Earnings call transcript: Construction Partners beats Q1 FY2025 forecasts, shares rise

Construction Partners Inc . (NASDAQ: NASDAQ:ROAD) reported strong financial results for the first quarter of fiscal year 2025, exceeding Wall Street expectations. The company posted an earnings per share (EPS) of $0.25, surpassing the forecast of $0.18, and reported revenue of $561.6 million, ahead of the anticipated $508.75 million. Following the announcement, the company’s stock surged 7.01%, reflecting investor confidence in the firm’s robust performance and strategic growth initiatives.

Key Takeaways

• Construction Partners’ Q1 FY2025 revenue increased by 41.6% year-over-year.
• The company’s EPS of $0.25 exceeded the forecast by 39%.
• Stock price rose by 7.01% following the earnings announcement.
• Recent acquisitions contributed significantly to revenue growth.
• Strong infrastructure investment in Sunbelt states supports future growth.

Company Performance

Construction Partners demonstrated a solid performance in the first quarter of fiscal year 2025, driven by a combination of organic growth and strategic acquisitions. The company reported a 41.6% increase in revenue compared to the same period last year, with organic growth contributing 11.2% and acquisitions adding 30.4%. This growth reflects the company’s successful execution of its vertical integration strategy and expansion in key markets.

Financial Highlights

• Revenue: $561.6 million, up 41.6% year-over-year
• EPS: $0.25, surpassing the forecast of $0.18
• Adjusted Net Income: $13.3 million, a 35% increase from the previous year
• Adjusted EBITDA: $68.8 million, up 68% year-over-year
• Adjusted EBITDA Margin: 12.3%, compared to 10.3% last year

Earnings vs. Forecast

Construction Partners exceeded market expectations with an EPS of $0.25, 39% above the forecast of $0.18. The company’s revenue of $561.6 million also outpaced the expected $508.75 million, marking a significant earnings surprise. This performance underscores the company’s effective growth strategies and operational efficiencies.

Market Reaction

Following the earnings report, Construction Partners’ stock price increased by 7.01%, closing at $90.39. This rise reflects positive investor sentiment and confidence in the company’s growth prospects. The stock’s performance is notable, as it approaches its 52-week high of $103.69, indicating strong market support. InvestingPro metrics highlight the stock’s impressive momentum, with a 69.89% return over the past year and a 50.73% gain in the last six months. However, the stock trades at elevated multiples with a P/E ratio of 68.29 and an EV/EBITDA of 26.35, suggesting investors should carefully consider valuation levels.

Outlook & Guidance

Looking ahead, Construction Partners has provided a revenue guidance range of $2.66 billion to $2.74 billion for fiscal year 2025. The company also projects adjusted net income between $109.5 million and $122.1 million, with an adjusted EBITDA margin of 14.1% to 14.6%. The company remains optimistic about continued infrastructure investment in the Sunbelt states and anticipates mid to high single-digit growth in Department of Transportation budgets.

Executive Commentary

Jewel Smith, CEO of Construction Partners, emphasized the importance of human capital in building a competitive advantage, stating, "At CPI, we know that investment in human capital is the key to building a durable competitive advantage." Executive Chairman Ned Fleming highlighted the abundance of acquisition opportunities, noting, "There is more acquisition opportunity today than we’ve ever seen."

Risks and Challenges

• Potential cost inflation of 4-5% could impact profit margins.
• Integration risks associated with recent acquisitions.
• Dependence on public infrastructure funding and economic conditions.
• Competitive pressures in the construction and infrastructure sector.

Q&A

During the earnings call, analysts inquired about the contributions of recent acquisitions and the company’s merger and acquisition pipeline. Management confirmed the positive impact of these acquisitions and expressed confidence in the continued availability of strategic acquisition opportunities in existing markets. Additionally, the company maintained a patient bidding strategy, leveraging its strong project backlog to support future growth.

Full transcript - Construction Partners Inc (ROAD) Q1 2025:

Conference Operator: Greetings. Welcome to Construction Partners First Quarter twenty twenty five Earnings Conference Call. 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, Investor Relations, Construction Partners: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review first quarter results for fiscal twenty twenty five. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, which is 02/07/2025. 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 statements made in today’s discussion that are not historical facts, including statements of expectations or future events or future performance, are forward looking statements made pursuant with the Safe Harbor’s provision of the Private Securities Litigation Reform Act of 1995. We will be making forward looking statements as part of today’s call that by their nature are uncertain and outside of the company’s control. Actual results may differ materially. Please refer to our earnings press release for our disclosure on forward looking statements. These factors, as well as 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 net income, adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward looking statements. And now, I would like

Jewel Smith, CEO, Construction Partners: to turn this call over to Construction Partners’ CEO, Jewel Smith. Jewel? Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call today. With me this morning is Greg Hoffman, our Chief Financial Officer and Ned Fleming, our Executive Chairman.

