Construction Partners Inc

NASDAQ:ROAD

Earnings Call Transcript 2021-Q2

[Operator]

Greetings and welcome to the Construction Partners Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you. You may begin.

[Rick Black, Investor Relations]

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review second quarter fiscal year 2021 results. This call is also being webcast and can be accessed through the audio link on the Events & Presentations page of the Investor Relations section of constructionpartners.net. Information on this call speaks only as of today, May 7, 2021. So, please be advised that any time-sensitive information may no longer be accurate as of the date of any replay.

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 forward-looking statements made pursuant to the safe harbor 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 the earnings press release that was issued today for our disclosures on forward-looking statements. These factors and other risks and uncertainties can be found described in detail in the company’s filings with the Securities and Exchange Commission.

Management will also refer to non-GAAP measures, including adjusted net income, adjusted net loss, and adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press 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?

[Jule Smith, Chief Executive Officer]

Thank you, Rick, and good morning, everyone. With me on the call today are Alan Palmer, our Chief Financial Officer; and Ned Fleming, our Executive Chairman. Let me begin by thanking our over 2,500 employees throughout the Southeast for their hard work, dedication and commitment to maintaining safe work sites for themselves and their teammates. Because of them, CPI is well-positioned heading into the second half of the year to meet our year end goals.

We ended the quarter with record high backlog, project lettings are up in many of our markets. Our core operations are performing well and our teams are motivated for the busy work season ahead. We are maintaining our outlook for the fiscal year and we see significant opportunities for CPI, both near-term and long-term. In the second fiscal quarter revenue grew 6.2% compared to the second quarter last year. While adverse weather caused substantial project delays in the quarter that work is not lost, but pushes forward. And we plan to complete that work in the second half of our fiscal year.

Halfway through the year, we are just slightly below our historical revenue pattern of 40% in the first half and 60% in the second half, even with the weather delays. It’s also important to note that we ended the quarter with a record high project backlog of $773 million, including a record amount of backlog to be completed in our third and fourth quarters. Moving into the seasonally stronger second half of the year, we continue to experience an extremely active bid environment due to strengthen infrastructure funding programs and project lettings across our states and markets.

During the quarter, our core business performed very well. Overall margins were pressured by acquired backlog from recent acquisitions that was committed to by previous owners at lower margins. Historically, this is typical of new acquisitions and we have consistently been able to increase project margins and grow market share in 12 to 18 months. Demand for our services, both public and private remains high. In addition, the funding mechanisms in place at the state level are strengthening. We currently expect in the next 12 months for potential upside of 20% overall in year-over-year infrastructure spending across our states.

At the federal level, we remain optimistic about the prospect of a significant infrastructure bill considering the bipartisan support for infrastructure legislation. We are confident that our nation’s infrastructure investing will continue to be a primary focus for our country, both as an economic driver and as a critical component of public safety.

Turning now to acquisitions. In the past six months, we have acquired a total of 13 hot mix asphalt plants and added more than 300 employees. Looking forward, our pipeline for future acquisitions is robust. Within the states where we operate, we are having many conversations with potential sellers, and we’re also having discussions with companies in other states as we look for opportunities to grow our footprint. Our leadership team is actively working to identify and engage companies that fit well into our strategy and future growth plans. Today, we see more opportunities than we ever had at CPI.

During the quarter, we have also extended our commitment to this future growth by evaluating and expanding our investment in our organization. As a consolidator in our industry, we see more opportunities for both own and strategic acquisitions and we must be prepared to seamlessly integrate them into CPI. The most critical component of our success has always been our people. This means that we are investing in the people, processes and technology to take a larger and more geographically diverse company into the future. It’s an exciting time for CPI.

I’d now like to turn the call over to Alan to discuss our financial results.

