Construction Partners, Inc. (NASDAQ:ROAD) Q1 2023 Results Conference Call February 10, 2023 10:00 AM ET
Company Participants
Rick Black – Investor Relations
Jule Smith – CEO
Alan Palmer – Chief Financial Officer
Ned Fleming – Executive Chairman
Conference Call Participants
Stanley Elliott – Stifel
Andy Wittmann – Baird
Tyler Brown – Raymond James
Michael Feniger – Bank of America
Brian Russo – Sidoti & Company
Brent Thielman – D.A. Davidson
Kevin Gainey – Thompson Davis
Operator
Good morning. And welcome to Construction Partners, Incorporated First 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.
It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you, sir. You may begin.
Rick Black
Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review the first quarter results for fiscal 2023. 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, February 10, 2023. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today’s discussion that are not historical facts, including statements of expectations or future events or future financial performance, are 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, that by their nature, are uncertain and outside of the company’s control. Actual results may differ materially. Please refer to yesterday’s earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties 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’ CEO, Jule Smith. Jule?
Jule Smith
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, as well as other members of our senior management team. I’d like to start by thanking our approximately 4,000 dedicated employees throughout our now six states in the Southeast for their focus on safety and taking care of their teammates each day at our job sites and plant sites. I believe our talented workforce is our most valuable asset and will continue to create a competitive advantage for our company. CPI had a good first quarter to begin our fiscal year 2023, with revenue growth of 20% year-over-year, a positive sign that our efforts to capture inflation in new bids is working, and will continue throughout the year to positively impact the results. This quarter, throughout our footprint, we experienced inclement weather for two thirds of the quarter with above average precipitation in November and December, resulting in a reduced number of productive work days. These weather impacts show up mainly in fixed cost recovery at our plants and fleet and create extra project costs. We approximate an abnormal weather impact in Q1 of approximately $4 million. However, weather impacts can go both ways, such as last year’s first quarter which have below average precipitation that allowed us to over recover our fixed assets. In our line of work, usually over the course of a full year, the weather tends to even out.
Another factor this quarter that we did plan for was the completion of the majority of our remaining low gross margin projects from our pre-inflationary backlog that was bid prior to October 1, 2021. Our customers typically need their projects to complete the final paving before winter. So as expected, most of these older projects wrapped up construction in our first quarter and then represented approximately $50 million of revenue with little or no gross profit. In our annual financial plan for FY23, the combination of completing these older projects in the first half of the year and then moving almost exclusively to higher margin backlog during the work season creates a margin profile more heavily weighted towards the second half than normal. Over the past five years, CPI’s average split of EBITDA has been 33% in the first half of the year and 67% in the second half of the year. In FY23, we anticipate this being close to 27% in the first half and 73% in the second half. We are right on track with our plan for the year and our external environment is slowly but surely returning to normal. Both of these factors give us confidence today to revise our annual guidance and raise the midpoints for revenue, EBITDA and net income.
We are pleased to report another record backlog this quarter of $1.47 billion, demonstrating that the demand environment remains strong in both the public and private sectors. Public infrastructure lettings are beginning to deploy the IIJA funding impacting each of our six states for their highway and bridge projects, airport renovations and expansions and other types of infrastructure. Over the last two years, CPI has focused on preparing our organization and workforce and we’re now ready to capitalize on this generational investment in infrastructure over the next six to eight years. We continue to see a steady amount of commercial bid opportunities on both nonresidential and residential projects. We believe the private markets will continue to be bolstered in our Southeast footprint by the strong migration of new residents and businesses into these states. This month, a National Association of REALTORS study measured the top states in 2022 for net migration gains, and five of the top six were CPI states. This strong demand for our services not only continues to keep revenue backlog high, but also has allowed pricing in the new backlog to remain at the higher margins in line with backlog added the previous three quarters. We will continue to leverage this demand environment in our Southeastern footprint to add future work at attractive margins.
