Q2 2024 Summary
Published Feb 18, 2025, 5:23 PM UTC- Strong and growing backlog indicates sustained demand and revenue visibility. The company reported a backlog of $1.79 billion as of March 31, up from $1.62 billion at the end of last quarter, reflecting continued strong demand. Management expects to add work in every quarter and is optimistic about the bidding environment.
- Improved margins and effective cost management support profitability. Adjusted EBITDA margin for the quarter was 7.9%, up from 6.3% in the same quarter last year. The company is able to add work at healthy margins and effectively pass through price increases, contributing to profitability.
- Strategic acquisitions and organic growth drive robust revenue growth. The company achieved revenue growth of 14.3%, including approximately 6.6% organic revenue growth and approximately 7.7% from recent acquisitions. Management remains focused on both organic growth and strategic acquisitions to expand market share and expects annual revenue growth of 15% to 20% moving forward.
- The increase in project backlog to $1.79 billion may be partly due to the timing of state DOT lettings, suggesting that future backlog growth could be lower as historically, the company's backlog declines during the heavy summer work season.
- Higher interest rates and persistent inflation could eventually slow down the private market side of the business, potentially impacting future revenues, as the private sector currently shows a 1% higher mix compared to last year.
- Expanding into new states through acquisitions may introduce integration risks and strain resources, potentially affecting margins and operational performance. The company acknowledges this as they consider entering new markets with platform companies.
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Margin Outlook
Q: What's driving the 30 basis point margin guidance increase?
A: Management raised the margin midpoint due to the first two quarters benefiting from post-inflationary backlog and an effective pass-through pricing model, leading to margin expansion. The use of technology and improved bidding mechanisms also enhanced margins. -
M&A Contributions to Growth
Q: How much of the guidance increase is due to M&A vs. organic growth?
A: The company expects approximately 9.3% to 9.6% acquisitive growth and 7.5% to 7.8% organic growth. Recent acquisitions, including an additional $20 million from Sunbelt, contribute to the increased revenue guidance. -
M&A Pipeline and Expansion
Q: Are you considering larger platform acquisitions outside core states?
A: Management is exploring opportunities both inside and outside current states, open to significant platform acquisitions that allow for bolt-ons. They aim to expand geographically throughout the Sunbelt for continued growth. -
Cash Flow Sustainability
Q: Is the strong cash flow conversion sustainable in the back half?
A: They anticipate maintaining a 75% to 80% EBITDA to cash flow conversion, projecting an additional $95 million in cash flow from operations in the second half, supported by strong collections and operational performance. -
Private Market Outlook Amid Rates
Q: Will higher rates impact private market activity into 2025?
A: Management hasn't observed a slowdown, noting continued strong private demand due to migration and business reshoring in their markets. If private work slows, they plan to reallocate resources to public projects. -
Share Repurchase Program
Q: What's the intent behind the share repurchase announcement?
A: The repurchase program is designed to offset dilution from management stock incentive plans, ensuring motivation and retention without diluting existing shareholders. -
Competitive Environment
Q: Has there been any change in bidding practices affecting margins?
A: The company maintains its pass-through pricing model with no changes in bidding approach. They observe a rational bidding environment, with competitors also reflecting cost increases, leading to healthy margins. -
Backlog Level Drivers
Q: What's driving the higher backlog percentage compared to last year?
A: The backlog, now at 80% to 85% of next 12 months' revenue versus 70% to 75% last year, is driven by adding typical projects and more flexible scheduling due to strong demand, allowing for patient and profitable bidding. -
Pricing and Inflation Management
Q: How do you approach pricing given cost and pricing dynamics?
A: The company adjusts input updates to reflect inflation, ensuring costs are passed through to bids. Their model has become more effective since inflation hit in 2021, maintaining profitability. -
Price vs. Volume Balance
Q: Can you clarify the balance of price versus volumes in the quarter?
A: Organic growth comprises both price increases due to inflation pass-through and real volume growth. Acquisitive growth is about 9.3% to 9.6%, while organic growth contributes 7.5% to 7.8%. -
Scheduling and Bookings Pull-Forward
Q: Is the strong period of bookings a pull-forward from later schedules?
A: Management notes that some lettings occur heavily in winter to prepare for the work season, which may lead to variability in backlog throughout the year. They continue to add work each quarter and expect normal seasonal patterns. -
Third-Party Sales Contribution
Q: Was there anything notable about third-party sales this quarter?
A: Third-party sales remain consistent, constituting 10% to 12% of total annual revenue. This reflects healthy demand in commercial markets across their regions.