[Alan Palmer, Chief Financial Officer]

Thank you, Jule, and good morning, everyone. I want to start by highlighting our key performance metrics in the second quarter fiscal 2021. Compared to the second fiscal quarter of 2020 revenue was $179.1 million, up 6.2%. Acquisitions completed to the second quarter of 2020 contributed $14.9 million of revenue. Gross profit was $18.1 million, down 10.4% compared to the second quarter of last year. As we have stated before acquisitions initially create a headwind to our operating margins with four acquisitions in the previous quarter, normal low volumes in this quarter and the acquisitions being in the challenge in North Carolina market, these acquisitions had a negative $3 million margin in the quarter on $12.2 million of revenue.

General and administrative expenses were $24.5 million, consisting of a non-recurring $3.2 million legal settlement, unrelated to the company’s core operations associated legal expenses of $0.7 million and $20.6 million of other general and administrative expenses. This compares to a $20.1 million G&A expense in the first quarter of fiscal 2021. General and administrative expenses were $16.8 million in the fiscal second quarter of 2020. In addition to the legal and settlement expenses, the sequential increase in general and administrative expenses was primarily due to a $1 million increase related to acquisitions made subsequent to the second quarter of 2020 and payroll expenses related to new corporate positions and compensation initiative.

On a GAAP basis, the company had a net loss of $4.9 million in the fiscal second quarter compared to a net income of $1.5 million in the second quarter last year. On a non-GAAP basis, adjusted net loss was $2 million in the fiscal 2021 second quarter compared to an adjusted net income of $1.6 million in the second quarter last year. Adjusted EBITDA for the fiscal second quarter of 2021 was $11 million compared to $14.3 million for the second quarter last year. You can find GAAP to non-GAAP reconciliations of adjusted net loss, adjusted net income and adjusted EBITDA financial measures at the end of today’s press release.

As expected, we experienced price increases on liquid asphalt and diesel fuel during most of this quarter, but we were seeing some stabilization in prices for both of these products. Turning now to the balance sheet, at March 31, 2021, we had $33.8 million of cash and $38.6 million of availability under our revolving credit facility, after the reduction for outstanding letters of credit. As of the end of our quarter, our debt to trailing 12 months EBITDA ratio was 1.0. This liquidity provides financial flexibility in capital for potential near term acquisitions, allowing us to respond to growth opportunities when they arise.

Cash provided by operating activities was $2.4 million for the six months ended March 31, 2021 compared to $20.6 million for the same period last year. Capital expenditures for the first half of 2021 were $26.9 million. We still anticipate total capital expenditures for the year of $47 million to $50 million. We’re reporting a record backlog as a March 31, 2021 of $773.3 million compared to $655.6 million at December 31, 2020 and $579.8 million at March 31, 2020. Approximately, 79% of the backlog will be completed in fiscal year 2021. And as Jule mentioned, we are maintaining our fiscal year 2021 outlook for the year.

In summary, we’re pleased with our second quarter results, the recent acquisitions and our project backlog. I’ll now turn the call over to our Executive Chairman, Ned Fleming. Ned?

[Ned Fleming, Executive Chairman]

Thank you, Alan. Before we open the call to your questions, I want to reiterate that the company is performing well. Despite some weather delay, operating expenses, the company is tracking to its internal targets for the year. And we are pleased to maintain the fiscal 2021 outlook. The company is very well positioned for growth in a highly fragmented market with strong industry demand and growing infrastructure funding. We continue to execute our proven strategy of profitable disciplined growth. As a result, our relative market share in the rapidly growing Southeastern United States is growing.

It is also important to note that the Southeast has grown at a faster pace than the rest of the country for over the last decade. We believe the effects of the recovery since the pandemic have actually accelerated that demographic growth pattern. Today, we continue to review more attractive acquisition targets than at any other point in company’s history. Last week, in the Berkshire Hathaway Annual Meeting, Mr. Buffett mentioned that SPAC mergers have increased prices of potential acquisitions, but given the unique dynamics in our industry and our specific criteria, valuation multiples have not changed. We plan to stay disciplined in this regard, and we are confident that our long-term strategy will continue to provide value to all our stakeholders.