During the first quarter, we also integrated two strategic acquisitions: a bolt-on company in Nashville, Tennessee, our first interest into that state; and a new platform company in North Carolina. Both of these expansions represent excellent new markets for CPI, adding six asphalt plants, while expanding our workforce. We welcome Ferebee Corporation and a 150 new teammates to the CPI family as the platform company in the Charlotte metro area and Western North Carolina. The Ferebee team is an impressive group of construction professionals and the company will continue to be led by Chris and David Ferebee. Throughout CPI’s history, a platform company once established, has served as a catalyst for dynamic growth throughout a state or region, as demonstrated last year with the addition of King asphalt in South Carolina. We’re excited that with Ferebee Corporation, we now have a well run platform company with a great reputation in one of the fastest growing regions in the country. Right before Thanksgiving in our last earnings call, CPI entered the Nashville metro area with a purchase of three HMA plants and the construction operation from Blue Water Industries. I’m pleased to report that the initial integration led by our Wiregrass Construction team and nearby Huntsville has grown very well. The construction operation is staffed with experienced and talented personnel, and we will be entering the first heavy work season in Tennessee with a full backlog of good work. And as you would expect in the fast growing Nashville suburbs, we are pleased with the amount of bidding opportunities and potential for future organic growth.
Turning now to growth initiatives. We continue to evaluate attractive investment opportunities in all three of our levers for growth. First, organic growth in our existing markets, such as last year’s 24% organic growth and 8.7% in our first quarter. Secondly, greenfield investments in new asphalt plants and vertical integration facilities, such as the new asphalt terminal in Alabama we announced last quarter. And finally, strategic acquisitions in new markets such as our recent entry into Charlotte, Nashville. CPI will continue to carefully evaluate each opportunity and to use all three of these types of growth in making smart long term investments that continue to grow the company. To fund these growth investments, we will continue to generate strong cash flow from ongoing operations. CPI, throughout its history, has generated strong free cash flow with a typical free cash flow conversion rate in the range of 50% to 60% of adjusted EBITDA. Over the last two years, CPI has invested this cash flow into numerous attractive long term investments, which have generated 22% adjusted EBITDA growth last fiscal year despite a challenging macro environment, and this year is on track to generate 35% to 40% growth in adjusted EBITDA. As CPI expands its footprint and continues to consolidate markets, margins will increase, growth will continue and shareholder value will compound.
As CPI grows, we benefit from scale in our fixed costs. After significant investments in our organization to prepare for growth over the last two years, we now anticipate in our revised outlook that general and administrative expense will be in the range of 8% to 8.2% or 20 to 30 basis points lower than last year. As a growth company, we must stay ahead of the curve in preparing and investing for future growth as we did in FY21 and FY22. This will allow us to capitalize on efficiencies of scale at CPI over time and expand bottom line margins. Finally, this fiscal year should have our typical seasonality, revenue being realized approximately 40% in the first half of the year and 60% in the second half and our fixed asset recovery, having our normal under recovery in the first half of the year and over recovery in the second half of the year during our busy work season. We are excited for the year ahead and we expect to achieve significant top line and bottom line growth, supported by strong customer demand and project funding. I’d now like to turn the call over to Alan.
Alan Palmer
Thank you, Jule, and good morning, everyone. I will begin with a review of our key performance metrics in the first quarter of fiscal 2023 before discussing our revised 2023 outlook. Revenue was $341.8 million, up 20% compared to the prior year quarter. The mix of our total revenue growth for the quarter was approximately 8.7% organic revenue and approximately 11.3% from recent acquisitions. Gross profit was $30.5 million in the first quarter compared to $33 million in the same quarter last year due to the factors that Jule discussed during his remarks. General and administrative expense as a percentage of total revenue in the quarter was 8.7% compared to 8.8% in the same quarter last year. Net income was $1.9 million in the first quarter compared to $5.5 million in the same quarter last year. Adjusted EBITDA in the first quarter was $27.6 million, an increase of 4.7% compared to the same quarter last year. You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today’s press release.
Turning now to the balance sheet. At December 31, 2022, we had $43.5 million of cash, $269 million of principal outstanding under the term loan and $158 of principle outstanding under the revolving credit facility. We have availability of $182 million under the credit facility, net of a reduction for outstanding letters of credit. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 2.96. This liquidity provides financial flexibility and capital capacity for potential near term acquisitions allowing us to respond to growth opportunities when they arise. During three months ended December 31, 2022, cash used in investing activities was $70.7 million, of which $77.2 million related to acquisitions completed in the period and $31.6 million was invested in property, plant and equipment, partially offset by $1.6 million of proceeds from the sale of the property, plant and equipment and $36.4 million of net proceeds from the facility exchange. The company’s interest rate swap contract is at a SOFR rate of 1.85%, which expects the company’s interest rate during the quarter at 3.7% on $300 million of our debt. The maturity date of this swap is June 30, 2027. During the three months ended December 31, 2022, cash provided by financing activities was $49.7 million.
