Q3 2024 Construction Partners Inc Earnings Call

Speaker Change: Greetings. Welcome to Construction Partners 3rd Quarter Earnings Conference Call. At this time all lines

Speaker Change: are in a listen-only mode.

Speaker Change: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, with Investor Relations. Thank you. You may begin.

Operator: At this time, all lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, with Investor Relations. Thank you. 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 third quarter results for fiscal 2024. 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. However, information recorded on this call speaks only as of today, August 9, 2024. Please be advised that any time-sensitive information may no longer be accurate as of the date of your replay listening or transcript reading.

Rick Black: I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations, or future events, or future financial performance, are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that, by their nature, are uncertain and outside of the company's control. However, actual results may differ materially.

Rick Black: Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review third quarter results for fiscal 2024.

Speaker Change: 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.

Speaker Change: Information recorded on this call speaks only as of today, August 9, 2024. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading.

Speaker Change: 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

Speaker Change: of the Private Securities Litigation Reform Act of 1995.

Speaker Change: 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 our earnings press release for our disclosures on forward-looking statements.

Rick Black: Please refer to our earnings press release for our disclosures regarding 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 statement. And now, I would like to turn the call over to Construction Partners CEO, Jewel Smith. Jewel?

Speaker Change: These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.

Speaker Change: 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.

Speaker Change: And now, I would like to turn the call over to Construction Partners CEO , Jewel Smith. Jewel?

Jewel Smith: Thank you, Rick, and good morning, everyone. Joining me on the call today are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I want to start by directly thanking the more than 4,800 men and women across the CPI family of companies for their hard work this quarter. The story of this quarter was operational excellence across the Southeast on hundreds of projects under construction and many days and nights operating asphalt plants, quarries, and terminals. CPI success has always been driven by our talented, dedicated construction professionals. And as our work season shifted this quarter into high gear and long hours, our team delivered.

Jewel Smith: Thank you, Rick, and good morning everyone. Joining me on the call today are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman.

Jewel Smith: I want to start by directly thanking the more than 4,800 men and women across the CPI family of companies for their hard work this quarter.

Jewel Smith: The story of this quarter was operational excellence across the southeast on hundreds of projects under construction and many days and nights operating asphalt plants, quarries, and terminals.

Jewel Smith: CPI success has always been driven by our talented, dedicated construction professionals.

Jewel Smith: And as our work season shifted this quarter into high gear and long hours, our team delivered.

Jewel Smith: Q3 was a strong quarter for CPI. Compared to a year ago, we grew revenue 23%, adjusted EBITDA 31%, and our margins increased to 14.1% for the quarter. It's also important to note that of the 23% revenue growth in the quarter, 13% was organic growth. Year-to-date, organic growth represents 9.3% of our total 18% revenue growth. This is consistent with our outlook for organic growth for the year to account for approximately half of our total growth.

Jewel Smith: Q3 was a strong quarter for CPI. Compared to a year ago, we grew revenue 23%, adjusted EBITDA 31%, and our margins increased to 14.1% for the quarter.

Jewel Smith: It's also important to note that of the 23% revenue growth in the quarter, 13% was organic growth.

Jewel Smith: Year-to-date, organic growth represents 9.3% of our total 18% revenue growth.

Jewel Smith: This is consistent with our outlook on organic growth for the year to account for approximately half of our total growth.

Jewel Smith: On a daily basis, we focus on organic growth in our current and adjacent markets, which is a critical component of our strategy to achieve our Roadmap 2027 goal. During the quarter, economic conditions were stable for our industry, and demand for the type of construction projects we perform remains high. Public project lettings continue to be strong, supported by sound funding programs at the state, local, and federal levels throughout our southeastern state. These public investments include a variety of infrastructure projects ranging from highways and bridges to airports, railroads, and military bases.

Jewel Smith: On a daily basis, we focus on organic growth in our current and adjacent markets.

Jewel Smith: which is a critical component of our strategy to achieve our Roadmap 2027 goals.

Jewel Smith: During the quarter, the economic conditions were stable for our industry, and demand for the type of construction projects we perform remains high.

Jewel Smith: Public project leadings continue to be strong, supported by the healthy funding programs at the state, local, and federal levels throughout our southeastern states.

Jewel Smith: These public investments include a variety of infrastructure projects ranging from highways and bridges to airports, railroads, and military bases.

Jewel Smith: We also continue to see steady demand for commercial projects with many fast-growing economic centers within our local markets. In particular, we continue to see areas of strength in the private market for manufacturing, corporate site development, large economic development projects, and residential. This sustained demand continues to drive project backlog growth, which again increased during the quarter. As of June 30th, our backlog was $1.86 billion.

Jewel Smith: We also continue to see steady demand for commercial projects, with many fast-growing economic centers within our local markets.

Jewel Smith: In particular, we continue to see areas of strength in the private market for manufacturing, corporate site development.

Jewel Smith: Large Economic Development Projects, and Residential.

Jewel Smith: This sustained demand continues to drive project backlog growth, which again increased during the quarter. As of June 30th, our backlog was $1.86 billion.

Jewel Smith: Turning now to our strategic growth model, we have acquired seven companies this fiscal year, beginning in October. Two of these acquisitions were made since our last earnings call. In June, we acquired Hudson Paving in Rockingham, North Carolina. Hudson extends our reach into the Sam Hills region of North Carolina.

Jewel Smith: Turning now to our strategic growth model, we have acquired seven companies this fiscal year beginning in October .

Jewel Smith: Two of these acquisitions were made since our last earnings call.

Jewel Smith: In June , we acquired Hudson Paving in Rockingham, North Carolina.

Jewel Smith: Hudson extends our reach into the Sam Hills region of North Carolina.

Jewel Smith: Now as part of our Fred Smith Company platform, this new plant and construction operation in Rockingham allows us to fully serve the rapidly growing Pinehurst and Southern Pines market area. And last week, we announced the acquisition of Robinson Pavement Company in Columbus, Georgia. This expansion of three new hot-mix asphalt plants and construction operations in Columbus and the surrounding area positioned CPI in a strategic location, adjacent to our existing operations in both Georgia and Alabama.

Jewel Smith: Now as part of our Fred Smith Company platform, this new plant and construction operation in Rockingham.

Jewel Smith: allows us to fully serve the rapidly growing Pinehurst and Southern Pines market area.

Jewel Smith: And last week, we announced acquisition of Robinson Paving Company in Columbus, Georgia.

Jewel Smith: This expansion of three new hot-mix asphalt plants and construction operations in Columbus

Jewel Smith: and the surrounding area positioned CPI in a strategic location.

Jewel Smith: adjacent to our existing operations in both Georgia and Alabama.

Jewel Smith: As a growing economic market supported by Fort Moore and Columbus, this represents an important market for us and a natural next step for our growth in the state of Georgia. Robinson Pavin has long been a highly respected contractor in Georgia and will continue to operate as a branded division of our Georgia platform company, The Scruggs Company.

Jewel Smith: As a growing economic market supported by Fort Moore and Columbus, this represents an important market for us and a natural next step for our growth in the state of Georgia.

Speaker Change: Robinson Pavin has long been a highly respected contractor in Georgia and will continue to operate as a branded division of our Georgia platform company the Scruggs Company.

Jewel Smith: We're excited to have added these high-quality companies with excellent reputations to our organization. And we want to welcome both the Hudson Paving and Robinson Paving employees as teammates within the CPI family of companies. Acquisitions have always been a part of our growth model as we enter new areas, expand market share, and add capacity, services, and talented new team members. Importantly, our acquisition strategy also fuels our future organic growth, helping keep us on the path to achieve our Roadmap 2027 goals, with annual revenue growth of 15 to 20 percent, with approximately half of the growth being acquisitive and half organic, and expanding our EBITDA margins in the range of 13 to 14 percent by 2027.

Speaker Change: We're excited to have added these high-quality companies with excellent reputations into our organization. And we want to welcome both the Hudson Paving and Robinson Paving employees as teammates within the CPI family of companies.

Speaker Change: Acquisitions have always been a part of our growth model as we enter new areas, expand market share, and add capacity, services, and talented new team members.

Speaker Change: Importantly, our acquisition strategy also fuels our future organic growth.

Speaker Change: helping keep us on the path to achieve our Roadmap 2027 goals, which are annual revenue growth of 15 to 20 percent, with approximately half of the growth being acquisitive and half organic.

Speaker Change: and expanding our EBITDA margins in the range of 13 to 14 percent by 2027.

Jewel Smith: Currently, we continue to see a very active environment for acquisition opportunities as our industry is going through a generational transition, and we believe we're the leader in building a scalable business by acquiring Great Privately Hill Construction Company. While we continue to have conversations with potential sellers, both inside and outside of our current states, it's important for us to remain patient and focused on finding the best strategic acquisition that will bring operational excellence and add to the great culture of the CPI family of companies.

Speaker Change: Currently, we continue to see a very active environment for acquisition opportunities as our industry is going through a generational transition.

