Construction Partners, Inc. Q2 FY2020 Earnings Call

Greetings, and welcome to the Construction Partners, Inc. Second Quarter Earnings Fiscal 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black of Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review second quarter of fiscal 2020 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 on constructionpartners.net. Information recorded on this call speaks only as of today, May 8, 2020. 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 considered 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 discussion 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 disclosure 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. 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. And now, I would like to turn the call over to Construction Partners' Executive Chairman, Ned Fleming. Ned?

Thank you, Rick, and good morning to everyone. With me on the call today are Charles Owens, President and Chief Executive Officer, and Alan Palmer, our Chief Financial Officer. First, I would like to take a moment to address our view and perspective of these current unprecedented times. Most importantly, we want to extend our thoughts and prayers to those most affected by the COVID-19 crisis. While we are doing everything we can to support the health and safety of our employees and to assist with the recovery of our communities during this crisis, we are especially grateful for all the hard work of first responders and healthcare workers. These people have truly been an inspiration to all of us. As this pandemic has brought countless businesses and industries to a halt in recent weeks, companies in the infrastructure industry are deemed essential businesses. Therefore, due to the resiliency of our employees and the effectiveness of the safety protocols we have put in place to counter the current pandemic, our company has experienced only minor disruptions, and we expect it to remain resilient through this crisis. Before Charles and Alan discuss the 2020 second quarter results, I would first like to provide a perspective on the business and how it has historically responded during economic downturns. This was a good quarter that met our expectations. As we move into the second half of our fiscal year, CPI historically generates 60% of its revenue for the year, and margins expand. The continued strength of the company will be reflected in the 2020 outlook we will discuss later. We remain confident in the company's ability to continue year-over-year growth and have revised our fiscal year 2020 outlook to reflect the current new visibility we have for the business. In the past, we have spoken about the differentiated nature of the CPI business model. The fundamental aspects of the business and our more than two decades of operating, CPI provides several key strategic factors that have driven the business over time. First, demand for road repair and maintenance projects in our footprint with funding mechanisms in place for infrastructure. Second, the recurring nature of road repair and maintenance projects. Third, shorter duration projects, not mega projects. Fourth, vertical integration on the hot mix asphalt manufacturing and the services sides of the business. Lastly, our advantage in 35 distinct markets benefiting from scale, expertise, technology, vertical integration, and flexibility to move crews and equipment. All of which have led to consistent and profitable growth. All of this under the direction of an experienced executive management team and leaders across the whole organization working together with an extremely talented, hard-working, and stable workforce. The combination of all these factors contributes to our confidence that the business model is resilient and consistent in different economic and competitive environments. However, certainly, none of us have ever experienced anything like this pandemic and the economic uncertainty that is unfolding across our country. While we certainly do not think we are immune from this current crisis, we do believe our proven strategy differentiates us and provides a compelling path forward. We will continue to be prudent as we navigate forward through these dynamic economic times. With that, I would like to turn the call over to Charles and Alan to discuss our second quarter results, and we will then answer your questions. Charles?

Thank you, Ned, and good morning, everyone. We remain focused on the safety and welfare of our employees, our customers, and the people and the communities where we live, serve, and work. We are pleased with our second quarter results. During the second quarter, we acquired two hot mix asphalt plants in the Florida panhandle. From these two locations, we expect to pursue a variety of public, private, and Department of Defense projects. In addition, our asphalt terminal in Panama City, Florida will supply liquid asphalt to both of these plants. In addition, during the quarter, we announced plans to construct a glass sand manufacturing facility adjacent to one of our aggregate facilities in Georgia. The new facility will process material from the mine to produce furnished-ready sand of a sufficient quality to be used in the manufacture of glass. This new facility demonstrates our team's ability to pursue creative solutions to satisfy the needs of our customers. Our business model and the construction project work we perform benefit from geographic diversity as we operate in multiple states in 35 distinct local markets. Our business model gives us the flexibility by market to pursue both private and public projects. As we progress through fiscal 2020, we plan to continue to pursue controlled profitable growth, utilizing our three primary levers: doing more work in our current markets, making strategic acquisitions, and expanding through greenfield opportunities. We continue to have conversations with companies both inside and outside of our current footprint that represents potential future acquisitions. Lastly, we are pleased that there is currently an ongoing national discussion about the need for federal infrastructure funding in our country. Recent gas tax increases in a number of states have demonstrated public awareness of the need to adequately fund road repair and maintenance projects. With the FAST Act expiring later this year, we believe that federal lawmakers recognize the economic and public safety benefits of supporting infrastructure projects, and we are confident that they will find a long-term funding solution prior to the end of this year for the repair, maintenance, and improvements of one of our country's most valuable assets, our roads. Before turning the call over to Alan, I'd like to thank our leaders and more than 2,300 employees for their commitment, dedication, and hard work that enables us to execute our strategy during these challenging times. And with that, I'd like to turn the call over to our CFO, Alan Palmer. Alan?

