Construction Partners Inc

NASDAQ:ROAD

Earnings Call Transcript 2019-Q4

[Operator]

Greetings, and welcome to the Construction Partners Inc. Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

And it's now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you, Mr. Black. 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 fourth quarter and fiscal year end 2019 results. 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 December 10, 2019, 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'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 the earnings press release that was issued yesterday for our disclosure on forward-looking statements. These factors and other risks and uncertainties are detailed – are described in detail in the company's filings with the Securities and Exchange Commission.

Management will also refer to non-GAAP measures, including 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' President and CEO, Mr. Charles Owens. Charles?

[Charles Owens, President & Chief Executive Officer]

Thank you, Rick, and good morning everyone. With me on the call today are Ned Fleming, our Executive Chairman; and Alan Palmer, our Chief Financial Officer. In my opening remarks today, I will provide comments about our fiscal 2019 and provide an update on our business. I will then turn the call over to Ned for a few additional comments. Finally, Alan will review our financial results and discuss our 2020 outlook before we take your questions.

We are pleased with our fiscal 2019 performance. Revenue for the year was $783.2 million, up 15.2% compared to last year and led to a strong growth in adjusted EBITDA to $92.3 million, up 22.2% compared to last year. In addition, our adjusted EBITDA margin increased to 11.8%, up 70 basis points over the last year. These increases were driven by sustained demand across our 33 distinct market areas for road, repairs, and maintenance projects coupled with our acquisition of two hot mix asphalt plants and favorable working conditions during the last six months of fiscal 2019.

The margin growth was fueled by strong operational performance and increased utilization of hot mix asphalt plants and equipment fleet. In October, we announced our 20th acquisition with a hot mix asphalt manufacturing plant and paving company in a high-growth area of the Florida East Coast. This location is close to the Okeechobee acquisition that we made in February.

We expect both markets to benefit from the close proximity and enhanced vertical integration with our diverse equipment fleet and workforce capability performing a broad range of services. This transaction represents another important step in our effort to build our business in areas where we believe there are meaningful opportunities to add scale, drive growth, and provide value for our customer. With this acquisition complete and fully integrated, we have now completed five successful acquisitions since our initial public offering in May of 2018.

Today, we operate 33 hot mix asphalt plants across five southeastern states. In addition, we operate nine aggregate facilities and one liquid asphalt terminal. Overall, we internally source a portion of our aggregates at all of our hot-mix asphalt plants. Additionally, we internally sourced some of our hot-mix plants, the liquid asphalt through the Florida terminal we acquired in February and began operating in March.

As we move into fiscal 2020, we will continue to consistently execute this strategy of controlled profitable growth utilizing three primary levers: by doing more work in the current market, by making strategic acquisitions, and by expanding through greenfields, where we installed an asphalt plant establishing a new market.

Our acquisition pipeline remains robust and we continue to have conversations with many family-owned businesses. We are also very patient with acquisition opportunities and evaluate prospects that best fit the CPI strategy.

Before turning the call over to Ned, I'd like to thank our senior management team for their leadership, and I would also like to thank more than our 2,200 employees for their dedication and hard work that enables us to execute our strategy.

Now, I'll turn the call over to Ned Fleming, our Executive Chairman for a few additional comments. Ned?

[Ned Fleming, Executive Chairman]

Thank you, Charles, and good morning to everyone. As 2019 results demonstrate, the team continues to deliver controlled, profitable growth. We are pleased to have completed a successful secondary offering in early September that was oversubscribed and we believe it has helped to increase our daily trading volume.

As we continue to tell the CPI story, we believe investors appreciate the compelling dynamics of our differentiated business model. They understand the benefit of our local market competitive landscape coupled with the rapid growth throughout the states we operate and the increased state funding, all of which create continued opportunities for consistent growth.

Executing on this proven strategy, the same we have – the way we have since founding the company combined with the corporate structure and culture built on hard work, honesty, data orientation, safety, and respect. Perhaps an underappreciated aspect of the company's story is its strong cultural focus on people.