Speaker Change: And we believe we're the leader in building a scalable business by acquiring great privately held construction companies.

Speaker Change: While we continue to have conversations with potential sellers both inside and outside of our current states,

Speaker Change: It's important for us to remain patient and focused on finding the best strategic acquisitions.

Speaker Change: that will bring operational excellence and add to the great culture of the CPI family of companies.

Jewel Smith: In summary, we had a record third quarter and, consequently, are raising our fiscal 2024 out. Our record backlog provides visibility for the remainder of fiscal 2024 and allows us to enter fiscal 2025 with momentum and growth. Finally, we remain optimistic about the future based upon our healthy local markets across the Southeast, the numerous opportunities available as we continue to execute on our growth strategy, and, most importantly, the continued development of our talented workforce to lead and manage a larger and more profitable CPI into the future. I'd now like to turn the call over to Greg.

Speaker Change: In summary, we had a record third quarter and consequently are raising our fiscal 2024 outlook.

Speaker Change: Our record backlog provides visibility for the remainder of fiscal 2024 and allows us to enter fiscal 2025 with momentum and growth.

Speaker Change: Finally, we remain optimistic about the future based upon our healthy local markets across the Southeast.

Speaker Change: The numerous opportunities available as we continue to execute on our growth strategy.

Speaker Change: and most importantly the continued development of our talented workforce to lead and manage a larger and more profitable CPI into the future.

Greg Hoffman: Thank you, Jewel, and good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal third quarter compared to the fiscal third quarter of 2023. Revenue was $517.8 million, up 22.7%. The increase included $40.9 million of revenue from acquisitions completed during and subsequent to the three months ended June 30, 2023, and an increase of approximately $55 million of revenue in our existing market. The mix of total revenue growth for the quarter was approximately 13% organic revenue and approximately 9.7% from these recent acquisitions. And, as Jewel mentioned, for the nine months, year to date, our organic to acquisitive mix is half and half, with organic growth for three quarters of 9.3% out of our total growth of 18%.

Speaker Change: I'd now like to turn the call over to Greg.

Greg Hoffman: Gross profit was $83.5 million, an increase of 30% compared to the same quarter last year. General and administrative expenses were $38.9 million, or 7.5% of total revenue, compared to $32.2 million, or 7.6% of total revenue, in the same quarter last year. We remain on pace for G&A expenses to end the fiscal year at approximately 8% of revenue. Net income for the quarter was $30.9 million, up 42.4% compared to net income of $21.7 million in the same quarter last year. Adjusted EBITDA was $73.2 million, an increase of 30.5%. The adjusted EBITDA margin for the quarter was 14.1%, compared to 13.3% in the third quarter last year.

Greg Hoffman: Thank you, Jewel, and good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal third quarter compared to the fiscal third quarter in 2023.

Greg Hoffman: You can find a reconciliation of net income to adjust to EBITDA in today's earnings release. In addition, we grew project backlog to $1.86 billion at June 30, up from $1.79 billion at the end of last quarter. We now estimate that we have 80 to 85% of the next 12 months' contract revenue booked in backlog, which is up from 70 to 75% at this time last year. Turning now to the balance sheet, we had $58.4 million of cash and cash equivalents. As it relates to our credit availability,

Greg Hoffman: Revenue was $517.8 million of 22.7%.

Greg Hoffman: The increase included $40.9 million of revenue from acquisitions completed during and subsequent to the three months ended June 30, 2023, and an increase of approximately $55 million of revenue in our existing markets.

Greg Hoffman: The mix of total revenue growth for the quarter was approximately 13% organic revenue and approximately 9.7% from these recent acquisitions.

Jewel Smith: And, as Jewel mentioned, for the nine months year-to-date, our organic to acquisitive mix is half and half, with organic growth to three-quarters of 9.3% out of our total growth of 18%.

Greg Hoffman: Gross profit was $83.5 million, an increase of 30% compared to the same quarter last year.

Greg Hoffman: General and administrative expenses were $38.9 million, or 7.5% of total revenue, compared to $32.2 million, or 7.6% of total revenue, in the same quarter last year.

Greg Hoffman: We remain on pace for G&A expenses to end the fiscal year at approximately 8% of revenue.

Greg Hoffman: Net income for the quarter was $30.9 million, up 42.4% compared to net income of $21.7 million in the same quarter last year.

Greg Hoffman: Adjusted EBITDA was $73.2 million, an increase of 30.5 percent.

Greg Hoffman: Adjusted EBITDA margin for the quarter was 14.1%, compared to 13.3% in the third quarter last year.

Greg Hoffman: You can find a reconciliation of net income to adjusted EBITDA in today's earnings release.

Greg Hoffman: In addition, we grew project backlog to $1.86 billion at June 30, up from $1.79 billion at the end of last quarter.

Greg Hoffman: We now estimate that we have 80-85% of the next 12 months contract revenue booked in backlog, which is up from 70-75% at this time last year.

Greg Hoffman: Turning now to the balance sheet, we had $58.4 million of cash and cash equivalents.

Operator: During the quarter, we converted our $200 million accordion for the terms of the credit agreement into an additional $75 million of revolving credit facility availability, as well as converted $125 million under the revolving credit facility to term debt. As a result, we now have $309.7 million available under the credit facility, net of a reduction in outstanding letters of credit. We have $397.5 million of principal outstanding under the term loan and $81.9 million outstanding under the revolving credit facility.

Greg Hoffman: As it relates to our credit availability, during the quarter, we converted our $200 million accordion for the Terms of the Credit Agreement into an additional $75 million of revolving credit facility availability.

Greg Hoffman: as well as converting 125 million dollars under the revolving credit facility to term debt.

Greg Hoffman: As a result, we now have $309.7 million available under the credit facility, net of a reduction for outstanding letters of credit.

Greg Hoffman: We have $397.5 million of principal outstanding under the term loan and $81.9 million outstanding under the revolving credit facility.

Operator: The additional availability on our credit facility and cash generation will continue to provide flexibility and capacity to allow for potential near-term acquisitions and High Value Growth Operations. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.81 times. Our expectation is the leverage ratio will maintain a range of 1.5 to 2.5 times while continuing to add sustained profitable growth. Cash provided by operating activities was $35 million.

Greg Hoffman: The additional availability on our credit facility and cash generation will continue to provide flexibility and capacity to allow for potential near-term acquisitions and high-value growth opportunities.

Greg Hoffman: As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.81 times.

Greg Hoffman: Our expectation is the leverage ratio will maintain a range of 1.5 to 2.5 times while continuing to add sustained profitable growth.

Greg Hoffman: Cash provided by operating activities was $35 million.

Operator: Year-to-date cash provided by operating activities for fiscal 2024 and 2023 was $113.2 million and $94.5 million, respectively. Trailing 12 months return on capital employed was 11.4% as of June 30. Net capital expenditures year-to-date were $62.4 million. We expect net capital expenditures for fiscal 2024 to be in the range of $90 to $95 million. This includes maintenance capex of approximately 3.25% of revenue, with the remaining amount invested in high-return growth initiatives.

Greg Hoffman: Year-to-date cash provided by operating activities for fiscal 2024 and 2023 was $113.2 million and $94.5 million, respectively.

Greg Hoffman: Trailing 12 months return on capital employed was 11.4% as of June 30th.

Greg Hoffman: Net capital expenditures year-to-day were $62.4 million.

Greg Hoffman: We expect net capital expenditures for fiscal 2024 to be in the range of 90 to 95 million dollars. This includes maintenance capex of approximately 3.25 percent of revenue, with the remaining amount invested in high return growth initiatives.

Operator: Based on our performance to date and our visibility through the remainder of the year, we are raising our FY24 outlook ranges as follows: revenue in the range of $1.835 to $1.860 billion. Net income in the range of $73.5 to $76 million, and adjusted EBITDA in the range of $219 to $228 million. This indicates an adjusted EBITDA margin for fiscal 24 in the range of 11.9% to 12.3%. And with that, we are now ready to take your questions. Operator?

Greg Hoffman: Based on our performance to date and our visibility through the remainder of the year, we are raising our FY 24 outlook ranges as follows.

Greg Hoffman: Revenue in the range of $1.835 to $1.860 billion.

Greg Hoffman: Net income in the range of $73.5 to $76 million.

Greg Hoffman: adjusted EBITDA in the range of 219 to 228 million dollars. This indicates an adjusted EBITDA margin for fiscal 24 in the range of 11.9 percent to 12.3 percent.

Speaker Change: And with that we are now ready to take your questions. Operator?

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. Our first question is from Kathryn Thompson with the Thompson Research Group. Please proceed.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question.

Speaker Change: Our first question is from Kathryn Thompson with Thompson Research Group. Please proceed.