We received $53 million of proceeds from our revolving credit facility, primarily used for acquisitions completed in the period. This cash flow was offset by $3.1 million of principal payments on long term debt. Cash provided by operating activities, net of acquisitions, was $28.9 million for the three months ended December 31, 2022 compared to a use of $0.6 million for the same period last year. Capital expenditures were $31.6 million. We expect capital expenditures for fiscal 2023 to be in the range of $85 million to $90 million. This includes maintenance CapEx of approximately 3.25% of revenue. So the remaining cash invested is funding growth initiatives. Today, we are revising our fiscal year 2023 outlook by raising the lower ends of our estimates. We expect revenue in the range of $1.47 billion to $1.55 billion, net income in the range of $30 million to $40 million and adjusted EBITDA in the range of $145 million to $160 million. And finally as Jule mentioned, we’re reporting a record project backlog of $1.47 billion at December 31, 2022.
And with that, we are ready to take your questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Stanley Elliott with Stifel.
Stanley Elliott
Can you talk about — and I apologize if you mentioned upfront, I’ve had a bunch of things juggling this morning. Some of the material shortages that the industry has seen kind of last year, does that seem like that that’s going to be another headwind for you guys in the coming year, or any sort of update on that would be great?
Jule Smith
Stanley, I did mention that our external environment is normalizing, and that’s part of it. We see that slowly, but surely, a lot of supply chain issues that kinks are starting to get worked out. It’s nowhere near normal yet, but it’s getting better. We’ve mentioned in the past, cement in South Carolina and rock in Georgia and Florida and pipe, all of those — these suppliers want to sell their products. So the market forces that you would expect to solve those, they’re working. It just takes time. But I would say we see things getting better and we don’t anticipate those being a headwind this year.
Stanley Elliott
And then in terms of like bidding activity, I mean, you still see pretty normal bidding activity across the market. I was just curious if maybe some of the softness in the headline numbers we see in the residential market is causing increased bidding activity in some of your core like highway and some of the commercial work?
Jule Smith
Stanley, no, bidding is still very busy, let’s take the public markets. The Infrastructure Act is in full swing now. And so we’re seeing very healthy public lettings at the DOT level and with airports, just a lot of infrastructure on the public side. And that’s good and we’ve been expecting that, and it’s now hitting. On the private side, you’re seeing a lot of industrial and retail bids as as we have. I’ve been watching the residential market and thinking, okay, is it going to fall off? And we just haven’t really seen a big fall off. We’ve seen maybe where two years ago, a developer would say, we want to build this whole subdivision and bring on hundreds of lots upfront. What we’re seeing now is they say, we want to start and build Phase 1 and bring on 50 lots and just take it in more bite sized pieces. But I think I mentioned the migration to the south. I think that that’s helping the residential market, maybe just go from white hot to good and steady. But we really haven’t seen a big drop off in residential in our markets yet.
Operator
Our next question is from Andy Wittmann with Baird.
Andy Wittmann
I guess just a point of clarification. When you mentioned that weather was a $4 million impact, I’m guessing that’s EBITDA, not revenue. Is that right?
Jule Smith
Yes, that’s correct.
Andy Wittmann
Do you know — can you estimate what the revenue hit was from that as well, or maybe any more detail on that?
Jule Smith
I’ll let Alan take a stab at that, Andy.
Alan Palmer
Andy, I mean, you can see on the revenue, we’d be — I think where weather hurt us is our internal production of like asphalt tons and our own equipment use. So if we had, had those weather days that were impacted, we probably would have seen $10 million to $15 million more of actual top line revenue. But the bigger impact was on the number of tonnes we ran through our asphalt plants and the equipment usage utilization that we got. So that $4 million we’re talking about is under absorption of fixed costs at our asphalt plants and our own equipment use. So it’s not as much revenue as it is that utilization of those hot mix asphalt plants and that fixed cost recovery.