We’re pleased to report a strong start to our fiscal year twenty twenty five with record revenue, strong year over year growth in margins and

Greg Hoffman, Chief Financial Officer, Construction Partners: another record quarter backlog built on continued strong demand for our infrastructure services. I’d like to begin by welcoming two new companies to

Jewel Smith, CEO, Construction Partners: our CPI family of companies. Oberlin Corporation joined us on January 2 as our platform company in our eight state as we entered Oklahoma. Headquartered in Ardmore, Oberlin has a strong presence in Southern And Western Oklahoma with eight hot mix asphalt plants creating a wide footprint from Durant all the way West to the Texas Panhandle. Oberlin also participates in the vibrant economic activity occurring in North Texas as Dallas Fort Worth continues to expand northward along I-thirty 5 and I-seventy 5 toward Oklahoma line. Oberlin’s President, Darren Rutkoski leads a strong team of managers and are ready to execute our proven strategy of establishing a platform company in each state with CPI providing resources and support for future growth opportunities.

And just this week on Monday, we acquired Mobile Asphalt Company in Mobile, Alabama. They have joined our Alabama platform company Wiregrass Construction as a branded division, retaining their brand and strong recognition built up over many decades. We welcome John Whitman and the talented managers of Mobile Asphalt as we add their large operation of five hot mix asphalt plants and 130 employees to substantially strengthen our market share and establish a much wider operational footprint in Southwest Alabama along the growing Gulf Coast. As our CPI family of companies grows, I want to thank all of our employees for their hard work and dedication to safety this past quarter. At CPI, our first core value is family and that reminds us that while we are a family of companies, more importantly, we’re a company of families.

We want to make sure that all of our operations, our policies and most importantly our culture are supporting and strengthening the almost 6,000 families that count on CPI each day. Turning now to first quarter results, favorable weather gave us a few more workdays than normal due to dry conditions in October and we were able to generate a record revenue quarter and grow year over year revenue by 42%. Transitioning this growth to profitability, our EBITDA margins grew year over year by almost 200 basis points. Thanks to strong project execution by our construction teams. Our vertical integration strategy continues to enhance margins through both construction services and manufacturing asphalt, as well as contribution at our liquid asphalt terminals, both on rail in North Alabama and on water in Florida and Texas.

Taking a closer look at market conditions throughout the Sunbelt within our geographic footprint, local markets are growing and our states remain focused on maintaining and improving the quality of their roads as well as increasing capacity to handle the significant migration to Sunbelt states. The evidence of this continued strong demand for our infrastructure services is represented by our project backlog that grew sequentially to a record $2,660,000,000 We continue to have strong and steady bidding opportunities in the commercial and private markets with industrial and corporate facilities throughout the Southeast continuing to be developed. In the public infrastructure markets, total lettings for roads and bridges continue to increase year over year approximately 16% on average across our eight state footprint. Last quarter due to our entry into Texas, we focused on the immense infrastructure program in the Lone Star State. This quarter, we highlight Florida, where the Sunshine State’s strong population growth led them to pass the Moving Florida Forward program in 2023 that provided approximately $4,000,000,000 in infrastructure supplemental funding.

Funding state, county and municipal programs already in place, this has led contract awards from all public funding sources in Florida to grow by over 50% in the first half of the current state fiscal year. The IIJA continues to provide our eight states with healthy infrastructure funding and I would highlight that as of the end of calendar year 2024, only about 40% of the designated IIJA funds have been spent in the field. So we are just getting to the middle innings. Turning now to our strategic growth model, our acquisition pipeline continues to remain active with conversations ongoing both in our current eight states as well as potential new states. When we add a platform company in a new state, it widens the playing field for acquisitive growth to attract the bolt on opportunities and we are already seeing that in both Texas and Oklahoma.

We will continue to stay patient and focused on adding the best strategic acquisitions to our family of companies. The other half of our strategic growth model is organic growth and our strong 11% organic growth this quarter demonstrates our continued focus on growing the business in our current markets and building shareholder value, whether it be from adding crews and capacity at our asphalt plants or strategic greenfield expansion. In conclusion, we are pleased to have begun our new fiscal year with a strong start. During this winter quarter, we’re hard at work training our people and preparing our fleet and manufacturing facilities to deliver on the record backlog ahead of us during the spring and summer work season. And in the long term, we remain focused and committed to attracting and retaining the best workforce throughout the Sunbelt.