Thank you, Charles, and good morning, everyone. I want to start by highlighting our key performance metrics in the second quarter. Revenue for the quarter increased to $168.7 million, up $4.4 million over the same quarter last year. The increase included $11.6 million of revenue attributable to acquisitions completed subsequent to March 31, 2019, which was offset by a $7.2 million decrease in revenues in our existing markets. Gross profit for the second quarter increased to $21 million, up approximately $1.2 million over the same period last year, primarily due to higher revenue and a higher gross profit margin. General and administrative expenses were $16.8 million in the second quarter of 2020 compared to last year of $14.8 million. The $2.0 million increase was primarily the result of a $700,000 increase in management payroll and benefit costs, $700,000 attributable to acquisitions that were made subsequent to March 31, 2019 and $400,000 in non-cash stock compensation expenses. Net income was $1.5 million compared to $4.2 million, and earnings per share was $0.03 compared to $0.08 versus the same periods last year. The changes are primarily due to the increase in general and administrative costs, explained a moment ago and $2.2 million of unrealized losses recorded in quarter two on swap arrangements. Regarding these swap arrangements, we recorded a $1.4 million non-cash charge to interest expense related to an interest swap on our outstanding debt and an $800,000 non-cash charge to other expense related to fuel swaps that we entered into to take advantage of historically low diesel fuel prices. We record these derivative instruments at their fair value and reflect changes in the fair value in current earnings. These derivative instruments were significantly impacted by financial volatility during March 2020 due to COVID-19 and other macroeconomic factors. Adjusted EBITDA increased to $14.2 million, up from $14 million in the prior-year quarter. The second quarter adjusted EBITDA margin was 8.4% this year compared to 8.5% in the second quarter last year, and it was impacted by our non-cash fuel hedge charges and increases in our general and administrative expenses for the quarter, as discussed earlier. Turning now to the balance sheet. At March 31, 2020, we had $53.8 million of cash and $4 million of availability under our $30 million revolving credit facility after deducting outstanding letters of credit. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 0.83. On April 30, we borrowed $18 million under our existing credit facility. We will remain focused on maintaining sufficient liquidity and a strong balance sheet to support our ongoing operations and to enable us to execute on growth opportunities as they arise. Cash provided by operating activities was $20.5 million for the six months ended March 31, 2020, an increase of $15.2 million from the six months ended March 31, 2019. CapEx for the second quarter was $10.9 million compared to $12.4 million in the same quarter last year. For fiscal 2020, we have reduced our capital expenditures to be in the range of $40 million to $42 million. That excludes the $11.5 million purchase of equipment previously subject to operating leases. This amount does include $4.1 million for the glass sand manufacturing facility mentioned by Charles and also $1.8 million for plant and equipment upgrades related to the Florida acquisition we closed in March. Project backlog at March 31, 2020, was $579.1 million compared to $539.1 million at December 31, 2019, and $584.8 million at March 31, 2019. Of our current $579.1 million backlog, approximately 60%, or $360 million, is expected to be completed during the remainder of our fiscal year. We maintain a construction backlog composed primarily of recurring maintenance-related projects that we typically prefer, and we continue to see opportunities to bid on these types of projects in our markets. Keep in mind that we focus on our backlog in 35 distinct markets, and we strive to have six months to nine months of backlog in each of these markets. We also maintain a disciplined approach as we strategically focus on recurring maintenance and repair projects. Historically, backlog builds during our second and third quarters as more of these projects are typically led in February through May. Looking forward, while our operations in the second quarter were largely unaffected by COVID-19, a longer-term impact on public and private construction projects is less clear at this time. Due to lower demand for gasoline, which negatively impacts gas tax receipts, the effect on state and municipal road repair and maintenance projects is less clear. This could slow down our ability to pick up additional repair and maintenance projects typically started and completed in the second half of our fiscal year. And on the private side, there could potentially be delays due to the uncertain economic conditions across our markets. Taking these factors into account as well as our current project work and current backlog, we are revising our fiscal year 2020 outlook with regard to revenue, net income, and adjusted EBITDA as follows. Revenues of $820 million to $830 million compared to $783 million in fiscal year 2019, a net income of $30 million to $34 million compared to $43.1 million in fiscal year 2019, and adjusted EBITDA of $88 million to $91 million compared to $92.3 million in fiscal year 2019. In summary, we are pleased with our second quarter results, and we continue to see positive market trends and project demand in fiscal 2020. With that, we'll now take questions.

