Elliott with Stiefel. Please proceed with your question.
Stanley Stoker Elliott: Hey, good morning, everyone. Congratulations on the nice quarter. Hey, could you guys comment on, you know, I guess earlier last month, you guys had the share repurchase announcement out. Are you all looking to be active in the market? Is it more to just offset dilution? Just trying to think about how you're thinking about that and then weighing that repurchase piece versus what sounds like a pretty healthy M&A pipeline.
Stanley Stoker Elliott: Hey, good morning, everyone.
Stanley Stoker Elliott: Graduation.
Stanley Stoker Elliott: Nice quarter.
Stanley Stoker Elliott: Comment on I.
Stanley Stoker Elliott: I guess earlier last month, you guys had the share repurchase announcement out you are you all looking to be active in the market is it more to just offset dilution just trying to think about how you're thinking about that.
Stanley Stoker Elliott: Weighing that repurchase piece versus what sounds like a pretty healthy M&A pipeline.
Yeah Stanley I think Ned should answer that.
Stanley Stoker Elliott: Yeah, Stanley, I think Ned should answer that, and so I'm going to let him answer that, and then I'll give a little more color as to sort of the strategic reasons for that. Ned? Yeah.
Ned Nelson Fleming: And so I'm going to let him answer that and then I'll give a little more color as to sort of.
Ned Nelson Fleming: The strategic reasons for that Ned.
Ned Nelson Fleming: Yes, Stanley, we are really trying to circumvent the... dilution that's coming from the Management Stock Incentive Plan, and we think the Management Stock Incentive Plan is important for us to motivate and retain talent throughout the organization, and we really would like to utilize this simply to make sure that in that process, we're not diluting our current shareholders beyond what we think is a normal and ordinary course. So for us, it's really a program designed simply to allow us to continue without diluting the shareholders' equity to continue to motivate management and everybody in the organization.
Ned Nelson Fleming: So we are really trying to circumvent the.
Ned Nelson Fleming: Dilution, that's coming from the management stock incentive plan and we like the management stock incentive plan is important.
Ned Nelson Fleming: For us to motivate and retain talent throughout the organization and we really would like to utilize this simply to make sure that in that process, we're not diluting our current shareholders.
Beyond what we think is normal and ordinary course, so for US. It's really a program designed simply to allow us to continue without diluting the shareholders to continue to motivate management and everybody in the organization, we have pushed the stock plan pretty far down in the organization and I think Jim.
Ned Nelson Fleming: We have pushed the stock plan pretty far down in the organization, and I think Jewel will tell you it is a very motivating tool that we have, and we don't want that to dilute. The shareholders; we want that to enhance shareholder value.
Ned Nelson Fleming: Bill will tell you it is a very motivating a tool that we have.
Ned Nelson Fleming: And we don't want that to dilute.
Ned Nelson Fleming: The shareholders, we want that to enhance the shareholder value.
Jim: Yeah. So Stanley I would just add to that just as Ned said, you know for us to deliver on this roadmap 2027, and the growth targets, we have both on the topline and Bottomline.
Ned Nelson Fleming: Yeah, so, Stanley, I would just add to that, just as Ned said, you know, for us to deliver on this roadmap 2027 and the growth targets we have, both on the top line and bottom line, our organization is the key to that. You know, it's not the equipment, it's not the asphalt plants, it's the people.
Jim: Our organization is the key to that you know, it's not the equipment its not the asphalt plants the people and we've talked about now for almost three years.
Fred Julius Smith: And we've talked about for almost three years that CPI sees it as a competitive advantage, our ability to attract and retain the workforce. And so, these stock awards are a huge part of that, and they've been extremely effective since we started. But we want to do it in a way that doesn't hurt our existing shareholders.
CPI sees it as a competitive advantage our ability to attract and retain the workforce and so.
Jim: These stock awards are a huge part of that and it's been extremely effective since we've started but we wanted to do it in a way that doesn't hurt our existing shareholders.
Stanley Stoker Elliott: Great. Thanks for the call.
Speaker Change: Great. Thanks for the color.
And then.
Speaker Change: In terms of the margin piece, it's been very strong.
Stanley Stoker Elliott: And then, you know, in terms of the margin piece, it's been very strong. And you had some comments earlier about performance and beating some of the budget. I mean, have you all changed? I know you have more pass-throughs going through the model right now, but has there been any other change in how you're approaching the bidding environment? Just, you know, looking at how nice the margins have been really kind of over the past 12 months.
Speaker Change: You had some comments earlier about your performance in and beating some of the budget I mean have you all changed I know you have more pass throughs going through the model right now but has there been any other change in how you're approaching the bidding environment I just youre looking at how nice the margins have been really kind of in the past 12 months.
