Construction Partners, Inc. (ROAD) Q1 2022 Earnings Report, Transcript and Summary

00:03 Greetings and welcome to the Construction Partners Inc. 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] 00:28 As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Rick Black. Thank you Mr. Black. You may begin.

00:40 Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review first quarter fiscal 2022 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. 00:59 Information recorded on this call speaks only as of today, February 4, 2022, so please be advised that any time sensitive information may no longer be accurate at the time of any replay. 01:11 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. 01:31 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 discussions 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. 01:55 Management will also refer to non-GAAP measures, including the adjusted EBITDA. Reconciliation 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. 02:10 And now, I would like to turn the call over to Construction Partners’ CEO, Jule Smith. Jule?

02:15 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 team. 02:29 I’ll start by stating that all our teams across five states did a great job this quarter. Last year we acquired several companies and made several important additions to our organization to prepare Construction Partners for continued growth. We now have over 3,000 employees who are focused on both the safety and operational excellence every day. 02:51 I would like to personally thank each of them for their hard work managing our business through unprecedented challenges in the economy and our industry that have persisted over the past nine months. Once I’ve given an overview of the first quarter, I will hand the call over to Alan to review the financial results in more detail. 03:11 Then before taking questions, Ned will provide additional strategic and organizational commentary about the company and our recent history. In the first quarter, Construction Partners achieved a record quarterly revenue of $285 million, a 49% increase compared to the same quarter last year. 03:33 We have been focused on growing our services and relative market share in our current markets, so I’m pleased that approximately 30% of this increase was from organic growth, while 19% was acquisitive growth. Adjusted EBITDA in the first quarter was $26.4 million, up 12% compared to the same quarter last year. 03:56 The positive first quarter results were driven mainly by three factors. First, we had strong operational performance at our asphalt plants, aggregate operations, and asphalt terminal. Second, we experienced favorable weather conditions during the quarter throughout our markets. And finally, the acquisitions we have completed over the last 15 months are adding value and making positive contributions as expected. 04:24 CP has record project backlog of $1.09 billion, demonstrates the strong demand for infrastructure services throughout our Southeastern footprint. Also, we are pleased to see our backlog margins continue to grow. We anticipate that backlog margin growth will help future profit margins as this backlog is converted. 04:47 We believe Construction Partners is well positioned to capitalize on future infrastructure demand that the $1.2 trillion bipartisan infrastructure bill passed in November will create over the next six to eight years. Construction Partners will participate in many types of projects being funded, including roads, bridges, airports, ports, and railroad infrastructure investments. 05:14 We are monitoring the planning of how these funds will begin to be allocated from both federal and state governments and we anticipate meaningful project demand beginning in late 2022 and beyond. As a reminder, expected increases related to the new infrastructure bill are not reflected in our FY 2022 outlook. 05:35 As we mentioned on our last call, we have been dealing with a typical inflation in the overall economies supply chain and labor market that continues to effect gross margins. While normal and typical inflation is largely a pass-through item for CPI. The rapid and short rise of inflation has led us to adjust our pass-through mechanisms in an effort to lessen the impact on our newer backlog. 06:01 For example, we have been adding contingencies in our bids to deal with the uncertainty of labor materials currently. Ultimately, once these economic realities smooth out in the future, we are confident that inflation will continue to be pass-through costs for us. 06:18 We do believe that our current adjustments for these increased costs were represented in our FY 2022 outlook. Pertaining to labor, there continues to be a definite challenge throughout the economy in the short-term and for the construction industry in the long-term. 06:35 In the current environment, I believe CPI’s workforce model is faring better than most. Meaning, our local market strategy allows our people to spend every night at home with their families. Also, the reoccurring and steady nature of our project work offers stability to our employees. 06:53 In the long run CPI will maintain our long-time culture of teamwork, while leveraging our scale and footprint to create a distinct competitive advantage and offering great benefits and career opportunities to a younger generation. 07:09 To be one of the winners in the construction industry moving forward. CPI has taken the necessary steps now to attract and retain a talented workforce that can capitalize on the investments being made in our nation's infrastructure. 07:24 Turning now to acquisitions. We are pleased with the acquisitions completed over the past year that have further expanded our footprint into new and growing more, and will continue to drive future organic growth and margin expansion over time. The pipeline continues to expand for new opportunities to make acquisitions that strategically fit the CPI business model. 07:50 As a consolidator in a fragmented industry segment, we will continue to strategically acquire businesses that expand our footprint and increase both our manufacturing and construction services vertical integration. This strategy leads to the growth of our relative market share, while also allowing us to capture more margin along the value chain of services. 08:13 We remain focused both on our growth strategy and operational excellence as we directly contribute to the investment in our nation's infrastructure. With a record first quarter behind us, and a historically high backlog moving forward. We remain bullish on both the organic and acquisitive growth in the years ahead. 08:35 I'd now like to turn the call over to Alan to discuss our financial results in greater detail.

