Construction Partners Inc (ROAD) 2024 Q2 法說會逐字稿

Greetings and welcome to the Construction Partners second quarter fiscal 2024 earnings call. (Operator Instructions) 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.

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. 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.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.

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's 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. Actual results may differ materially.

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-GAAP measures, including adjusted EBITDA. 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.

And now I would like to turn the call over to Construction Partners' CEO. Jule Smith tool.

Thank you, Rick, and good morning, everyone. Joining me on the call today are Greg Hartman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I want to begin by thanking all of our 4,400 employees across the CPSI 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 in our seasonal business, it's a crucial time of preparation for the busy work season in the third and fourth quarters.

The CPS team did an outstanding job of training our work crews, preparing our fleet of construction equipment and preparing our asphalt plants to run both day and night, which now in early May is 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 were all up substantially compared to last year, and we remain on pace for another strong year of growth.

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 states. All of these factors taken together give us confidence at our midyear 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 DOT lettings as larger lettings commonly occur in the winter months in advance of the summer work season. What 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. 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 the IIJA funding translating to work in the field in the commercial markets.

The pace of projects and lending opportunities has remained strong across our states areas of particular strength in the private markets, our manufacturing corporate site development, large economic development projects and residential. 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. The bidding opportunities are numerous and now 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 for the large and growing demand throughout our organization. This will not only drive more revenue but also drive throughput volume at our asphalt plants, aggregates facilities and liquid AC terminals.

The other part of our growth model is acquisitions. And so far this fiscal year we've completed five strategic acquisitions and 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 and Arbor Georgia and one greenfield hot-mix asphalt plant Commerce, Georgia, that we expect to begin operating later this year.

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. 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 of geographic focus for us. Sunbelt will operate as a new branded division of our Georgia platform company. The Scruggs company under our Sunbelt asphalt services may reinforce and a solid reputation for quality and dependability that somebody has built in North Georgia. We are pleased to welcome the Sunbelt employees into our growing CPI family.

This is an active time on the acquisition front, we are having numerous conversations with potential sellers, both inside and outside of our current states. The opportunities in a highly fragmented industry are substantial. 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. As we grow through acquisitions, we want to maintain our reputation as the buyer of choice in our industry by treating sellers fairly and broker by providing attractive career opportunities and taking care of their employees.

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 CPR's 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 are the leader in building a scalable business by acquiring great privately held construction. We remain on track toward our Roadmap 2027 goals have annual revenue growth of 15% to 20% and EBITDA margins in the range of 13% to 14% by 2027.

In summary, we had a great second quarter, and we're optimistic about the markets and current bidding events. We are now well into our active spring work season, and our teams are focused on safety excellence in operations and delivering on our raised guidance for fiscal year 2024. I'd now like to turn the call over to Greg.

Thank you, Jule, 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 in 2023, 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 to third parties. 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 were flat compared to the same period last year. We remain on pace for G&A expenses to end the fiscal year and approximately 8% of revenue. 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 EBITDA was $29.5 million, an increase of 45%. Adjusted EBITDA margin for the quarter was 7.9% compared to 6.3% in the second quarter last year, you can find a reconciliation of net income to adjusted EBITDA financial measures in today's earnings release. In addition, we grew project backlog to $1.79 billion at March 31, up from $1.62 billion at the end of last quarter. 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 season.

Turning now to the balance sheet, 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. 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.

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 1.5 times to 2.5 times. We'll continue 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, 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 million to $95 million. This includes maintenance CapEx of approximately 3.25% of revenue, with the remaining amount invested in high return growth initiatives.

Today, we are raising our fiscal 2024 outlook. We expect revenue in the range of $1.81 billion to $1.85 billion, net income in the range of $71 million to $75 million and adjusted EBITDA in the range of $211 million to $225 million. And this indicates adjusted EBITDA margin for fiscal '24 in the range of 11.7% to 12.2%. We anticipate the revenue and adjusted EBITDA splits between Q3 and Q4 to be similar to fiscal year 2023. And with that, we are now ready to take your questions. Operator?

(Operator Instructions) Adam Thalhimer, Thompson Davis & Co.

Hey, good morning, guys.

Great quarter for Nat.

And good morning.

The can you give us a little more detail on the Sunbelt acquisition, possibly the revenue contribution, but also would be helpful is maybe the mix just between HMA and construction for them?

Well, I'll start with just telling you a little bit about Sunbelt, then I'll let Greg give you the specifics on how much revenue we think we'll get of this is just a great private company. We've gotten to know these guys for a couple of years now. And so they really just have a great market north of Atlanta and Auburn right along 85 and just from a really great addition to be in North Georgia with them.