Speaker Change: Yes Stanley.
Fred Julius Smith: Yes, Stanley, nothing's changed except, you know, our model is a pass-through model. We estimate jobs today just like we did five and 10 years ago. We simply have adjusted what we assume for inflation and escalators and contingencies. So, but we still have to be competitive on bid day, and so we put those in what we think could happen in the bids. The fact that we're able to add work at healthy margins tells us our competitors are doing the same thing.
Stanley Stoker Elliott: Nothing has changed other our.
Stanley Stoker Elliott: Our model is a pass through model, we estimate jobs today, just like we did five and 10 years ago.
We simply have adjusted what we assume for inflation and escalators and contingencies.
Stanley Stoker Elliott: So, but we still have to be competitive on bid day and so we put those what we think could happen in the bids. The fact that we're able to add work at healthy margins tells us our competitors are doing the same thing and so thats really just running our model the way it's intended to run.
Fred Julius Smith: And so that's really just running our model the way it's intended to run. And when we do that, and we give our crews and our different parts of the organization, the folks out in the field, when we give them a fair shot with a budget that covers their costs. That's when we see that as they beat their budgets throughout the Southeast, we build a lot of projects, but when they do that, when we give them a fair budget, historically, we've seen at CPI that more projects have not finished ahead of schedule, and that's what creates these gains.
Stanley Stoker Elliott: And when we do that and we give our crews and are different parts of the organization that the folks out in the field when we give them a fair shot with a budget that covers their cost.
Stanley Stoker Elliott: That's when we see that as they beat their budget throughout the southeast.
Stanley Stoker Elliott: We built a lot of projects, but when they do that when we give them a fair budget historically, we've seen at CPI that more projects and not finish ahead of budget and that's what creates these gains.
Stanley Stoker Elliott: And, Jewel, do you think that, you know, does this help you guys track towards the 27 targets, maybe a bit ahead of the 50, 75 basis point targets you guys outlined at Analyst Day, or is this just kind of timing?
Speaker Change: And you'll do you think that does this help you guys track towards the 2007 targets, maybe a bit ahead of the 50 to 75 basis points.
Target you guys outlined at the analyst day or is this just kind of more timing.
Speaker Change: Well I would say we're on track Stanley certainly our guidance.
Stanley Stoker Elliott: Well, I would say we're on track. Stanley, certainly our guidance, you know, we've got a busy second half of the year to do. We feel good about our updated guidance and that we're right on track. We'll see how the second half of the year plays out.
Speaker Change: You know we've got a busy second half of the year to do we feel good about our updated guidance and that we're right on track, we will see how the second half of the year plays out.
Stanley Stoker Elliott: Perfect guys. Thanks so much. Congratulations and best of luck.
Speaker Change: Perfect guys. Thanks, so much congrats and best of luck. Thank.
Speaker Change: Thanks Stanley.
Speaker Change: Thank you. Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.
Andrew John Wittmann: Yeah, great. Thank you and good morning, everyone. So I guess, Greg wanted to start with you and this question has been kind of touched on but I'm asking a little bit different way can you just talk about the guidance increase to the revenue line.
Andrew John Wittmann: Yeah, great. Thank you, and good morning, everyone.
Andrew John Wittmann: So I guess, Greg, I wanted to start with you, and this question's been kind of touched on, but I'm going to ask it in a little bit different way. Can you just talk about the guidance increase in the revenue line? Please help us understand how much of that increase was just from, you know, really good year-to-date performance or quarterly performance versus the contributions from M&A. I know you're always kind of factoring in some amount of M&A.
Andrew John Wittmann: And just help us understand how much of that increase was just from really good year to date performance or its quarterly performance versus.
Greg Hopkins: The contribution from M&A.
Greg Hopkins: Hum.
I know you're always kind of factor in some amount of M&A I. Just don't know if you are running ahead of plan. If if this what seems like larger deal that you did in the quarter as a source of that raised I'm just trying to understand really what drove that.
Andrew John Wittmann: I just don't know if you're running ahead of plan, if this what seems like a larger deal that you did in the quarter is a source of that raise. I'm just trying to understand really what drove that. Yeah.
Gregory A. Hoffman: Yeah, so first of all, Andy, just know that there is no M&A in the guidance for the third and fourth quarters that haven't closed yet, okay?
Speaker Change: Yes so.
Speaker Change: First of all India.
Speaker Change: Just know that there is no.
Speaker Change: M&A in the guidance for the third and fourth quarter. It Hasnt closed yet okay. Okay.
