Q2 2025 Construction Partners Inc Earnings Call
Greetings and welcome to construction Partners' second quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Investor Relations with Rick Black. Thank you you May now proceed.
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 2025. 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 nine 2025. Please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening 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 are considered forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1095, 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 our earnings press release from this morning for our disclosure on forward looking statements. These factors and as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
Management will also refer to non-GAAP measures, including adjusted net income adjusted EBITDA and adjusted EBITDA margin reconciliations to the nearest GAAP measures can be found at the end of the earnings press release construction partners assumes no obligation to publicly update or revise any forward looking statements and now.
Speaker Change: I would like to turn the call over to construction partners CEO Jule Smith Joe.
Joe: Thank you Rick and good morning, everyone.
Speaker Change: We appreciate you joining us on the call today with me. This morning are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our executive Chairman.
Speaker Change: I want to begin today's call by focusing on our organizational model how important people are to our strategy of CPR as we surpassed 6000 employees. This month.
Speaker Change: The core of our business happens in our local markets now numbering approximately 100 distinct market areas in eight states.
Speaker Change: And each of these are local management team and workforce.
Speaker Change: Form higher margin lower risk projects and generate recurring revenue for repeat customers each year.
Speaker Change: Our people are the crucial element as we seek to take great care of our valuable customers and operate profitably.
Speaker Change: This local market model also provides a stable and predictable environment for our teams to bid win and build work in their communities.
Speaker Change: And our family of companies structure nowhere, our character experience and talent more important than the management teams at our platform companies and.
Speaker Change: And each state these management teams Stewart, our company culture drive operational excellence and cultivate both organic and acquisitive growth opportunities.
Speaker Change: This is why I last week, we were so excited to have <unk> join us as our platform company in Tennessee.
Speaker Change: P. R. A instantly expands our coverage to full linked to this state and will include our pre existing operations in the Nashville Metro area.
Speaker Change: A key strategic criteria and in our platform acquisitions is an established and deeply experienced leadership team that fits our culture, our focus on safety and our relative market share growth strategy for further expansion.
John: Under the leadership of John hard that Greg L. E N P or is the entire management team.
John: Our new platform company will benefit from decades of collective experience and the technical expertise of seasoned industry veterans.
John: Tennessee is growing and we see excellent organic and acquisitive growth opportunities within the state driven by strong economic expansion favorable demographic trends and a healthy transportation funding program.
John: Turning now to the quarter.
John: Outstanding operational performance led to a Q2 year over year revenue growth of 54% and adjusted EBITDA growth of 135%.
John: In addition, this marked our highest Q2 adjusted EBITDA margin and C. P. S history at 12, 1%.
John: This strong margin expansion during the winter quarter was driven by Great project can play out performance there.
John: The company's vertical integration assets in aggregates services and AC terminals performed well.
John: We continue to focus on building a great organization and as we build scale the benefits contribute to higher margins.
John: For C. P. A tariffs have not and are not expected to be a significant issue for the business as most of our supply chain and raw material inputs are sourced domestically.
John: Our Sunbelt states continue to benefit from healthy Federal and State project funding. In addition to our population migration that is driving steady workflow of commercial projects.
John: We are not currently seeing any sign of degradation to these fundamental factors that had been supporting healthy and growing markets to our footprint for years.
John: Our backlog is evidence of this continued steady demand for our services as it grew to a record $284 billion.
John: Heading into the heavy work season of our fiscal year, we are raising our outlook ranges, which Greg will discuss in his remarks.
Speaker Change: Taking a closer look at market conditions in our Sunbelt states local markets are growing and states remain focused on maintaining and improving the quality of their roads as well as increasing capacity to handle the significant migration to their states.
John: For CPI customers in our public markets.
Speaker Change: R. J a in state funding will continue to provide healthy bidding environments.
Speaker Change: J a provides for significant funds that have not yet been deployed and Congress is focused on the next five year reauthorization of the surface transportation Bill now.
Secretary Duffy: Secretary Duffy's comments in the past few weeks were positive on a reauthorization that continues to focus spending on hard infrastructure, which is a positive for CPI.
Secretary Duffy: For our commercial and private customers, we continued to experience steady building bidding availability.