They have a great young management team led by Jeremy hydro, who's staying on as the President of Sunbelt. And so we're just excited. They really just just benefit from the growth emanate now from Atlanta and moving up along that 85 corridor. So we're really excited. They're going to contribute some to this year and we'll let Greg give you what he thinks are the specifics there, Greg?

Yes, on. So they're going to contribute approximately $20 million in revenue for the remainder of the year, and they're typical bolt on Adam on it 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 of our market freight.

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 and I know it's a solid beat, but that was with the weather impact, I think.

Yes, Adam, you know, this quarter we really experienced to both extremes with weather from January was really tough. March was wet down somewhat, but February was great. And we talk about weather, even though now we saw that this quarter, we had just had a historically drop February and we're able to work and be productive. So, you know, yes, probably all in all, when you at the end, there might have been some weather impact this quarter. And but we saw, you know, weather really impacts us at fixed cost recovery at our plants and at our fleet. And so there was some of that.

But what we really like to see. And what we did see was that from our guys, our crews 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 productions on projects. And so that really helped offset the impact of the fixed cost recovery when that's typical for CPII., you know, as we've gotten into backlog, that's as we've talked about now for almost a year, and we're it's really good to see that.

Okay. Good color. Thanks, guys.

Dan, thank you.

Thank you. Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.

Your mortgage.

Good morning.

Of morning.

You'll hear Hey, Joe, you noted the M&A pipeline looks good, both inside and outside your states. I thought the comments about outside your states was 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.

Yes, Tal, I'll give you just a little bit of color with the current acquisition strategy. Namal I'd love for me to just weigh in with just some thoughts on 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 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. You know that we're going to take that opportunity.

But at the same time, there's a lot of just great whitespace, as you know, from your heat map in many, many of the states we're already in. So 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 on that?

First of all, thank you very much, 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 Sunbelt in here areas where we can continue to build roads 12 months out of the year. So if we think about it, we are better suited today.

Organizationally financially strategically to take advantage of this opportunity to kind of boil it down. 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.

And when we grow geographically, we have the first business in a new state that is 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, we would be looking for a company that has if history of success has an understanding of growth has the capacity to do bolt-ons. So we think that opportunity is throughout Sunbelt and we will continue to take advantage of the opportunities to grow geographically where we can with the right people.

Okay. Yes, no, that's that's extremely helpful. Thank you for that. And then on Greg, real quick, correct me if I'm wrong, but was weather a really was weather really tough last Q. three, I believe it was in. 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?

Yes. So Q3 and Q4 of last year were both really good months and a good, really good quarter. So it's going to be an interesting comp compared to those two quarters. So 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 to use as we play outside game fee. And I think that we just have to accept the normal weather patterns and that's how that's how we think through it.

So I guess then from what we what we think the Q3 and Q4 to play out very similar to '23 as it relates to the step up in revenue and EBITDA from Q3 to Q4.

Okay. Okay. That's helpful. And then my last one here. So Joe, 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 cost pressures maybe in labor? Are you having success getting better given some of the analytical tools you're implementing. Just any color 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.

It's a great question. There's a couple of different facets there. First, I think our annual EBITDA margin is going to benefit from just the first two quarters of just being 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 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 on. So and we're just passing through in our models a pass through model. And so we're seeing that and 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 on you know, how we bid and how we approach pricing is something we're hard at work on. So we did raise the midpoint. And like Greg said, we're expecting have a good third and fourth quarter and were growing. 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.

Perfect. Thanks, guys.

Thanks, Tyler.

Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your question.

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 then on along with that, how that plays into your your outlook for 2024?

Yes, Catherine, you know, as I just said with Tyler, and I'll get Greg to give a little more specifics with it. We are growing and we talk about 15% to 20% annual growth in own. Typically, it's split about evenly between acquisitive and organic in 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 passes through prices. So as prices go up in the construction industry, whether it be from raw materials aggregates, we just reflect that in our price but so I would say of our organic growth, 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, you know, show you what we're seeing there, Greg?

Yes. So for thinking about the guidance as it relates to the midpoint, I think I addressed a little bit of this minute ago.

In terms of the acquisitive side, I can give you that just like we said last quarter that were $120 million, $125 million through that particular quarter added another [$20 million] . That's going to be in the neighborhood of 9.3%, 9.6% of acquisitive growth. And then you're talking about organic growth. That's going to be in the neighborhood of 7.5% to 7.8%. So yes, as we're getting the price increases that we're seeing throughout our space, we're passing those along the same time we're raising our margins.

