Construction Partners Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

Key Takeaways

  • Construction Partners reported Q2 revenue of $371.4 million, up 14.3% YoY, and adjusted EBITDA of $29.5 million, a 45% increase with margins expanding to 7.9%.
  • Backlog grew to $1.79 billion, covering 80–85% of the next 12 months’ revenue and prompting a raised FY 2024 guidance of $1.81–$1.85 billion in revenue and $211–$225 million in adjusted EBITDA.
  • The company completed five strategic acquisitions so far this fiscal year, including the Sunbelt Asphalt Surfaces deal in North Georgia, adding approximately $20 million in revenue and expanding its I-85 corridor presence.
  • Management highlighted sustained demand from IIJA-funded public infrastructure and strong private commercial markets in the Southeastern U.S., with private work mix up about 1% YoY.
  • As expected, the winter quarter was the slowest seasonally, with a net loss of $1.1 million and weather-related fixed-cost recovery pressures impacting profitability.
AI Generated. May Contain Errors.
Earnings Conference Call
Construction Partners Q2 2024
00:00 / 00:00

There are 12 speakers on the call.

Operator

Greetings, and welcome to the Construction Partners Second Quarter Fiscal 20 24 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Rick Black with Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review Q2 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. 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.

Speaker 1

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.

Speaker 1

Management will also refer to certain non GAAP measures, including adjusted EBITDA, and there are reconciliations to the nearest GAAP measures 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. Jule?

Speaker 2

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 Q2. 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 3rd and 4th quarters. The CPI 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.

Speaker 2

Strong operational performance in our 2nd 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. 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 $1,790,000,000 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 lettings as larger lettings commonly occur in the winter months in advance of the summer work season.

Speaker 2

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. 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.

Speaker 2

In the commercial markets, the pace of projects and letting opportunities has remained strong across our states. Areas of particular strength in the private markets are 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 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.

Speaker 2

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, aggregate facilities and liquid AC terminals. The other part of our growth model is acquisitions.

Speaker 2

And so far this fiscal year, we've completed 5 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 1 active hot mix asphalt plant in Auburn, Georgia and 1 greenfield hot mix asphalt plant in Commerce, Georgia that we expect to begin operating later this year. We added crews and equipment to support our operations in these markets 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 of geographic focus for us.

Speaker 2

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. 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 states. The opportunities in our 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.

Speaker 2

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. 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 are the leader in building a scalable business by acquiring great privately held construction companies.

Speaker 2

We remain on track toward our roadmap 2027 goal of 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 environment. We are now well into our active spring work season and 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.

Speaker 3

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 Q2 in 2023. Revenue was $371,400,000 up 14.3%. The increase included $25,100,000 of revenue from acquisitions completed during and subsequent to the 3 months ended March 31, 2023, and an increase of approximately $21,400,000 of revenue in our existing markets from contract work and sales of HMA and aggregates to 3rd parties. The mix of total revenue growth for the quarter was approximately 6 0.6 percent organic revenue and approximately 7.7% from these recent acquisitions.

Speaker 3

Gross profit was $38,800,000 or 10.4 percent of revenue compared to $26,300,000 or 8.1 percent of revenue in Q2 2023. General and administrative expenses were $36,700,000 and as a percentage of revenue were flat compared to the same period last year. We remain on pace for G and A expenses to end the fiscal year in approximately 8% of revenue. Net loss for the quarter was $1,100,000 compared to a net loss of $5,500,000 in the same quarter last year. Adjusted EBITDA was $29,500,000 an increase of 45%.

Speaker 3

Adjusted EBITDA margin for the quarter was 7.9% compared to 6.3% in the Q2 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 $1,790,000,000 at March 31, up from $1,620,000,000 at the end of last quarter. We now estimate that we have 80 percent 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 seasons.

Speaker 3

Turning now to the balance sheet. We had $47,900,000 of cash and cash equivalents and $154,000,000 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 $200,000,000 We have $276,000,000 of principal outstanding under the term loan and $163,000,000 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 month EBITDA ratio was 1.81 times.

Speaker 3

Our expectation is 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 $18,200,000 Year to date cash provided by operating activities for fiscal 20242023 was $78,600,000 and $45,700,000 respectively. Trailing 12 months return on capital employed was just below 11% as of March 31. Net capital expenditures year to date were $50,600,000 We expect net capital expenditures for fiscal 2024 to be in the range of $90,000,000 to $95,000,000 This includes maintenance CapEx of approximately 3.25 percent of revenue with the remaining amount invested in high return growth initiatives. Today, we are raising our fiscal 2024 outlook.