Secretary Duffy: Manufacturing moving back to the United States and specifically the Sunbelt is also a positive for CPI.
Secretary Duffy: Turning now to our strategic growth model, we remain focused on both organic and acquisitive growth.
Secretary Duffy: Organic growth in our revised guidance envisions a strong second half of the year and we continue to have an extremely active acquisition pipeline.
Secretary Duffy: Our southeastern states have great opportunities and as we enter new states in the southwest the math expanse and even more opportunities present themselves.
Secretary Duffy: In the past year, we have entered into two new states, Texas, and Oklahoma with platform acquisitions.
Secretary Duffy: And through <unk>, we now have a platform company in Tennessee.
As with our existing platforms. These new companies serve as growth engines for CP to both expand into new areas through bolt on acquisitions and to increase market share organically.
Secretary Duffy: In both cases, we're able to grow revenues and more importantly, expand margins in what remains an extremely fragmented industry.
Secretary Duffy: Moving forward, we continue to focus daily on our CPI strategy and delivering on our roadmap 2027 goals of topline growth of 15% to 20% annually and EBITDA expansion of 50 basis points per year through our three margin leavers building.
Secretary Duffy: Building better markets vertical integration and scale.
Secretary Duffy: In closing we are very pleased with our second quarter results and we're excited and ready for the busy spring and summer work season ahead.
Greg Hoffman: I'd now like to turn the call over to Greg.
Greg Hoffman: Thank you Joe good morning, everyone.
Greg Hoffman: I'll begin with a review of our key performance metrics for the second quarter of fiscal 2025 compared to the second quarter a year ago.
Greg Hoffman: I'll, then discuss our revised outlook for fiscal 2025.
Greg Hoffman: Revenue was $571 $7 million, an increase of 54% compared to the same quarter a year ago.
Greg Hoffman: The mix of our total revenue growth for the quarter was 7% organic revenue and 47% from recent acquisitions.
Greg Hoffman: As a reminder, we began presenting acquisition related expenses last quarter as a separate line item from general and administrative expenses on our income statement.
G&A expenses are now presented in a manner that differentiates spend incurred to support day to day operations from those expenses associated with acquisitive activity within the quarter.
Greg Hoffman: The prior year quarter also reflects this presentation.
Greg Hoffman: Reflecting these changes G&A expenses as a percentage of the total revenue in the second quarter of fiscal 2025 were eight 2%.
Greg Hoffman: Compared to nine 7% in the second quarter last year.
Greg Hoffman: As we continue to build scale, we are targeting G&A expenses for the fiscal year to be approximately seven 2% to seven 3% of revenue as a reminder.
Greg Hoffman: 424, G&A expenses were eight 3%.
Greg Hoffman: Net income was $4 2 million in the second quarter and eight cents per diluted share compared to a net loss of $1 1 million and diluted loss per share of <unk> in the same quarter last year.
Greg Hoffman: Adjusted EBITDA was $69 $3 million, an increase of 135% compared to the second quarter of fiscal 'twenty four.
Greg Hoffman: Adjusted EBITDA margin was 12, 1% compared to seven 9% in the second quarter of last year.
Greg Hoffman: In addition, as Joe mentioned, we are reporting a project backlog of $2 eight to eight 4 billion at March 31 2025.
Greg Hoffman: As a reminder, historically cpi's backlog has declined sequentially during our heavy spring and summer work seasons.
Greg Hoffman: If this were to occur this year, we would not view it as a cause for concern rather we would view it as a return to more seasonal patterns, albeit at a much higher percentage of the next 12 months contract revenue in backlog than in prior years.
Greg Hoffman: Turning now to the balance sheet, we had $101 $9 million of cash and cash equivalents.
Greg Hoffman: And $248 $4 million available under our credit facility at quarter end.
Greg Hoffman: Net of reduction for outstanding letters of credit.
Greg Hoffman: As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 323 times.
We remain on pace with our strategy of reducing the leverage ratio to approximately two five times in the next four quarters to support sustained profitable growth.
Greg Hoffman: Cash provided by operating activities was $55 6 million compared to $18 $2 million in the same quarter a year ago.