Jewel Smith: Hi, thank you for taking my questions today. I'm going to focus, good morning. First, I want to focus on backlogs and parsing out a little bit more detail in terms of what is driving this. You've seen 15 quarters in a row of sequential backlog growth but still are on that path to 13 to 14 percent EBITDA margins, which is a difficult thing to do, to have both hand-in-hand. Could you give a little bit more clarity on public and market included in the backlog versus private and market, understanding that the public has a greater percentage of ongoing repair maintenance and private is more new construction? Thank you.

Speaker Change: Hi, thank you for taking my questions today.

Speaker Change: Let's try to focus. Good morning.

Speaker Change: First I want to focus on backlogs and parsing out a little bit more detail in terms of what is driving this. You've seen 15 quarters in a row of sequential backlog growth.

Speaker Change: but still are on that path to 13 to 14 percent EBITDA margins.

Speaker Change: which is a difficult thing to do, to have both hand-in-hand.

Speaker Change: Good evening.

Speaker Change: Could you give a little bit more clarity on...

Speaker Change: Public and market included in the backlog.

Speaker Change: versus private and market, understanding that the public has a greater percentage of more ongoing repair maintenance and private being more new construction. Thank you.

Jewel Smith: Yeah, Kathryn, thank you. You know, it has been 15 quarters now of the backlog increasing, and I've said for two or three years now that that's abnormal, that CPI, through its history, in the summer work season backlog went down sequentially. So I'll say it again, I'm starting to. Warner, myself, but really, it just is a reflection of our demand markets continuing to be strong. We'll just take them each one private. The private market continues to be steady.

Speaker Change: Yeah, Kathryn, thank you. You know, it has been 15 quarters now of the backlog increasing, and I've...

Speaker Change: said for two or three years now that that's abnormal that CPI through its history in the summer work season backlog went down sequentially, so I'll say it again. I'm starting to

Speaker Change: I wonder myself, but...

Speaker Change: Really it just is a reflection of our demand markets continuing to be strong.

Speaker Change: Well, let's just take them, each one, private, the private market continues to be steady. We continue to see a lot of opportunities to bid there.

Jewel Smith: We continue to see a lot of opportunities to bid there, and then in the public markets, you know, each of our states is now getting the IJA money. We're in our second year of really them using that money, and so we're seeing plenty of opportunities to bid there, and four of our states have passed supplemental funding, and so that's just creating. Um.., a continued good market to bid in.

Speaker Change: And then in the public markets, you know, each of our states is now getting the IJA money. We're in our second year of really them using that money. And so we're seeing plenty of opportunities to bid there.

Jewel Smith: So we're seeing good work on both added to our backlog. Um, you know, Greg and I noticed in our backlog, um, this quarter that the percent of public backlog maybe went up a couple percent from 65 to 67 or 68, which you would expect as the, um, IJA is really now in full gear. So I wouldn't be surprised to see that come through on the P&L in the next 12 months, but it's nothing, it's no big change. It's just, you know, um, just a slight tick up in public.

Speaker Change: A continued good market to bid in. So we're seeing good work on both added to our backlog.

Speaker Change: You know, Greg and I noticed in our backlog this quarter that the percent of public backlog maybe went up a couple percent from 65 to.

Greg Hoffman: 67 or 68 which you would expect as the IJA is really now in full gear.

Speaker Change: So I wouldn't be surprised to see that come through on the P&L in the next 12 months.

Speaker Change: but it's nothing it's no big change it's just you know just a slight tick up in public so you know we're

Jewel Smith: So, um, you know, we're excited about just the visibility the backlog gives us going into 2025, and we're going to continue to be patient. That's what a good backlog gives you. You know, you talked about the margins. Part of our margins getting to 13-14% is being able to be patient at the bid table.

Operator: Call. At this time, all lines are in a listen only mode. A brief question and answer session will follow the formal presentation.

Speaker Change: We're excited about just the visibility the backlog gives us going into 2025.

Speaker Change: and

Speaker Change: You know, we're going to continue to be patient. That's what a good backlog gives you. You know, you talked about the margins.

Operator: If anyone should require operator assistance during the conference, please press store zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: Part of our margins getting to 13-14% is being able to be patient at the bid table.

Rick Black: It is now my pleasure to introduce your host, Rick Black, with 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 third quarter results for fiscal 2024. 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 construction partners.net. Information recorded on this call speaks only as of today, August 9th, 2024.

Jewel Smith: Okay, thanks. And just to follow up in particular on the private and market sectors. Uh... What types of projects are you seeing, and have you seen any change as the years progressed with the residential end market? Thanks very much.

Speaker Change: What types of projects are you seeing, and have you seen any change as the years progressed with the residential and market? Thanks very much.

Jewel Smith: Yes, we, you know, as we said in the prepared remarks, it's really more of what we've been talking about, which is just a lot of the projects that you would expect come with the reshoring of businesses moving to the southeast. So we've seen corporate manufacturing facilities, corporate headquarters, industrial parks that can service, give businesses a place to operate.

Speaker Change: Yes, we, you know, as we said in the prepared remarks, it's really more of what we've been talking about, which is just a lot of the projects that you would expect come with the reshoring of businesses moving to the southeast.

Rick Black: Please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening 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 harbors provision of the private securities litigation reform act of 1995. We will be making forward looking statements as part of today's call that by their nature are uncertain and outside of the company's control.

Speaker Change: So we've seen corporate manufacturing facilities, corporate headquarters, industrial parks that can service, give businesses a place to operate.

Jewel Smith: Residential's been steady. We really haven't seen any huge uptick or shrinking of that market. It's been pretty steady for the developers building subdivisions.

Jewel Smith: And just a clarification, have you seen any change in the residential cadence? Because it is a little different than what we have heard from other markets. It could be just your geographic focus, but there is any sequential change with residential.

Speaker Change: And just a clarification, have you seen any change in the residential cadence? Because it is a little different than what we have heard from other markets. It could be just your geographic focus.

Rick Black: Actual results may differ materially. Please refer to our 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-gap measures, including adjusted EBITDA. Reconciliation to the nearest gap 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.

Speaker Change: any sequential change with residential.

Jewel Smith: We really haven't seen much change at all. I mean, residential is not a big part of what we do, but in the places where we do it, in the Panhandle of Florida and Raleigh and other places that we're really involved with residential developers, they've been pretty steady.

Speaker Change: We really haven't seen much change at all. I mean residential is not a big part of what we do, but in the places where we do it...

Speaker Change: In the panhandle of Florida and Raleigh and other places that we're really involved with residential developers, they've been pretty steady.

Rick Black: And now I would like to turn the call over to Construction Partners CEO, Joel Smith.

Jewel Smith: Okay, great. Thanks very much. Best of luck.

Operator: Okay, thank you, Kevin. Our next question...

Speaker Change: Okay, great. Thanks very much. Best of luck.

Joel Smith: Joel, thank you, Rick, and good morning, everyone. Joining me on the call today are Greg Hoffman, our chief financial officer, and Ned Fleming, our executive chairman. I want to start by directly thanking the more than 4,800 men and women across the CPI family of companies for their hard work this quarter. The story of this quarter was operational excellence across the southeast on hundreds of projects under construction and many days and nights operating asphalt plants, quarries, and terminals. CPI success has always been driven by our talented, dedicated construction professionals. And as our work seasons shifted this quarter into high gear and long hours, our team delivered.

Operator: Our next question is from Tyler Brown with Raymond James. Please proceed.

Speaker Change: Okay. Thank you, Kathryn.

Speaker Change: Our next question is from Tyler Brown with Raymond James. Please proceed.

Tyler Brown: Hey, Greg, appreciate all the guidance. You guys have been quite active on the M&A front, and I appreciate that maybe half the growth here in 24 will be from M&A. But as you look at it right now, how much of the acquisitions that you have already completed here in 24 should roll into 25? I guess my point is, do you already have two or three points of growth kind of in the bag from the rollover benefit of deals you've already done?

Tyler Brown: Hey, good morning.

Tyler Brown: Moontown

Tyler Brown: Hey, Greg, appreciate all the guidance. You guys have been quite active on the M&A front, and I appreciate that maybe half the growth here in 24 will be from M&A. But as you look at it right now, how much from acquisitions did you have already completed here in 24?

Speaker Change: Should roll into 25. I guess my point is, do you already have two or three points of growth kind of in the bag from the rollover benefit of deals you've already done?

Greg Hoffman: Yeah, it's all that we do. We would estimate that to be in the 90 to 110 range right now, rolling into 25.

Speaker Change: Yeah, Tyler, we do. We would estimate that to be in the 90 to 110 range right now, rolling into 25.

Joel Smith: Q3 was a strong quarter for CPI. Compared to a year ago, we grew revenue 23% adjusted EBITDA 31% and our margins increased to 14.1% for the quarter. It's also important to note that of the 23% revenue growth in the quarter, 13% was organic growth. Year-to-date organic growth represents 9.3% of our total 18% revenue growth. This is consistent with our outlook on organic growth for the year to account for approximately half of our total growth.

Tyler Brown: Okay, okay, an incremental benefit in 25. Right. Okay, wow, that's pretty good.

