NASDAQ:ROAD Construction Partners Q4 2023 Earnings Report $91.16 +1.81 (+2.03%) Closing price 04:00 PM EasternExtended Trading$91.18 +0.02 (+0.02%) As of 07:50 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Construction Partners EPS ResultsActual EPS$0.59Consensus EPS $0.52Beat/MissBeat by +$0.07One Year Ago EPS$0.25Construction Partners Revenue ResultsActual Revenue$475.00 millionExpected Revenue$465.32 millionBeat/MissBeat by +$9.68 millionYoY Revenue Growth+20.80%Construction Partners Announcement DetailsQuarterQ4 2023Date11/29/2023TimeBefore Market OpensConference Call DateWednesday, November 29, 2023Conference Call Time10:00AM ETUpcoming EarningsConstruction Partners' Q2 2025 earnings is scheduled for Friday, May 9, 2025, with a conference call scheduled at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q2 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)SEC FilingEarnings HistoryCompany ProfilePowered by Construction Partners Q4 2023 Earnings Call TranscriptProvided by QuartrNovember 29, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings. Welcome to the Construction Partners Incorporated 4th Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Operator00:00:22It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you. Rick, you may begin. Speaker 100:00:28Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review Q4 and Year End Results for Fiscal 2023. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, November 29, 2023. So please be advised that any Time sensitive information may no longer be accurate as of the date of any replay or transcript reading. Speaker 100:01:05I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward looking statements made pursuant to the Safe Harbor provisions 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 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. Speaker 100:01:49Management 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 release. Construction Partners assumes no obligation to publicly update or revise any forward looking statements. And now, I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule? Speaker 100:02:10Thank you, Rick, and good morning, everyone. Speaker 200:02:13With me on the call today are Greg Hoffman, our Chief Financial Officer and Ned Fleming, our Executive Chairman. I'll begin with an overview of the business, followed by Greg reviewing our financials in more detail. We finished the year with a strong quarter that drove year over year growth for both the Q4 and the year. Fiscal 2023 revenue Was up 20% year over year and adjusted EBITDA was up 57% and net income was up over 129%. And consistent with our goal at the beginning of the year to return to double digit margins, we achieved a full year adjusted EBITDA margin of 11.1%. Speaker 200:02:57We also returned to the normal CPI business model of generating strong cash flow. We ended the year with cash flowed from operations of $157,000,000 and lowered our leverage ratio, while continuing to drive both organic and acquisitive growth throughout the year. Today, we are reporting a record backlog of $1,600,000,000 This is evidence that the demand environment is greater than at any time in our past, supported by healthy public funding programs as well as strong commercial markets throughout our 6 Southeastern States. And in regard to the IIJA, while the bill passed 3 years ago and the funding only began flowing to the states Over the past 2 years, with construction project work starting in the past year, we are still in the early innings on the construction side of this generational investment in our nation's infrastructure. In the Southeast, our states are growing and they remain focused on maintaining and improving the quality of their roads as well as increasing capacity to handle the significant migration to the Southeastern United States. Speaker 200:04:11Both of these types of projects are in the sweet spot for CPI's operational capabilities, along with other types of projects such as airports, ports and rail lines. After decades of falling behind and neglecting infrastructure maintenance needs, we believe the IIJA serves as a down payment on the maintenance and new construction needed to support our country's infrastructure. After this initial down payment, there will remain A great deal of work needed in future years beyond the IIJA. In addition, several states we operate in, such as Tennessee, South Carolina, North Carolina and Florida have also recently passed additional supplemental funding plans on top of their existing funding mechanisms to try and keep pace with their rapid growth and the needs of their states. Turning now to CPI's strategic growth model. Speaker 200:05:08Subsequent to the end of our fiscal year of September 30, We've completed 2 strategic acquisitions that enabled us to enter new growth markets and strengthen