Our first question is from Andrew Wittmann of Baird. Please go ahead.

Great. Good morning.

Good morning, Andy.

I think maybe on the top of everybody's mind just kind of what you guys just talked about and a slowing economy here. So, the company has been around for 20 years but hasn't been public all that time. So, I was hoping you could talk to us about the 2009 timeframe and the last kind of big downturn, and maybe talk about how your public revenues fared during that time really on an organic basis. I know you guys took advantage of the downturn, did some M&A. So, the company, I think, grew in total, but I think most people are wanting to understand what the organic growth was. So, if you could couch that in maybe looking at one of your more stable operating subsidiaries. I think your Wiregrass operating unit was kind of an organic operating unit during that time. I was just hoping you can maybe quantify or give some context on how that fared.

Yes, Andy, this is Alan. You mentioned the public sector, and one observation we've made is that during periods of economic downturns, particularly those that impact private work, the public sector often provides opportunities for additional work due to its stability. In some of those instances, we also observed a decrease in gas tax collections, which is a concern we are currently facing. Most budget cuts from the Department of Transportation typically targeted large projects that require long planning phases, leading to reductions in funding for planning and right-of-way acquisitions. However, we've noted that in some cases, there was actually an increase in funding for repair and maintenance projects. Generally, in times of economic slowdown, there is a focus on repair and maintenance work to keep construction workers employed. This pattern was evident during the years '08, '09, and '10, and we anticipate that we may see a similar trend again during this pandemic period.

Got it, thanks. As you engage with your state and local customers, I understand that the situation is evolving quickly, but what feedback have you received from your customers regarding their capability and willingness to proceed with projects at this time? Are you noticing any delays in their responses to submitted RFPs, or are RFPs taking longer than anticipated? What has been the overall behavior of those customers that you have observed up to May 8?

Hey, Andy, this is Charles. From a DOT standpoint, we're seeing a little bit of slowdown. And obviously, with the lack of the tax revenue coming in from the fuel, I think everyone's taken a slowdown approach, but we're still seeing where taxes were in place, and money has been kind of put in reserve for projects like city and county. We're still seeing some of that, but we're still having lettings and bidding on work. And from a commercial standpoint, private work standpoint, when it first occurred, we've had a couple of projects that were put on stand down and hold up like we would be doing some stuff in phases, and that lasted about two weeks to three weeks, and then they turned this on full speed ahead. And so, those people are feeling good about their projects. And right now, we don't have any projects that I can recall that we've had to postpone or stop work on.

Great, thanks. And then just my last question is just trying to understand how the decline in crude prices might affect you on the positive side in that, obviously, you consume a lot of diesel and fuels and your liquid asphalt as well. So, Alan, can you help us understand maybe what percentage of revenue fuels represent, liquid asphalt represented, and what you're seeing in those marketplaces? Obviously, we can see that the diesel prices, but asphalt is a little bit more opaque. Just talk about how that could positively impact or if it's positively impacting your margins. In other words, are you able to keep the savings on that? Or do your customers wind up benefiting more than you?

Yes. Regarding diesel, it's clear because the published prices are visible. We typically hedge about 40% to 50% of our diesel fuel usage with short-term swaps and purchase contracts. However, following the significant drop in March, we secured longer contracts extending into our fiscal year 2021. This means we'll be able to purchase diesel at a significantly reduced price compared to our previous bids and historical costs. Although we had to record a non-cash charge of approximately $800,000 this quarter due to the diesel prices plummeting and even going negative at one point, the long-term advantage is that we'll be acquiring fuel at a lower price. On the asphalt cement front, while it is influenced by oil prices, it does not have a direct correlation like diesel does. Typically, during the winter months, liquid asphalt prices decrease due to lower demand, which we anticipated by establishing terminals. We observed this trend from December through February, and even as we usually expect prices to rise in March, the decline continued into late March and April. Most of our asphalt cement costs are passed through to our projects, allowing us to retain some savings on non-indexed projects. Some of this was seen in our operations over the last six months, but the major drop coincided with what would have been a typical increase in March. State indexes have fallen over the past 60 days, and if this trend continues, we expect to see a slight margin gain in the second half, but it won't be substantial as about 40% of our contracts are indexed. Financially, we estimate a revenue reduction of about $3 million to $4 million in the last six months due to asphalt cement price effects, and we'll have to pass some of that back to the states, contributing to our revised revenue estimate.