Tyler Brown: Okay, okay, an incremental benefit in 25.

Greg Hoffman: Okay, so I want to talk about this really quickly because I think this year you put some unannounced M&A into your guide, given the mechanics around Analyst Day. But as we start to think about how you guys think about your fiscal 25 guidance, what is your philosophy going to be around M&A? Should we expect you to put some unannounced M&A in that guidance, or will you only include the M&A that has been announced? And I don't mean to split a lot of heirs here, but I do think this is going to be really important in how we think about your guide into 25.

Tyler Brown: Right.

Speaker Change: Okay. Well, that's pretty good. Okay. So, I want to talk about this really quickly because I think this year you put some unannounced M&A into your guide given the mechanics around the Analyst Day.

Speaker Change: But as we start to think about how you guys think about your fiscal 25 guidance, what is your philosophy going to be around M&A?

Speaker Change: Should we expect you to put some unannounced M&A in that guidance, or will you only include the M&A that has been announced? And I don't mean to split a lot of heirs here, but I do think this is going to be really important on how we think about your guide into 25.

Joel Smith: On a daily basis we focus on organic growth in our current and adjacent markets, which is a critical component of our strategy to achieve our roadmap 2027 goals. Public project latings continue to be strong supported by the healthy funding programs at the state, local and federal levels throughout our southeastern states. These public investments include a variety of infrastructure projects, ranging from highways and bridges to airports, railroads and military bases. We also continue to see steady demand for commercial projects with many fast growing economic centers within our local markets.

Tyler Brown: Yeah, Tyler, great question. As you know, typically, we don't put unannounced or, you know, aspirational acquisitions into our guide. We did last year just simply for it to make sense at our Analyst Day, but we anticipate just getting back to our normal guidance methodology of just putting in what we've announced so far. And so it should be easier to move forward into 2025. Thank you.

Speaker Change: Yeah, Tyler, great question. As you know, typically we don't put unannounced or

Speaker Change: You know, aspirational acquisitions into our guide. We did last year just simply for it to be to make sense in our analyst day. But we envision just getting back to our normal.

Speaker Change: guidance methodology of just putting in what we've announced so far and so should be easier to move forward into 25.

Tyler Brown: Excellent. Very helpful.

Tyler Brown: And just, Louis, squeeze one last one in on the margins. So, obviously, a great improvement there. You know, I'm a pretty simple guy here, so when I think about margin improvement, it's either a function of you bidding better with maybe more sophisticated tools, or are you seeing more cost disinflation than you had been expecting? Or maybe I'm missing it altogether. Maybe the public mix is helping. But just any big-picture thoughts that really got you to that 14-plus percent margin this quarter. Thank you.

Speaker Change: Excellent. Very helpful. And just, Louis, squeeze one last one on margins.

Speaker Change: So, obviously, great improvement there, you know, I'm a pretty simple guy here, so when I think about margin improvement, it's either a function of you bidding better with maybe more sophisticated tools,

Joel Smith: In particular, we continue to see areas of strength in the private market for manufacturing, corporate site development, large economic development projects and residential. This sustained demand continues to drive project backlog growth, which began increased during the quarter.

Speaker Change: Or are you seeing more cost disinflation than you had been expecting? Or maybe I'm missing it all together, maybe public mix is helping. But just any big picture thoughts that really got you to that 14 plus percent margin this quarter. Thanks.

Joel Smith: As of June 30, our backlog was $1.86 billion.

Jewel Smith: You know, Tyler, we talked about three levers of margin expansion, one being just building better markets and being able to put more money on the bids. And so that's certainly one. The other is vertical integration, and so our terminals and aggregate facilities are contributing a little more each year. And then the third is scale. And so I feel like all three of those are contributing and working together. And so that really continues to be the story on the margins.

Speaker Change: Yeah.

Speaker Change: You know, Tyler, we've talked about three levers of margin expansion. One being just building better markets and being able to be able to put more money on the bids. And so that's certainly one. The other is vertical integration.

Joel Smith: Turning now to our strategic growth model, we have acquired seven companies this fiscal year beginning in October. Two of these acquisitions were made since our last earnings calls.

Joel Smith: In June, we acquired Hudson Paving and Rockingham, North Carolina. Hudson extends our reach into the San Hills region of North Carolina.

Speaker Change: And so our terminals and aggregate facilities are contributing a little more each year. And then the third is scale. And so I feel like all three of those are contributing and working together. And so that's really what continues to be the story on the margins.

Joel Smith: Now as part of our Fred Smith company platform, this new plant and construction operation in Rockingham, allows us to fully serve the rapidly growing Pinehurst and Southern Pines Market area.

Tyler Brown: Yeah, excellent. Thanks. Good job.

Ned Fleming: Tyler, this is Ned. I would tell you one thing. The people in the, as we look at the statistics, the people that are laying asphalt, that are working hard every day in the hot weather and the cold weather, they're doing a fantastic job. Their productivity continues to increase. Their team orientation continues to increase, and Jewel and the management team are leading well in that area. So I think, you know, one of the things I would say with margin is you have to go to work every single day in this business, and those people are doing an absolutely fabulous job led by people that respect them, that trust them, and that encourage them.

Speaker Change: Yeah. Excellent. Thanks. Good job. Tyler, this is Ned. I would tell you one thing. The people in the, as we look at the statistics, the people that are laying asphalt, that are working hard every day in the hot weather and the cold weather, they're doing a fantastic job.

Joel Smith: And last week, we announced acquisition of Robinson Paving Company in Columbus, Georgia. This expansion of three new hot mix asphalt plants and construction operations in Columbus, and the surrounding area, position CPI in a strategic location adjacent to our existing operations in both Georgia and Alabama. As a growing economic market supported by four more in Columbus, this represents an important market for us and a natural next step for our growth in the state of Georgia.

Speaker Change: Their productivity continues to increase, their team orientation continues to increase. Jewell and the management team are leading well.

Speaker Change: in that area, so I think...

Speaker Change: You know, one of the things I would say with Margin is you've got to go to work every single day in this business and those people are doing an absolutely fabulous job.

Ned Fleming: And Jewel and Greg and really this whole team, all the way down. And that's, you're not going to put a number to it, but I'm just telling you, watching how hard those folks work, and we want to treat them well, is a huge benefit to the margins as we move forward. Hmm, yeah.

Joel Smith: Robinson Paving has long been a highly respected contractor in Georgia and will continue to operate as a branded division of our Georgia platform company, the Scruggs Company. We're excited to have added these high quality companies with excellent reputations into our organization. And we want to welcome both a Hudson Paving and Robinson Paving employees as teammates within the CPI family of companies. Acquisitions have always been a part of our growth models we enter new areas, expand market share, and add capacity services and talented new team members.

Speaker Change: led by people that respect them, that trust them.

Speaker Change: and then encourage them, and Jewel, and Greg, and really this whole team all the way down.

Speaker Change: And that's, that's, you're not going to put a number to it, but I'm just telling you, watching how hard those folks work, and we want to treat them well, is a huge benefit to the margins as we move forward.

Tyler Brown: Yes, thanks Ned, that's great. Thank you.

Speaker Change: Yes, thanks, Ned. That's great. Thank you.

Operator: Our next question is from Andrew Wittmann with Baird. Please proceed.

Tyler Brown: Thank you, Tyler.

Tyler Brown: Our next question is from Andrew Whitman with Baird. Please proceed.

Andrew Wittmann: Yeah, great. I guess maybe I'll launch off of the last series of questions there and ask you, Jewel, to expand a little bit on the first thing about building better markets and how, if at all, your bidding process is allowing you to compare your current backlog, your new win margin, what you did maybe over the last year, are you still seeing? as bid margin growth. Maybe you could comment on that, please?

Andrew Whitman: Yeah, great. I guess maybe I'll launch off of the last series of questions there and ask you, Jewel, to expand a little bit about the...

Joel Smith: Importantly, our acquisition strategy also fuels our future organic growth, helping keep us on the path to achieve our roadmap of 2027 goals, which are annual revenue growth of 15 to 20%, with approximately half of the growth being acquisitive and half organic and expanding our EBITDA margins in the range of 13 to 14% by 2027. Currently, we continue to see a very active environment for acquisition opportunities as our industry is going through a generational transition and we believe we're the leader in building a scalable business by acquiring great privately held construction companies.

Andrew Whitman: That first thing about building better markets and how, if at all, your bidding process is allowing you to compare your current backlog, your new win margins.

Speaker Change: To what you've done maybe over the last year, are you still seeing as-bid margin growth? Maybe you could comment on that, please.

Jewel Smith: Andy, you know, it's a good question. It's one that we can't ever take our eyes off of. You know, we, our industry is competitive, and that's not going to ever change, and so we have to be the lowest bid, but what we're trying to do is be patient at the bid table and use our good backlog to be disciplined and patient. But also, if we continue to work on costs and keep your costs down, as Ned said, if we can be more productive in the field, you know, that gains margin as well.