Greg Hoffman: As discussed last quarter, the higher than expected level of billings and revenue in Q1 was realized as improved cash flow in this quarter.
Greg Hoffman: We remain on pace for FY 'twenty five to convert 80% to 85% of EBITDA to cash flow from operations.
Greg Hoffman: Capital expenditures for the second quarter were $41 $4 million.
Greg Hoffman: We continue to expect total capital expenditures for fiscal 2025 to be in the range of $130 million to $140 million.
Greg Hoffman: This includes maintenance capex of approximately $3 two 5% of revenue with the remaining amount invested in new growth initiatives.
Greg Hoffman: Turning now to our outlook.
Greg Hoffman: Based on our recent outperformance and our current expectations for the remainder of this fiscal year, including the addition of <unk>. We are raising all of our ranges for fiscal year 2025 results the.
Greg Hoffman: The increased ranges are as follows.
Greg Hoffman: Revenue in the range of $2 $77 billion to $283 billion.
Greg Hoffman: In regard to our overall revenue mix for the year, we now expect organic revenues to be in the range of 8% to 10%.
Greg Hoffman: Up from our prior expectation of 7% to 8%.
Greg Hoffman: Net income in the range of $106 million to $117 million.
Greg Hoffman: Adjusted net income in the range of $122 five to $133 5 million.
Greg Hoffman: Adjusted EBITDA in the range of $410 million to $430 million.
Greg Hoffman: And adjusted EBITDA margin in the range of $14 eight to 15, 2% and with that we will open the call to questions operator.
Speaker Change: Thank you we will now conduct a question and answer session. If you will.
Speaker Change: Like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Formation 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 might be necessary to pick up your handset before pressing the star key once again Thats star one at this time, one moment, while we poll for our first question.
Speaker Change: The first question comes from Kathryn Thompson with Thompson Research Group. Please proceed.
Kathryn Thompson: Hi, Thank you for taking my questions.
Speaker Change: Just first focusing on just.
Kathryn Thompson: The broader macro view.
Kathryn Thompson: And understanding that you generally have a.
Kathryn Thompson: More quick type projects that are completed in 12 months.
Kathryn Thompson: And 12 month period.
Speaker Change: What if any project delays or cancellations are you seeing in your own given just some of the broader macro Turkey Iraq market.
Kathryn Thompson: Hey, Kathryn good morning.
Kathryn Thompson: For us it's we're seeing just just business as usual, we do have projects that.
Kathryn Thompson:
Kathryn Thompson: We book and burn within a year.
Kathryn Thompson: We continue to do a lot of those projects, but the overall macro economy.
Kathryn Thompson: I feel like there's a little bit of a disconnect between what you might read in the news and what we're experiencing on the ground. We haven't seen any delays, we still have a healthy bid sheet and the commercial markets. So.
Kathryn Thompson: I would say, we're really just business as usual.
Kathryn Thompson: Okay. That's helpful.
Kathryn Thompson: And could you tell us a little bit more about.
Kathryn Thompson: Hum.
Speaker Change: Two acquisitions the hills each other one in Texas.
Speaker Change: Texas last year on policy announced last week.
Speaker Change: Both appears to have higher structural margins.
Speaker Change: C P encore.
Speaker Change: Plus a little bit more about.
Speaker Change: What you can in terms of why the margin differential.
Speaker Change: What it is that you're looking for from an M&A standpoint.
Speaker Change: Yes, so we're excited about <unk> joining.
Speaker Change: Joining us and you are right.
Speaker Change: The acquisition of Lone Star.
Speaker Change: You know helped us raise our margin profile going into this year.
Speaker Change: But what we you know as I said in our prepared remarks, what we really look for in these platform acquisitions.
Speaker Change: Is a great management team, that's going to be the basis for years of future growth and performance. So pure I. We're excited they do have a nice margin profile.
Speaker Change: In the mid teens, they do a great job in Knoxville.
Speaker Change: But also throughout the state and the pavement preservation expertise that they bring.
Speaker Change: It's something that's going to be very valuable to CPI.
Speaker Change: As far as the overall acquisitions just loved it let Nate add weigh in a little bit on some of his thoughts from a board level Hello, Katherine I hope you're doing well today.