08:41 Thank you, Jule, and good morning, everyone. I will begin with a review of our key performance metrics in the first quarter of fiscal 2022. Revenue was $285 million, up 49.3%, compared to the prior year. Acquisitions completed subsequent to December 31, 2020 contributed $37.8 million of revenue and we had an increase of $56.3 million of revenue in our existing markets. 09:13 Gross profit was $33 million, an increase in 7.7% compared to the same quarter last year. General and administrative expenses were $24.9 million or 8.8% of total revenue, compared to $20.1 million or 10.5% of total revenue in the prior year. 09:35 In fiscal year 2022, we expect general and administrative expenses as a percentage of revenue to remain in the range of 8.5% to 9%. Net income was $5.5 million for the first quarter, compared to net income of $7.9 million for the same quarter last year. 09:56 Adjusted EBITDA for the first quarter fiscal 2022 was $26.4 million, up 12.2% compared to the first quarter last year. You can find GAAP to non-GAAP reconciliations of adjusted EBITDA financial measures at the end of today's press release. 10:16 Turning now to the balance sheet. At December 31, 2021, we had $35.6 million of cash and $123.7 million of availability under our revolving credit facility after the reduction for outstanding letters of credit. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 2.49. This liquidity provides financial flexibility and capital capacity for potential near-term acquisitions allowing us to respond to growth opportunities when they arise. 10:53 Capital expenditures for the first quarter of fiscal 2022 were $15.1 million. We expect capital expenditures for the fiscal year to be in the range of $60 million to $65 million. We’re reporting a record project backlog at December 31, 2021 of $1.09 billion, compared to $966.2 million at September 30, 2021 and $65.6 million at December 31, 2020. 11:29 In summary, we are pleased with our overall growth, recent acquisitions, and record project backlog with growing margins. 11:38 I'll now turn the call over to Ned.

11:42 Thank you, Alan. CPI reported significant growth in the first quarter with both organic and acquisitive growth. These results demonstrate the successful execution of our strategy to grow organically in our existing markets and acquire complementary companies throughout the southeastern region as we gain scaled and add valuable services equipment and most importantly, knowledgeable, and talented people. 12:10 As a founder of this business and someone that has been deeply involved from the beginning, it is important to point out the unprecedented environment we have been operating in for the past two years. As our economy, industry, and company have had to quickly and proactively adjust to multiple and significant challenges from a pandemic to inflationary pressures such as labor and materials, shortages, supply chain issues, and energy pricing swings among other events. 12:37 Never before have we experienced this many macroeconomic challenges at one-time. CPI successfully managed through these challenges, while continuing to grow organically and acquiring to integrate very strategic companies. Considering all of this makes the current success of CPI that much more impressive. 12:56 In addition, the leadership team in conjunction with the Board has been and continues to be committed to prudently invest in the right people, processes and technology to further strengthen and support this robust yet disciplined growth plan. 13:12 Our investments over the past year were critical to position the organization for future growth. Now, with the passage of the new federal infrastructure bill, we see even more opportunities. Quite simply the roads in our end markets and across the country continue to decline and need repair. This is a trend that is not sustainable. 13:30 We believe CPI will benefit from renewed activity and infrastructure spending over the next several years. The future is very bright for CPI and we have an excellent team leading the company as we continue to grow and expand our organization, as well as CPI’s geographic footprint. 13:46 We remain committed to successfully executing our long-term strategy of disciplined profitable growth to enhance shareholder value. And finally, as a long-term shareholder road, I have not sold any of the shares I have personally accumulated and I remain bullish on the future of this business. 14:02 With that, we'll now take questions. Operator?

14:10 Thank you. [Operator Instructions] Thank you. Our first question is from Josh Wilson with Raymond James. Please proceed with your question Mr. Wilson.

14:54 Thanks and congrats on the quarter.

14:56 Hey, good morning, Josh.