Speaker 3

We expect revenue in the range of $1,810,000,000 to $1,850,000,000 net income in the range of $71,000,000 to $75,000,000 and adjusted EBITDA in the range of $211,000,000 to $225,000,000 This indicates adjusted EBITDA margin for fiscal 2024 in the range of 11.7% to 12.2%. We anticipate the revenue and adjusted EBITDA split between Q3 and Q4 to be similar to fiscal year 2023. And with that, we are now ready to take your questions. Operator?

Operator

Thank you. We'll now be conducting a question and answer Our first question comes from the line of Adam Thalhimer with Thompson Davis and Company. Please proceed with your question.

Speaker 4

Hey, good morning guys. Great quarter.

Speaker 3

Good morning, Adam.

Speaker 2

Hey, good morning.

Speaker 5

Can you give us

Speaker 4

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?

Speaker 2

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. 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, in Auburn, right along I-eighty five and 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.

Speaker 2

And so we're just excited. They really just benefit from the growth emanating out from Atlanta and moving up along that I-eighty five 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 with the specifics there.

Speaker 2

Greg? Yes.

Speaker 3

So they're going to contribute approximately $20,000,000 in revenue for the remainder of the year. And they're typical bolt on, Adam, 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 market.

Speaker 4

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 Q2. And I know it's a solid beat, but that was with a weather impact, I think.

Speaker 2

Adam, this quarter we really experienced 2 both extremes with weather. January was really tough. March was wet, somewhat. But February was great. And we talk about weather evening out and we saw that this quarter.

Speaker 2

We had just had a historically dry February and we're able to work and be productive. So, yes, probably all in all when you add it in there might have been some weather impact this quarter. And but we saw weather really impacts us at fixed cost recovery at our plants and at our fleet. And so there was some of that. But we really like to see and what we did see was that our guys, our crews throughout the Southeast in a lot of markets had great performance on projects.

Speaker 2

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. And that's typical for CPI as we've gotten into backlog that's as we've talked about now for almost a year and it's really good to see that.

Speaker 4

Okay. Good color. Thanks guys.

Speaker 2

All right, Adam. Thank you.

Operator

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

Speaker 6

Hey, good morning guys.

Speaker 2

Good morning, Tyler. Good morning, Tyler.

Speaker 6

Hey, Jewel. Hey, so Jewel, you noted the M and 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.

Speaker 6

Yes.

Speaker 2

Tyler, I'll give you just a little bit of color with the current acquisition strategy. And I'm going to I'd love for Ned 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. We just continue to build relationships.

Speaker 2

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. 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 of the states we're already in. So we're just happy to we're looking for good profitable growth wherever it is. Ned, would you like to add just some color on that?

Speaker 5

Sure, Jewel. 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 throughout the whole Sunbelt in here, areas where we can continue to build roads 12 months out of the year.

Speaker 5

So if I 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. And we want to continue to grow geographically as well as increase our relative market share. When we grow geographically, we have the 1st 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.

Speaker 5

We would be looking for a company that has a history of success, has an understanding of growth, has the capacity to do bolt ons. So we think that opportunity is throughout the Sunbelt and we will continue to take advantage of the opportunities to grow geographically when we can with the right people. Okay.

Speaker 6

Yes. No, that's extremely helpful. Thank you for that, Ned. Greg, real quick, correct me if I'm wrong, but was weather a really was weather really tough last Q3? I believe it was.

Speaker 6

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 kind of be equal in terms of revenue roughly based on the guidance?

Speaker 3

Yes. So Q3 and Q4 of last year were both really good month, really good quarter. So it's going to be an interesting comp compared to those two quarters. 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. So I guess then from what we think the Q3 and Q4 to play out is very similar to 2023 as it relates to the step up in revenue and EBITDA from Q3 to Q4.

Speaker 6

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.

Speaker 6

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 bidding better given some of the analytical tools you're implementing? Just any color would be helpful there.

Speaker 6

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.

Speaker 2

Hey, Tyler. 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 just being normal quarters building post inflationary backlog and we've seen that now. And so we move into the 3rd Q4.

Speaker 2

We really see our business just operating as normal. We really had a great 3rd Q4 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 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 how we bid and how we approach pricing is something we're hard at work on.

Speaker 2

So we did raise the midpoint. And like Greg said, we're expecting a good 3rd and 4th quarter and we're 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.

Speaker 6

Perfect. Thanks guys.

Speaker 2

Thanks Tyler.