Speaker Change: I think we see a lot of opportunity the order juul has done a great job of making sure. The organization is ready Greg has done a great job to make sure that the balance sheet is ready and but understand we look at a lot of acquisitions and we pass on a lot of them.
Because from the very start, especially when we look for platform companies. We're looking for great people excellent markets good assets bolt on opportunities in growing markets.
Speaker Change: And one of the things that I think is really key and we really I think prove that up with the Lone Star acquisition is integration is a core competency. It has been since we founded the business. It was in the previous company that Charles ran and so this is an organization that is prepared for and understands how to integrate companies and <unk>.
Speaker Change: Interestingly enough, we see a lot of opportunities because of the culture. That's been built here from the start they want to be part of this team and so juul building the organization and really having a family of companies is key to it and Greg has done a terrific job of keeping the balance sheet. So yeah, we we may tip, a little bit above three.
Speaker Change: Like we are today and then it will go down when you look at our cash flow generation at 85% is pretty phenomenal.
Speaker Change: But we are going to always look for <unk>.
Speaker Change: Great platform companies that are generally led by people that want to bring on as part of our team and there's a lot of those opportunities, but make no mistake about it we pass on a lot of opportunities.
Speaker Change: Okay very helpful. And then final question just on capital allocation.
Speaker Change: You had 8%.
Speaker Change: Cash flow through.
Speaker Change: Yeah.
Speaker Change: And.
Speaker Change: Recently announced acquisition that you just talked about how should we think about capital allocation priorities and.
Speaker Change: In 2025.
Speaker Change: And.
Speaker Change: In terms of our plan.
Speaker Change: Debt to EBITDA levels, and how you're managing that thank you.
Speaker Change: Well you know.
Speaker Change: As Greg said, we're on track to.
Speaker Change: Get back within our leverage ratio, our target leverage ratio in four quarters.
Speaker Change: We're on track for what we said when we.
Speaker Change: Acquired loan star from a capital allocation standpoint.
Speaker Change: With the cash flow this generated we're going to pay down debt.
Speaker Change: But we're also gonna make good smart acquisitions and continue to run our strategy as a growth company.
Speaker Change: Perfect. Thanks, so much good luck.
Catherine: Thank you Catherine.
Speaker Change: The next question comes from Tyler Brown with Raymond James. Please proceed.
Tyler Brown: Hey, good morning, guys good.
Tyler Brown: Hey, Jewel I, just I kind of want to come back to P. R. I'd, maybe just talk a little bit more about that business I think it only came with maybe one HMA plants. So does that does that kind of imply that it's just more focused on paving crews or specialty services or is there something unique about Tennessee, where you can just buy F O b and don't need plan.
Tyler Brown: Maybe just a little more color there.
Yes, Tyler good question, it's a little bit of all of that so as we said stretches almost are linked to the state of Tennessee, which is a long state and so in Knoxville.
Tyler Brown: They do a lot of the traditional things that we.
Tyler Brown: We do in their East Division and then their central and West Division. They do paving but they also do a lot of pavement preservation, which we're excited about because we do that to a certain degree in Alabama and Georgia.
Tyler Brown: But these guys are experts at it and so and to your point in the west they have really good relationships with some producers there and so they've chosen to <unk> b and to maintain their market share that way, but we're going to be expanding over time, just like we do with all of our platform companies.
Tyler Brown: We're excited to have Tennessee ins taken over our Nashville operations, which is something we back in 2022, you know we had as a goal, but we had to find the right platform management team and so our Tennessee operation and folks led by Josh Miller, they're excited to be part of <unk>.
Tyler Brown: And so.
Tyler Brown: I see.
Tyler Brown: Following the typical platform model of integrating into our family of companies and then just looking for great growth opportunities pattern. This year.
Tyler Brown: I think one of the things the jewel and the team has done terrific is this this is just the first chess move in really the second chess move in Tennessee. This is a growing state theres lots of opportunity there.
Tyler Brown: And not only did we get a wonderful company, that's got nice margins, but we got a great management team that we can grow and add bolt ons on.
Tyler Brown: So this is the heart and Tennessee.
Tyler Brown: So speaking of chess moves I mean, it sounds like there's something unique about the pavement preservation piece is that something that you can replicate at the other.