We have an extremely talented and experienced senior team that focuses on obtaining , training, and retaining great employees while providing the opportunity for employees to grow and be promoted within the organization. As more investors research the company and evaluate the business, they discover it as a very local business. We are mostly competing with other family-owned businesses that often do not have the level of vertical integration of CPI both on the manufacturing and the services side of the business.

CPI does not typically pursue mega projects but instead continues to focus primarily on recurring maintenance projects with average durations of six to eight months. CPI's business model capitalizes on local recurring revenue and vertical integration. As an analyst recently pointed out, it is similar to the waste services industry.

The company is strategically positioned to continue to deliver industry-leading top line growth and margins as well as strengthening its balance sheet. Our business is located in fast-growing southeastern states with both demand for ongoing road repair projects and increasing public funding that will continue to fuel growth.

This recurring demand as well as the funding expansion will continue to grow in our markets. The team continues to work hard to enhance financial results and cash generation to maximize value for our shareholders as well as all the stakeholders.

And with that, I'd like to turn the call over to our CFO, Alan Palmer. Alan?

[Alan Palmer, Chief Financial Officer]

Thank you, Ned, and good morning, everyone. I will start by quickly highlighting our key performance metrics in the fourth quarter before discussing our fiscal year-end results. From a financial standpoint, as Charles mentioned, favorable working conditions, strong operational performance, and increased utilization of hot-mix plants and equipment throughout all markets led to year-over-year increases in the fourth quarter and the fiscal year 2019.

Compared to the fourth quarter of fiscal 2018, revenue was $237.3 million, up 10%. Gross profit was $38.9 million, up 16%. Net income was $16.6 million, up 9%. And earnings per share were $0.32, up from $0.29. Revenue for the year increased to $783.2 million, up $103.1 million over fiscal year 2018.

Revenues in our existing markets increased approximately $51.5 million, as a result of growing demand in both the private and public sector. The increase also includes approximately $51.6 million of revenue attributable to acquisitions completed during or subsequent to the year ended September 30, 2018.

Gross profit increased to $117.9 million, up approximately $18.4 million over last year, primarily due to higher revenue and a higher margin. The higher gross profit percentage of revenue was a result of the strong operational performance and increased utilization of hot mix plants and equipment during the year.

Net income was $43.1 million, down from $50.8 million compared to last year. Earnings per share were $0.84 compared to $1.11 in the last year. As a reminder, fiscal 2018 net income included settlement income of $10.6 million after taxes.

Adjusted EBITDA increased $16.8 million, resulting in an adjusted EBITDA margin of 11.8% compared to 11.1% last year. The higher adjusted EBITDA margin was a combination of higher gross profit margin and lower general and administrative expense as a percentage of revenue. G&A expenses were $62.7 million in the fiscal 2019, or 8% of revenue, compared to last year of $55.3 million, or 8.2% of revenue.

Turning now to the balance sheet, at September 30, 2019, we had $80.6 million of cash and $14.4 million of availability under our $30 million revolving credit facility, after deducting outstanding letters of credit. Our debt to trailing 12 months' EBITDA ratio was less than 1 time at 0.66. We have a very strong balance sheet to support the growth opportunities we are seeing.

Cash provided by operating activities was $54.7 million for the 12 months ended September 30, 2019, compared to $66.1 million for the 12 months ended September 30, 2018. The decrease is due to higher accounts receivable and work-in-progress balances on significantly higher revenue and a $6.5 million increase in inventory related to the operation of our new liquid asphalt terminal.

CapEx in fiscal 2019 was $42.5 million compared to $42.8 million last year. For fiscal 2020, we expect our capital expenditures to be in the range of $44 million to $47 million, excluding amounts to purchase certain equipment previously subject to operating leases.

Project backlog at September 30, 2019, was $531.1 million compared to $594.4 million at September 30, 2018. Of this amount, approximately 82%, or $435.9 million, is expected to be completed during the 2020 fiscal year. The remainder, representing approximately 18% of project backlog, is expected to be completed in future years.

While our total backlog is lower than at the same point last year, this is primarily a result of our disciplined approach to strategically focus on recurring repair and maintenance projects, while some of our markets were letting a project mix that included more mega projects at the time that we typically do not pursue.