With that, we’ll now take questions. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question is from Andy Wittmann with Baird. Please proceed with your question.

[Andy Wittmann, Baird]

Great, and good morning, everyone. I wanted to start out by asking a little bit on this backlog. Obviously, the numbers are up a lot sequentially. And I guess, Alan, in your comments, I think you mentioned 79% of this is going to be burned in fiscal 2021. I guess just given that it’s increased a lot, I was trying to get a little bit more detailed on the composition of that backlog in terms of the size and the duration of the projects in it. Just to hopefully get some more confidence around, Jule, the attainability of the 2021, is this 79% of this backlog unusually high or low for this time of year in terms of how much can be completed still in the fiscal year?

[Alan Palmer, Chief Financial Officer]

I mean, it’s pretty typical as far as what percentage we’re going to complete in this year. It’s just because it’s larger and obviously represents a lot more dollars, but maybe to answer what I think your question is, Andy, at this point of the remaining revenue that we think we’re going to need to get to – a contract revenue that we’re going to need to get to the guidance that we given. It’s 91% of that, where last year at this time, we only had 82% of our remaining year backlog. Excuse me, teed up. So it is, at the highest in several years, as far as the percentage of the remaining contract revenue to get to our guidance, so but 70% or 80% generally at this point of the year, 70%, 75% to 80% completed in the next six months is not unusual.

[Andy Wittmann, Baird]

Okay. All right. That’s helpful. I guess the next question I had is, I wanted to dig into, Jule, a comment that you had in your prepared remarks, talking about how in the States you’re operating that you’re eyeing down potentially a 20% increase in infrastructure spending. I was just hoping you could elaborate a little bit more on that. I hadn’t heard you guys say that number before, and I’m just kind of wondering where you got that and some of the things that are contributing to that outlook for your States? And frankly and how certain is this – are these initiatives that already passed or user fees that are already there? Or are they waiting for legislation and/or other appropriations to achieve that?

[Jule Smith, Chief Executive Officer]

Sure, Andy. Good morning. The 20% increase year-over-year is really looking forward into the next 12 months. And as we’ve studied, the States that we’re in – what we’re really seeing is the economic activity at the State levels. Their State budgets are still healthy, but really it’s the several different COVID relief bills, the money that was passed that helped the States. That’s really starting to flow through. If you remember when they passed, we said it typically takes nine months to a year. So when we start to see what the States are forecasting to let in their State fiscal year 2022, that money is really starting to have an impact. And we think it will increase project lettings overall 20%. Now some States like Florida and Georgia, it’s a higher percentage that we think North Carolina and Alabama, it’s little less. But overall it looks like about a 20% increase looking over the next 12 months.

[Andy Wittmann, Baird]

Got it. I’ll do one more here and I have some other ones maybe for later, if they don’t get asked, but I guess I wanted to ask on the recently acquired companies and as it relates to their profit margins, I think I heard you say that they were a minus $3 million debt to EBITDA in this quarter. And I was just wondering if there’s anything unusual if that or if these companies that you acquired typically run as an EBITDA loss in the March quarter as well as your prospects in the timeline for getting those margins back to more typical Construction Partners type levels?

[Alan Palmer, Chief Financial Officer]

Yes, Andy, good question. What I wanted to convey is that typically we make acquisitions, multiple times during the year. And we’ve always talked about when we acquire and there’s a headwind, their backlog is lower. Some of their fixed costs kick in earlier. But the reason for pointing it out with these as having made for that obviously is magnified four times as much, but there’s nothing unusual in these that we don’t experience the backlog we acquire is lower than our profit margins. You put on a lot of additional fixed expenses. Those companies, the backlog made a little profit, but we had the worst – we have a bad quarter, always for all of the operating company in the quarter January, through December coming through March, because that’s when we typically only do about 20% of our business. So the gross profit loss that they experienced all was the under utilization of running tons through the asphalt plant, because typically you do a lot less asphalt paving work in the winter because not just rain, but cold. And then it was also the under utilization of their equipment. So the jobs had a profit. It was – as we’ve said before, less than what we typically would have on that type of backlog, but it was also those fixed cost is really what drove that negative gross profit with the slow conditions that we had in this core.