Tyler Brown: Platforms.
Tyler Brown: Yeah.
Tyler Brown: Yes, I mean tally right pavement preservation is.
Tyler Brown: In a sense just another way of taking care of the infrastructure and every D O T cities and counties use it as a tool in their toolkit to maintain infrastructure.
Tyler Brown: And so we certainly have participated in that but it does it at a different level and so whether it's chip selling bog ceiling crack sealing.
Tyler Brown: There's just different ways that state to extend the life of their payments.
Tyler Brown: Interesting okay great.
Tyler Brown: If I could switch gears Gregg.
Tyler Brown: Can you just kind of help us a little bit with the modeling. So just based on what we know today.
Tyler Brown: What is the implied revenue contribution from M&A I could probably do the math and back it out but that's how it's scary and then how much how much do you think hangs over into 'twenty six already based on what you've already completed.
Tyler Brown: Yes, so well first of all I'll start with that hanging over into next year is about 150 to 160.
Tyler Brown: <unk> million dollars in revenue.
Tyler Brown: That's part of the answer the other part of the answer is yes.
Tyler Brown: Backing into 8% to 10% organic growth.
Tyler Brown: For the full year.
Tyler Brown: I think that kind of bleed you too to the breakdown of acquisitive.
Tyler Brown:
Tyler Brown: And organic.
Speaker Change: Okay, Yeah, I can I can kind of work that math and then just real quickly on the enterprise value just to make sure that I have it all correct. So do you have what you spent year to date on the M&A basically I'm just curious what the balance sheet looks like pro forma here into Q3.
Speaker Change: And was there any equity component to PRA or its an all cash deal.
Speaker Change: It was Tyler was an all cash deal.
Speaker Change: The typical multiples that.
Speaker Change: We typically pay.
Speaker Change: And we expect our leverage ratio.
Speaker Change: Our balance sheet to trend back down pretty steadily toward that two and a half over four quarters.
Speaker Change: Okay. Okay. That's helpful. All right. Thanks, guys I appreciate it thanks Tom.
Speaker Change: The next question comes from Adam Palmer with Thompson Davis. Please proceed.
Adam Palmer: Hey, good morning, guys, congrats on the quarter and yet the PRA acquisition.
Speaker Change: Okay.
Speaker Change: Julia mentioned us south west acquisitions could that be a new state or are you, referring to tuck ins and Oklahoma, Tennessee.
Speaker Change: Yeah, Adam specifically, what I was talking about is as we move into a new state like Texas, and Oklahoma map expands and so we just have more conversations with <unk>.
Folks in those states and we see that happening, but we're also talking a lot.
Speaker Change: Folks in the southeastern states as well so it's a busy it's a busy time for acquisitions as Ned said, we pass one quite a number of them, but they're ones that we see as just great strategic fits but that I was specifically referring to it as we move into new states.
Speaker Change: We.
Speaker Change: We just have more opportunities to talk to folks in those states.
Speaker Change: Got it and then.
Speaker Change: You briefly mentioned tariffs, but I was curious I can't remember if you said anything about whether there's any inflation related to tariffs or not or are you seeing that.
Speaker Change: We're not.
Speaker Change: Most of our supply chain is domestic almost all of it we've not seen anything.
Speaker Change: Related to inflation from tariffs and as you know should should things go up we would simply put it in our pass through model and pass it on.
We just it's really been pretty much a non issue for us both on the supply chain and cost side, but also on the demand side and working with our customers. It's just.
Speaker Change: It's not been a real factor so far.
Speaker Change: Okay and then.
Speaker Change: Lastly, can you just remind us what assets that you had in Nashville, and kind of how they have they're going to integrate with sure.
Speaker Change: Sure back in 2022, we made the deal with Blue water and we've got three asphalt plants and our construction operation our asphalt plants are all in the Nashville suburbs East of Nashville.
Speaker Change: And we've been.
Speaker Change: Managing that from Huntsville, and the our Alabama, guys have done a great job of Stewarding those assets, but we always knew that we wanted to find a tennessee.
Speaker Change: Management team and platform company and Thats, what we were able to do this this month.
Speaker Change: Perfect. Thanks, guys.
Adam Palmer: All right Adam Thank you.