Backlog is expected to build again through the first half of the current year for several reasons, including a return to a normal project mix in several key markets, a gas tax increase in Alabama that took effect in September and an acquisition that we completed in October in a high-growth area in Florida.

Based on the continued opportunities for growth in our markets and our current backlog, we're providing our outlook for fiscal year 2020 with regard to revenue, net income and adjusted EBITDA as follows: revenue of $830 million to $870 million compared to $783.2 million actual in fiscal year 2019; net income of $39 million to $44 million compared to $43.1 million actual in fiscal year 2019; and adjusted EBITDA of $94 million to $102 million compared to $92.3 million actual in fiscal year 2019.

In summary, we were pleased with the fiscal 2019 results and we continue to see positive market trends and project demand in fiscal 2020.

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

[Operator]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Wittmann of Robert W. Baird & Company. Please proceed with your question.

[Andrew Wittmann, Robert W. Baird & Company]

Great, good morning. Thanks for taking my questions. I guess my first question here is probably for Alan and it's related to the guidance, Alan. I just want to understand particularly on the revenue outlook here, kind of what's assumed in there. I think I heard in the prepared script that sounds like all three knobs that you have to grow the business; organic greenfield and acquisitions are all part of the strategy in 2020, no doubt.

But I think particularly around organic growth, can you talk about how you see the business shaping up in 2020 on the organic side, particularly in the context of the backlog that you printed here for the quarter? I think some commentary on that would be helpful for us all.

[Charles Owens, President & Chief Executive Officer]

Hi, Andrew. This is Charles. Alan can step in at any time, but as far as the outlook, our guidance is still going to be just like we've talked about that we're going to grow in the high-single digits and through the double digits and maintain our double-digit EBITDA number. So that's kind of where we are and we keep in mind that this year that we've entered three new markets, and we feel like our guidance is going to be -- continue to be strong with our different levers that we're going to exercise, we feel like this year the way we'll do -- we'll work in the areas where we are, and will have some strategic acquisitions and obviously some greenfield opportunity. So Alan, do you want to make any comments on that?

[Alan Palmer, Chief Financial Officer]

Yeah, same thing really, Andy. When we've always talked about our growth, we don't split it until we look back at historical as to how much has been acquisitive and how much has been organic. We see our markets -- the bidding in our markets are still strong.

The lower backlog that we're starting out with compared to last year, one thing to point out there is that backlog does not include the backlog that was in the acquisition on October 1 because we didn't own that company at September 30. So that would improve that backlog some. And what we look at are not just the projects that we have on backlog that's certainly very important, but we look at the projects that are coming up to bid, and we've got -- in Alabama we see some opportunity with the new tax increase that there's going to be a lot of work done by the cities and counties because they get a portion of that tax, and they're going to be doing the maintenance and we're in probably 16 or 17 different markets in Alabama. So, we see that as a great opportunity and the others we're still seeing private work is going on strong in almost all of our markets where we do a substantial amount of private work. So we see a lot of opportunities to pick up, but we generally bid and complete 35% to 40% of our work in the same year. So we see that continuing in this current year.

[Andrew Wittmann, Robert W. Baird & Company]

Okay, thanks. For my follow-up, I want to drill in on that a little bit more, maybe ask it this way. First, just on the revenue guidance, just the middle to upper end of that guidance, Alan, do you think that you probably need some acquisitions to get there? And then, just here on the backlog, just kind of another shot at this one, you have the commentary in the press release about the mega projects and how it's kind of not your game, hasn't really been your game, and that's been what's out to bid. Bypassing on those, are you kind of implicitly saying, those weren't really the margin profile that you're looking at or that you'd like to see here early in the stages and that -- are you saying that the backlog and the margin potential of the things that you can be putting in the backlog in the next few months for 2020 is likely better? So, was this like a -- was this a willing decision to pass on big projects, because they're too high risk and too low margin? And do you see that as the year unfolds, you'll be able to put in better margin stuff? Is that kind of implicitly what you're saying with the way the backlog has unfolded so far?