[Ned Fleming, Executive Chairman]

Maybe I just want to add, as far as those four acquisitions, we’re excited about their prospects long term, and that’s why we make acquisitions is for the long term. But whether it’s the Sandhills markets or the Northeast Rose Brothers territories or Outer Banks, we are seeing a lot of opportunities there for growth and growing the relative market share those markets. So long term, we’re really excited about being there.

[Andy Wittmann, Baird]

Okay. I’ll leave it there. Thanks guys. I might circle back later again.

[Operator]

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

[Stanley Elliott, Stifel]

Good morning guys. Thank you all for taking the question. Is there a way to kind of parse out the 230 basis points on EBITDA? How much of that was weather versus how much was kind of the lower mix coming in from the other businesses? And then do we think that the – you mentioned kind of 12 to 18 months in terms of when things would normalize? I mean, do we think that this backlog that you have is going to be disproportionately at a lower margin versus the core business?

[Alan Palmer, Chief Financial Officer]

I’ll try and answer both questions here, Stanley. It means for us the backlog that we’ve got, there was fortunately, in one hand, there was minimal backlog that we acquired with these acquisitions because there in North Carolina and last year in North Carolina, the DOT let one-tenth of their normal. So they were faced with the same conditions that we were in our North Carolina operations, but because a substantial amount of their work was DOT and they didn’t do a lot of private work or other things like we do, where we’re vertically integrated. They were impacted pretty significantly on their backlog profit. And so that was part of the impact. And then the work that they’ve picked up since then, we’re beginning to see an improvement in the bid margins in North Carolina. So as far as this backlog at March 31, very little of that was acquired backlog from these acquisitions.

We completed in the part of the first quarter that we had. We own them. And then this last quarter, a substantial portion of the inherited backlog. So the backlog going forward when factored in with the backlog with all the rest of the company, it’s pretty insignificant. So we don’t see that as a big problem. I gave the $3 million negative gross profit, of course, on a EBITDA basis, that would not all flow down, you’d add back depreciation, but it had a pretty substantial impact on our net income and our EBITDA. The other core operations, although their revenue was down slightly this quarter compared to the prior year due to the weather that affected our core operations and these acquisitions. I mean our margins there and our EBITDA there were right in line with the prior year.

So most of the EBITDA line impact was the impact of these acquisitions, but $3 million of the gross profit line was, and then we disclose there was in this quarter, there was approximately $1 million worth of overhead that was added, that was related to these acquisitions and the one acquisition that was made in March of last year. So we had a significant impact, but one thing, I just want to indicate from our expectations for what we would do revenue wise and what we would do profit wise, because we anticipated all of this with the new acquisitions. We’re very close to what our expectation was both revenue and EBITDA at this time. And that’s one of the reasons that we maintained our guidance because while these acquisitions significantly impacted this quarter the full year, they’re going to have a positive impact. As Jule alluded to earlier, nothing has changed there, but we recognize that, that we all don’t have all of that detail about the sequence of the earnings and the revenue of these acquisitions. And so we were still very happy with them.

[Stanley Elliott, Stifel]

No, that’s good. That’s fantastic color. And then thinking about kind of the rest of the year in terms of the capital spend piece, are you all having problems or OEMs having problems or delayed getting machinery to you all that you would need for the heart of the construction season? Just curious, because a lot of those guys are having backlogs, big backlogs as well, even some supply chain issues?

[Jule Smith, Chief Executive Officer]

Yes. Stanley, that’s a good question. We are clearly seeing supply chains up in a lot of areas of pressure. We have great relationships with equipment suppliers and we’re managing through it, but there’s definitely a delay in getting construction equipment. We have made the decision to delay the normal pace of disposals and holding onto our equipment to make sure that we can do this backlog. So it’s a factor, but it’s not affected our business. But it’s you hear about this in a new number of industries and it’s certainly affecting ours.