Adam Palmer: The next question comes from Michael Feniger with Bank of America. Please proceed.
Michael Feniger: Great Hey, everyone. Thanks for taking my questions I did want to just ask the organic growth of 11% in Q1 in Q2, 7%. It's clear based on the guide Greg you guys are going to still be doing high single digit organic growth in the second half.
Michael Feniger: We're seeing the national data like construction spending, especially on the private side is slowing do you think its slowing in is it just not flowing in your regions or is it is the underlying market is slowing and you guys are gaining share because you know you bought some assets over time given them bonding capacity, so they're able to.
Michael Feniger: Kind of go out that maybe mean.
Michael Feniger: Win more work so conscious of question when we see the organic growth how much do you think as you guys gaining some share out there or how much is it just really strong markets in your core regions.
Michael Feniger: That's a great point I think youre, good you're right to bring that up because that's a good part of our story and that you know as we make these acquisitions.
Michael Feniger: They're generating new organic growth. So it is new volumes to us, we're creating essentially our own growth through some of our acquisitive growth.
Michael Feniger: Generally, though I would say that and I'm not sure what metric, you're you're citing there, but we believe that in our.
Michael Feniger: Our markets there is still very strong both from the public and private side and we're continuing to see.
Michael Feniger: New bidding activity every year year over year.
Michael Feniger: Great and I, just would love to talk about the price versus cost, we're seeing lower oil I'd imagine over time that filters through to lower liquid asphalt just how are you seeing the pricing in the backlog that's going to come through in the back half and just the bidding environment.
Michael Feniger: Your margins have actually expanded I'm, just wondering with this price versus cost spread have we kind of think about this as we kind of move through the year with with what we're seeing right now in diesel and liquid asphalt.
Michael Feniger: Yes, so it's interesting Michael so.
Michael Feniger: Usually.
Speaker Change: A barrel of crude and liquid AC correlate pretty well.
Speaker Change: Interestingly they didn't at all in <unk>.
Speaker Change: Q2 or Q2.
Speaker Change: Crude went down liquid AC basically stayed flat it has come down a little bit.
Speaker Change: In in April and into May, but not proportionately.
Speaker Change: And then as far as diesel natural gas diesel has.
Speaker Change: Oh come down.
Speaker Change: Not in or not in Q2, but since Q2.
Speaker Change: The natural gas has gone up so everything is moving and really strange directions.
Speaker Change: But I think generally overall.
Speaker Change: When you talk about our cost environment.
Speaker Change: It's stable.
Speaker Change: Michael I just wanted to circle back just for a minute on the organic growth.
Speaker Change: We give this number two you guys quarterly just to help you, but the reality is you've really got to look at organic growth.
Speaker Change: Sort of on an annualized basis to get.
Speaker Change: A meaningful number and Thats why we try to give you an annualized basis of 8% to 10%, which was higher than we saw at the beginning of the year and you're exactly right as you've heard us say before todays acquisitions.
Speaker Change: Tomorrow is organic growth when we do a bolt on acquisition.
Speaker Change: Our platform with CPI behind them, they're going to find ways to take advantage of opportunities in their market over time, and that's really what drives organic growth.
Speaker Change: Sure helpful Jewels, and just if I could squeeze one last in there just are you hearing or seeing anything on the funding side from your <unk> in terms of pauses or delays that might have occurred and just how do you think about just going forward.
Speaker Change: Might be getting ahead of ourselves, but how do you think about that reauthorization at some point next year is that coming up in conversations at all how do you guys kind of manage towards that if that is something you kind of have to manage towards just kind of curious if you kind of comment on your dot's, what they're seeing in the funding levels any delays and how you think about that.
Speaker Change: Thanks, everyone.
Speaker Change: Michael it's not too early to talk about it because those conversations are going on in Washington on Capitol Hill, We had one of our platform company President Todd Johnson.
Speaker Change: First a five in front of the.
Speaker Change: Transportation Committee last week, one reauthorization. So we're very encouraged about what we're hearing from this administration.
Speaker Change: Just to speak on the current funding when people here that.
Speaker Change: The larger grant projects.
Speaker Change: Got paused I would say two things first most of what CPI does is through the formula dollars anyway that go to the states.