[Charles Owens, President & Chief Executive Officer]

Andy, this is Charles again. Yes, we made a decision not to look at these mega jobs unless they're out there in that market area where we have the workforce and the equipment available to do them, because we don't want to interfere with our core business. And these mega jobs, you take on a lot of risk because, a lot of these projects are being bid with not a complete set of plans and it turns out to be a lump sum job and they are multi-years, and people are -- some people in these markets have struggled. And -- but it's just really high-risk jobs that we just don't want to participate in at this time.

And so that's kind of where we are on the mega jobs, and why we don't do the mega job. We don't concentrate on the business that has got us to where we are today and we're staying focused on these pretty maintenance jobs. And so, from that standpoint, that's kind of where we are from a mega job standpoint.

[Alan Palmer, Chief Financial Officer]

Yes. And Andy on that, when we're looking at the next 12-month plan that the DOTs have, they have a lot of jobs coming up that are more like what we do participating and we're not seeing a big number of mega jobs in 2020 that are out there in our markets. And with regard to the outlook in the revenue, the range we deal does -- it includes the consideration that we can grow both organically and that we can grow by acquisition. So, which combination of those, that's hard to predict. But what we've consistently done has been able to grow in that high-single and low-double digits.

And when we put out our guidance at the beginning of the year, that's what we've got implied in there. So, certainly to get to the higher end, it would either take a higher organic growth than we've historically experienced or it would take some additional acquisitions which is what we've been able to do as Charles said earlier. Since our IPO we've made five. So, we would expect the cadence to be somewhere in that range.

[Andrew Wittmann, Robert W. Baird & Company]

Okay. Thank you.

[Operator]

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

[Josh Wilson, Raymond James]

Good morning Ned, Charles and Alan. Thanks for taking my question.

[Charles Owens, President & Chief Executive Officer]

Good morning Josh.

[Josh Wilson, Raymond James]

I wanted to look at the guidance as well. It seems like, you're guiding for EBITDA margin to be flat to down year-on-year in '20 versus '19. So Alan, if you could walk us through what sort of the building blocks are that are -- especially those that are offsetting the sales growth?

[Alan Palmer, Chief Financial Officer]

Yes. If you look back, when we gave our guidance last year, our guidance this year is actually up about 20 to 30 basis points from the guidance that we gave at the beginning of 2019. And in 2019, our team did a great job of execution and -- but we can't fully project that we're going to have perfect execution for 2020 as we sit here at the beginning of the year. So, what we focused on as we build our projection, our budgets from the ground up, 33 different markets and the different mix of work that we have in those. So we look at it as if the conditions go like they did last year then we might be able to exceed our guidance as we did in 2019.

We made it probably about 40 or 50 basis points, but we're not going to sit at the beginning of the year and say we're going to have ideal conditions or something. We go with what we've got in our backlog and we go with what we see being bid in our markets. So while we may be down over what we achieved in 2019, we're actually up over what our expectation for 2019 was when we started the year.

[Josh Wilson, Raymond James]

And there's no step-up in fixed costs anywhere then?

[Alan Palmer, Chief Financial Officer]

No other than from the acquisitions. I mean, when we make acquisitions, they have a certain amount of fixed cost, but we're not seeing anything other than what's factored in by the three acquisitions that we made last year and of course the October acquisition is built into our expectation. And we've said before, generally, when we make acquisitions, there are some short-lived margin compression and it usually takes 18 to 24 months to get through that backlog. So that has some impact, but that's not overly significant.

[Josh Wilson, Raymond James]

And on the topic of the acquisition, what are the annual sales of the business you bought in October?

[Alan Palmer, Chief Financial Officer]

We don't give the sales projections on acquisitions, unless it's a major acquisition, over 20% of our revenue. What we do provide is, on a historical basis, after we've completed it. So we've got what impact the acquisitions that we made in 2018 and 2019 were on our 2019, but we generally don't give out any projections on the new acquisition until we get it operating and under our belt?

[Josh Wilson, Raymond James]

Okay. So in lieu of that question then, can you give us a sense of how quickly you think backlog could improve or maybe where backlog is trending, as we get to the end of December?

[Alan Palmer, Chief Financial Officer]

Well, historically, because we complete 40% of our work in the first six months, only 40%, we generally build our backlog in our first and second quarter. That's also generally the period where a lot of the resurfacing work, which we do a lot of and our markets are led in the January, February, March, April period and then you complete them by the end of October.