our market share in existing ones. First, on October 2, we expanded operations in the upstate area of South Carolina by acquiring Hubbard Paving and Grading in Wallhalla. The acquisition adds a hot mix asphalt plant and related construction operations to our South Carolina platform company, King Asphalt, and expand its service market westward in the upstate region. The second acquisition we announced on November 1 was the Reeves Construction Assets In the Charlotte, Rock Hill area that added 3 hot mix asphalt plants and related construction operations in Concord, North Carolina and Rock Hill and McConnell's South Carolina. We entered the Charlotte market last through our acquisition of Fairview Corporation and the Upstate region of South Carolina 2 years ago through our acquisition of King Asphalt. Speaker 200:06:16In both areas, we continue to experience a strong economic climate, favorable demographic trends and other tailwinds supporting the need for infrastructure services. As we move into a new year, we continue to have numerous conversations with potential sellers both inside and outside of our current states, and we remain patient and focused on finding the best strategic acquisitions that expand our footprint and grow relative market share. We believe CPI is seen as the buyer of choice for many owners in the Southeast Due to our reputation for treating sellers fairly, providing career opportunities for their employees and our track record of successfully integrating and growing companies. Last month, we were pleased to host our first ever Analyst Day in New York. And as we said then, the big news for CPI is that there is no new news. Speaker 200:07:17Our plan is to continue to execute on the same strategy the company was founded on, to capitalize on the substantial need to invest in infrastructure in the growing Sunbelt region of the U. S. Analyst Day allowed us to showcase our unique culture at CPI as a family of companies and to highlight our operating company presidents. They are the industry leaders that drive CPI's differentiated strategy of operating in distinct local markets with local workforces and generating stable recurring revenue from repeat customers, while continuing to build smaller sized projects with lower risk profiles and higher margins. Our Analyst Day also served as an opportunity to introduce our FY 2024 outlook as part of our 5 year strategic plan that we call Roadmap 2027. Speaker 200:08:14This plan outlines our growth targets that represent annual revenue growth of 15% to 20% and EBITDA margins in the range of 13% to 14% by 2027. Our top line growth strategy will continue to prioritize organic growth in our current markets as well as finding opportunities For greenfielding facilities in adjacent markets and finally, our 3rd growth lever of strategic acquisitions. Margin expansion also has 3 levers. 1st, by building better local markets with increased market share as the number 1 or 2 player in each of our local markets and improving our market intelligence. Secondly, we want to use vertical integration to continue to gain more margin along the value chain on materials and services. Speaker 200:09:11And finally, as our business continues to grow, there will be additional benefits of scale that will steadily contribute to margin expansion. Also crucial to our strategic plan is further widening a competitive advantage to our workforce by building on our strong organizational culture As a family of companies and providing superior benefits, career opportunities, which attract and retain the best construction professionals. At CPI, we're dedicated to building better lives and to building the infrastructure that keeps our communities connected. As we wrap up a successful fiscal year, I'd like to thank our hardworking Board of Directors, many of whom have been serving as Directors since to the company's leadership team. I want to conclude by also thanking the more than 4,200 employees at CPI for their hard work and professionalism in delivering a strong fiscal year 2023 and being prepared for dynamic growth in our new fiscal year 2024. Speaker 200:10:24Most importantly, thank you for watching out for your teammates and keeping each other safe each and every day at our worksites. I'd now like to turn the call over to Greg. Thank you, Jill, and Speaker 300:10:37good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal year before discussing our Outlook for fiscal 2024. Revenue was $1,560,000,000 an increase of 20% compared to last year. The mix of our total revenue growth for the year was 8.7 percent organic revenue and 11.4% from recent acquisitions. During the final quarter of the fiscal year, the weather across our states was better than seasonal averages and compared favorably to the Q4 last year. Speaker 300:11:14I'd also point out that the liquid asphalt index