Got it. Cool. Thank you.

Thank you.

Our next question is coming from Michael Feniger of Bank of America. Please go ahead.

Hey, everyone. Thank you for taking my questions. We're hearing that road and highway work have been relatively okay because there's no traffic out there. So that's some area of the project the DOTs have been going forward with. I'm curious if you're seeing that based on really some of your comments about some delays in letting. So, are you seeing current projects you're working on right now being delayed? Or is it more of the cautious and concern that being able to build that backlog through this quarter and maybe even next quarter could be an issue because of what you were stressing before with gasoline down and the tax receipts?

Yes. There have been no delays in the DOT projects. In fact, several states have expedited the timeline for our work. Many of our contracts in large cities and on interstates are primarily conducted at night. However, in several states, we've been allowed to shift these projects to daytime hours. Working at night restricts us to about eight or nine hours on a project, while daytime work allows us to engage for 10 to 12 hours. As a result, we're seeing an acceleration in some of our projects. Additionally, less traffic has led to a focus on expediting maintenance projects to improve road conditions. Overall, this is a very positive development. Regarding DOT lettings, aside from North Carolina, which has a lot of information being circulated, we have not observed any delays in lettings in other states. However, we do expect that could change later this calendar year and into our next fiscal year. We also have projects typically let during this period that we classify as book and burn. Our capacity to secure and execute that number of projects has been factored into our guidance. Throughout our fiscal year, which ends on September 30, we do not foresee any reduction in the projects we can undertake.

Are there any developments we should keep an eye on regarding a potential CARES Act 2 or stimulus that could assist the states? I'm interested in how infrastructure discussions might positively affect your company. Specifically, in relation to your budget and exposure, is there anything we should be watching concerning Washington DC or the CARES Act 2 that could directly impact you?

Hey, Michael. This is Charles. One thing to consider is that we're experiencing a decline in gas tax receipts, which fund our work. Research indicates a shortfall of about $50 billion, which we see as a necessary support for the Department of Transportation to address a 30% reduction in revenue. Some of this will be allocated for 2020, but most will be needed in 2021 to address the anticipated shortfall. Additionally, the FAST Act is set to expire at the end of September, so a long-term highway bill is essential. Both parties have generally supported these bills, and it's important because when legislators assess the situation, our routes are a critical asset that will continue to degrade. Currently, our routes have a D grade. Considering the transportation of our products, the most significant factor is the movement of our people and children, making road safety vital. We are optimistic that, even in these challenging times, there will be funding to ensure our roads remain intact.

Yes, Michael, to add to that, the upcoming legislation mentioned by Charles is something to watch for. Additionally, there has already been significant funding allocated to states as part of the CARES Act to support their operations. Some states are considering using a portion of these funds for the Department of Transportation, which we hope will help address any shortfalls, even if the proposed $50 billion isn't approved. So we have these national issues to consider. Moreover, with the funding already allocated, there’s a possibility it could be used by the Department of Transportation to mitigate any temporary income shortfalls. However, projects that have already been established and are under contract are fully funded, so we do not expect any public projects to be halted, as that funding is already secured.

Okay. That was helpful. And you guys gave great context to Andrew's question about 2009. I was just curious, this company is different than 2009. You guys are operating liquid asphalt plant. You mentioned the glass manufacturing facility. Was hoping you can give us a little bit more color. I'm just wondering if this new foray and this expansion for road is bringing new operational challenges that we should be aware of that now you're operating these other types of facilities?

No. I mean, we're really just doing the same thing we did then just in more locations. I mean, really, the only thing that has changed is the geographic diversity that we have now, and I think that's a positive because in 2008 and '09, we were only in Alabama and Florida. Now we're in Georgia and North Carolina. So, 95% of what we do is exactly the same. The glass sand plant, I think, as we discussed before, all it is, is taking a product that we already produce in our aggregate facility, and that plant will merely modify it slightly so that it can be used in a specialty industry. So it's not going to be a substantial portion of our business. It's just really taking a product we already have and making a slight modification. So, we now have a different customer than we would have had before or just a small part of that product that's produced.