So historically, our backlog would grow from September 30 to March 31. And then, because we complete 60% of our work in the last six months and some of those short-term projects are not led during that period, it generally declines. So we would expect it to be building through the second quarter of 2020, our March 31st quarter-end.

[Josh Wilson, Raymond James]

Got it. I'll give it to others.

[Alan Palmer, Chief Financial Officer]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Trey Grooms of Stephens Inc. Please proceed with your question.

[Noah Merkousko, Stephens Inc.]

Hi. Good morning, guys. This is actually Noah Merkousko on for Trey Grooms.

[Alan Palmer, Chief Financial Officer]

Hi, Noah.

[Charles Owens, President & Chief Executive Officer]

Good morning, Noah.

[Noah Merkousko, Stephens Inc.]

Good morning. So I wanted to look a little bit more closely at the most recent quarter. So it looked like you guys just came in a little short of your top line guidance. I just wanted to sort of drill into what drove that. You guys reiterated your guidance back in August. So, was there something that happened in the last two months of the quarter that drove the miss?

[Alan Palmer, Chief Financial Officer]

No, from a revenue being down a little bit, we're operating in 33 different markets. And even though we had some favorable weather of the 33 different markets, so some markets that, maybe, we couldn't get as much work done at the time. But we have concentrated also on other sections of our business that had a little bit higher margins.

And so, from just a mixture of the 33 different markets, some markets we would accomplish a little bit more than the others but keep in mind that we did have a record revenue year of over $783 million and we had a growth of 15.2%. And our team executed very well on the 2019 and concentration on EBITDA growth and EBITDA margins paid out into 2019.

[Noah Merkousko, Stephens Inc.]

Okay. And then for my follow-up, I kind of wanted to follow on with the EBITDA margin guide for next year. It seems like that implies there might be some headwinds to gross margin. Could you maybe talk about your expectations for gross margin? It sounds like now that you're getting these acquisitions integrated and your vertically integrated strategy is working why would gross margins maybe be down for next year?

[Alan Palmer, Chief Financial Officer]

Yeah. I maybe didn't do a good job but I partially answered that before. They're really down, because in 2019 we had excellent opportunities. We had very good execution on our backlog. The volume that we were running through our plants and equipment was on the high end. And so we exceeded our expectations in 2019. 2020 as I said earlier, we're going more back to. It is a higher margin than what we had on our initial 2019 guidance. So we don't see it as reducing it, but just not building in that we're going to have nine months of great weather and that we're going to have the same execution level, if you will that is provided by that.

So certainly, if we'll be working to get the margins on our existing backlog, as we did in 2019, but we generally don't start out the year with an expectation that we're going to have those conditions that allow us to do that. There's really not any change of significance overall and the backlog margin that we have or any type of additional fixed costs that are coming in other than from the acquisitions I mentioned earlier they have a little bit of headwind until we work through their backlog. And on the new acquisition of course, we might get October 1. So we're not – we're just beginning to work through that backlog and understand it. But those things all have impacted it. But we hope that, if we can hit on that higher end of the range, especially with organic growth coming in good then we can move up that margin for 2019 – 2020. There's a little bit of savings at the G&A level, as a percent of revenue. So that's helping also, but it's not overly significant.

[Noah Merkousko, Stephens Inc.]

Okay. That makes sense. I'll leave it there.

[Operator]

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

[Brent Thielman, D.A. Davidson]

Thank you. Good morning.

[Alan Palmer, Chief Financial Officer]

Good morning.

[Brent Thielman, D.A. Davidson]

Hey, Alan, maybe this one is for you. I apologize, if you touched on this in the script. But on the guidance you're forecasting a pretty big increase in DD&A in fiscal 2020 like more than 20% over fiscal 2019. Can you clarify what all that relates to? I assume that's not just for this latest transaction?