Gregory A. Hoffman: You know, I think that's a little bit interesting to think through because when we had the analyst day, in order to bridge the roadmap 2027, we included some M&A, which we usually never do when we do initial guidance in that number. So we have now achieved those targets by converting those candidates to acquisitions. So that got us to our initial M&A, I'm sorry, our initial guidance, the central center of our guidance, okay?
Speaker Change: I think that's a little bit interesting to think through because when we had the.
Speaker Change: Analyst day.
Speaker Change: Order to bridge the roadmap 2027, we included some M&A, which we usually never do when we do initial guidance in that number. So we have now achieved.
Speaker Change: Those targets by converting those candidates to acquired.
Speaker Change: So that got us to our initial M&A I'm, sorry, our initial guidance Central center of our guidance Okay.
Gregory A. Hoffman: So now we've added one additional acquisition candidate of $20 million, so that is baked in. And that is what I was talking about a minute ago, about the $145 million, $150 million of acquisitive revenue, and it's about $120 million of organic revenue.
Speaker Change: So now we've added one additional acquisition candidates, but $20 million so.
Speaker Change: That is baked in and that is what I'm talking about a minute ago about the 140 $550 million of acquisitive revenue and it's about $120 million of organic revenue.
Speaker Change: Okay.
Andrew John Wittmann: Okay. All right. And then I just was wondering, so you explicitly called out here the amount of revenue from third-party sales in the quarter. And first of all, I appreciate that. That's helpful. And I'm just wondering if you gave that this quarter because it was unusually high or low, or if this is just a new disclosure that you plan to give on a regular basis so that we can understand that business is mixed on your margins. And if it is that, could you just tell us what it was last year so we can jot that down and compare it on a year-over-year basis?
Speaker Change: Alright.
Speaker Change: I just was wondering so you called out here explicitly the amount of revenue from third party sales in the quarter.
Speaker Change: And first.
First of all I appreciate that that's helpful and I'm just wondering if youre given that this quarter because it was unusually high or low or if this is just new disclosure that you plan to give on a regular basis. So that we can understand that that business is mix on your margins and if it is that could you just tell us what it was last year, so we could adjust that down and compare it on a.
Speaker Change: Year over year basis.
Speaker Change: Yeah, Andy I'm not sure.
Fred Julius Smith: Andy, I'm not sure what number you got, but we typically don't necessarily call out any third-party sales, but I will give you the color. We continue to have good third-party sales. It's been normal, nothing abnormal, nothing we meant to call out new, but it continues to be part of our business. It's not a major part of our business, but on the aggregate and asphalt side, we continue to have good FOB sales. I think the FOB asphalt sales, as you know, are mainly to commercial paving contractors, and so for us, the fact that those continue to be healthy is further evidence that the commercial markets throughout the Southeast, where we are, continue to be healthy.
Speaker Change: Oh, what number you got but we typically don't necessarily call out any third party sales, but I'll give you. The color. We continue to have good third party sales has been normal is nothing nothing abnormal nothing we met to call out new but it.
Speaker Change: <unk> to be part of our business, it's not the major part of our business, but on the aggregate and asphalt side.
Speaker Change: Continue to have good <unk> sales and I think the F O b asphalt sales as you know is mainly to commercial.
Speaker Change: Hey, even contractors and so for us the fact that those continue to be healthy as further evidence that the commercial markets and our and throughout the southeast where we are continued to be healthy.
Gregory A. Hoffman: Andy, I think last quarter we talked a little bit about FOB sales, third-party sales, if you will, and we did mention that it's annually and typically 10-12% of total.
Speaker Change: Yes, Andy I think last quarter, we did talk about a little bit about.
Speaker Change: F O B sales third.
Speaker Change: Third party sales, if you will and we did mention that it's annually.
Speaker Change: Typically 10% to 12% of total.
Speaker Change: Yeah.
Andrew John Wittmann: Okay. I think those are all the clarifications that we needed. Have a great day, everyone.
Speaker Change: Okay.
Speaker Change: I think those are all my clarifications that we need to have a great day, everyone alright.
Andrew John Wittmann: Thank you. Thank you.
Anthony: Alright, Thank you Anthony.
Anthony: Thank you. Our final question comes from the line upfront Thielman with D. A Davidson. Please proceed with your question.
Operator: Thank you. Our final question comes from the line of Brent Thielman with DA Davidson. Please proceed with your question.
Thielman: Hey, thanks, great quarter as well.
Brent Edward Thielman: Hey, thanks. Great quarter as well. In just a couple of cases here, Jule, with this really strong period of lettings and ultimately bookings here in fiscal 2Q, any sense that there's sort of a pull forward from schedules, or does the second half of the year look just as active from a bid perspective?