Speaker Change: Yeah. Andy, you know, it's a good question. It's one that we can't ever take our eye off of. You know, we...

Speaker Change: Our industry's competitive and that's not going to ever change and so we have to be the low bid.

Joel Smith: While we continue to have conversations with potential sellers both inside and outside of our current states, it's important for us to remain patient and focused on finding the best strategic acquisitions that will bring operational excellence and add to the great culture of the CPI family of companies.

Speaker Change: and but what we're trying to do

Speaker Change: is be patient at the bid table and use our good backlog to be disciplined and patient, but also if we continue to work on costs.

Speaker Change: and keep your costs down, as Ned said, if we can be more productive in the field, you know, that gains margin as well. But one of the things CPI has always done, and we're seeing the return to that,

Jewel Smith: But one of the things CPI has always done, and we're seeing the return to that, is the guys in the field find ways to win and beat production, and so on more jobs than not, we finish at a higher end margin than we bid, and so that's one of the things that really helped this quarter was just the ability to write up projects as they were getting built. Yeah.

Joel Smith: In summary, we had a record third quarter and consequently are raising our fiscal 2024 outlook. Our record backlog provides visibility for the remainder of fiscal 2024 and allows us to enter fiscal 2025 with momentum and growth. Finally, we remain optimistic about the future based upon our healthy local markets across the southeast. The numerous opportunities available as we continue to execute on our growth strategy and most importantly, the continued development of our talented workforce to lead and manage a larger and more profitable CPI into the future.

Speaker Change: is the guys in the field find ways to win and beat production. And so on more jobs than not, we finish at a higher end margin than we bid. And so that's one of the things that...

Speaker Change: really helped this quarter was just the ability to write up projects as they're getting built.

Jewel Smith: Um, that's helpful. And then, uh... Maybe just a comment here, guys, we had hurricane season start a little bit earlier than normal here in fiscal fourth quarter. And I was just wondering how the quarter is unfolding so far. Has it slowed you down, and you need to make it up in the back end of the quarter? Maybe just some comments around where you are.

Speaker Change: Yep.

Speaker Change: Um, that's helpful. And then, uh...

Speaker Change: Maybe just a comment here, guys. We had hurricane season start a little bit earlier than normal here.

Speaker Change: in your fiscal fourth quarter, and I was just wondering how through, you know, today the quarter is unfolding. Has it slowed you down and you need to make it up in the back end of the quarter? Maybe just some comments around where you are with the weather.

Greg Hoffman: I'd now like to turn the call over to Greg.

Greg Hoffman: Thank you, Jill and good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal third quarter compared to the fiscal third quarter in 2023. Revenue was $517.8 million of 22.7%. The increase included $40.9 million of revenue from acquisitions completed during and subsequent to the three months ended June 30, 2023. And an increase of approximately $55 million of revenue in our existing markets. The mix of total revenue growth for the quarter was approximately 13% organic revenue and approximately 9.7% from these recent acquisitions.

Jewel Smith: You know, we've had two quarters in a row now, Andy, where the weather's really balanced out, you know, a wetter than normal month is balanced out with a drier than normal month. Uh, so, and that's what we try to, you know..., communicate to the market is that over time, weather evens out. July so far this quarter has been wetter than normal, and then in the first week of August, we had a hurricane march through four of our states and just left Raleigh this morning.

Speaker Change: Well, you know, we've had two quarters in a row now, Andy, where weather's really balanced out. You know, a wetter-than-normal month is balanced out with a drier-than-normal month.

Speaker Change: So, and that's what we try to, you know,

Speaker Change: July , so far this quarter, has been wetter than normal.

Speaker Change: And then first week of August , we've had a hurricane march through four of our states and just left Raleigh.

Jewel Smith: So, we'll just have to see how the rest of the quarter goes. You know, we could have really good weather the rest of August and September and be just fine. So, we don't try to get ahead of ourselves there.

Greg Hoffman: And as you'll mentioned, for the nine months year to date, our organic to a quiz of mix is half and half with organic growth to three quarters of 9.3% out of our total growth of 18%. Gross profit was $83.5 million and increase of 30% compared to the same quarter last year. General and administrative expenses were 38.9 million or 7.5% of total revenue compared to 32.2 million or 7.6% of total revenue in the same quarter last year.

Speaker Change: this morning. So, but we'll just have to see how the rest of the quarter goes. You know, we could have really good weather the rest of August and September and be just fine. So, we we don't try to get ahead of ourselves there.

Andrew Wittmann: But as it relates to that fourth quarter guidance, do you feel like you've discounted what you've seen so far through the quarter so far?

Speaker Change: But as it relates to that fourth quarter guidance, you feel like you've discounted what you've seen so far through the quarter so far?

Jewel Smith: I'm going to let Greg answer that as to what he factored in and put him on the hot seat, Greg. Yeah, no, I

Greg Hoffman: I'm going to let Greg answer that as to what he factored in and put him on the hot seat. Greg? Yeah, no, I think we've just tried to think about...

Greg Hoffman: Yeah, no, I think we've just tried to think about this quarter the same way we realized with the earlier two that... The quarter balance is out. We always talk a lot about the first half of the year and the second half of the year kind of balance. And oftentimes, that occurs within the quarter. And that's kind of what we're anticipating happening this quarter.

Greg Hoffman: We remain on pace for GNA expenses to end the fiscal year at approximately 8% of revenue. Net income for the quarter was $30.9 million. Up 42.4% compared to net income of $21.7 million in the same quarter last year. Adjusted EBIDA was $73.2 million and increase of 30.5%. Adjusted EBITDA margin for the quarter was 14.1 percent compared to 13.3 percent in the third quarter last year. You can find a reconciliation of net income to adjusted EBITDA in today's earnings release.

Speaker Change: The quarter balance is out. You know, we always talk a lot about the first half of the year and the second half of the year kind of balance. And oftentimes that occurs within the quarter, and that's kind of what we're anticipating happening this quarter.

Andrew Wittmann: Fair enough. Guys, have a good weekend. Thank you.

Speaker Change: Fair enough, guys. Have a good weekend. Thank you. Thank you, Andy.

Operator: Our next question is from Adam Thalhimer with Thompson Davis and Company. Please proceed.

Speaker Change: Our next question is from Adam Thalhimer with Thompson Davis and Company. Please proceed.

Adam Thalhimer: Hey, good morning, guys. Congratulations on a nice beat. Thank you, Adam. Good morning. I wanted to ask about sequential backlog growth. How much of that was organic and how much of that was acquired?

Adam Thalheimer: Hey, good morning guys, congrats on a nice beat.

Jewel Smith: Well, we had about 40 million come in through acquisitions this quarter. So, you know, as our acquisitions come in over the year, they have different impacts on the quarter, but this quarter was about 40, so the rest was organic.

Adam Thalheimer: Thank you, Adam. Good morning.

Speaker Change: I wanted to ask about sequential backlog growth. How much of that was organic and how much of that was acquired?

Greg Hoffman: In addition, we grew project backlog to $1.86 billion at June 30, up from $1.79 billion at the end of last quarter. We now estimate that we have 80 to 85 percent of the next 12 months contract revenue, booked in backlog, which is up from 70 to 75 percent at this time last year. Turning now to the balance sheet, we had $58.4 million of cash and cash equivalence. As it relates to our credit availability, during the quarter we converted our $200 million accordion for the terms of the credit agreement into an additional $75 million of revolving credit facility availability, as well as converting $125 million under the revolving credit facility to term debt.

Speaker Change: Well, we had about 40 million come in through acquisitions this this quarter. So, you know, as our acquisitions come in over the year, they have different impact to the quarter, but this quarter was about 40, so the rest was organic.

Jewel Smith: Sounds like a similar mix to revenue, right?

Adam Thalhimer: And then what would be your thoughts on some potential, you talked about M&A, but on the growth CapEx side, growth projects, maybe a new asphalt terminal, any thoughts there?

Speaker Change: Sounds like a similar mix to revenue. That's right. And then what would be your thoughts on some potential, you talked about M&A, but on the growth CapEx side, growth projects, maybe a new asphalt terminal, any thoughts there?

Jewel Smith: Adam, we're always thinking about vertical integration and things like that. I will tell you, I want to use this question to really brag on Greg.

Speaker Change: Adam, we're always thinking about vertical integration and things like that. I will tell you, I'm going to use this question to just really...

Jewel Smith: You know, he has really instituted a very disciplined growth capex process with all of our operating companies in evaluating where to invest our growth capex money in the projects that are going to make the most impact. And I think you're seeing that come through in the organic growth this quarter and this year. There are a lot of good opportunities, and we can't invest in them all, and I think he's done a really good job of putting the investments where they're going to make the most difference.

Greg Hoffman: As a result, we now have $309.7 million available under the credit facility, net of a reduction for outstanding letters of credit. We have $397.5 million of principal outstanding under the term loan, and $81.9 million outstanding under the revolving credit facility. The additional availability on our credit facility and cash generation will continue to provide flexibility and capacity to allow for potential near term acquisitions and high value growth opportunities. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.81 times.