14:59 In terms of the year-on-year decline in gross margin there's a variety of moving parts obviously between commodities and labor, could you give us some more color on exactly what the contributions were from the different buckets?

15:16 Well, Josh, we are focused on gross margins and when you look out year-over-year, compared to the first quarter of 2020 where we had some real tailwinds, from oil and energy dropping so much, this year was exact the opposite. We're still dealing with supply disruptions, the labor market, and energy prices going up 55% to 60% over 2021. 15:50 So, it's tough to compare to 2020, but as I said, in my remarks, we are managing through it. We are building resiliency in our backlog to deal the supply chain disruptions and as our backlog margins are growing, we think that these things I've called ankle weights in the past, they're going to subside over time. And so, that's how we are managing through it looking forward.

16:25 When do you think margins will start to be up year-on-year?

16:29 Well we see backlog margins growing is a good time as we convert old backlog that obviously we did before we knew, just the economic impacts that hit beginning about March of last year. And as we start to build backlog that has those considerations in, we see margins increasing and we feel like that the markets are efficient and they're going to resolve over time. 17:02 Whether it be supply chain or labor markets or just our past [due costs of being past due quicker] [ph]. So, we really see that as we move forward margins are going to increase. We can't know exactly when the economic challenges are going to subside, but we are managing through it, and we feel like that as we go through it, we get better at managing through it. And so, we feel good about margins outlook over time.

17:35 And last one for me, do you still think the normal seasonality of sales first half, second half holds or does the strong organic growth in the first quarter change though?

17:47 Well, we did have strong organic growth in the first quarter. Josh, you're right. We've been focused on organic growth and building our business in our current markets. And we were pleased to see that. As far as seasonality, we do play an outdoor game. And so, we had good weather conditions in the first quarter. We tend to see our quarter's balance out. And so, we don't get too excited about good weather in one quarter, and we really look at the year as a whole. 18:20 As far as the seasonality, we've always said it was 40/60 because that's historically been what it is. We feel like the last couple of years it's been more like 42/58, maybe dealing with as the climate evolves and we have warmer winters and wetter summers. So, it could be more like 42/58, but we feel like largely it'll be similar to what it's always been.

18:52 Got it. Good luck with the next quarter.

18:54 Thank you, Josh.

19:00 Thank you. The next question is from Stanley Elliott with Stifel. Please proceed with your question. Mr. Elliot?

19:11 Thank you. Hey good morning everyone. Thank you guys for taking the call. Can you talk about – a little more about the labor environment? I mean, is there any risk to the full-year guide, kind of given how tight labor markets have been especially in the construction markets?

19:26 Well, as I said, Stanley, the labor market is indeed a challenge. I stopped at Starbucks at 5:30 this morning, where I normally stop and there was a sign on the door this morning that said, due to labor challenges, we're now opening at 7:00 a.m. So, I've got to find a new place to get coffee in the morning. 19:45 So, it's throughout the entire economy. But I feel like we're using our labor – our model to try to compete well. And as I said, having a local strategy where our folks are in their local markets and going home every night. I think it's helpful right now, but also, we're doing a lot of things to attract and retain a workforce for the long run. 20:15 There are going to be winners and losers in the construction industry in terms of keeping a workforce. And we're committed to being one of the winners, and that takes a lot of proactive steps. 20:27 As far as the outlook for this year, we feel like we sort of built-in to our outlook that there's uncertainty moving forward in the short-term. And so, clearly the labor market remains a challenge, which we feel like we sort of factored that in already.

20:47 Perfect. And then could you all drill down a little bit more in the strong organic growth? I mean, was it just a function of you worked three more weeks this year versus last year? You mentioned expanding the services piece, so you're obviously trying to expand the umbrella. Any sort of color there would be helpful and then even any, sort of regional commentary would be great to.

21:09 Yes. As far as organic growth, Stanley, it is something we've been focused on. And I would say there's several drivers of it. The first thing is, we are trying to grow our vertical integration of services and so we can bid on a wider variety of projects in the markets we're in. 21:31 The PLT acquisition help with that, but we also are expanding organically and building those services and markets we’re in. Then the second thing is, we're just in a lot more markets and so we're able to bid on a longer list of projects. And so that's helping drive organic growth. 21:54 And finally, there's just a lot of demand. On the private side, we see in the southeast, there continues to be a lot of private economic activity. And on the public side, the DOT’s, the counties and the cities, they're all, they have really strong programs right now. I said, last May that we felt like the lettings year-over-year were going to go up 20%, due to not only healthy gas taxes, but had a lot of COVID relief money. 22:29 And when you look at it, what really happened, I think I undershot it. It's more like about 35% in our five states year-over-year, increase in letting. So, I think the demand sides are helping to drive organic growth quite a bit.