Thielman: Couple here.
Thielman: Joe just with this really strong period of wedding and ultimately bookings here in fiscal <unk>.
Thielman: Any sense that there's sort of a pull forward from schedules or.
Thielman: Second half of the year.
Joe: Just as active in that perspective.
Speaker Change: Yes, Brent.
Fred Julius Smith: Yeah, Brent. Good question.
Brent: Good question and that's why you know.
Brent: Said that in the prepared remarks.
Brent Edward Thielman: And that's why I said that in the prepared remark. You know, the first thing I'd say is we're pleased with the work we added to the backlog this quarter. And we're going to continue to add work every quarter. We're going to add work in the third quarter. We're going to add work in the fourth quarter to the backlog, but our work doesn't burn off at an even rate. We do a lot of work in the third and fourth quarter.
You know the first thing I'd say is we're.
Brent: We're pleased with the work we added in this quarter on the backlog.
Brent: And we're going to continue to add work every quarter.
Brent: We're gonna add work in the third quarter, we'll go ahead and work in the fourth quarter to backlog.
Brent:
Brent: But our work doesn't burn off at an even rate we do a lot of work in the third and fourth quarter, that's why CPI historically.
Brent Edward Thielman: That's why CPI historically has had sequentially backlog go down in the busy summer work season. The fact that it hasn't done that in a few years is actually atypical. And so Greg and I feel like we need to keep reminding folks, hey, if our backlog has heavy lead times in the winter for the contractors to be able to prepare for the work season. That's what they've historically done. And we were able to pick up some good work in those heavy leads this quarter.
Brent: <unk> has had.
Brent: Sequentially backlog go down into.
Brent: In the busy summer work season.
Brent: The fact that it hasn't done that in a few years is actually atypical and so we just Greg and I feel like we need to keep reminding folks hey, if this if our backlog.
Brent: Was to reduce sequentially in the summer, it's not it's not going to concern us at all but.
But we want to keep reminding folks of that but to your question you're right.
Brent: Our customers don't let work and an even.
Brent: Throughout the year also in each state does it a little differently, but several of our states.
Brent: Have heavy lettings in the winter to prepare for the contractors to be able to prepare for the work season, that's what they've historically done.
Brent: And we were able to pick up.
Brent: Some good work in those heavy.
Brent: Leading this this quarter.
Speaker Change: Yeah, Okay understood and then just a follow up.
Fred Julius Smith: Yep, okay, understood. And then just to follow up, Joel, you sort of mentioned something along the lines of kind of keeping an eye on inflation and staying in front of it, which looks like you're doing. When you look at the industry, the competitive environment, the individual bids, however you sort of evaluate it, is the competitive environment, in your opinion, adjusted effectively for that? Do you see irrational things happening out there still with competition, or is the environment just so good in your area of the country, everybody's kind of getting fatter?
Speaker Change: Joe you sort of mentioned something along the lines of kind of keeping an eye on inflation and staying in front of it.
Speaker Change: What you think you're doing when you look at the industry that competitive environment individual bid. However, you sort of evaluate it.
Speaker Change: The competitive environment in your opinion adjusted effective wafer that DSD irrational things happening out there still with competition or is the environment. Just so good in your area that country everybody's.
Speaker Change: Kind of getting better.
Brent Edward Thielman: Yeah, Brent, we do see a rational bid environment. I think the fact that we're able to add work at healthy bid margins and be patient at the bid table tells us that our competitors, we presume, have healthy backlogs also. And so I certainly think with the demand environment, you know, bidders in our industry are also being patient and rational bidders. And so, yes, I would say you're right. It's a good bid environment and a good demand environment right now.
Speaker Change: Yeah Yeah.
Speaker Change: Yeah Brett.
Speaker Change: We do see a rational bid environment I think the fact that we're able to add work at healthy bid margins and be patient at the bid table tells us that our competitors. We presume have healthy backlogs also and so I certainly think that the demand environment.
Speaker Change: <unk>.
Speaker Change: Bidders in our industry are also being patient.
Speaker Change: Rational bidders and so yes, I would say you're right. It's a good bid environment a good demand environment now.
Speaker Change: Alright, I appreciate it best of luck.
Fred Julius Smith: All right, I appreciate it. Best of luck.
Speaker Change: Okay. Thanks Brent.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to management for any closing comments.
Brent Edward Thielman: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any closing comments.
Speaker Change: I'd like to thank everyone for joining us today, and we look forward to talking again next quarter.
Fred Julius Smith: I'd like to thank everyone for joining us today, and we look forward to talking again next quarter.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.