At CPI, we know that investment in human capital is the key to building a durable competitive advantage and delivering to our shareholders years of strong growth that is profitable and sustainable. I’d now like to turn the call over to Greg.

Greg Hoffman, Chief Financial Officer, Construction Partners: Thank you, Jewel. Good morning, everyone. I’ll begin with a review of our key performance metrics for the first quarter of fiscal twenty twenty five compared to the first quarter a year ago. I’ll then discuss our revised outlook for fiscal twenty twenty five. Revenue was $561,600,000 an increase of 41.6% compared to the same quarter a year ago.

The mix of our total revenue growth for the year was 11.2% organic revenue and 30.4% from recent acquisitions. Beginning this quarter, we are presenting acquisition related expenses separately from general and administrative expenses on our income statement. General and administrative expenses will now be presented in a manner that differentiates spend incurred to support day to day operations and separately those expenses associated with acquisitive activity within the quarter. The prior year quarter also reflects this presentation. Reflecting these changes, general and administrative expenses as a percentage of total revenue in the first quarter of fiscal twenty twenty five was 7.9% compared to 8.9% in the first quarter last year.

Net loss was $3,100,000 during the quarter. This is due to non recurring expenses related to a transformative acquisition that were incurred during the first quarter of fiscal twenty twenty five and therefore not comparable to the same quarter a year ago. Adjusted net income we believe more accurately reflects our first quarter results, which exclude any one time expenses related to the Lone Star Paving acquisition. Adjusted net income was $13,300,000 and diluted earnings per share using adjusted net income would have been $0.25 in the first quarter of fiscal twenty twenty five. This represents an increase of 35 compared to the first quarter last year.

Adjusted EBITDA was $68,800,000 an increase of 68% compared to the first quarter of fiscal twenty twenty four. Adjusted EBITDA margin for the first quarter was 12.3% compared to 10.3 in the first quarter of last year. You can find GAAP to non GAAP reconciliations of net income to adjusted net income, adjusted EBITDA and adjusted EBITDA margin financial measures at the end of today’s earnings release. In addition, as Jewel mentioned, we were reporting a record project backlog of $2,660,000,000 at 12/31/2024. Turning now to the balance sheet, we had $132,500,000 of cash and cash equivalents and $393,400,000 available under our credit facility at quarter end, net of a reduction for outstanding letters of credit.

As a reminder, in connection with the Lone Star acquisition on November 1, we entered into an agreement for an $850,000,000 Term Loan B credit facility. The proceeds of the Term Loan B were used to finance the acquisition and related expenses and to pay down the balance of our revolving credit facility. This availability on our credit facility and cash generation will continue to provide flexibility and capacity to allow for near term acquisitions and high value growth opportunities in 2025. The company continues to benefit from an interest rate swap agreement that fixes SOFR at 1.85%, which results in an interest rate on $300,000,000 of term debt of 3.6%. The maturity date of this swap is 06/30/2027.

As of the end of the quarter, our debt to trailing twelve months EBITDA ratio was 2.88 times. We remain on pace with our strategy of reducing the leverage ratio to approximately 2.5 times in the next four to five quarters to support sustained profitable growth. Cash provided by operating activities was $40,700,000 compared to $60,000,000 in the same quarter a year ago. The decrease year over year is related to a change in the weather that occurred from Q4 to Q1. This quarter had exceptional weather following the poor weather that finished fiscal twenty twenty four.

This relationship increased outflows and reduced cash collections in Q1. We have the inverse of this dynamic in Q1 last year, which resulted in decreased outflows and increased collections during the comparable quarter. The higher than expected level of billings and revenue in Q1 will be realized as improved cash flow in later quarters. We remain on pace for FY 2025 to convert 80% to 85% of EBITDA to cash flow from operations. Capital expenditures for the first quarter were $26,800,000 We continue to expect total capital expenditures for fiscal twenty twenty five to be in the range of $130,000,000 to $140,000,000 This includes maintenance CapEx of approximately 3.25% of revenue with the remaining amount invested in new growth initiatives.