Operator

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

Speaker 7

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

Speaker 2

Yes, Catherine. As I just said, with Tyler and I'll get Greg to give a little more specifics with it, We are growing. We talk about 15% to 20% annual growth. And typically, it's split about evenly between acquisitive and organic. Some years organic or acquisitive could be a little higher, but typically it's about roughly half and half.

Speaker 2

And so we are seeing real organic growth. Clearly, our model passes through prices. So as prices go up in the construction industry, whether it be from 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 show you what we're seeing there.

Speaker 2

Greg?

Speaker 3

Yes. So if we're thinking about the guidance as it relates to the midpoint, I think I acquisitive side. I can go ahead and give you that. Just we said last quarter that we're $120,000,000 $125,000,000 through that particular quarter, added another $20,000,000 That's going to be in the neighborhood of 9.3%, 9.6% acquisitive growth. And then JUUL talking about organic growth, that's going to be in the neighborhood of 7.5% to 7.8%.

Speaker 3

So yes, 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 our margins.

Speaker 7

Okay. And thanks for that color. In your prepared commentary, you said that you have 80 to 85 backlogs booked versus 70% to 75% last year. 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 balance?

Speaker 2

Kathleen, we've always said that our backlog, we don't want to be at 100% of the next 12 months 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 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.

Speaker 2

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 $3,000,000 $5,000,000 and a duration of 6 to 9 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.

Speaker 2

That gives us comfort to add work to the backlog. So that's really 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 trying we're not chasing backlog. We're looking at our crews and equipment.

Speaker 2

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 get just add backlog to add it.

Speaker 7

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 2

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 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'll give Ned credit.

Speaker 2

There's 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'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

Speaker 6

that

Speaker 2

we started adding in the summer of 2021 when inflation hit. So tough times make good habits. And I think certainly we learn from that and our pass through model is more effective now.

Speaker 7

Perfect. Thanks so much.

Speaker 2

Thank you, Catherine.

Operator

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

Speaker 8

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. Is there are we kind of implying no margin expansion in the second half?

Speaker 8

Is that because of mix, a little bit more M and A? Is it anything with diesel or liquid asphalt? Just curious, you're seeing strong growth in the back half. Just curious on that flow through to EBITDA and the margins there.

Speaker 2

Yes, Michael, good question. And we thought about that and looked at it because as you know, the last 4 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 3rd Q4 this year that was different than last year is we've been very active on the M and A front. And we've done 5 acquisitions and there could be more between now and the end of the year.

Speaker 2

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, we certainly come in and put in the technology and the bidding mechanisms. And so those margins quickly get to what CPI historically has.

Speaker 2

But I think our guidance is just a reflection we've been busy on the M and A front.

Speaker 8

That makes sense. And it seems like you guys reiterated the CapEx, but 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 is that sustainable?

Speaker 8

What are you kind of thinking in the back half there? With the raise in the EBITDA, is there a similar raise we should be thinking on the cash flow side? Just any thoughts there would be helpful.

Speaker 3

Yes, I think there's a relationship, sure. We've talked about 75% to 80% conversion of EBITDA to cash flow from operations, still expect that. So the math there shows another $95,000,000 potentially $95,000,000 in the back half. Jule was talking a minute ago about kind of year over year and the guidance. So last the Q4 was extremely strong.

Speaker 3

And because of that strength, we certainly carried a lot of cash collection into the Q1 of 2024 from that really strong quarter. So I think that's what set the year off really well. But yes, I think we're still expecting that traditional conversion that I just discussed.

Speaker 8

Great. And I'm just I'd like to squeeze one more in there. Just there is a concern out there that inflation is a little bit higher for longer, rates could be higher for longer. I guess 6, 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 Southeast. I'm just curious with how you guys are thinking into 'twenty five if we don't get relief from the Fed on rates, what you guys are hearing on the ground on the private side?

Speaker 8

Will the private side start to slow? Or are there certain structural dynamics that you feel like are still holding up that part of the market and that business activity for you? Thanks everyone.

Speaker 2

Yes. Michael, 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. And this year, we could see it actually be 1% higher than it was last year. And I think that reflects that our markets continue to have a lot of commercial activity.

Speaker 2

What's driving that, I think, is as we've said, we're our states are attracting a lot of residents migrating there, 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. We certainly haven't seen any slowdown really taken hold yet. But as we've always said, our resources are flexible.

Speaker 2

And so to the extent commercial market were to slow down in 2025, we would simply just move over and do more public work because with 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 of years. If anything, the private side is a little stronger. But should something slow down on that side in a year or 2, we would simply just do more public work.