Okay, thanks for that color. In your prepared commentary, you said that you have 80% to 85% backlogs booked versus 70% to 75% last year on 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 what is really driving that own Delta overall in that percentage balance?

Eric Castle, Nino, we we've always said that our backlog we don't want to be the 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 on.

But as far as what's driving it on, we're still adding to backlog projects that are very typical for us working with 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. But and we really still see we're adding projects on average between $3 million and $5 million and have duration of six to nine months. 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. And that gives us comfort to add work to the backlog. So that's really driving 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 chasing backlog where we're looking at our crews and equipment. As I said, we're growing our capacity to do work, which is just a normal part of our organization growing. But we would we would rather get the right projects and just get just add backlog at it.

Perfect. And then just one clarification. Just given the dynamic nature of cost and pricing in that backlog, do you have the what how do you approach pricing and managing inflation Yes.

So we learned a couple of 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 all the input updates. And so all of our 70 plus markets and area managers and their estimators, some adapted very well on. But we certainly learned a valuable lesson I'll give net credit, hey, there's one thing he reminds me all the time. It's inflation's not going away, especially in our industry with the demand out there.

And so that keeps us on our toes to just we are still even though it's moderated from what it was, certainly not at a high end, but we make sure that we're passing through the costs. And so that's reflected in our backlog. You know, the bids that we have, the projects we have on backlog now still have the same escalators us assumptions of labor and material increases on that. We started adding in the summer of 2021 when inflation hit. So in tough times make good habits. And I think certainly we learn from that and our pass-through model is more effective now.

Perfect.

Thanks so much.

Thank you.

Thank you. Our next question comes from the line of Michael Feniger with Bank of America.

Next for taking my questions. I'm just curious, I know I know it was a really strong Q3, Q4. I was kind of just looking at as the guidance is there are we kind of implying no margin expansion in the second half? Is that because of mix a little bit more M&A? Is it anything with diesel or liquid asphalt. Just curious, you're seeing strong growth in the back half. Just curious on that on the flow through to EBITDA and the margins there.

Yes, 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 a 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 do 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 working through that 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. But I think our guidance is just reflects and we've been busy on the M&A front.

That makes sense. And it seems like you guys reiterated the CapEx. But your cash from ops operations is up really strongly in the first half and things have over 70% year over year in the first half. You're really converting a lot of that EBITDA to cash flow. Just is that sustainable? What do you kind of thinking in the back half there with the raising the EBITDA is, 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's a relationship here. We've talked about 75% to 80% conversion of EBITDA, cash flow from operations still still expect that. So the math there shows another potentially [95 million] in the back half on the dual was talking a minute ago about some kind of year over year and the guidance. So last, 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 set the year off really well. But yes, I think we're still expecting that, but that traditional conversion that I just discussed right now.

I'm just I'd like to squeeze one more in there. Just there's a concern out there that inflations a little bit higher for longer rates could be higher for longer, 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 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 seeing on the ground on the private side is with the private side start to slow or there's certain structural dynamics and you feel like are still holding up that part of the market and that business activity for you? Thanks, everyone.

Yes, Michael, that's that's really the question that for over a year now, we've been watching, as we said we watch the private markets and the commercial markets closely on. And this year, we could see it actually be a percent higher than it was last year. And I think that reflects that our markets continue to have a lot of commercial activity.

What's driving that, I think is, as we've said, that we're our states are driving a lot of residents migrate in that area, but it's also attracting a lot of businesses, 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. And 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 that commercial market were to slow down in 25, we would simply just make a move over and do more public work with costs with the demand on the public side, we can get all the work that's out there now anyway. And so we don't have the split has held constant for the last couple of years, if anything, the private side, it's a little stronger, but and should something slow down on that side in a year or two? We would simply just do more public work.

Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.

It's a good morning, everyone, and congratulations on the nice quarter as a first comment on your I guess earlier last month you guys had the share repurchase announcement out or you're looking to be active in the market. Is it more to just offset dilution? And just trying to think about how you're thinking about that and then blending you that repurchase piece versus what sounds like a pretty healthy M&A pipeline.

Yes, Stanley, I think Ned should answer that. And so I'm going to let him answer that and I'll give a little more color as to sort of the strategic reasons for that need.

Yes, certainly 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 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 Joel will tell you it is a very motivating tool that we have and we don't want that to dilute shareholders, we want that to enhance the shareholder value.

Yes. 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's got is the key to that. You know, it's not the equipment. It's not the asphalt plant is the people. And we've talked about now for almost three years that CPR 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 it's been extremely effective since we've started, but we want to do it in a way that doesn't hurt our existing shareholders.