Speaker Change: But even the grant projects most of those as the administration said, it's going to continue or they just want a chance to look at it and make sure that those dollars are being spent for the best and highest purpose and I would say.
Speaker Change: This administration's focus on hard infrastructure and making sure dollars go to hard infrastructure is good for CPI.
Speaker Change: The White House, just last Friday released their budget.
Speaker Change: And even though a lot of the federal spending areas were reduced transport the transportation budget actually increased and so we feel like this administration is focused on building the infrastructure needs to support economic growth and that's a good thing for CPI.
Speaker Change: Thank you everyone.
Speaker Change: Thanks, Michael.
Speaker Change: The next question comes from Andy Whitman with Robert W. Baird. Please proceed.
Andy Whitman: Great. Good morning, Thanks for taking my questions I wanted to start with some questions on the backlog.
Speaker Change: And specifically if you could comment on.
Speaker Change: How the margins are implied as bid margins in your backlog today compare to the.
Speaker Change: The profit margins that you've recognized over the last year or so.
Speaker Change: And then secondly, I guess, maybe for Greg a technical question, but I'm just kind of curious as to how much of your backlog that was reported this quarter was due to acquisition.
Andy Whitman: Andy I'll answer the first part and Greg can answer the second.
Andy Whitman: Our backlog margins continue to be healthy.
Andy Whitman: <unk>.
Andy Whitman: Shown by our raised guidance for EBITDA.
Andy Whitman: But I would also say.
Andy Whitman: CPI over is typical that as our crews and our team to go build the projects they find ways to win and grow margin in the backlog and that creates good quarters like like the one we just reported so we're seeing.
Andy Whitman: A lot of bid opportunities and so that creates a healthy bidding environment.
Andy Whitman: But then we found ways to go grow the margin and that's typical for CPI I'll, let Greg answer on the <unk>.
Andy Whitman: Breakdown of that backlog add yes. So.
Speaker Change: <unk> of the add Andy.
Speaker Change: About 130 $334 million due.
Speaker Change: Due to acquisitions and $50 million to $60 million due to just organic growth sequentially quarter over quarter.
Speaker Change: Very helpful. And then just for my follow up I wanted to ask a little bit Joe about.
Speaker Change: I'm thinking back to the analyst day, actually and you talked about becoming increasingly vertically integrated this has always been part of something you've done but.
Speaker Change: Got it that.
Speaker Change: It seemed like there is other areas that you were thinking about it always seemed to me like these would be areas for a really good tuck in acquisitions inside your platform companies.
Speaker Change: I would just like.
Speaker Change: Like to hear you talk about that a little bit in terms of progress on that initiative to kind of fill in other services around the platform companies that you already have.
Speaker Change: What you've done if any there or what you see as potentially happening here inside of your your M&A pipeline.
Speaker Change: Yes.
Andy Whitman: Andy you're right part of our vertical integration strategy is services.
Andy Whitman: And as well as liquid asphalt terminals in aggregates, which as I said in our remarks those facilities really contributed very much to this quarter and so that part of our strategy is working well, but on the services side.
Andy Whitman: As we've said before to two of the most value added acquisitions, we've done in the last few years.
Andy Whitman: It didn't have any asphalt plants they were in our existing markets and added services and so we continue to look for those kind of opportunities.
Andy Whitman: But I will say, we can also grow those services organically. We just this month, we were awarded our first project in the upstate of South Carolina, and Greenville that has a significant grading component and our platform company King asphalt is going to be growing the services organically and <unk>.
Andy Whitman: Rouse with some grading and utility crews and so that's an example of being able to vertically integrate more services, whether we do it organically or make a good acquisition.
It's a way to capture more margin, yes, Andrew let me add to that that some of those to Joel's point don't show up in the M&A side. They show up in the we've talked a lot about our organic capex right. So if we're spending $5 five 5% cap.
Andy Whitman: Capex, 3.25% of that.
Andy Whitman: As maintenance Capex.
Andy Whitman: Those other that other percentage to get to that five to five and a half is.
Andy Whitman: Is focused on Austin on those adding services in the various companies.
Andy Whitman: Yep.
Great. Those are all my questions for today. Thank you so much.