Andy Wittmann
I just thought maybe I’d ask about some of the other external factors, Jule, that you’d cited previously and kind of get your updated thoughts on these, and specifically regarding labor, its availability. Are you able to keep the man hours that you need and the rate per hour as expected? And maybe some of the other things like some of the trucking costs, I know we’re — for a while there were getting kind of tight. So I thought maybe have you address those.
Jule Smith
On the labor markets, I would say it’s gotten a lot better since the summer of 2021 when that really was some of the ankle weights we talked about. I think part of it getting better is the housing market as it does slow down a little bit, it eats a lot of labor up. Part of it is more people are coming back to work after COVID. And part of it is, I told you, we would adjust to make sure that we had the labor we did. So we put a lot of programs in place that are working. We offer great benefits, a great pay, and then we try to create a career path for all these employees. And so I think all of that’s working together. So I really don’t hear a lot about labor now. I think we’re doing a good job staffing our crews, that’s really not an impact. Old trucking costs, part of the labor thing is I think truck drivers are not quite as hard to get as they were back when you just — a year ago, it was very difficult to get truck drivers, and so that’s helpful. But I do think — you asked about trucking costs. I think it’s important. We don’t anticipate construction inflation moderating to normal quickly. You read in the newspapers about inflation moderating, but construction inflation, I think, is at a different scale and on different timing. And I think with the amount of money flowing through for infrastructure, we are certainly not letting our guard down on getting inflation in our bids and making sure we pass that along. And I think it will be elevated more than the top line CPI number. So that’s the color I would have around inflation.
Andy Wittmann
And then, I guess, just kind of my final question dovetails on that last one a little bit, which was on these acquisitions, and one of them is one in North Carolina, obviously, a larger platform. I guess I was hoping maybe, Alan, first, if you could comment on how much backlog was acquired or maybe guidepost you want to give us on how much revenue you expect? But maybe as important or maybe more important, with the dynamic inflationary environments and the challenges about getting margin, can you talk about how well you’re able to scrub that backlog and the confidence that you have, and if the newly acquired backlog and its ability to deliver product margins in line or above kind of what CPI would have done on its own?
Alan Palmer
I mean, as far as the backlog, I think Jule in his comments stated that it was a very strong backlog, both in North Carolina with platform acquisition and in Tennessee. So we were very pleased with that. And then the bid opportunities in both of those markets, as you can imagine, are extremely good, even post acquisition. So the total backlog from both of them was in the range of about $70 million. And we’re in there evaluating that backlog. But what we’re seeing is it’s a good healthy backlog. We don’t see it having — of course, just a dollar amount, it’s not going to have a significant impact on our overall margin. But we don’t see it being anything — a lot of problems that we’ve got to work through. Fortunately, they were kind of in the same place that we were in bidding that work. They — like we do, these are shorter duration contracts. So they’ve got costs built into them, we’re seeing that. They’ve not bid on that pre-inflation cost, they’ve got acclerators in them just like we putting in. So that was very pleasing. So we think it’s going to be a good strong healthy backlog. And again, it’s part of just they were at the same place in the cycle and have the same sequence of completing jobs quickly that we do.
Operator
Our next question is from Tyler Brown with Raymond James.
Tyler Brown
Lots of good stuff in the preamble, but I do kind of want to go back to margins. So I appreciate you guys reported, call it, $28 million of EBITDA, but that does include a gain on sale. And I know there are gains time to time, but maybe not to the magnitude of this. So clearly, there’s a lot of moving parts in EBITDA. But Alan, I don’t know if you’ve done this, but if you were to normalize the gains, normalize the weather and the $50 million of no gross profit revenue. Do you have any idea of what that cleaned up Q1 margin might have been? I mean my simple math would maybe indicate that margins were more flat year-over-year, but just any color there would be super helpful.