Greg Hoffman: Brag on Greg

Greg Hoffman: You know, he has really instituted a very disciplined growth capex process with all of our operating companies and evaluating

Greg Hoffman: where to invest our growth capex money on the projects that are going to make the most impact, and I think you're seeing that come through in the organic growth this quarter and this year.

Speaker Change: You know, there's a lot of good opportunities and we can't invest in them all. And I think he's done a really good job of putting the investments where it's gonna make the most difference.

Adam Thalhimer: Sounds good. Thanks, guys.

Speaker Change: Sounds good. Thanks, guys.

Operator: Our next question is from Stanley Elliott with Stifel. Please proceed.

Adam Thalheimer: Thank you, Adam.

Speaker Change: Our next question is from Stanley Elliott with Stifel. Please proceed.

Operator: Hey, good morning, everybody. Thank you for the question.

Greg Hoffman: Our expectation is the leverage ratio will maintain a range of 1.5 to 2.5 times while continuing to add sustained profitable growth. Cash provided by operating activities was $35 million. Year-to-date cash provided by operating activities for fiscal 2024 and 2023 was $113.2 million and $94.5 million respectively. Trailing 12 months return on capital employed was 11.4% as of June 30th. Net capital expenditures year-to-day were $62.4 million. We expect net capital expenditures for fiscal 2024 to be in the range of $90 to $95 million. This includes maintenance catbacks of approximately 3.25% of revenue with the remaining amount invested in high return growth initiatives.

Stanley Elliott: Hey, could you talk a little bit about, I mean, we're pretty much through the earnings season. The numbers that you guys are putting up on the organic side, 13 percent, are vastly different than a lot of the folks that are supplying rock to you guys. Can you talk about some of the disconnect between how you guys are so positive and a lot of those other businesses were kind of flat, likely down on an organic volume basis?

Speaker Change: Hey, good morning everybody. Thank you for the question.

Stanley Elliott: Hey, could you talk a little bit about, I mean, we're pretty much through the earnings season, you know, the numbers you guys are putting up on the organic side, 13%, is vastly different than a lot of your, the folks that are supplying rock to you guys. Can you talk about some of the disconnect on, you know, how you guys are so positive and, you know, a lot of those other businesses were kind of flat, likely down on an organic volume basis? Yeah. Yeah.

Jewel Smith: Yes, Stanley, we... I can only speak to what we're doing, you know; we're continuing in the markets we're working in to grow market share and work in adjacent markets in Greenfield. And we've got a great demand environment, so that's really driving our ability to grow organically. And when we have opportunities, we're adding crews and able to do more work. And as I said in my remarks, the acquisitions we did a year ago, a year and a half, and two years ago, they created opportunities for us to grow organically.

Stanley Elliott: Yes, Stanley, I can only speak to what we're doing. You know, we're continuing in the markets we're working in to grow market share.

Speaker Change: and to work in adjacent markets on greenfields.

Speaker Change: and we've got a great demand environment. So, that's really driving our ability to grow organically and where we have the opportunities, we're adding crews and able to do more work.

Speaker Change: And as I said in the remarks, the acquisitions we did a year ago and a year and a half and two years ago, they're creating opportunities for us to grow organically.

Greg Hoffman: Based on our performance to date and our visibility through the remainder of the year, we are raising our FY24 outlook ranges as follows. Revenue in the range of 1.835 to 1.860 billion dollars. Net income in the range of $73.5 to $76 million. Adjusted EBITDA in the range of $219 to $228 million. This indicates an adjusted EBITDA margin for fiscal 24 in the range of 11.9% to 12.3%.

Jewel Smith: And I think Hudson Paving and Robinson, a year from now, are going to give us the opportunity to grow organically in 2025 and 2026. So we're continuing to just execute on our strategy. We've always been a growth company of 15 to 20%. We can see that continuing and about half organic. And that's really what we see moving forward.

Speaker Change: And I think Hudson Paving and Robinson, a year from now, are going to give us the opportunity to grow organically in 2025 and 2026. So, we're continuing to just execute on our strategy.

Speaker Change: We've always been a growth company of 15-20%. We can see that continuing and about half organic. And that's really what we see moving forward.

Stanley Elliott: Yeah, it's kind of what I had thought, and it's nice to hear. And then, Joel, you mentioned that crew productivity is increasing. Do you guys think that's a function of you having more people and more crews to be able to put to work, and so you can flex to various locations, you know, if weather's an issue, move to another location, or the ability to flex or work longer hours because of the number of people, or even maybe it's because you have more machines to help with the laydown. Just curious if you could kind of parse out a little bit about what you're doing on the productivity side to drive this outsized growth.

Speaker Change: Yes, kind of what I had thought and nice to hear. And then, Joel, you mentioned the crew productivity increasing. Do you guys think that's a function of you'll have more people and more crews to be able to put to work and so you can flex to various locations, you know, if weather's an issue, move to another location, or the ability to flex or work longer hours because of the number of people, or even maybe it's you have more machines to help with the lay down. Just curious kind of if you could kind of parse out a little bit about what you're doing on the productivity side to drive this outsized growth.

Operator: And with that, we are now ready to take your questions. Operator? Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue. And for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question.

Katherine Thompson: Our first question is from Katherine Thompson with Thompson Research Group. Please proceed. Hi, thank you for taking my questions today.

Jewel Smith: Yeah, great question. I'm glad you asked that, Stanley, because what Ned said is so important.

Speaker Change: Yeah.

Joel: Great question. I'm glad you asked that Stanley because what Ned said is so important and it really isn't a function of having more machines. What it is is just great leadership and great people throughout our organization.

Jewel Smith: And it really isn't a function of having more machines. What it is is just great leadership and great people throughout an organization, and we've talked a lot over the last three years about workforce development and focusing on building people, training them. And Robert Baugnon, our VP of Personnel, has worked with the operating companies on attracting and retaining the best workforce because it just really comes down to people. The equipment doesn't make a big difference at all in our business.

Joel Smith: I want to focus on good morning. First, I want to focus on on backlogs and parsing out a little bit more detail in terms of what is driving this. You see 15 quarters in a row of sequential backlog growth. But still are on that path at 13 to 14% even down margins. Which is a difficult thing to do to have both hand and hand. Could you get a little bit more clarity on public and market included in the backlog versus private and market understanding that the public has a greater percentage of more ongoing.

Speaker Change: and we've talked a lot over the last three years about workforce development.

Speaker Change: and focusing on building people, training them.

Speaker Change: and Robert Bagno, our VP of personnel, has worked with the operating companies on attracting and retaining the best workforce, because it just really comes down to the people. The equipment doesn't make a big difference at all in our business. It all comes down to the people.

Jewel Smith: It all comes down to the people. And the bigger team we have, that's when you start to see the results come through. You know, we're building thousands of projects at one time, and so if you have great people, they're going to find ways to win more often than not on those projects. Perfect.

Speaker Change: And the greater team we have, that's when you start to see the results come through. You know, we're building thousands of projects at one time.

Speaker Change: If you have great people, they're going to find ways to win more often than not on those projects.

Stanley Elliott: Perfect guys, thanks so much and best of luck.

Speaker Change: Perfect guys, thanks so much and best of luck. Thanks Stanley.

Operator: Our final question is from Brett Thalman with D.A. Davison. Please proceed.

Joel Smith: Going repair maintenance and private being more new construction. Thank you. Katherine, thank you. You know, it has been 15 quarters now of the backlog increase. And I've said for two or three years now that that's abnormal. The CPI through its history and the summer work season backlog went down sequentially. So I'll say it again, I'm starting to wonder myself, but really it just is a reflection of our demand markets continuing to be strong.

Speaker Change: Our final question is from Brett Thalman with D.A. Davison. Please proceed.

Brett Thalman: Thanks. Good morning, guys. Good morning, Brent.

Brett Thalman: I had a few questions here. First, Jewel, any initiatives to try to increase the penetration into some of these sort of non-DOT public areas? I heard you call out airports and military bases. My understanding is that those sorts of opportunities can be large and attractive since you may not have as many people that are spec'd to get into those types of facilities. So just thoughts on if you've got more initiatives around that, and I guess if those are margin accretive to you.

Speaker Change: Thanks. Good morning, guys.

Brent: Morning, Brent.

Speaker Change: I had a few questions here. First, Jewel, any initiatives to try to

Brett Thalman: To increase the penetration into some of these sort of non-DOT public areas, I heard you call out airports and military bases. My understanding is that those sorts of opportunities can be large and accretive since you may not have as many people at our spec to get into those.

Joel Smith: We'll just take them each one private the market continues to be steady. We continue to see a lot of opportunities to bid there. And then in the public markets, you know, our each of our states has is now getting the IJA money. We're in our second year of really them using that money. And so we're seeing plenty of opportunities to bid there. And four of our states have passed supplemental funding. And so that's just creating a continued good market to bid in.