[Alan Palmer, Chief Financial Officer]

And Stanley one comment there, we’re definitely ordering equipment earlier because the lead time to get it in is longer. So even the CapEx we’ve spent less this year at this point than we have in the prior year due to that delay. But as Jule said, we have the benefit of keeping the equipment we have and continuing to run it and then disposing of it after we get the new piece in.

[Stanley Elliott, Stifel]

Perfect, guys, that’s great. Thank you very much and best of luck.

[Operator]

Thank you. Our next question comes from Josh Wilson with Raymond James. Please proceed with your question.

[Josh Wilson, Raymond James]

Good morning. Thanks for taking my questions. Wanted to dig into the guidance assumptions a little more, I think last quarter you said for the full year sales growth you saw half of it would come from the core business and half would come from the acquisitions. Is that still the case or is the balance between the two changed?

[Alan Palmer, Chief Financial Officer]

Yes. That’s pretty much what our projection, internal projection shows for the rest of the year as that the acquisitions will be on target with what we initially expected and that the organic growth will be consistent with what we originally expected.

[Josh Wilson, Raymond James]

And in terms of the increase in the potential M&A pipeline, is that mostly bolt-ons? Are you seeing the potential for platform acquisitions increase as well?

[Jule Smith, Chief Executive Officer]

Yes, Josh. So, as I said in the prepared remarks, we’re having a lot of conversations in the States we’re in with potential bolt-on acquisitions. And we feel very good about that. But we’re also having conversations in adjacent States with potential platform acquisitions. And so they’re really both very active right now.

[Josh Wilson, Raymond James]

And last one for me. Could you give us an update on what you’re seeing in terms of private activity in each state and maybe what your outlook is there?

[Jule Smith, Chief Executive Officer]

Well, the bid environment is very active right now on the public side, but on the private side as well, a lot of our markets and as Ned said, the Southeast is growing and we’re seeing that. There is a lot of residential activity, but there’s also a lot of commercial activity, warehouses, data centers. So there’s continued to be a lot there. And also, when we say infrastructure the spending that’s happened with infrastructure is more than just roads and we are bidding a lot of airport work, railroad work. And so it’s very busy on a lot of fronts right now public and private.

[Josh Wilson, Raymond James]

That’s good to hear. Good luck with the next quarter.

[Operator]

Thank you. Our next question is coming from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.

[Adam Thalhimer, Thompson Davis]

Good morning guys. Okay, so we feel good about revenue because so much of that revenue for the back half, because so much of that already is in backlog, help us gauge your confidence in the margins for the back half?

[Alan Palmer, Chief Financial Officer]

Well, what we’re seeing in our backlog margin is virtually no change. So we feel good about that. The area where we will pick up a lot of margin in the second half is currently we’re at 38% of our annual revenue. When we do that 62% in the back half, then the asphalt plants, the equipment accounts, all of those are going to show a very strong add to that gross profit because we’re going to be utilizing them at a much faster rate and they have pretty significant fixed cost. So I would say, we have a high confidence level that we can get near that completion of that backlog that we’ve got scheduled that we’ll have a very positive impact of that. We’ve talked about some of the headwinds with rising petroleum prices, and we experienced that a little bit in this quarter, which is what we anticipated. We’ve certainly seen that stabilize toward the end of the quarter at those levels and going into this quarter. So I’d say we have a pretty high confidence level in being able to get to that margin that we’ve kept in that guidance.

[Adam Thalhimer, Thompson Davis]

Okay. A good answer. And then on the North Carolina acquisitions, is it fair to say that, I mean, look at the near term outlook was really good for those businesses. They probably wouldn’t have sold. Is that fair to say? I mean, you’re willing to take a long view.