22:48 Thank you.

22:50 The next question is from Adam Thalhimer with Thompson Davis. Please proceed with your question. Mr. Thalhimer.

23:01 Hey, good morning, guys. Nice quarter.

23:03 Good morning, Adam.

23:06 Alan, I guess a question for you. I was hoping you could comment on anticipated Q2 cash flow, just given the really strong revenue in Q1?

23:16 Yeah, good question. I mean, typically what we see, a little bit in our first quarter because it's usually a drop off from our fourth quarter is little bit more positive cash flow, but I guess the good news was, you know our revenue actually grew between our fourth quarter of last year and the first quarter, but certainly as the revenue, as Jule said, kind of balances out in that second quarter, we should see a much more positive cash flow. 23:46 So, in quarters where we're growing because of financing those receivables and lot of our vendors have to be paid quicker especially, subcontractors and truckers, we see the opposite happen, but second quarter should be a much more positive cash flow from operations because you're collecting all of those December and [type] [ph] receivables. So, that's what we would expect, and that's what we've kind of got built into our model. 24:17 And then as the third quarter ramps up, kind of the opposite of that is going to happen. But certainly, should be good cash flow and then, of course the acquisitions that were made in the first quarter have an impact on that, because we don't typically buy the receivables of the companies that we buy. So, we've got to fund that working capital for that initial quarter.

24:47 Okay. What was the impact of that last piece?

24:51 Not as much with these two because in the case of King, we did buy their stock. So, it was a stock purchase and it was a platform, but with J. Miller for example, I mean, typically our working capital drain is about 5% of revenue. They were smaller, so it was not that large in this particular quarter, but for example, last year when we made the four acquisitions, it was fairly substantial there.

25:21 Got it. I was just …

25:22 The growing revenue, I mean, it's unprecedented that our first quarter of the year has exceeded our fourth quarter. That's never happened in our 20 something year history, and it's a [Multiple Speakers] problem to have.

25:37 Because you talked about, I think you talked about 30 million to 35 million of revenue that was deferred. So, obviously, you got all that back in the December quarter.

25:46 Yeah, Adam, we did have a lot of weather in the fourth quarter and that revenue as we said in moved into the first quarter. And we did have a good first quarter and we had good weather. I think it's one thing that's a real positive is not only do we have a record revenue quarter for revenue, but we actually grew backlog. 26:10 And you would expect that to be quite as strong and I think that just reflects the demand for infrastructure services in the southeast. So, we grew backlog and we grew backlog margins coming out of the first quarter.

26:27 Okay. And then just last one from me. Jule, just high level, like what the – what is your comfort level on leverage? And like how are you thinking about acquisitions now that you're kind of 2x, 2.5x on the leverage front?

26:44 Yes, Adam, we will continue to use leverage. If we see growth opportunities, we think makes smart strategic sense. We're very mindful of using it smartly and not having too much. Our bank covenants allow us to go up to 3x cash flow. And so, we're mindful of that, but we think it makes sense to use that tool to grow and to make smart strategic investments, but we also want to not use it too much.

27:22 Sounds good. Talk to you soon.

27:24 All right. Thank you, Adam.

27:29 Thank you. The next question is from Michael Feniger with Bank of America. Mr. Feniger, you may proceed with your question.

27:41 Thanks. Hey guys. Thanks everyone.

27:43 Hey Michael.

27:45 Hey, everybody. When we think of last year, I know that North Carolina acquisitions weighed down on the margin. So, maybe just to start with that, what was the margin on that book of business last year in the first half versus second half or now – yet now in Q1? I'm basically trying to get at is, are we seeing, I know the margins are much lower than your corporate average, but are they starting to step up a little bit?

28:16 Yeah, Adam, let me just say one thing. In the first quarter of last year they did not have that significant of an impact on our first quarter last year because they were made throughout the first quarter, and we went into the second, third, and fourth quarter where our operations [indiscernible] were having some of the constraints. But the acquisitions that we made last year have all had positive contributions in this first quarter. 28:46 And we said, even in the fourth quarter last year, we were seeing those all of the acquisitions began to improve. So, the acquisitions Jule said earlier had a positive contribution. The beginning of an acquisition is always somewhat of a drain as we work through their backlog, but the backlog on the ones that were made last year, we're through that and we're into backlog that we bid and won.