Speaker Change: So just thoughts on if you've got more initiatives around that, and I guess if those are margin accretive to you.

Jewel Smith: Yeah. Yeah, Brent, you're exactly right.

Speaker Change: Yeah, yeah, Brent, you're exactly right. You know, some projects are very difficult, require a lot of pre-qualification and skill expertise, and those are going to have less...

Jewel Smith: You know, some projects are very difficult, require a lot of pre-qualification and skill expertise, and those are going to have fewer people bidding on them. Military bases and airports are certainly too, just like you said, and so where we can work on those types of projects, we absolutely will. Our new acquisition, our newest teammates, Robinson Paving in Columbus. They are literally right outside the gates of Fort Moore, one of the largest bases in the Southeast. They have spent decades working at Fort Moore, and so that's a very attractive addition to our team and universe.

Speaker Change: We're looking at a lot of different projects. Less people bidding on them. Military bases and airports are certainly two, just like you said. And so where we can work on those type of projects, we absolutely are. Our new acquisition, our newest teammate's Robinson Paving in Columbus.

Joel Smith: So we're seeing good work on both added to our backlog. You know, Greg and I noticed in our backlog this quarter that the percent of public backlog maybe went up a couple percent from 65 to 67 or 68, which you would expect as the IJA is really now in full gear. So I wouldn't be surprised to see that come through on the P&L in the next 12 months, but it's nothing. It's no big change.

Speaker Change: They literally are right outside the gates of Fort Moore, one of the largest bases in the southeast. They have spent decades working at Fort Moore, and so that's a very attractive, you know, addition to our team and and universe.

Brett Thalman: Got it. Thanks, Jewel. And then I've heard a little bit about some shift in the competitive landscape, just where some of the slowing in these private sectors, obviously influenced to some degree by interest rates, has shifted some contractors towards public work. Obviously, there's great funding and visibility there. I suspect this is pretty regional, but just wondering if you're experiencing any of that.

Speaker Change: I've heard a little bit about some shift in the competitive landscape, just with some of the slowing in these private sectors, obviously influenced to some degree by interest rates.

Joel Smith: It's just, you know, just a slight tick up in public. So, you know, we're We're excited about just the visibility the backlog gives us going into 2025 and we're going to continue to be patient. That's what a good backlog gives you.

Speaker Change: shifted some contractors towards public work. Obviously there's great funding and visibility there. I suspect this is pretty regional, but just wondering if you're experiencing any of that.

Jewel Smith: You know, Brent, we've addressed that for a few quarters, and we keep looking to see if the commercial private market is slowing down. And the reality is, we just don't see that it's staying steady. If anything, it's a little better this year than it was last year.

Speaker Change: You know, Brent, we've addressed that for a few quarters, and we keep looking to see if the commercial private market is slowing down, and the reality is we just don't see that. It's staying steady. If anything, it's a little better this year than it was last year.

Joel Smith: You talked about the margins. Part of our margins getting to 13 to 14% is being able to be patient at the bid table. Okay, thanks.

Jewel Smith: You know, we're bidding on both types of projects, public and private, but we really haven't seen a big slowdown in our commercial opportunities, but it's something we watch closely. But even if it did slow down, our crews would simply switch to doing more public work. And so it's not something that we, you know, worry about a lot. We just have a certain amount of capacity to make asphalt, lay down asphalt, move dirt, and our crews can work either on public jobs or private jobs.

Joel Smith: And just to follow up in particular on the private and market, what types of projects are you seeing and have you seen any change as the years progressed with the residential and market? Thanks very much. Yes, we, you know, as we said in the prepared remarks, it's, it's really more of what we've been talking about, which is just a lot of the projects that you would expect come with the reshoring of businesses moving to the southeast.

Speaker Change: You know, we're bidding both types of projects, public and private, but we really haven't seen a big slowdown in our commercial opportunities. But it's something we watch closely, but even if it did slow down, our crews would simply switch to doing more public work.

Speaker Change: And so it's not something that we, you know, worry about a lot. We just, we have a certain amount of capacity to make asphalt, lay down asphalt, move dirt, and our crews can work either on public jobs or private jobs.

Brett Thalman: Yep, Jewel, maybe just one more.

Joel Smith: So we've seen corporate manufacturing facilities corporate headquarters industrial parks that can service give businesses a place to operate. Residential has been steady. We really haven't seen any huge uptick or shrinking of that market. It's been pretty steady for the developers building subdivisions.

Speaker Change: Joel, maybe just one more. I mean, one of the things that...

Brett Thalman: I mean, one of the things that seems noticeable to me is there's been a propensity for some larger projects getting released out there, and I know you guys manage that and try to focus on the smaller stuff, but has there been any shift to maybe try to work a little more with some of those general contractors as a subcontractor to try and get more of a piece of that pie? Again, I understand you want to manage the size of stuff that you're approaching, but it seems like there's opportunity there, so I'm just curious how you're approaching that. Yeah,

Joel: The thing that seems noticeable to me is there's been a propensity for

Joel: and Larger.

Speaker Change: projects getting released out there, and I know you guys manage that and try to focus on the smaller stuff, but has there been any shift to maybe try to work a little more with some of those general contractors as a subcontractor to try and get more of a piece of that pie? Again, I understand you want to manage the size of stuff that you're approaching, but...

Katherine Thompson: And thought just a clarification, have you seen any change in the residential cadence? Because that is a little, it is a little different than what we have heard from the market. It could be just your geographic focus, but any sequential change with residential. We really haven't seen much change at all. I mean, residential is not a big part of what we do. But in the places where we do it. In the panhandle of Florida and Raleigh and other places that we're really involved with residential developers, they've been pretty steady. Okay, great. Thanks very much. Best of luck. Okay. Thank you, Kathy.

Speaker Change: Seems like there's opportunity there, so just curious how you're approaching that.

Jewel Smith: No, Brent, you're right. There are larger projects coming out now with IJA, and we're participating in those as subcontractors when they're letting our market know about them. We're very active with those, either as a dedicated subcontractor or as an associate. JV Partner. So while we don't want to build megaprojects and take that risk as the prime contractor, that's just not something we see as the best use of our resources where we can participate in the projects as a subcontractor. That's very good work for us.

Speaker Change: Yeah.

Speaker Change: No, Brent, you're right. There are larger projects coming out now with IIJA, and we're participating in those as subcontractors when they're letting our markets.

Speaker Change: We're very active with those, either as a dedicated subcontractor or as a subcontractor.

Speaker Change: is a JV partner. So while we don't want to build mega projects and take that risk as the prime contractor, that's just not something we see as the best use of our resources, where we can participate in the projects as a subcontractor, that's very good work for us.

Tyler Brown: Our next question is from Tyler Brown with Raymond James. Please proceed. Hey, good morning. Good morning, Tyler. Hey, Greg. Appreciate all the guidance. You guys have been quite active on the MNA front. And I appreciate that maybe half the growth here in 24 will be from MNA. But as you look at it right now, how much from acquisitions that you have already completed here in 24 should roll into 25? I guess my point is, do you already have two or three points of growth kind of in the bag from the role of the benefit of deals you've already done? Yeah, Tyler, we do. We would estimate that to be in the 90 to 110 range right now rolling into 25? Okay. An incremental benefit in 25. Right. Okay. Wow. That's pretty good. Okay.

Brett Thalman: Hey, great. Thanks, guys.

Speaker Change: Okay, great. Thanks guys. Appreciate you taking the question.

Operator: We have reached the end of our question and answer session. I would like to turn it back over to management for closing remarks.

Speaker Change: We have reached the end of our question and answer session. I would like to turn it back over to management for closing remarks.

Jewel Smith: We appreciate everyone joining us today, and we look forward to speaking with you again soon. Thank you. This will conclude today's program.

Speaker Change: We appreciate everyone joining us today and we look forward to speaking with you again soon.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Thank you very much.

Speaker Change: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Speaker Change: This is a production of the U.S. Department of State. The U.S. Department of State is a national, independent, nonprofit organization. The U.S. Department of State

Tyler Brown: So I want to talk about this really quickly because I think this year you put some unannounced MNA into your guide given the mechanics around the analyst day. But as we start to think about how you guys think about your fiscal 25 guidance, what is your philosophy going to be around MNA? Should we expect you to put some unannounced MNA in that guidance? Or will you only include the MNA that has been announced?

Tyler Brown: And I don't mean to split a lot of air here, but I do think this is going to be really important on how we think about your guide into 25. Okay. Yeah, Thalh, a great question. As you know, typically we don't put unannounced or aspirational acquisitions into our guide. We did last year just simply to make sense at our analyst day, but we envision just getting back to our normal guidance methodology of just putting in what we've announced so far.

Tyler Brown: And so it should be easier to move forward into 25. Excellent. Very helpful. And just a little squeeze one last one on margins. So obviously great improvement there. You know, I'm a pretty simple guy here. So when I think about margin improvement. It's either a function of you bidding better with maybe more sophisticated tools. Or are you seeing more cost disinflation than you had been expecting? Or maybe I'm missing it all together.