Turning now to our revised outlook, which reflects our latest expectations for fiscal year twenty twenty five results, including the recent acquisitions of Overland Corporation and Mobile Asphalt. The increased ranges are as follows: revenue

Ned Fleming, Executive Chairman, Construction Partners: in

Greg Hoffman, Chief Financial Officer, Construction Partners: the range of $2,660,000,000 to $2,740,000,000 net income in the range of $93,000,000 to $105,600,000 adjusted net income in the range of $109,500,000 to $122,100,000 adjusted EBITDA in the range of $375,000,000 to $400,000,000 and adjusted EBITDA margin in the range of 14.1% to 14.6%. And with that, we will open the call to questions. Operator?

Conference Operator: Thank Our first question is from Andy Wittmann with Robert W. Baird. Please proceed.

Andy Wittmann, Analyst, Robert W. Baird: Great. Thanks for taking my questions and good morning everyone. Good

Jewel Smith, CEO, Construction Partners: morning, Andy.

Andy Wittmann, Analyst, Robert W. Baird: Hey. Let’s see here. Where do I want to start? I guess the acquisitions that you’ve done is probably where I want to start. Anything that you can do here, Jewel or Greg, to help us understand the contribution of these two acquisitions that were closed subsequent to the quarter to guidance, I think would be helpful as it relates to their revenue contribution maybe for the fiscal year or their backlog contribution that we should expect to see next quarter, I think would all be helpful.

Cash outflow maybe in total, I know you probably don’t want to disclose individually, but maybe in total so we can get an order of magnitude. Those are the types of things I think some investors are wondering about this morning.

Greg Hoffman, Chief Financial Officer, Construction Partners: Yes, sure. That sounds good, Andy. Yes, for the combined two acquisitions, we’re looking at revenue for the remainder of the year in the $120,000,000 to $130,000,000 range. And so backlog, just to make sure we understand that none of that none of this backlog for those two acquisitions are in our twelvethirty onetwenty four backlog, but that backlog is going to be in the $90,000,000 to $100,000,000 range.

Unidentified Speaker: Okay. That’s super helpful.

Andy Wittmann, Analyst, Robert W. Baird: Any comment on purchase price? Are you going to wait for the disclosure that we see later maybe?

Jewel Smith, CEO, Construction Partners: Andy, I would just this is Joe. I would just say we’re excited about Oberlin and Mobile Asphalt. Both of these were just two strategic opportunities that aren’t going to come along that often. I would say from a purchase price standpoint, they were the multiples that have been historically what we’ve paid. And so they’re very much our typical acquisition multiples.

And one of them was a platform company and one of them was a bolt on. And so very much just in keeping with our acquisition strategy.

Andy Wittmann, Analyst, Robert W. Baird: Yes. Okay. And then just maybe strategically here, Jewel, you’ve done I mean these are it’s pretty big bolt on five plants, new platform, Oklahoma, new platform recently, Texas. Do you just need I’m just kind of curious as how you’re thinking about it. Does because you’ve done some larger M and A here in the last few months, Jules, you need to kind of digest and slow down, maybe get the balance sheet a little healthier or is it kind of full steam ahead and you’ll figure it out when you don’t want to pass it up an opportunity to find a good company.

I’m just kind of curious in terms of the operational impact as well as the financial impact in terms of just kind of sorting this out and making sure the company is on steady footing to keep moving ahead.

Jewel Smith, CEO, Construction Partners: Yes. Andy, I think it’s a little bit of all that. I mean, we clearly saw these two strategic opportunities as ones that we couldn’t pass up, but we’re also committed to having a strong balance sheet and as Greg said, delevering over the next four to five quarters to get in our range that we like to be in. So, we’re going to continue to have conversations and develop our acquisition pipeline, but we’re also committed to integrating the companies well and we never want to go faster than we can organizationally integrate them and we want to be healthy on the balance sheet.

Andy Wittmann, Analyst, Robert W. Baird: Fair enough. And just maybe for a finer point on that one, Greg, can you talk about where you see pro form a leverage today after the two subsequent to quarter end deals just so that investors have a sense of where you’re standing?

Greg Hoffman, Chief Financial Officer, Construction Partners: Yes. I think it will tick up slightly, maybe closer to three. But I think again, still we’re looking to bring that down four or five over the next four or five quarters.

Andy Wittmann, Analyst, Robert W. Baird: Got it. All right. I’ll leave it there. You have the floor and thanks for your time guys.

Unidentified Speaker: Thank you, Andy.

Conference Operator: Our next question is from Katherine Thompson with Thompson Research Group. Please proceed.