Thank you.

Thank you. Our next question is coming from Adam Thalhimer of Thompson Davis. Please go ahead.

Hey, good morning, guys. Congrats on a solid Q2, and thanks for continuing to give annual guidance here. I wanted to start first on the margins for the back half. It looks like you're guiding to down kind of in the 150 basis point range for both quarters. Is there some conservatism baked into that? Or something else we need to be aware of?

We believe it's important to share what we can see, but the main reason, Adam, is that usually at this time of year, we would have a clearer understanding of the amount of work we need to book and complete. As we mentioned, about 80% of our contract backlog is scheduled to be completed by September 30, which amounts to approximately $77 million that we must secure and finalize. This is the period when that is typically accomplished. Given the circumstances and the fact that this number is larger than usual, we haven't factored in the assumption that we can achieve the same margin on this unbooked backlog as we have in our current backlog since we still need to bid for it. We expect to complete it, but we haven't assumed that the revenue from these contracts will carry the same margin as our current backlog, which explains a significant part of the projected decline in revenue. Additionally, some of the revenue we'll realize in the last six months will come from our recent acquisition, and we anticipate that the margin on that work will also be lower, similar to the margins on our existing backlog, which is about half of our total backlog. Thus, this acquisition is contributing some drag to our projections. Our forecast is based on our current knowledge and visibility, and while we hope it's conservative, there's added uncertainty in the current environment regarding our ability to secure and fulfill that backlog at the same or improved margins as our ongoing projects.

That makes sense. What should we consider regarding your backlog build potential in Q3? You mentioned that you typically build in April and May. While the public side is fairly clear, what are you observing in terms of private bidding currently?

Adam, this is Charles. On the private side, we are still observing progress in residential construction, and there are also developments in the commercial sector within our market. While I could reference reports indicating a downturn, our markets remain desirable for growth. We are fortunate to be in these thriving regions, particularly in the southeast, where despite the current challenges, some areas have maintained stronger activity compared to others.

Okay. Good. And then last one for me.

I want to point out that although we have a significant backlog for next year, our backlog to be completed next year is actually higher than it has been in the last two years as of March 31. This means we are not starting next year at a disadvantage. Typically, in this quarter, during the third and fourth quarters, a lot of the backlog we add is for future years, in addition to what we will book and complete.

Okay. That's good color. And then the last one for me on North Carolina DOT. How concerned should we be about that situation for you guys? Some of our private contacts in North Carolina have said, "Hey, look, fiscal '20 holds up pretty well, but men, fiscal '21, could be really ugly in North Carolina." What are your thoughts?

We share a little bit of that kind of thought process. 2020, we think, is going to be good coming into 2021. Obviously, there's going to be a shortage there, and that's why we're paying a lot of attention and making a lot of contacts with our leaders in Washington that, in order to maintain the safety and the routes. We feel like something is going to have to be done, and we feel like that they act. But as far as North Carolina, this is kind of a little bit of old news because we've been talking about North Carolina for, I think, several quarters now, that we all know they overspend it one period of time, and then we had things kind of looking in a good direction and saw some light at the end of the tunnel where things were turning. And then we started dealing with COVID-19, and that's kind of thrown something a shortage in there. But North Carolina basically has a great system, and they really don't have an issue other than lack of revenue coming in from taxes. Everything's in place. So once we get everything swinging back into the economy that there's not going to be any funding issue. We're going to have to just work through this process and just going to have to do what we've been doing for the last six months. We saw early on kind of what was going on and we moved some of our product mix round of what we were doing. And then like we say, we got 35 different areas, and North Carolina is just one of them, but we're still very bullish on North Carolina.

Yes. Great. Adam, to build on Charles' point, in the last six months, North Carolina's DOT had already reduced our engagement by about a third even before COVID. While COVID has had a short-term effect, we believe that, as Charles mentioned, the long-term funding structure is strong. They have publicly stated that they will be doing fewer large mega projects, but they still need to maintain the roads, which we think will positively impact us once they resolve their short-term funding challenges.

Understood. I will turn it over. Thanks, guys.

Thank you.

Our next question is coming from Josh Wilson of Raymond James. Please go ahead.

Good morning. I hope you and your families are well.

Thank you, Josh. You too.

First, on the glass plant, could you give us some quantification as to the timing of the spending and any color on the financial impacts it might have?

