Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong operational performance in Q2 led to growth in revenue, gross profits, adjusted EBITDA, and adjusted EBITDA margin.
- Backlog increased to $1.79 billion, reflecting strong demand for both public and private work.
- Benefited from elevated federal and state infrastructure funding and a healthy commercial market.
- Completed five strategic acquisitions, enhancing market share and expanding geographic coverage.
- Raised fiscal 2024 guidance due to positive performance and market conditions.
Negative Points
- Winter quarter is financially slower, requiring careful management and preparation for busier seasons.
- Some increase in backlog due to timing of state DOT lettings, which may not indicate continuous demand increase.
- Net loss for the quarter was $1.1 million, although improved from the previous year's loss of $5.5 million.
- Acquisitions, while strategic, involve inheriting backlogs that were not company-bid, potentially affecting short-term margins.
- Dependence on weather conditions for project execution, which can introduce variability in performance.
Q & A Highlights
Q: Can you give us more detail on the Sunbelt acquisition, possibly the revenue contribution, and maybe the mix between HMA and construction for them?
A: (Fred Smith - President, CEO, Director) Sunbelt has a strong market in North Georgia, particularly along the I-85 corridor. They have a young management team led by Jeremy Hydro. They are expected to contribute approximately $20 million in revenue for the remainder of the year. The acquisition fits well with our existing operations and enhances our presence in a key strategic area.
Q: How are you managing the balance of price versus volumes this quarter, and how does that play into your outlook for 2024?
A: (Fred Smith - President, CEO, Director) Our growth is split roughly evenly between acquisitive and organic growth. We pass through price increases in the construction industry to our bids. Our organic growth includes both price increases and real growth. We are adding work at healthy margins, indicating a rational bidding environment.
Q: With the strong period of lettings and bookings in fiscal Q2, is there a sense of a pull forward from schedules, or is the second half of the year expected to be just as active?
A: (Fred Smith - President, CEO, Director) We are pleased with the work added this quarter and expect to continue adding work throughout the year. Our backlog typically decreases during the busy summer season, which is normal. Our customers do not let work at an even pace throughout the year, with several states having heavy lettings in winter to prepare for the work season.
Q: Can you discuss the competitive environment and how you are staying ahead of inflation in your bids?
A: (Fred Smith - President, CEO, Director) We have adjusted our bidding model to account for inflation and contingencies. We still need to be competitive on bid day. The healthy bid margins indicate that our competitors also have healthy backlogs and are bidding rationally. The demand environment allows us to be patient and selective at the bid table.
Q: What is driving the increase in your backlog, and how much of it is driven by larger private work versus traditional public work?
A: (Fred Smith - President, CEO, Director) Our backlog increase is driven by strong demand and the ability to bid patiently. We are adding typical projects for us, with no significant shift in project sizes. The increase in backlog gives us visibility and flexibility in scheduling, allowing us to choose profitable projects.
Q: How are you handling the balance between share repurchases and M&A activities, especially with a healthy M&A pipeline?
A: (Ned Fleming - Executive Chairman of the Board) The share repurchase program is mainly to offset dilution from our management stock incentive plan. This plan is crucial for motivating and retaining talent, and we aim to manage it without diluting current shareholder value. We continue to see M&A as a significant growth opportunity and are balancing it with shareholder interests.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