Alan Palmer
As far as the gross profit margins, you’re exactly right. I mean the $50 million of revenue, if you just say on the low side, that would have been about 10% gross profit that would have added about another 1.5%. So that gets you to about 10.5%. And then compared to last year, the $4 million that Jule mentioned about, the weather impact on cost recovery, that’s about another 1.2%. So you get — that will get you right about or at the same margin we had last year for that. And as Jule said, that was a very positive first quarter for us, because of weather and other things with cost recovery. So you would be pretty comfortable to that same margin at the gross profit and then that takes out the gain and that would get you to the probably slightly higher on the EBITDA margin, but the gross profit margin, it would get you higher. And then, of course, we said the G&A is about 20 basis points lower than last year.
Tyler Brown
And so just big picture though, if we think about and specifically EBITDA margins, you would kind of expect those to start trending up year-over-year starting here in Q2, Q3, Q4. Is that right?
Jule Smith
Yes.
Alan Palmer
Yes, more Q3 and Q4. Q2, I think we’ve kind of given you some idea that the back end of this year is going to be more loaded as far as kind of the change in the margin profile from the first half to the second half, but that’s certainly what we expect. And as said we’ve got about $35 million more of this no margin backlog that will be spread out over the — more over the full year than it was in this first quarter, but real strong margin improvement. So our second half of the year compared to those same periods last year should be where we start to see a pretty big difference in the margin.
Tyler Brown
And then a couple of other quick modeling. So I think asphalt was still up about 30% year-over-year in Q1. Do you have what the asphalt index adjustment revenue was in the quarter?
Alan Palmer
We had $4.7 million in this quarter. And a lot of that is related to those older projects. So we expect that to drop off pretty significantly, because we bid projects that we’re beginning to do with that. So is that really old pre-September 30th, ’21 backlog goes away, those indexes will go the other way and they’ll stop and they could possibly, even if liquid asphalt stays down, they could start taking some revenue away from us.
Jule Smith
One of the things that we did in our prepared remarks is we gave sort of the first half and back half spread of EBITDA, which we really haven’t done before, but it’s really hard to look at this business quarterly. We look at it annually, we give annual guidance. But we do look at the first half and the second half. And we saw that this year was weighted more toward the second half and we wanted to communicate that clearly to you. So it’s a little different this year. And overall, we’re right on track with annual plan, it’s just weighted a little differently. And so just that’s the reason we gave that color.
Tyler Brown
It’s extremely helpful, believe me. Very helpful on the modeling side. So one other question, though, just kind of a final question is around cash flow. And you guys kind of addressed it up in the front. So I think you said 50% to 60% conversion, is that right? Is that free cash flow? I may have missed that…
Jule Smith
Yes. Tyler — go ahead…
Tyler Brown
Well, no, I was going to say — so that’s from a free cash flow basis, which has CapEx obviously in it. But when we think about cash from operations, because I’ve gotten this question a lot about the working capital consumption in the business. Is there something around acquisitions that require some of that working capital consumption? Just trying to understand how to think about particularly the cash from operations whether it’s as a percentage of EBITDA or just some kind of construct to think about going forward.
Jule Smith
Tyler, we wanted to share, from a big picture standpoint, and then I’ll let Alan give more of the details. But CPI throughout its history has generated strong cash from operations. And in past years where we haven’t done a lot of acquisitions or growth initiatives, cash builds up very quickly. And we thought it was important to communicate that, because if we have this cash building up and we have these growth opportunities that we think are good for the shareholders, we think it’s smart to invest in that, and we’ve done a lot of that in the last two years. But when you take — and you just say, what does it take to maintain the business. You take the EBITDA and you pay your taxes and interest. And then you just maintenance — you have maintenance CapEx, that creates about 50% to 60% of your cash flow from operations is free. And we just, within the amount of opportunities we’ve had, we feel like it’s the smart thing to do to invest that for long term compounding of shareholder value. I’ll let Alan give more of the details, but that’s something we thought was important to start communicating.
Alan Palmer
I’d just point out, and I think this quarter of this year compared to the same quarter of last year, is a real good example of something that I’ve been saying before that the timing of when we get our revenue in the quarter, the first month and second month of the quarter versus the last month of the quarter, has a big impact on that because we bill 100% of our revenue after the end of the month. But if you look last year, we had better margins, as we’ve talked about. We had real strong revenue last year in December, less in October and real strong in November. This year, as we’ve said, the weather impacted us more in November and December. So what you look at is the cash flow from operations this year because December and even November are slower months in the quarter, it was $29 million. Last year, it was a negative cash flow from operations because we did so much revenue in December, which was the last month of the quarter.
