Q4 2024 Summary
Published Feb 18, 2025, 5:23 PM UTC- Strong organic growth and margin expansion expected to continue: The company anticipates continued strides towards its Roadmap 2027 goals, projecting another 14% growth in fiscal 2025, even without considering the impact of Lone Star. They are focusing on building better markets, vertical integration, and scale, having already achieved 110 basis points of EBITDA margin expansion this year.
- Transformational acquisition of Lone Star Paving accelerates growth: The acquisition of Lone Star Paving is expected to be transformational, accelerating progress towards Roadmap 2027 goals by two years. Lone Star brings high-margin business (over 20% EBITDA margins), a talented management team, and significant growth opportunities in the robust Texas market, which benefits from strong infrastructure funding from both federal and state sources, including unique funding from the oil and gas industry.
- Record backlog indicates strong future demand: The company reported a record backlog of $1.96 billion as of September 30, which does not include Lone Star's backlog since they joined on November 1. This backlog growth demonstrates strong revenue visibility, and future backlog figures will be further enhanced with the inclusion of Lone Star's backlog.
- Higher interest expenses due to the $850 million Term Loan B facility used to finance the Lone Star acquisition will impact net income, as the company will have 11 months of interest expense from this facility in fiscal 2025.
- Proceeds from asset disposals are expected to decline, potentially reducing an additional source of cash flow.
- Future EBITDA margin expansion may rely heavily on acquisitions, such as Lone Star, rather than organic improvements, indicating potential challenges in driving margin growth organically.
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EBITDA Guidance Post-Acquisition
Q: Any EBITDA parameters for Q1 post-acquisition?
A: Closing the Lone Star acquisition earlier adds 11 months of EBITDA instead of the previously guided 9 months, so you'll see two months more from Lone Star. We expect 30% of EBITDA in the first half and 70% in the second half, aligning with our guidance. We'll also have 11 months of interest expense from the $650 million facility starting November 1. Central Texas seasonality is similar to Alabama, South Carolina, and Georgia, so we're using the same modeling cadence as our legacy business. -
EBITDA Margin Growth Drivers
Q: How much of margin growth is from Lone Star vs. organic?
A: Without Lone Star, we expected to continue making progress toward our Roadmap 2027 goals of 50 to 60 basis points of expansion, even after growing 110 basis points this year. Lone Star accelerates us two years toward those goals, but even without it, our business was making great progress. Both our current operations and Lone Star are anticipated to drive margins up, aided by vertical integration and operational excellence. -
Cash Flow and Asset Sales Outlook
Q: Thoughts on cash from ops and asset sales in '25?
A: We typically convert EBITDA to cash flow from operations at an 85% to 90% rate, which we expect in '25. The strong cash flow in '24 was partly due to timing. As supply chains have healed and we're receiving equipment more timely, we expect asset disposal numbers to continue trending down. -
Texas Growth Prospects
Q: Any thoughts on TxDOT and revenue visibility?
A: Texas has significant growth, receiving an outsized portion of federal funding from the IIJA, plus supplemental state programs funded by oil and gas revenues, which supercharges their infrastructure program. This offers opportunities for organic growth and bolt-on acquisitions in Texas. Texas is dynamic because it isn't dependent on Washington for infrastructure funding, having diverse revenue sources to grow and build. -
Backlog Inclusion of Lone Star
Q: How much of backlog is from Lone Star?
A: The reported backlog of $1.96 billion as of September 30 does not include Lone Star, since they joined us on November 1. We'll include their backlog at the end of this current quarter.