Katherine Thompson, Analyst, Thompson Research Group: Hi. Thank you very much for taking my questions today. Just pulling string a little bit more on the newly acquired companies. Lonestar certainly changed the gross margin and profile in particular, but when looked combined for the three acquisitions, the two new ones in Lonestar, how should we think about gross margins and SG and A once integrated as we look into the full year for their really on a percentage basis in terms of how we should think about modeling?

Jewel Smith, CEO, Construction Partners: Yes. Catherine, I’ll give the just a big picture of the margins and acquisitions and then let Greg talk about maybe the SG and A and the scale. Last fall, Lone Star was a transformative acquisition and moved us almost two years ahead on our roadmap 2027. And it started just as you would expect. They’re doing a great job.

The management team in Austin is just doing wonderfully. These two new acquisitions, Mobile Asphalt and Overland have margins that are typical of what you would expect and they’re baked into our new guidance. And so, but the one thing that is true is what we our strategy is to for every acquisition to give them the tools to bid smarter, to bid more patiently, to allow them to bid more work. And so not only they’re going to grow organically over time that margins are going to trend upwards. And so we fully envision that for both oval and in mobile asphalt.

Greg? Yes. And so I

Greg Hoffman, Chief Financial Officer, Construction Partners: would just follow-up to that with that and say that this they are built into the new guidance. So if we think about what Andy just asked a minute ago that $120,000,000 1 hundred and 30 million dollars revenue and then backing into the EBITDA, I think that’ll give you some pretty good information as to what we think those companies are going to do in the short and long term.

Katherine Thompson, Analyst, Thompson Research Group: Okay, great. And could you talk a little bit more about just your cost inflation outlook and price cost spread? As you look into this year, it will be a tailwind headwind. We had some commentary yesterday from earnings that’s seeing that fuel in particular could be a potential tailwind.

Jewel Smith, CEO, Construction Partners: Yes. Catherine, right now we’re expecting a pretty typical year from a construction inflation standpoint. We’ve said that we think inflation could be anywhere from 4% to 5% if you look across our total cost structure. And we every day at the estimating table, we’re putting those in our bids and passing those through. Clearly from a few years ago, we learned to be nimble.

And so if we see inflation spike up, we’re going to react quickly. But right now, we’re seeing a pretty stable environment in our cost structure for materials, aggregates, concrete, pipe, labor. Energy costs are pretty steady. Natural gas spiked up this quarter a little more than diesel and both through hedging and through adjusting our input costs, we’ve just learned just pass those increased costs through.

Katherine Thompson, Analyst, Thompson Research Group: Great. And have you seen just as you have some great color on IIJA and you also gave some good color in the prepared commentary talking about Florida in particular for funding. Any other updates or changes you want to say from a state DOT funding for the states that are important to you? And along with that, have you seen any meaningful change in terms of how we should think about funding going forward post election? Thank you.

Jewel Smith, CEO, Construction Partners: Well, I would say, Catherine, you know, all of our states have healthy funding mechanisms. Clearly, Texas, which we talked about last quarter is just in a whole different stratosphere from an infrastructure funding standpoint. Florida is right behind it in terms of that and we wanted to highlight that this quarter. But when you look at Alabama, Tennessee, North Carolina, Georgia, South Carolina, they all have really good funding programs. They’re all up year over year on contract awards.

And so, we feel blessed to be in states that take infrastructure seriously and have passed supplemental funding costs are growing. As far as IJA, the heart of it is really just the five year surface transportation bill. It’s not some unique bill that the federal government passed. We think that we’re in the middle innings. There’s still a lot of spending that’s got to come through on that bill.

But I can tell you, I was just in Washington last week and they’re already starting to talk about the reauthorization that’s coming up here in the next year and a half. And so we fully expect that they’ll have another five year reauthorization and that it will go up like it always has. So I feel like that the roads need repair and I think our state and our federal governments get that. And I think the new administration, which I’d like just to ask Ned to speak a little bit about the new administration, but we’re excited about just some of the things we’re hearing out of Washington. Ned?

Ned Fleming, Executive Chairman, Construction Partners: Catherine, did that answer your question?

Conference Operator: Yes, it

Ned Fleming, Executive Chairman, Construction Partners: did. From an administration standpoint after twenty five years, I think if there’s anything we’ve learned regardless of political affiliation, the leaders of both parties understand that the roads need work. They’re graded very poorly throughout the country. The demand is high. Voters do not want to sit in congestion anymore.