Andy Whitman: Sandy.
Speaker Change: The next question comes from Brent Thielman with D. A Davidson. Please proceed.
Brent Thielman: Hi, Thanks, good morning, great quarter guys.
Brent Thielman: Just a follow up on Greg I'm not sure. If you said it but your capex expectations for this year, just with PRA added now.
Brent Thielman: Yes, so around $131 40.
Brent Thielman: 130 140 million sorry.
Brent Thielman: Got it and then.
Yes, obviously, you've done PRA July led to here.
Brent Thielman: What what are the attitudes and sellers right now I mean, obviously a lot of noise in the world and the market maybe in your corner of the country things are great but.
Brent Thielman: Have you sensed any shift in attitude, maybe maybe thats encouraged the pipeline to grow a little bit more it gets folks getting a little bit nervous about the environment just be curious what you're hearing from potential targets.
Brent Thielman: Yes, Brent.
Brent Thielman: Good question I would say that we have a very active pipeline and sellers are reaching out and talking to us, but it feels very much like it is still the typical things that drive them, which is their their families planning their life planning I really don't think any sellers that I've talked to and we've talked.
Brent Thielman: Two a lot recently.
Brent Thielman: Are being driven by the the headlines of today there are more focused on what's long term best for their business and their families.
Brent Thielman: And a lot of them think that getting their employees in their businesses to be a part of CPI would be a good thing for the organization and so that's helping us.
Brent Thielman: Get to sit down in front of a lot of them.
Okay, maybe just a last question maybe from just a balance sheet management perspective, I mean, you have scaled the business to time here in the last 12 months.
Brent Thielman: Part of the question is with that scaling up is there a certain level of cash you.
Brent Thielman: You want to maintain on the balance sheet.
Brent Thielman: And I guess, the second part of it would be obviously, you want to maintain leverage targets youre going to grow EBITDA is there any.
Brent Thielman: The appetite to reduce debt levels here in the next 12 months.
Brent Thielman: Yeah, absolutely I mean, we will.
Brent Thielman: We said in the remarks that we're going to generate from EBITDA about 80, 85% of that would turn into cash from operations sure. We're going to use whatever makes sense to pay down debt there and certainly that's factored into.
Brent Thielman: Our discussion of leverage ratio over the next four quarters and getting down back down to that two five times.
Brent Thielman: As far as cash on the balance sheet.
Brent Thielman: You know.
Brent Thielman: I guess, we're always thinking somewhere in the neighborhood of 3% to 5% of of revenue.
Brent Thielman: Just as a way to keep our operations role in everyday.
Brent Thielman: Got it if I could slip one more in I think I'm batting clean up here so.
Brent Thielman: Just on.
Speaker Change: Joe when you look across the platform in the state budgets are there some markets like Youre, particularly excited about when you look at those budgets.
Speaker Change: What what you see coming here in the next six to 12 months in terms of funding for infrastructure projects.
Brent Thielman: Yes, Brent.
Speaker Change: Red.
Speaker Change: An industry report a couple of weeks ago that talked about how with the federal infrastructure increase that <unk> created with the surface transportation Bill and the states doing their own initiatives certainly in our footprint are.
Speaker Change: There's been a sort of a snowball effect and contract awards and I agree with that we're seeing that so.
Speaker Change: All of our states, we have healthy bid list clearly.
Speaker Change: Being in Texas, and Florida, those are just outsized programs because of the outsized growth of those states, but when you look at Tennessee, and South Carolina, and Georgia, and North Carolina.
Speaker Change: Just.
Speaker Change: A healthy environment right now all of those states have taken initiatives to supplement the increased federal funding. So we feel like 2026 is going to be a very continue to be a significant increase in transportation funding.
Speaker Change: In 2025 contract awards in our states are up around 15% to 16% just over last year. So just as we've been saying for a while now it's a healthy bidding environment.
Speaker Change: Yes, all right very good thanks for taking the questions and best of luck here.
Speaker Change: Right. Thank you Brian.
Speaker Change: Thank you at this time I would like to turn the call back over to management for closing comments.
Speaker Change: I'd like to thank everyone for joining us today, and we look forward to talking next quarter.
Speaker Change: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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