But back on a bigger scale and you pointed something out there, when we acquired Ferebee, it was at the very end of the quarter, it was in the first of December. But because it was an acquisition that included their working capital, we did not have to fund that working capital, which would have been $9 million or $10 million roughly out of our cash flow from operating activities, it was part of down in the purchase price, where other periods, if we buy a company and we’re not buying the working capital, then it shows up as working capital. We have to fund out of that first month and that ends up in that first quarter that we report. So that’s a, say, $10 million difference that would have come out of operating cash flow if it had not been a platform company where we acquire the working capital. So those are things, nuances, that can make a difference. But again, last year, the organic revenue was higher in the quarter. And again, if it happens at the end of the quarter, that working capital cash flow doesn’t show up until the next following quarter.
Tyler Brown
Yes. No, I appreciate all the detail. I’m still kind of figuring it all out here, but just very helpful. It’s a cash generative model, and I was just trying to understand that better.
Operator
Our next question is from Michael Feniger with Bank of America.
Michael Feniger
Can you just help us understand with where liquid asphalt is today? It rolled over pretty hard. I realize, Alan, it might take a bite out of your revenue in the back half, but does it help your margin? Maybe you can just remind us how do think about that lag between your price and liquid asphalt and how that rolls through?
Alan Palmer
It has to do with when we bid the job. Like this quarter, we got $4.7 million worth of revenue related to them paying us for the higher cost liquid compared to when we bid the job. So it adds revenue, but zero profit on that. So when it’s adding revenue, it has a slight impact on your margin. $4.7 million, if there’s no margin and your average margin is 10%, then that’s $500,000. It’s not that huge, but it has a tiny impact. If that is going down, again, you take away the revenue, but you still have the margin on that, because the margin — you’re just offsetting cost dollar for dollar. Unfortunately, you have to run it through as revenue because of the way the contract works. So it has a slight improvement in your margin. It really is a bigger impact on how much your revenue is and what your overall margin is because it’s $5 million or $4.7 million out of $341 million. But it goes both ways. It’s what we refer to as a slight tailwind when the costs are going down. And we have cost on non-index jobs and FOB sales that when it’s going up, that is a headwind in margin and when it’s going down, it’s a tailwind in margin.
Michael Feniger
And I mean, just on that, Alan, I realize there’s been a lot of moving parts, a lot of moving parts impacting the gross margin over the years. If we look pre-pandemic, so before COVID, surge in cost inflation, your gross margin was 15% to 16%. Is there anything structurally challenging the business preventing you from getting back there over time?
Jule Smith
There’s nothing structurally preventing us from getting back there. And as I’ve said for a while now, we’re on the road back to there. And the best indicator of our future is our backlog and our backlog margin. And so we had another good quarter of adding backlog at healthy margins. And so that blend is continuing to move in the right direction. So that’s a good indicator of it. And then we continue to vertically integrate. The terminal in Panama City continues to add really good margin and we’re looking forward to getting the new terminal in Northern Alabama online in late spring. So when you take the backlog margin, the vertical integration that adds to it and you get a normal external environment where our guys have a fair shot at every job to grow margin, you’re going to see those margins return. Something I saw that was very positive in the first quarter is more jobs finished higher margin than lower than I’ve seen in a while. They finished at a higher than bid margin. And that’s throughout CPI’s history, more jobs have finished better than bid margin than lower. But as you could expect in the last two years with inflation hitting, it’s like asking a football team to score a touch down, but every drive you’ve got to start first in 20. And so now as this newer backlog gets worked on, we’re starting to see it revert to normal where we can actually execute in the field, find ways to gain margin. Those are the things — all those things add up to where those margins could get back to that range.
Alan Palmer
And I’d say one thing structurally, because you asked, is there anything structurally. One thing that we believe structurally that helps us to respond much quicker to things even as abnormal as what this cost inflation was, is our shorter duration projects that turnover quicker. So we’re not sitting here talking about we’ve got $1 billion worth of projects that were being — the faster turnover allows us to respond quicker to positive things, but even more important to negative things, because we’re rebidding jobs. We’re bidding jobs on a continuous basis and burning off backlog and replacing it with backlog that’s got those factors built into it. So that’s the structural thing that we feel like distinguishes us from companies that do significant number of four, five year long term design build type projects, which we just found is not the way we do our business.