And so not just the federal government, the states, the municipalities, the cities, the counties continue to find more and more capital to be able to put into the roads. And for us, it’s a wonderful thing because it gives us an opportunity to continue to acquire the businesses to move closer to more vertically integrated to improve efficiencies and increase margins. I would say the thing on the acquisitions in Mobile, this is our second acquisition within a year. And that’s an important thing to note because it allows us to have a whole lot more great people and assets in a territory that’s one of the fastest growing territories in Alabama. But as far as this administration or any administration, our job is to be the best bidder and to provide efficient effective roadwork.

Katherine Thompson, Analyst, Thompson Research Group: Perfect. Thank you so much.

Adam Thalhimer, Analyst, Thompson, Davis and Company: Thanks, Gaston.

Conference Operator: Our next question is from Tyler Brown with Raymond (NSE:RYMD) James. Please proceed.

Tyler Brown, Analyst, Raymond James: Hey, good morning guys.

Jewel Smith, CEO, Construction Partners: Good morning, Kyle.

Tyler Brown, Analyst, Raymond James: Hey, Greg, I want to come at the guidance that’s maybe a little bit different, but how much revenue from M and A that we know of, what is that incremental dollar contribution or could you give it as a percentage growth just for fiscal twenty twenty five?

Greg Hoffman, Chief Financial Officer, Construction Partners: Yes. So total growth from acquisitions for the year is going to be somewhere in the $7.30, 7 40, 7 50 range. So that puts acquisitive revenue for the remainder of the year somewhere at $6.10, 6 30, somewhere around in there.

Tyler Brown, Analyst, Raymond James: Okay. And then can you get I know it’s early, but I would assume some of that rolls into ’26. So the first half of twenty six also has a little bit of a benefit?

Greg Hoffman, Chief Financial Officer, Construction Partners: It certainly will. Yes.

Tyler Brown, Analyst, Raymond James: Okay. Okay. Joel, there’s call it maybe some concerns out there that you’re moving Texas and Oklahoma where a function of you running out of, let’s call it space, M and A space in your heritage Southeastern market. I mean, I think the Mobile acquisition seems to maybe counter that, but can you just talk about that M and A pipeline maybe in the more heritage markets?

Jewel Smith, CEO, Construction Partners: Yes. Tyler, good question. And I would just say, last year, we grew 17%, about half of it was acquisitive and half of it was organic. Clearly this year with Lonestar is going to be much larger, but we’re going to continue in the long term to be a growth company. You’re right, there’s a lot of white space in the states we were in, the six states we were in before Texas and Oklahoma.

And as Mobile showed, last year we did eight acquisitions. So, there’s a lot of runway and a lot of room in The States we’re in. So, Ned, you want to say something?

Ned Fleming, Executive Chairman, Construction Partners: Hey, Tyler. I just had this conversation with Charles Owens and we were speaking at the last board meeting and commenting that after twenty five years of doing this, I would say there is more acquisition opportunity today than we’ve ever seen. The fragmentation continues to be large. The patriarchs and matriarchs and families are getting older and they want to sell. So interestingly enough, even after all this time, this market is still a large highly fragmented market and we’re seeing more opportunity not just in Texas and Oklahoma, but in Alabama and Georgia and South Carolina, North Carolina and Florida.

So we would anticipate being pretty picky. We’re seeing so many acquisitions. Tyler, one more thing just to

Jewel Smith, CEO, Construction Partners: add to that. As you know, when we add a platform acquisition, it’s more a function of finding the right management team to be the face of our business in that state. And those the timing of those is really when we can meet the right group that’s ready to join our family of companies. And so with Lone Star and Oberlin, we feel blessed to have found those management teams, but that’s really the key with a platform acquisition and those that’s the key to timing of that.

Tyler Brown, Analyst, Raymond James: Right. And back on Overland, I mean, this is a true platform. So, I get it that South Oklahoma into North Dallas is growing, but we should see springboard ultimately maybe into OKC Tulsa eventually. That’d be the idea.

Jewel Smith, CEO, Construction Partners: Yes, I think we’ve got a proven track record once we get a platform and an entrepreneurial management team. They’re going to with CPI behind them, they’re going to start looking around for greenfield opportunities, organic growth, but also bolt on acquisitions. And we’ve got a twenty year proven track record of that model. And so I don’t see anything different in Texas and Oklahoma. And Tulsa

Ned Fleming, Executive Chairman, Construction Partners: is a growth city. It’s growing in a big way as is many parts of Oklahoma.