[Alan Palmer, Chief Financial Officer]

Well, part of it would be the acquisitions, because they have that and then the – and the valuation, the supply to their equipment, generally is a write-up. So that's part of what's driving it. Part of it is, I mentioned in the prepared comments that we – that our depreciation for 2020 – excuse me, our capital expenditures for 2020 did not include some operating leases that we bought out at the beginning of October. And those are leases that we would have bought out at the end of the operating lease period and under the new accounting guidance that we became subject to October 1. Those were going to have to be capitalized as capital leases.

So we just want to get involved them out. So that's added a couple of million dollars of depreciation in 2020 that would have been lease expense under the old accounting rules. So that's part of it. And then of course, we made a number of purchases of new equipment during 2019 that was made during the middle of the year that will be in there for the full year of 2020. So it's just a combination of all three of those.

[Brent Thielman, D.A. Davidson]

Got it. Okay. Thanks for that. And then second question would just be, do you guys have any greenfield plans, I guess for fiscal 2020? And then if you could, curious your sort of thoughts on sort of seller expectations on the M&A side right now? Are you still able to close these deals kind of at the average multiples you've been able to do historically?

[Charles Owens, President & Chief Executive Officer]

Yes, Brent this is Charles. We have a lot of conversations going on with a different privately held companies right now and we do feel like there will be some deals done this year. From a greenfield standpoint, that's always a lever that we're looking at. And we've identified some areas from -- so this always -- we have that option to pull those levers anytime we see fit.

There's forward purchase price you know, we're still seeing everything and kind of where we've given the range before anywhere from 4% to 5.5%. And so just depending on the company and the organization and equipment fleet. So yes, we're still very optimistic that we still have a strong pipeline to continue our growth strategy just like we've outlined.

[Brent Thielman, D.A. Davidson]

Okay. Appreciate it, Charles. Thank you.

[Operator]

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

[Adam Thalhimer, Thompson Davis]

Hey, good morning, guys.

[Charles Owens, President & Chief Executive Officer]

Good morning.

[Adam Thalhimer, Thompson Davis]

First question I wanted to ask about North Carolina. The NC DOT had some funding issues pop up in Q4, and then it looks like there was a legislative fix in November. Just curious, what you're seeing on the ground. They halted engineering I think on 900 projects. What's your thought on how that flows through next year?

[Charles Owens, President & Chief Executive Officer]

What we're seeing in that market that we see it coming back to a record level of funding. As you know there were some hurricanes that went through and some of that money that was used at our DOT, I believe was used to correct some of that work that needed to be done on roads there that it would be repaid to the DOT.

And that funding has been taken care of. So we're fixing to get back to a regular normal season of where they're going to be letting work and the top work that we do. And obviously, there were several mega jobs bid in that area. But what we see now is things coming back to normal to where they can be just doing work -- letting work that we concentrate our efforts on.

[Alan Palmer, Chief Financial Officer]

And Adam a lot of that engineering and that the consultants that they used for that cutting those back is more likely to impact larger projects than the pipe that we do because many of the projects that we do have very little external engineering that has to go into them. If they're just milling up and resurfacing an existing road, there's something like that then you don't have the same type of engineering time.

So certainly the engineering firms were substantially impacted because they went from zero to 100 miles an hour to zero – zero net period that there was some dysfunction there. But it did significantly impact us because we have longer-term projects that we've got on backlog that we're working on. And we have the ability to maneuver and do city and county work, private work, so that we're not totally dependent on the DOT like a lot of those engineering firms are.

[Adam Thalhimer, Thompson Davis]

Okay. That's a good point. Thanks. Thanks, Alan. And then can you just round out the top -- the other top three states Alabama, Florida, Georgia. It looks like Alabama and Florida budgets are up. Georgia budget might be down a touch next year. How does it look for your type of work?

[Alan Palmer, Chief Financial Officer]

Yes. I mean, we see in our markets -- of course, we don't look at the total budget, we look at our markets. But we see that there's Alabama, obviously the gas tax increase is going to have a very positive impact for us. And Florida just with the population growth and the people that are traveling down there, we see their gas tax collections trending very positively. So that's what we see.

Georgia, again in our markets, we're seeing some opportunities, some really good opportunities come that will be available for us. So we see it as very positive in those states.

[Adam Thalhimer, Thompson Davis]

Okay. Appreciate the time.