Great. Thanks for the color. And then in terms of the margin piece, it's been very strong and you had some comments earlier about your performance in 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 looking at how nice the margins have been really kind of over the past 12 months?

Yes, Stanley, nothing's changed. Other in 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 on. 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 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, although we build a lot of projects. But when they do that, when we give them a fair budget, historically, we've seen at CPR that more projects are not finished ahead of budget, and that's what creates these gains.

And you'll do you think that this has helped you guys track towards the 27 targets maybe a bit ahead of the 50, 75 basis points target you guys outlined at the Analyst Day? Or is this just kind of more timing?

Well, I wouldn't 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 perfectly.

Thanks so much and congrats and best of luck.

Thanks, Stanley.

Thank you. Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Yes, great. Thank you, and good morning, everyone. So I guess, Greg, on the start with you and questions and kind of touched on. But when asking a little bit different way, can you just talk about the guidance increase to the revenue line? And just help us understand how much of that increase was just from a really good year to date performance quarterly performance versus the contribution from M&A.

I know you always kind of factor in some amount of M&A. I just don't know if you're running ahead of plan, if if this what seems like larger deal that you did in the quarter is a source of that raise. I'm just trying to understand really what drove that?

Yes. So on the first of all, Andy, I just know that there is no M&A in the guidance for the third and fourth quarter that hasn't closed yet.

Okay. How come I think that's a little bit interesting to think through because 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 acquired. So that got us to our initial M&A, I'm sorry, our initial guidance, central center of our guidance.

So now we've added one additional acquisition candidates of $20 million. So that is baked in that as well. So about a minute ago, about the $145 million and $150 million of acquisitive revenue and about $120 million of organic revenue.

Okay. All right. And then I just was wondering, so you called out here explicitly the amount of revenue from third party sales in the quarter. And I think fresh, first of all, appreciate that.

That's helpful. And I'm just wondering if you're giving that this quarter because it was unusually high or low or this is just new disclosure that you plan to give on a regular basis so that we can understand that, that business 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 compared on a year-over-year basis yet, Andy, I'm not sure on what number you got, but we typically don't necessarily call out any third party sales but I will give you the color along. We continue to have good third party sales has been on normal is nothing, nothing abnormal, nothing we meant to call out new, but it continues to be part of our business.

It's not the major part of our business. But on the aggregate and asphalt side, we continue to have good FOB sales. And I think the FOB asphalt sales, as you know, is mainly to commercial paving contractors. And so for us, the fact that those continue to be healthy is further evidence that the commercial markets are in throughout the Southeast where we are continue to be healthy.

Yes, Andy, I think last quarter we did talk about a little bit about on FOB sales, third party sales, if you will, and we did mention that it's off annually and typically 10% to 12% of total.

Yes. Okay. I think those are all my clarifications that we need and I have a great day, everyone.

Thank you.

Thank you

Thank you. Our final question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Hey, thanks. Great quarter as well on just a couple of here. I think, Joel, just with this really strong period of lettings and ultimately bookings here fiscal 2Q, any sense there there is sort of a pull forward from schedules or this?

Yes, second half of the year, but just as active from the vendors.

Yes. Yes, Brett, a good question. And that's why I said that in the prepared remarks on the first thing I'd say is we're pleased with the work we added in this quarter on the backlog, and we're going to continue to add work every quarter we're going to add work in the third quarter will add work in the fourth quarter to backlog, but our work doesn't burn off at an even rate from We do a lot of work in the third and fourth quarter our CPI. historically has had, you know, sequentially backlog go down in the busy summer work season.

And 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 was to reduce sequentially in the summer, it's not it's not going concern us at all, but we want to keep reminding folks of that, but to your question, you're right. Our customers don't let work in an even pace throughout the year also.

And each state does it a little differently, but several of our states of heavy lettings in the winter to prepare for the contractors to be able to prepare for the work season. And that's what they've historically done. And we were able to pick up some good work in those heavy a leading system this quarter.

Okay, understood. And then just the follow up, Joe, you sort of mentioned something along the lines of kind of keeping an eye on inflation and staying in front of it and which I think you do and when you look at the industry, the competitive environment, the individual bid, however, you sort of evaluate it as that is the competitive environment, your opinion adjusted effective way for that do you see irrational things happening out there still with competition or the environment, it's so good in your area that country everybody's kind of getting fatter.

Breadth and we do see irrational 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, that I would say you're right, it's a good bit environment, a good demand environment now.

All right. I appreciate it. Best Yes.

Thanks, Brent.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any closing comment.

I'd like to thank everyone for joining us today, and we look forward to talking again next quarter.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.