Operator
Our next question is from Brian Russo with Sidoti & Company.
Brian Russo
Just one question or two. What is the M&A environment like? You did two acquisitions in early December, you’re at about 2.9 times leverage up from 2.79 times last quarter. What are your thoughts as you move through the year? Are you — should we expect more active level of acquisitions relative to the last couple of years, maybe the type of profile now that you’re in six different states?
Jule Smith
Brian, I’ll give the answer for the short term, and then I’m going to let Ned give sort of a bigger picture outlook. We continue to have really good conversations, as we always have had throughout our footprint in some adjacent states. We’re continuing to build relationships and talk to potential sellers, and we’re looking at opportunities. We feel like our leverage ratio is going to moderate down through the course of the year as we execute and deliver on the year that we’ve put forward in our annual guidance. I look more to making sure our organization can handle the acquisitions, and they fit well strategically. So Ned?
Ned Fleming
Well, I think the big thing is this continues to be a very large growing market. And with Washington on what they have done with the Infrastructure Act, it’s even larger, but it also continues to be highly fragmented with a lot of family businesses, that has not changed. So we have lots of opportunities inside our footprint and just directly beside our footprint. I think the other piece that I would not get confused by is one of the things that’s happening is as we vertically integrate and we participate in more of the value chain from rock to road, it creates more acquisition opportunities. Some of the best what we would think of as greenfields or acquisition opportunities are things like new liquid asphalt terminals, businesses that we buy, it may only be in the grading business and we bring them into the asphalt business and we get another crew. So the vertical integration throughout the value chain has given us opportunities that really are very — not just revenue enhancing, but some of them are just margin enhancing, quite frankly. So I think as these families get older and you move from the first to the second to the third and many times, we’re talking to families in the fourth and fifth generation, we see more opportunities and a longer runway ahead of us than we’ve seen before, quite frankly. So I think the big picture opportunity, particularly with the demand rising like it is in pretty much every state. I don’t know about you but I don’t go anywhere that the roads are really good and that’s going to continue to create demand and opportunity for us.
Brian Russo
And then just real quickly, any quick comments on the weather you’ve seen January to date with the understanding of the seasonality in the business? Just trying to get a better feel for kind of where you are and under recovery of costs, fixed costs, et cetera.
Jule Smith
Brian, I saw an analysis this morning that I thought was pretty accurate that said, January has been what you would expect in the winter. It’s been wet in some places, dryer and others in our footprint. So it’s about what we expected in January, nothing out of the ordinary.
Operator
Our next question is from Brent Thielman with D.A. Davidson.
Brent Thielman
Alan, the guidance for the full year includes an interest expense component to it that would imply kind of a higher quarterly run rate that we saw in the first fiscal quarter. I’m just wondering if that’s based on an assumption for higher rates or do you expect to tap the credit facility and add more debt just to fund the growth you’re seeing? Or maybe it’s both?
Alan Palmer
I mean, obviously, we indicated we borrowed a little over $50 million in this quarter, and that was at the very end of this quarter. So that will be debt that we’re paying interest on the rest of the year. It has anticipated increases for the portion of our debt that is not covered by the swap. But we’ve got $300 million that fixes the rate on that much of our debt, but any incremental debt that we have borrowed, which is what we borrowed in the fourth quarter. But the guidance does not anticipate any future borrowings for internal purposes or for acquisitions. It does — we’ve talked about the liquid asphalt terminal, there is a small amount of borrowing that we’re likely to do as we finish it up. But our normal CapEx, we pay that out of our internally generated cash. So pretty much the debt that we’ve got on the books now will carry. But again, it is higher in the last three quarters because of the borrowing that we did for the Ferebee acquisition.
Brent Thielman
And just the 2.96 leverage ratio, that’s factoring in contributions from the deals you’ve done into that trailing 12 EBITDA. Is that right?
Alan Palmer
That is correct. We get credit for that in that calculation with our bank, that will roll off each quarter, so we have to replace it with a real EBITDA.