[Jule Smith, Chief Executive Officer]

Well, Adam, I would say this. We do take the long view on acquisitions. Most of the people, the sellers we deal with are really doing more strategic family planning versus making just near term decisions. And I would say that was the case with these four. It really was relationships that we’ve had for a long time. And when they felt like it was in their family’s best interest to sell, CPI was able to take advantage of that and to create a win-win situation for them. So I think we’re very excited to be there. These markets have great long-term upside. Clearly, North Carolina has had a tough last 12 months, but we see the bidding environment there, the DOT is letting work at a normal pace now. As Alan said, we see the margins getting back to normal now. And so we’re very excited about those four acquisitions and what they’re going to add to CPI in the future.

[Alan Palmer, Chief Financial Officer]

And just another point there…

[Adam Thalhimer, Thompson Davis]

An apple is coming to town.

[Jule Smith, Chief Executive Officer]

An apple is coming to town. That is that is really an exciting thing for the Raleigh-Durham area. CPI has done most of the work over the last 10 years in the Research Triangle Park. So that is going to create a huge amount of opportunity for our North Carolina markets.

[Adam Thalhimer, Thompson Davis]

And then last question, there’s so much – you said something on the stimulus and it takes nine months, there’s been so much stimulus, I don’t even know what that was referring to. And then, I’m curious on the $1.9 trillion that Biden just did a lot of that was supposed to go to municipalities, hundreds of billions of dollars. I was thinking that could help you guys for some kind of muni or town projects, like maybe you can just roll through some of the stimulus you’re seeing and help break it down for us.

[Jule Smith, Chief Executive Officer]

Yes. You’re exactly right. It gets a little confuse in looking back to what passed in March of 2020, what passed in December, what passed just recently in March. They all had different cash flow streams to the states and to the cities. And we’re seeing that help in the near-term. The different plans at the federal level that are going around Washington right now can be a little confusing. And I’m trying to keep up with it and talk to folks in Washington between Republican plants, the Democrat plants, the House to Senate, they have different timeframes. Some are five years, some are eight years. But overall the big picture is that there is bipartisan support to have a significant investment in infrastructure. And whether it’s resurfacing in surface transportation or airports, railroads or money to municipalities, if it’s going to infrastructure, that’s going to be a good thing for CPI.

[Adam Thalhimer, Thompson Davis]

Okay. But that specific comment, which bill is that when you said it was a nine month lag?

[Alan Palmer, Chief Financial Officer]

That was the stimulus bill I think it was a hundred and something million, Jule was that…

[Jule Smith, Chief Executive Officer]

Yes. It had $10 billion in money to the states for transportation and about $1.5 billion…

[Adam Thalhimer, Thompson Davis]

Okay, December of last year. I got it.

[Jule Smith, Chief Executive Officer]

That’s right. Exactly. We’re starting to see the DOTs actually give us their indications of what projects and when they’re going to spend that money. And that’s a significant part of what we’re seeing this 20% increase in state spending over the next year is just some of that COVID relief money finally making its way to project lettings.

[Adam Thalhimer, Thompson Davis]

Okay. Crystal clear. Thank you, guys. Talk to you later.

[Operator]

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

[Michael Feniger, Bank of America]

Yes. Thanks for taking my questions. Just to put a finer point on this, to be clear that the backlog of the acquisitions where historically the margins are lower, did that surprise you at all? We know going into the guidance after you guys completed the acquisitions that was going to be the mix for the margins. And when do we cycle off of those lower margin projects?

[Alan Palmer, Chief Financial Officer]

Yes. Michael, in our due diligence and when we put together our forecast for this year, we had completed all four of those acquisitions. So we knew what the backlog was that we were acquiring. So the amount of backlog, the margins in that was not any surprise. And as I said earlier, on the projects themselves we made at or near the profit margin that we expected and that was in the backlog because that’s what we built our budget for the year. What impacted us the most was again, if we had bought those acquisitions at the end of March, when we’re starting our busy season, we would have had positive impact at the gross profit line from the plants and equipment.