29:17 Got it. And I know some of this is public information, but can you just help us where liquid asphalt is right now? Is it actually up a lot from the end of the year when we think of January? And if it stays at these current levels, how much will it be up year-over-year in Q2 because the year-over-year impact was a lot in Q1 for obvious reasons, but how much would it be up in Q2 and then in the second half?

29:46 You know Michael, I was looking at that yesterday and oil went up 55% to 60% in 2021 and liquid asphalt prices went up between 25% and 30%. And while that is a pass-through cost because our DOTs and our contracts largely have indexes, it creates a little bit of a headwind from a timing standpoint, just as in 2020 when it fell, our index is reduced, but it creates a tailwind for us. 30:18 Already in the first quarter over the second quarter, we've seen oil continue to rise and we've seen asphalt prices continue to go up. So, you read just like we do about where oil prices are going. And so, it will continue to be a pass-through cost for us, but as it rises, especially when it rises sharply as it has in 2021, it's a little bit of a headwind. So – but that's we still see that in the first quarter and the second quarter where we'll always continue to rise.

30:59 Okay. Fair enough. And then just on the federal funding, just on the stage from infrastructure, as you mentioned it was signed in November, but some of the appropriations have been held up. I'm sure it will get released. Your backlog was still building. So, is there any, are you seeing any delay there since you feel like infrastructure is more of a 2023 story, and just on an organic basis, can your guys organic growth actually accelerate from 2022 into 2023? I'm not asking for 2023 guidance, but if we just layer on what the federal funding could be in the second half of this year, could we actually see organic growth step-up next year?

31:47 Right. Well, good question. So, let's unpack that a little bit. In our guidance for 2022, we said organic growth would be between 5% and 10%. We still feel like that that's a very reasonable expectation. We're focused on organic growth and clearly the demand side helps. 32:11 Currently, the infrastructure bill is not a real factor and any lettings is not a factor in our guidance for 2022. I agree with you the appropriations are going to happen. [Technical Difficulty] starting to program and anticipate that money, but really the lettings for this year being driven by money they already have, which is from those various COVID relief bills. 32:40 So, long term, I think it will drive organic growth. I think both the COVID relief money in 2022 and then the infrastructure investments in 2023 and beyond, which we anticipate is going to really last about 6 years to 8 years before that money gets spent. I think that's going to drive a meaningful organic growth in CPI.

33:05 Thank you.

33:08 Thank you.

33:13 Thank you. The next question is from Justin Hauke with Baird. Please proceed with your question, [Mr. Justin] [ph].

33:27 I was hoping to get just an update on the North Carolina DOT business, because that used to be 12%, 13% of your revenue, and obviously it is pressure we all know and kind of dropped off, but it’s not disclosed here as one of your biggest customers. So, it's still less than 10% of revenue. I'm just curious how the recovery is going in there and what you're seeing in the North Carolina and DOT specifically?

33:56 Justin, good morning. You're right the North Carolina DOT has long been one of CPI’s biggest customers and it will continue to be a major customer moving forward. The recovery in North Carolina is as I stated before is going really well. North Carolina did go about 18 months without letting work that had some significant impacts in the states construction industry. 34:26 CPI was able to pivot and to do a lot of commercial work during that time, which really helped. So, it's good that our model, we can do various types of construction, but now, North Carolina, I mean, we're benefiting from a very healthy program in their lettings. And also, the investment, the acquisitions we made last fall in winter, got into 13 new markets in North Carolina. 34:59 That's really a big part of what's growing our backlog now as the DOT has a healthy program of lettings and we have a lot of geographic footprint in North Carolina to be it. So, North Carolina remains very healthy moving forward. I think they've got a strong funding mechanism and so with this infrastructure bill, we anticipate the North Carolina DOT being a major customer in the future.

35:28 Got it. I guess my second question, just turning back to the margins here and maybe trying to understand the trajectory, I mean your guidance is implying much better EBITDA margins for the year and with the 1Q still pressured on the gross margin, I just want to understand, kind of the trajectory of what you're expecting for the margins. I mean, in 2Q, it sounds like this gross margin pressure is going to continue, I mean, are you expecting the margins to remain lower than they were a year ago in the second quarter, and then recover in the second half or what's kind of the trajectory you're thinking of how the backlog transitions on the margins?