Operator

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

Speaker 9

Hey, good morning everyone. Congratulations on the nice quarter. Could you guys comment on, I guess earlier month you guys had the share repurchase announcement out. Are you looking to be active in the market? Is it more to just offset dilution?

Speaker 9

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 and A pipeline?

Speaker 2

Yes. 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?

Speaker 5

Yes. Salie, 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.

Speaker 5

We have pushed the stock plan pretty far down in the organization. And I think JUUL 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 the shareholder value.

Speaker 2

Yes. So, Stanley, I would just add to that just as Ned said. For us to deliver on this roadmap 2020 7 and the growth targets we have both on the top line and bottom line, our organization is the key to that. It's not the equipment, it's not the asphalt plant, it's people. And we've talked about now for almost 3 years that CPI sees it as a competitive advantage, our ability to attract and retain the workforce.

Speaker 2

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.

Speaker 9

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 and beating some of the budgets. 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?

Speaker 9

Just looking at how nice the margins have been really kind of over the past 12 months?

Speaker 2

Yes, Stanley. Nothing's changed other our model is a pass through model. We estimate jobs today just like we did 5 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.

Speaker 2

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 cost, 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 budget.

Speaker 2

And that's what creates these gains.

Speaker 9

And Jewel, do you think that 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 the Analyst Day? Or is this just kind of more timing?

Speaker 2

Well, I wouldn't say we're on track, Stanley. Certainly, our guidance, 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 9

Perfect, guys. Thanks so much. Congrats and best of luck.

Speaker 2

Thanks, Stanley.

Operator

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

Speaker 10

Yes, Greg. Thank you and good morning everyone. So, I guess Greg, I 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 and just help us understand how much of that increase was just from really good year to date performance or quarterly performance versus the contribution from M and A? I know you always kind of factor in some amount of M and A.

Speaker 10

I just don't know if you're running ahead of plan, 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.

Speaker 3

Yes. So, first of all, Andy, just know that there is no M and A in the guidance for the 3rd Q4 that hasn't closed yet, okay? Okay.

Speaker 5

I

Speaker 3

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 and 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 and A I'm sorry, our initial guidance center of our guidance, okay. So now we've added one additional acquisition candidate of $20,000,000 So that is baked in. And that is what I was talking about a minute ago about the $145,000,000 $150,000,000 of acquisitive revenue and it's about $120,000,000 of organic revenue.

Speaker 10

Okay. All right. And then I just was wondering, so you called out here explicitly the amount of revenue from 3rd party sales in the quarter. And I first of all appreciate that. That's helpful.

Speaker 10

And I'm just wondering if you're giving 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 business' mix on your margins? And if it is that, could you just tell us what it was last year, so we could jot that down and compare it on a year over year basis?

Speaker 2

Yes. Andy, I'm not sure what number you got, but we typically don't necessarily call out any 3rd party sales, but I will give you the color. We continue to have good third party sales. It's been normal. It's nothing abnormal, nothing we meant to call out new.

Speaker 2

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 in our and throughout the Southeast where we are continue to be healthy.

Speaker 3

Yes. Andy, I think last quarter we did talk about a little bit about FOB sales, 3rd party sales, if you will. And we did mention that it's annually and typically 10% to 12% of total. Yes.

Speaker 10

Okay. I think those are all my clarifications that we needed. Have a great day everyone.

Speaker 6

Thank you, Andy. Thank

Operator

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

Speaker 11

Hey, thanks. Great quarter as well. Just a couple here. Jewel, just with this really strong period of weddings and ultimately bookings here in fiscal 2Q, any sense that there's sort of a pull forward from schedules or the second half of the year, what just is active from a bid perspective?

Speaker 2

Yes, Brent, good question and that's why I said that in the prepared remarks. 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 3rd quarter. We're going to add work in the 4th quarter to backlog. But our work doesn't burn off at an even rate.

Speaker 2

We do a lot of work in the 3rd Q4. 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 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 going to concern us at all, but we want to keep reminding folks of that. But to your question, you're right.

Speaker 2

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 have 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 lettings this quarter.

Speaker 11

Yes. Okay, understood. And then just a 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?

Speaker 11

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? Yes.

Speaker 2

Brett, 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, 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, a good demand environment now.

Speaker 11

All right. I appreciate it.

Speaker 4

Best of luck.

Speaker 2

Okay. Thanks, Brent.

Operator

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 2

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

Operator

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

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