Tyler Brown, Analyst, Raymond James: Yes. And my last one here is actually back on liquid asphalt. So I think you guys are up to three liquid asphalt terminals with Lone Star. So number one, roughly how much of your asphalt are you sourcing through those terminals? And do you think that with the railroads clear desire, those they clearly want to grow, you’ve got maybe an administration, it’s going to be a little bit easier on supermitting.

I mean, could we see some additional investments organically on that side over the next couple of years?

Jewel Smith, CEO, Construction Partners: Kyle, I do think that liquid asphalt terminals are a key part of our vertical integration strategy. In our legacy states before we added the terminal in Houston, I would say we were probably a third of our liquid asphalt was internally sourced from our terminals in Florida and North Alabama. Lone Star supplies most of their liquid asphalt from their terminals. So it’s a much higher percentage. Clearly as we build a density in a certain area, it makes sense to look at vertically integrating into the liquid asphalt space.

We’re already buying the liquid asphalt. So it just gives us a chance to capture more of the margin along the value chain.

Tyler Brown, Analyst, Raymond James: Okay, perfect. Thank you guys.

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

Adam Thalhimer, Analyst, Thompson, Davis and Company: Hey, good morning guys. Congrats on the strong start to the year.

Jewel Smith, CEO, Construction Partners: Thank you, Adam.

Adam Thalhimer, Analyst, Thompson, Davis and Company: Joel, the 200 basis point increase in adjusted EBITDA margin year over year in Q1, was that entirely organic? I mean, you talked about good project execution in your script. Was that pulled up by Lonestar?

Jewel Smith, CEO, Construction Partners: Adam, I think it’s both. I think Lone Star clearly, as we disclosed last fall has really good margins and so adding them into the mix certainly helps. But we also said we expect that our business even without Lone Star to grow the 50 to 60 basis points that annually. And so our legacy businesses grew their margins as well. And then finally, when you have good weather, you’re going to get more fixed cost recovery.

We ran hard this quarter. And so that certainly helps when you can recover your fleet and your manufacturing facilities at the level we did.

Adam Thalhimer, Analyst, Thompson, Davis and Company: And then as you look at DOT’s budgets in your states, do you have any opinion on how much the spending might grow this year?

Jewel Smith, CEO, Construction Partners: I think, Adam, the funding and it’s always important to understand whether you’re talking about funding or lettings because lettings can be a little lumpy, whereas funding is a little more consistent. But when we look at the state funding mechanisms combined with IJA, we fully expect our the funding to grow mid to high single digits. And then when you look at the lettings, as I said, they’re already on average if you look back on calendar year 2024, it was up about 16%. And then finally, you have to look at each state and say what’s the total funding picture. And that’s why in Florida, we want to make sure to highlight that to get a full picture of Florida, you have to look not only at the Florida DOT, but at the counties and the municipalities.

Unidentified Speaker: And we

Jewel Smith, CEO, Construction Partners: look at that, it’s really up year over year. So, I think that we’re going to expect overall for the funding to continue to grow like with IJA at the mid to high single digits.

Adam Thalhimer, Analyst, Thompson, Davis and Company: That’s good. And lastly, curious if you picked up any assets from the three most recent deals that maybe you could monetize.

Unidentified Speaker: I don’t know if they

Adam Thalhimer, Analyst, Thompson, Davis and Company: have any excess land or aggregates quarries. I know you’re not as focused there, just to help pay down debt and reload for future deals.

Greg Hoffman, Chief Financial Officer, Construction Partners: Yes. And we’re always looking to monetize whatever we can, whether it’s excess equipment, excess land, certainly we’re wanting to make sure we utilize the cash for the assets that are generating EBITDA, right. So, yes, we would definitely look for that.

Unidentified Speaker: Okay. Thanks guys.

Jewel Smith, CEO, Construction Partners: Thanks Adam.

Conference Operator: Our next question is from Michael Feniger with Bank of America. Please proceed.

Rick Black, Investor Relations, Construction Partners0: Yes. Hey, everyone. Thanks for squeezing me in and taking my questions. Appreciate it.

Ned Fleming, Executive Chairman, Construction Partners: It was a pleasure.

Rick Black, Investor Relations, Construction Partners0: Yeah. Thanks guys. Just I just want to be clear and double click on something. There’s been some headlines guys about some pauses on funding to IRA and even IJA projects. Now it sounds like that’s more tied to maybe green energy.

I just wanted to hear from you guys like are you or your customers, the DOTs, are they hearing anything about issues accessing funding, delays on payments, if you’re hearing of that kind of filtering through to your core work yet?