[Operator]

The final question comes from the line of Andrew Wittmann of Robert W. Baird & Co. Please proceed with your question. Our final question comes from the line of Andrew Wittmann of Robert W. Baird…

[Andrew Wittmann, Robert W. Baird & Company]

Yeah, sorry about that guys. I was on mute. Thanks for taking my follow-up question. Alan I wanted to ask about -- no but, so just wanted to talk about free cash flow here guys. 2019, obviously, you had some headwinds. Alan you talked about accounts receivable whether they're billed or unbilled up a bit here. You had the inventory to fill the tanks at the terminal, which is a one-off item that was I guess you called a lot like $6.5 million or something there.

But could you give us maybe -- before 2019 your free cash flow was $25 million to $30 million pretty consistently even on a smaller company base. Can you help us bridge from the $8 million or $9 million or so of free cash flow this year to the $30 million and describe the components? It sure seems like that AR is a pretty big chunk of the reason why the free cash flow was down this year?

And then I guess the more important question is looking forward, do you see the ability for at least for it not to get worse the AR consumption of cash? Or is there even an opportunity to pull some cash out here as you head into fiscal 2020? I think those cash flow dynamics would be helpful.

[Alan Palmer, Chief Financial Officer]

Yeah. I mean, historically because our fourth quarter and if you're looking at year-over-year is -- often can have a pretty significant increase because of acquisitions that we've added during the year and we don't buy their working capital. So all of that receivable from them shows up as a negative cash flow if you will. And the fact that our volume is higher in the last quarter of the year than on a year-over-year as we're growing that receivable balance rises. Also the WIP generally does the -- cost in excess of billings.

While we've experienced a little bit in 2019 and to answer, we don't think it will get worse but hopefully it will get better is that some of the DOTs have started using third-party intermediaries to handle their payments and their determination of the quantities that are completed. So we can have four, five-day delay. And when we get a billing finalized so for us when we closed out our books, we may have a few projects that the billing is not finalized on. So that ends up showing up in our cost in excess of billings. And that's one reason why that's grown some this year.

And then the turnaround on collecting those where historically if you go back 10 years it was generally -- you collected all of your DOT billings within the month that you billed. And so you bill them on the 10th of December and you collect them in December. But with these third parties that are getting involved that has slowed that collection down on some jobs not all of them. And that's part of the bill you're going to collect it but it may be the third or fourth or the next month instead of the same month that you bill it.

So, it doesn't become a collection problem, but it does slow down the turnaround of that and that's part of what we've seen this year. Started at the first part of the year when they started kind of a different procedure and it's continued. We feel like once those consultants if you will get more proficient at processing it like the DOT used to be, then we'll hopefully see that come back. We certainly don't see it getting any worse.

And on the private work side, there's really been no change in that turnaround because again we're dealing directly with the owners. But sometimes when you're a subcontractor on a job in a lot of our commercial work, we might be a subcontractor to a builder then that can delay it some because they've got to collect their money before they pay us. So -- but we don't see that as a long-term thing, but it's certainly something we've been experiencing all year this year.

[Andrew Wittmann, Robert W. Baird & Company]

Okay. And then just a technical question to follow that one up. You mentioned the leases that you are going to buy out or have bought out already this new fiscal year, I was just wondering, so you had 44% to 47% kind of normal CapEx budget, but then you've got the one-offs to buy out these leases. Alan how much is that kind of onetime buyout of the leases that you've done or are in the process of doing?

[Alan Palmer, Chief Financial Officer]

That's $10 million approximately.

[Andrew Wittmann, Robert W. Baird & Company]

Okay. Thank you, very much.

[Operator]

There are no further questions at this time. I would now like to turn the floor back over to CEO, Charles Owens for any closing remarks.

[Charles Owens, President & Chief Executive Officer]

I'd like to thank everyone for being on the call today and I just -- I should note that our team was very pleased with the performance we had in 2019 and but we're more excited about 2020 and what we see in front of us and the opportunities that we have not only in that market, but for our employees. And just wanted -- want to keep in mind that we will definitely be -- stay focused on our strategy. And I want to thank you again for your time. Thank you.

[Operator]

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