Brent Thielman
And then just directionally, where would you like to see that leverage ratio? I know EBITDA and margins are compressed and that’s going to change. Where would you like to take it?
Alan Palmer
We’d like to get it down in the low 2s. We feel like the projection we’ve got will get down into the 2.1 to 2.2 range by the end of the year.
Brent Thielman
And then just, Jule, this might be for you, but there’s a lot of infrastructure work getting released around the country, maybe the best market, I mean, clearly in your areas, but elsewhere, too, maybe the best market we’ve seen in a long, long time. And I guess going through what you’ve had to go through the last couple of years with supply chain, I was curious on the liquid asphalt market. Is there any concern about availability or future availability, just given this kind of national pull in demand, and then maybe what you’re doing to ensure you get what you need?
Jule Smith
Brent, we haven’t heard of any supply chain or supply issues with liquid asphalt. But one of the things that we’ve done that I think helps hedge against that potential risk is, we have one terminal now and we’ll have two terminals here in the next few months. And so we’re able to store a lot of liquid asphalt and manage our own supply, at a wholesale environment, not retail. So that helps us if there is a potential supply issue there, but I haven’t heard of any concern there.
Brent Thielman
And last one, just on the M&A pipeline, which obviously continues kind of here and there, issues in availability and just cost of new equipment. Is that coming up in your conversations with folks that may potentially be wanting to partner up with you?
Jule Smith
Obviously, when I’m building relationships with potential sellers, we talk about the last two years and everyone’s lived that together. And so as you can imagine, there’s a lot of small talk about supply chain, and every contract has experienced it. But I would tell you, our potential sellers, the people that we’re talking to, they’re really making their decisions more based on what’s best for their family and long term planning, and that hasn’t changed. They’re getting — some of them have been running the business a long time, they’re getting ready for retirement. They’ve got a new generation that may not want to be in the asphalt business or the construction business. And so it’s really what’s best for their families driving their decisions, they’ve lived through macro challenges before. So I would say that’s still driving our M&A discussions.
Operator
Our final question is from Kevin Gainey with Thompson Davis.
Kevin Gainey
It’s Kevin on for Adam. I wanted to know if you can maybe provide some more detail on maybe the Ferebee acquisition. Did it have — is there any kind of vertical integration there already?
Jule Smith
Well, we’re very excited for the Ferebee’s to join the CPI family of companies. I have really enjoyed getting to know them. Their organization is very impressive. They’re from Charlotte, their business has grown up there and so they really know that market well. And it’s a — I’ve been very impressed just also with the market. From a vertical integration standpoint, one of the things that’s really impressive about them is they do a lot of crush concrete and making aggregate base that really helps them. And so that’s just been something that they’re really good at. And so we’re looking and I’m sure, throughout the CPI footprint, their sister companies will be talking to them and trying to learn from that expertise. So we consider that a vertical integration they do and do very well.
Alan Palmer
And they do on the services side, the same things we do, the grading and different things like that. So very common to what we have. Of course, we’ve said they’ve got their own asphalt plants, which is very helpful. So not a lot of difference there as far as the vertical integration of things, but they do all the types of construction services that we typically do in our companies.
Kevin Gainey
I think you mentioned too, Alan, that they do — both of them do — combined it was $70 million in revs. Is there a split that you can provide for between the Blue Water and the Ferebee?
Alan Palmer
I think the $70 million was in response to how much backlog they had at the date of acquisition. We’ve not really given a revenue number that I recall on them. But typically, to answer the question, a platform acquisition for us is always a larger acquisition than a bolt-on. And the Tennessee, their size was such that they were bolt on to our Alabama operations, Wiregrass and so they’re integrated into that. But that backlog overall would represent — typically, we’ve got about nine months’ worth of revenue on backlog in our companies at any one time, slightly higher for most of our companies right now. So you could kind of back into that and say that the total revenue would probably be about that backlog divided by, say, 75% to 80%.
Operator
We’ve reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.
Jule Smith
Yes. I’d just like to thank everybody for joining us today. We are right on track and looking forward to a great year. Hope everyone has a good weekend. Thank you.
Operator
Thank you. This does conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.
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