Jewel Smith, CEO, Construction Partners: Mike, we have not heard a thing about any pause on funding for projects or for work that’s being let. What we have heard, which I think is good for CPI is the new administration is looking for ways to put more of the funds that they can toward hard infrastructure and that’s what we do. So we feel like that the new Secretary of Transportation, Secretary Duffy has been very clear. They want to try to move funds to the highest and best use and President Trump’s always prioritized hard infrastructure. So we feel like that could bode well for us.

Rick Black, Investor Relations, Construction Partners0: Helpful. And I just want to ask Jules, I mean, you guys have a record backlog. How is this kind of informing you guys in the bidding environment right now? I mean, I think you talked about, look, there’s still some inflation out there in terms of materials, aggregates, a little bit of energy. It feels like liquid, asphalt and diesel has been a good guy.

But I’m just curious how that’s kind of informing you. Could we expect actually the backlog maybe to plateau at some point because you’re being more aggressive and you guys are trying to digest? I’m just kind of thinking about that record backlog with inflation, how that’s kind of informing what you’re seeing in the market? Are you seeing competitors out there? How are they how is it informing their bidding environment if everyone’s acting accordingly?

Thanks guys.

Jewel Smith, CEO, Construction Partners: Yes. Mike, good question. The as we’ve said, the key to having a good backlog is to have a good backlog and to be able to bid patiently and that’s what we’ve done. We’ve done it for quite a few quarters now and the backlog has continued to grow sequentially. I think, Craig, this is the seventeenth quarter, which is not typical.

And we keep saying that. It would not surprise us for the backlog, this busy work season when we’re burning off a lot of revenue to go down sequentially and that wouldn’t bother us at all because that’s been the historical norm before these last few years. I think our competitors are busy. We haven’t really seen any change at all in the competitive landscape, but the fact that we’re able to win work at good margins means that they’re busy and bidding smart as well. So we’ve still got plenty of bidding opportunities.

Our record backlog does allow us to bid patiently and to bid at good margins.

Greg Hoffman, Chief Financial Officer, Construction Partners: I’d add one thing to that too. I think twelvethirty onetwenty four is maybe instructive as well and that we did have a significantly better revenue quarter than we expected because of the weather. But along with that, we were able to again grow the backlog sequentially. So I think that tells you a little bit about demand.

Conference Operator: Our next question is from Gene Ramirez with D. A. Davidson. Please proceed.

Unidentified Speaker: Good morning. Thank you for the time. Good morning. Sure. Good morning.

In the past, in fiscal twenty four, you guys saw pretty good commercial activity. I just wanted to know based on your backlog, what is the level of commercial and private activity versus fiscal twenty twenty four? What do you guys expect there? And I just and I guess second part for a little bit of clarification, this backlog, how much of that is organic in the private sector versus I guess some contributions from Lone Star? Thank you.

Jewel Smith, CEO, Construction Partners: Gina, I’ll give you just a high level picture of the commercial markets and then let Greg sort of give you what he expects in terms of the breakdown. But we are continuing to see very healthy markets throughout the Sunbelt in the commercial and private markets. We certainly feel like in the last few months there’s been an increase in activity in terms of projects getting started. Just to give you a flavor of some of the things we’ve been on just in the last couple of months and one, North Carolina, Amgen (NASDAQ:AMGN) is building a new pharmaceutical facility in Holly Springs in Florida. We’re working on a new Amazon (NASDAQ:AMZN) facility in Palm City.

In Texas and Austin, we’re working on expansion of the Tesla (NASDAQ:TSLA) manufacturing facility. And so those are just some examples of the variety of projects that CPI works on and bids in the commercial market and the amount of commercial activity from a corporate manufacturing standpoint that we’re seeing throughout the Sunbelt. Greg, you want to review sort of how you see the numbers?

Greg Hoffman, Chief Financial Officer, Construction Partners: Yes. So the numbers in terms of how the first quarter of twenty twenty five looked as it relates to the breakdown between public and private was very similar to the way it started 2024. So 58% public, 42% private. What happened last year was that moved to by the end of the year 63% public, 37% private. So we see that same trend happening in 2025, ’60 ’3 percent public.

It’s just still a very strong environment and our backlog is supporting both of those numbers and we’ll continue to support

Unidentified Speaker: that. Thank you. Appreciate the time. Sure.

Katherine Thompson, Analyst, Thompson Research Group: We have

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

Jewel Smith, CEO, Construction Partners: We’d like to thank everyone for joining us today and we look forward to speaking again next quarter.

Conference Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.

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