$4.1 million is the budget to construct the facility, but expect that to be probably 90% complete by September 30, and then we're currently targeting being able to produce that glass plant ready sand by October, November. So, other than the capital expenditure this year, which we built into our estimate, that's the only thing that will happen this year.

Okay. And then, remind us, as it relates to your states, how much of your funding is exposed to the gas taxes versus other sources of revenue?

I don't have an exact percentage for the DOT budgets, but I would estimate that 75% to 80% or more comes from the federal funds they distribute and state gas taxes. Different states have various license fees, and in Alabama, there's a tax on electric vehicles, but I would guess those additional fees account for no more than 15% of the total budget. So, the majority comes from gas taxes. Interestingly, diesel revenue isn't down much because truckers are operating more than before due to less traffic, while gasoline revenue has decreased. Charles mentioned that for 2020 and 2021, the federal government was considering a backstop to offset about a 30% decline. They expect the overall drop in gasoline taxes at both the federal and state levels to be around 30%.

And is that mix true also for the local?

Very little of the local work is done with gasoline taxes. Most of those are special taxes, sales taxes, because now in Alabama, the recent Tax Act that they did, part of that is allocated to the cities and counties. But in most states, the cities and counties get their money for their road work from other than gasoline taxes, but they will obviously be impacted because if it's coming from sales taxes, that may be down, but we've not even seen any of the cities and counties that have so far delayed projects.

Got it. Good luck with the next quarter.

Thank you.

Our next question is coming from Brent Thielman of D.A. Davidson. Please go ahead.

Hey, thank you. Good morning and thanks for taking the questions.

You're welcome, Brent. Good morning.

Just quick question. Was there any backlog acquired from the business in Florida?

It was very small and even smaller margins. So, I mean it, there's only about $5 million of backlog acquired.

Got it. Okay. Perfect. And is there a big difference in terms of the states that you serve today between how much private work you do versus public relative to the overall numbers you guys provide? Or is it pretty similar across all those markets?

It's not so much about the state but rather the individual markets we're in, as that’s how we really assess the situation. The more rural markets we operate in tend to have a lower percentage of private work due to less development compared to urban areas like Birmingham, Raleigh, or Tallahassee, including Huntsville. The variation is primarily by individual markets rather than by state. Fortunately, as Charles mentioned earlier, we are located in some high-growth areas across certain markets. I don’t believe that demand is significantly changing, at least in the short term with COVID, so we continue to see strong demand in private work.

Okay. And is there any difference in the profit margins attached to that private work versus public? Is it a little better because it's less competitive? Or is that too wishful?

It varies by market, but in some cases, there are more bidders for DOT projects due to qualifications and requirements that can exclude smaller competitors. However, in many of our markets, we sell on an FOB basis to smaller competitors who primarily handle private work, and we even engage them as subcontractors at times. Therefore, there isn't a significant difference in the margin profile between public and private work. Our flexibility allows us to undertake various types of projects, whether DOT, city, county, or private, without greatly affecting our margins when we adjust the percentages in different markets. We aim to maintain a reasonable margin for our activities.

Okay. Okay. And Alan, I apologize if you touched on this, but it looked like the DSOs picked up a bit again. I think you talked about some changes in processes and maybe some of the agencies last quarter that were having an effect there. Just wondering what caused the pickup again, I think, from 1Q?

The way we calculate our revenue shows that March was a very strong month for the quarter's average. When we break down the quarter into months, we found that our sales reduced by about 12 days. This calculation reflects an improvement in March compared to a total revenue figure because receivables increased. However, our sales in March were significantly different from December. It's essential to consider this perspective. Regarding receivables, during the pandemic, we focused on ensuring that our reliable private work customers did not fall behind on payments. We have weekly calls with the Presidents and CFOs of these companies to discuss the aging of receivables. Additionally, we were concerned that working from home might delay some processes with Departments of Transportation and local governments due to necessary commission meetings. However, we've observed the opposite so far. For example, one county in Georgia was so worried about timely payments that they hand-wrote and mailed checks to us. Overall, our customers appear to be diligent in managing their payments despite the disruptions they face, and we continue to monitor this weekly to prevent any issues.

Okay. Hey, I appreciate you guys taking the questions. Best of luck and stay safe.

Thank you. You too.

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you, everyone, for joining the call. I want to emphasize that our company and industry are taking the COVID-19 situation and all necessary precautions very seriously. We are working diligently to ensure the safety of our employees, customers, and the general public. I appreciate everyone’s participation today, and I urge you all to stay safe. We will speak again soon.

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