So the negative impact is the same kind of impact that we have in our existing operations, which is the difference between our wintertime margin and our summertime margin has nothing to do with the backlog or the project we complete. It has to do the fixed cost at the plants and the equipment level and the G&A. So there were not huge surprises, there always surprises, but there were not significant surprises with the amount of backlog. In the first and second quarter on the North Carolina operations, we completed about $14 million of backlog – of contract backlog about $19 million of total revenue.

So we’ve completed a substantial portion of what we acquired. We started bidding obviously in those markets and we’re picking up backlog going forward, but it was not acquired. So the 12/31 backlog had all of the acquired backlog already in our backlog, everything we picked up since in those markets and all of the others has been new bid work. And so the amount of acquired backlog in our 12 – excuse me, 3/31/21 backlog is fairly minimal from those acquisitions, because as I said earlier, they had a pretty small backlog compared to historical. Typically they would have five to six months of backlog most of the small companies like that. These probably had about three months of normal month backlog. So we’ve completed a substantial portion of that as of March 31. And it was the backlog we acquired, what we have mostly now in those markets is what we bid ourselves.

[Michael Feniger, Bank of America]

Okay. And the quarter ended, obviously in March, we’re now in mid-May, are you seeing the absorption starting to recover? Do you feel confident? I understand that you’re going into your seasonally more important part of the fiscal year here. So are you starting to see that the absorption is starting to pick-up? Or is that still too early for us to see right now?

[Alan Palmer, Chief Financial Officer]

We saw that in March. March was a very good revenue month for us, because that’s usually what we call a swing month depending on the weather. So, we saw in March getting our volume up, where in January and February, especially February, we had extremely low volume. So we began to see that in March and certainly our volume in April, while we have a completely closed out the books, we know what our revenue is. And so once that revenue gets up, the jobs, think of the job portion is fairly consistent about the year it’s the plants and equipment and that fixed cost recovery that really moves that margin needle. And we saw a significant improvement in March over what we had seen in December, January, and February. And that’s what will continue throughout the rest of this year.

[Michael Feniger, Bank of America]

Okay. Fair enough. And just to be clear, the 20% pickup in an infrastructure spending, you guys are talking, that does not include the federal package that’s being talked about now. And I guess, how should we think about the fact that you could be growing your top line at 30% to 40% in the fourth quarter, you can be exiting the year with 30%, 40% revenue growth. You’re talking about 20% pickup in infrastructure spending in the states. Are we entering – are we thinking about starting points for 2022 really like 15%, 20%? Is that what we should be kind of thinking about on organic basis, just with some of these numbers that we’re starting to talk about and throw around and given what you’re exiting the year at?

[Jule Smith, Chief Executive Officer]

Yes. Michael, good question. The 20% increase year-over-year in state spending is really looking out forward and it’s really just the state budget. So it doesn’t have anything to do with the federal discussions that are ongoing. As far as our revenue, we try to grow year-over-year in the high single digits and low double digits clearly with the amount of government investment in infrastructure, we’re bullish and not the mystic about what the future is. But that – our guidance really is not – that 20% is really looking out into the future. The next 12 months, most of our backlog for 2021 is already sold.

[Michael Feniger, Bank of America]

Okay. And then I guess, what I like to get a feel for is, inflations a big topic. You guys discuss raw material, what you’re seeing with asphalt prices and diesel. It sounds like it’s in line with what you guys are kind of expecting. If we’re going into this higher growth environment, can you start to be more selective? Can we think about what are the inflationary pressures we have to think about with the road maintenance business? And if you are going to see this higher increase of federal investment, can you be more selective? And can we see pricing power actually come through with what you’re going to be bidding on going forward?

[Jule Smith, Chief Executive Officer]

Michael, I’ll answer something on that. I mean, historically if you go back 20 years, when there has been an abundance of work, the margins generally are higher. Mid margins are generally higher. And you have the situation like was in North Carolina last year when there’s a extreme shortage of projects or even a significant shortage of projects to bid, the margins are much more compressed because everybody’s got to get some work. So to your point history has shown that if there is a significant surge in the amount of work that’s out there, then margins go up historically. And that’s what we would anticipate.