Tyler Brown: Maybe maybe public mix is helping, but just any big picture thoughts that really got you to that. That's 14 plus percent margin this quarter. Thanks. Yeah, you know, Tyler, we talked about three levers of margin expansion, one being just building better markets and being able to be able to put more money on the bids. And so that's certainly one. The other is vertical integration. And so our terminals and aggregate facilities are contributing a little more each year. And then the third is scale. And so I feel like all three of those are contributing and working together. And so that that's really that continues to be the story on the margins. Yeah, excellent. Thanks.

Ned Fleming: Tyler, this is me. I would tell you one thing. The people in the as we look at the statistics, the people that are laying asphalt that are working hard every day in the hot weather and the cold weather. They're doing a fantastic job. Their productivity continues to increase. Their team orientation continues to increase. Jewel, the management team are leading well in that area. So I think, you know, one of the things I would say with margin is you got to go to work every single day in this business.

Ned Fleming: And those people are doing an absolutely fabulous job led by people that respect them, that trust them. And then encourage them in Jewel and Greg and really this whole team all the way down. And that's that's it. You're not going to put a number to it, but I'm just telling you watching how hard those folks work. And we want to treat them well is a huge benefit to the margins as we move forward. Yes, thanks now. That's great. Thank you.

Tyler Brown: Thank you, Tyler.

Andrew Whitman: Our next question is from Andrew Whitman with Beard, please proceed. Yeah, great. I guess maybe I'll launch off of the last series of questions there and ask you to a little bit to be expand a little bit about the first thing about building better markets and how. If at all, your bidding process is allowing you to compare your current backlog, your new, your new win margins to what you've done maybe over the last year.

Andrew Whitman: Are you still seeing as bid margin growth? Maybe to come into that please. Andy, you know, it's a good question, it's one that we can't ever take our off of. You know, we, our industry is competitive and that's not going to ever change and so we have to be the low bid. And but what we're trying to do is be patient at the bid table and use our good backlog to be disciplined and patient, but also if we continue to work on costs and keep your costs down as Ned said, if we can be more productive in the field, you know, that gains margin as well.

Andrew Whitman: But one of the things CPIs always done and we're seeing the return of that is the guys in the field find ways to win and be production and so all more jobs and not we finish at a higher end margin than we bid. And so that's one of the things that really helped this quarter was just the ability to write up projects as they're getting built.

Andrew Whitman: Yeah, that's helpful.

Joel Smith: And then maybe just a comment here guys, we had hurricane season start a little bit earlier than normal here in your fiscal fourth quarter. And I was just wondering how through, you know, today the quarter is unfolding as it slowed you down and you need to make it up in the back end of the quarter, maybe just some comments around where you are with the weather. Well, you know, we've had two quarters in a row now, Andy, where weather's really balanced out, you know, a wetter than normal month is balanced out with a drier than normal month.

Joel Smith: So and that's what we try to, you know, communicate to the market is over over time, whether even's out. July so far, this quarter has been wetter than normal. And then first week of August, we've had a hurricane march through four of our states and just left Raleigh this morning. So but we'll just have to see how the rest of the quarter goes. You know, we could have really good weather the rest of August and September and be just fine.

Joel Smith: So we don't try to get ahead of ourselves there. But as it relates to that fourth quarter guidance, you feel like you've discounted, which has seen so far to the quarter so far? I'm going to let Greg answer that was to what he's factored in and put him on the hot seat. Greg? Yeah, no, I think we've just tried to think about this quarter the same way we've realized the earlier two that the quarter balances out.

Joel Smith: You know, we always talk a lot about the first half of the year and the second half of the year kind of balanced. And oftentimes that occurs within the quarter and that's kind of what we're anticipating happening this quarter.

Greg Hoffman: All right. Fair enough guys have a good weekend.

Andrew Whitman: Thank you.

Adam Salheimer: Our next question is from Adam Salheimer with Thompson Davis and Company.

Adam Salheimer: Please Hey, good morning, guys. Congrats on a nice beat. Thank you. Good morning. I wanted to ask about a sequential backlog growth. How much of that was organic and how much of that was acquired? Well, we had about 40 million come in through acquisitions this quarter. So, you know, as our acquisitions come in over the years, they have different impact to the quarter, but that's quarter was about 40, say the rest was organic.

Adam Salheimer: Sounds like a similar mix to revenue. That's right. And then what would be your thoughts on some potential? You talked about M&A, but on the growth cap ex, growth projects, maybe a, maybe a new asphalt terminal, any thoughts there? Adam, we're always thinking about vertically. [inaudible] Yeah, it's kind of what I had thought in nice to hear. And then you mentioned the crew productivity increasing. Do you think that's a function of you all have more people and more crews to be able to put to work?

Adam Salheimer: And so you can flex to various locations, if weather's an issue moved to another location or the ability to flex or work longer hours because of the number of people or even maybe it's you have more machines to help with the lay down? Just just curious kind of if you could kind of parse out a little bit about what you're doing on the productivity side to drive this outsized growth? Yeah, great question.

Adam Salheimer: I'm glad you asked that Stanley because what Ned said is so important and it really isn't a function of having more machines. What it is is just great leadership and great people throughout organization. And we talked a lot over the last three years about workforce development and focused on building people, training them and Robert Bonyo, our VP of personnel has worked with the operating companies on attracting or retaining the best workforce because it just really comes down to the people.

Adam Salheimer: The equipment doesn't make a big difference at all in our business. It all comes down to the people and the greater team we have, that's when you start to see the results come through. You know, we're building thousands of projects at one time. And so if you have great people, they're going to find ways to win more often than not on those projects.

Joel Smith: Perfect. I thank you so much and best of luck. Thank you, Stanley.

Brett Salman: Our final question is from Brett Salman with DA Davidson. Please proceed. Thanks.

Brett Salman: Good morning, guys. I have a few questions here. First, Joel, any initiatives to try to increase the penetration into some of these sort of non DOT public areas. I heard you call out airports and military bases. It's my understanding is that those sorts of opportunities can be margin accreted since you may not have as many people that are spec to get into those types of facilities. I just just thoughts on that you've got more initiatives around that.

Brett Salman: And I guess if those are margin accreted to you. Yeah. Yeah, Brent, you're exactly right. You know, some projects are very difficult require a lot of pre-qualification and skill expertise. And those are going to have less, less people bidding on them. Military bases and airports are certainly to just like you said. And so where we can work on those type of projects, we absolutely are. Our new acquisition, our newest teammates Robinson Paving and Columbus.

Brett Salman: They literally are right outside the gates of Fortmore, one of the largest bases in the southeast. They have spent decades working at Fortmore. And so that's a very attractive, you know, addition to our team and in universe.

Joel Smith: Got it. Thanks, you all. And then I've heard a little bit about it. Some shift in the competitive landscape. Just were some of the slowing in these private sectors, obviously, influence to some degree by interest rates and shifted some contractors towards public work. Obviously, there's great funding and visibility there. I expect this is pretty regional, but just wondering if you're experiencing any of that. You know, Brent, we've addressed that for a few quarters and we keep looking to see if the commercial private market is slowing down, and the reality is we just don't see that, it's staying steady.

Joel Smith: If anything, it's a little better this year than it was last year. We're bidding both types of projects, public and private, but we really haven't seen a big slowdown in our commercial opportunities, but it's something we watch closely, but even if it did slow down, our crews would simply switch to doing more public work. And so it's not something that we, you know, worry about a lot, we just, we have a certain amount of capacity to make asphalt, lay down asphalt, move dirt, and our crews can work either on public jobs or private jobs.

Joel Smith: Yep, you'll maybe just one more, I mean one of the things that seems noticeable to me is there's been a propensity for some larger projects getting released out there, and I know you guys manage that and try to focus on the smaller staff, but has there been any shift to maybe try to work a little more with some of those general contractors as a subcontractor to try and get a more of a piece of that pie. Again, I understand you, you want to manage the size of stuff that you're approaching, but it seems like there's opportunity there to just curious how you're approaching that.

Joel Smith: Yeah, no, Brent, you're right. There are larger projects coming out now with IJA, and we're participating in those subcontractors when they're letting our markets. We're very active with those either as a dedicated subcontractor or as a subcontractor, as a JV partner, so while we don't want to build mega projects and take that risk as the prime contractor, that's just not something we see as the best use of our resources where we can participate in the projects as a subcontractor, that's very good work for us.

Joel Smith: Okay, great. Thanks, guys. Appreciate you taking the question. Okay, thanks, Brent.

Rick Black: We have reached the end of our question and answer session. I would like to turn it back over to management for closing remarks. We appreciate everyone joining us today, and we look forward to speaking with you again soon. Thank you.

Operator: This will conclude today's conference.

Operator: You may disconnect your lives at this time, and thank you for your participation.