36:13 Good question. This is Alan. There are things that are going to affect the second quarter that always affect the second quarter, compared to the first or the third or fourth and that generally is our lowest revenue quarter. And so, the fixed cost recovery that we've been from mostly in the third and fourth quarter are negative drivers of the margin in the second quarter. That's always the case. 36:43 The second quarter is going to still be dealing with some of the jobs that we weren't able to get into the [bid costs] [ph] a year ago, versus the nine months ago, when we bid those jobs, we didn't have some of the contingencies that are in bids now, so we're working through the lower contract margin jobs. The third and fourth quarter would definitely benefit from the jobs to raising the gross profit margin on jobs as we’re completing those. 37:19 Also the significant improvement in margins where you got the higher volumes going through your plans [Technical Difficulty]. So, kind of what happened last year, if you went back and looked at [indiscernible]. From the first quarter to the third and fourth quarter where normally the margins will go up because of these new pressures, these unprecedented price increases and things. 37:46 We actually had a decline. This year you're going to have literally the reverse of that is what we expect. Is the first quarter even though we had high volume [Technical Difficulty] with lower margin jobs. 37:58 The third and fourth quarter are going to be the ones that have the higher volume and also have the higher margin jobs. So, almost a reverse on the trajectory of the gross profit and EBITDA margins.

38:15 Yes. Okay. That's helpful. Thank guys.

38:18 All right. Thank you, Justin.

38:23 Thank you. The next question is from Brent Thielman with D.A. Davidson. Please proceed with your question Mr. Thielman.

38:38 Hey, Rick. Thank you. Say a year, year ago, might have been hard with that and kind of in inflation we've seen in the marketplace obviously, but I think [indiscernible] in the industry are sort of better prepared for anticipating, kind of one-year later. I guess the question is with the new contracts and award you booked are pursuing, do you feel those sort of more effectively allow you to recapture or offset what could be a situation of $100 plus oil, you know diesel that's $0.20, $0.30, $0.40 higher two, three quarters from now?

39:15 Good morning, Brent. Yes. I would say, our pass-through mechanisms and repricing of bids, we thought will really help us to capture that. You know, really have been [glad] [ph] that the CPI project duration is six to nine months in the last [Technical Difficulty]. It allows us to reprice and not be stuck with long-term contracts. 39:48 So, as we have reprice bids, we have increased equipment rates to deal with higher diesel fuel costs. We've repriced our mix to the asphalt plants to deal with higher asphalt prices. So, you're right, it has been quite last year dealing with sharp inflation, but we feel like we are managing through it better and better. And we’re going to continue to pass it through, like we always have, we just learned that the pass-through faster.

40:28 Yes. Okay. That's helpful. Maybe just on the labor situation, Jule, you obviously have had to deal with this internally. It seems like, if I understood it, right, that was even more of a challenge maybe from some of the smaller subcontractors utilize within the industry. Are you, I mean are you performing more of those functions internally now in order to get these projects to the completion line?

40:56 Yeah, that's an interesting question. The answer [indiscernible] is, yes. We are pulling more of the services now and vertically integrating because our subcontractors have a struggle with that. I would say the entire construction industry has struggled with this. 41:15 So, one hand, it's a negative and we deal with it. On the other hand, I think it's been a positive in some ways for CPI, because we [indiscernible] have projects where the customer we weren’t necessarily the lower bid, but the customer awarded the project to us because then we had the resources and the labor force to finish the work on time. And so, every construction company is dealing with it and fairing, I think we're fairing pretty well, but we are definitely doing more work in-house to just have the liability having that work force there.

41:59 Okay. Thanks, Jule. I hope you hope you found some coffee by the way.

42:03 I did. Thank you, Brent.

42:07 All right. Best of luck.

42:09 Thank you.

42:13 Thank you. There are no further questions at this time. I would like to turn the floor back over to the management for closing comments.

42:23 Okay. Thank you, operator. In summary, our new fiscal year is off to a strong start. We have a very busy, somewhat worst season ahead of us, but our teams are prepared and ready for the bright future we see and continue growing the company and delivering value for our stakeholders. Thank you all for joining today's call. We look forward to speaking with you on our next conference call.

42:50 Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.