It’s a function of how fast in the market meet that demand versus what kind of price can they get the bid table. And eventually margins come back down as more capacity is added, just like in any other business. Before a period of time, if there is a extremely significant amount of additional money going in, then it’s not that you’re more selective. It’s just that you’re working everyone harder. And you’re able to bid a little bit better margin because if you don’t get that project, there’ll be another one coming up.

[Operator]

Thank you. We’ll move on to our next question, which is coming from the line of Zane Karimi with D.A. Davidson. Please proceed with your question.

[Zane Karimi, D.A. Davidson]

Good morning and thank you for taking my questions.

[Jule Smith, Chief Executive Officer]

Good morning, Zane.

[Zane Karimi, D.A. Davidson]

So real quick, we did talk about a weather earlier on in the remarks, but understanding the work that wasn’t able to be completed in 2Q, the weather’s still available? Can you quantify how much revenue or EBITDA was pushed into the second half from these weather impacts? And are you going to be able to complete all or most of that in the third quarter? And how would that impact fourth quarter as well?

[Alan Palmer, Chief Financial Officer]

Yes. Zane, roughly $20 million of revenue, we would have liked to have completed in the first six months about $20 million more revenue. So most of that was in the second quarter where we had anticipated being able to grow our revenue slightly over the first quarter. So there was about $20 million of contract revenue that we did not do that moved forward. Historically, when that happens earlier in the year we’re able to make that in the third and fourth quarter. And so that’s what we have – our expectation is now. Our crews, we got them all in good shape. We’re ready to move. And in fact, as I said earlier in April, we saw a significant increase in the amount of work that we’ve completed. So right now we feel fairly confident that we can complete that and get to our – guide us as far as revenue. And we certainly have as Jule said, and I have, we’ve got the backlog to do that. So we’re confident that we’ve got – we had six months to make it up and it won’t all be made up in the third quarter. Some of that would go into the fourth floor. But we feel good about the amount we’ve got.

[Jule Smith, Chief Executive Officer]

And Zane, I would just add. We’re not saying that blindly, as we typically do, we always, at the mid-year, the midpoint is we forecast and assess where we are. And so maintaining our guidance is based upon that assessment at mid-year. So we feel good about being able to complete that work in the next two quarters.

[Zane Karimi, D.A. Davidson]

Of course. And then I also appreciate the color around SG&A earlier, and the reasons for the elevated levels this quarter. But given the payroll increases, should we assume that SG&A x legal fees and whatnot, as a percent of revenue would remain over 11% moving forward?

[Alan Palmer, Chief Financial Officer]

No, it will go down significantly as that revenue comes forward. So part of that is not just the increase, but generally our SG&A is fairly consistent throughout the year other than when we make acquisitions and they come in and other mid-year things that typically happen, but it should drop that down to a much more historical level than what you see in this short period when it’s always significantly elevated percentage wise. Our run rate for the last two quarters will be higher than it was in the first two quarters in just absolute dollars because of some initiatives that we’ve done, Jule mentioned. And we’ve commented about we’re building the management team and everything for our future growth that we see. We can’t wait until we make acquisitions, or we have that organic road staff for that. So generally try to do that ahead of time. And those costs end up in G&A until all of that comes into being. But as a percentage of revenue, it will go down significantly because we’ll do 60% of our revenue or 62% in the last six months with relatively flat overhead cost.

[Zane Karimi, D.A. Davidson]

Thank you. And good luck with the rest of the quarter.

[Jule Smith, Chief Executive Officer]

Thank you, Zane.

[Operator]

Thank you. We have no additional questions at this time. So I would like to turn the floor back over to management for any additional closing comments.

[Jule Smith, Chief Executive Officer]

Okay. Thank you. operator. Just want to thank everyone for joining today’s call and we look forward to speaking with you on the next conference call.

[Operator]

Ladies and gentlemen, we thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.