reimbursements We received this year in the 4th quarter were much lower than last year as liquid asphalt has trended down for most of the year. Liquid asphalt prices were relatively flat in fiscal 2023. Consequently, we received $1,300,000 Excluding the impact of these reimbursements, the company's organic growth rate would be 9.6% and the overall revenue growth would be 21%. Gross profit in fiscal 2020 3 was $196,400,000 an increase of approximately 41% compared to last year. As a percentage of total revenues, gross profit was 12.6% in fiscal 2023 compared to 10.7% last year. Speaker 300:12:18General and administrative expenses as a percentage of total revenue in fiscal 2023 Declined to 8.1% compared to 8.3% last year. Net income was $49,000,000 an increase of 129% compared to $21,400,000 last year. Adjusted EBITDA was $174,100,000 an increase of 57% compared to last year. Adjusted EBITDA margin for the year was 11.1% compared to 8.5% in fiscal 2022. You can find GAAP to non GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's earnings release. Speaker 300:13:09In addition, as Juel mentioned, we are reporting a record project backlog of $1,600,000,000 at September 30, 2023. Turning now to the balance sheet. We had $48,200,000 Cash and cash equivalents and $222,100,000 available under the credit facility, net We have $283,800,000 of principal outstanding under the term loan and $93,100,000 outstanding under the revolving credit facility. The 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 a reminder, the company entered into 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 3.1%. Speaker 300:14:14This is a reduction of 50 basis points from ninethirtytwenty 2. The maturity date of this swap is June 30, 2027. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.72. As Juel mentioned, we also reduced our leverage ratio year over year from 2.78 while continuing to grow organically and Our expectation is the leverage ratio will maintain a range of 1.5 to 2.5, while continuing to add sustained profitable growth. Cash provided by operating activities was $157,200,000 compared to the $16,500,000 in fiscal 2022. Speaker 300:15:03Net capital expenditures for fiscal 2023 Were $80,100,000 consisting of $97,800,000 in capital purchases and $17,700,000 of proceeds from the sale of property, plant and equipment. We expect net capital expenditures for fiscal 2024 to be in the range of $90,000,000 to $95,000,000 This includes maintenance CapEx Approximately 3.25 percent of revenue with the remaining amount invested in high return growth initiatives. Today, we are maintaining the fiscal year 2024 outlook that was introduced at our Annual Analyst Day event last month on October 4, 2023. We expect revenue in the range of $1,750,000,000 to $1,825,000,000 Net income in the range of $63,000,000 to $70,000,000 and adjusted EBITDA in the range of 197 to $219,000,000 which reflects adjusted EBITDA margin in the range of 11.3% to 12%. And with that, we are now ready to take your questions. Speaker 300:16:18Operator? Speaker 400:16:31And Hey, good morning. This is actually Brian Biros on for Catherine, thank you for taking my questions. Speaker 200:16:52Hey, good morning, Brian. Speaker 400:16:54Good morning. First on the EBITDA guidance, top end gets you back to 12%, That'd be great. Low end, more about 20 basis points off of kind of where you ended the current year. Can you just touch on the low end scenario there and kind of what Are the building blocks to get to that kind of 20 basis point margin growth there? Speaker 200:17:16Yes. Brian, in our guidance and in our roadmap 2027 that we talked about last A month at the Analyst Day, we expect to have 50 to 75 basis points of margin improvement Each year, that's what our roadmap 2027 calls for. But when we give guidance, we give a range, right, to and conference different scenarios. But our guidance that we give, we assume normal weather, a stable economy and good execution. And so we're just getting the year Started and as we go through and see how the year is going, we'll update that guidance. Speaker 200:18:03And as you saw last year, we'll tighten it and raise it accordingly. Speaker 400:18:16Thank you. Maybe a follow-up just then on the mix between public and private. I guess Yes. Callback, as I mentioned in the call, even on the private side, both good tailwinds going into the next year and multiyear tailwinds. Do you see the mix between the two changing at all going forward? Speaker 400:18:36You've had strength between the 2 A little bit different, public maybe a little bit stronger, but you're in good states in the Southeast that are seeing good trends on the private side too. So Just wondering how that mix shift looks for you guys, if any mix shift going forward? Thank you. Speaker 300:18:52Yes, sure, Brian. Yes, Actually, I think what you'll see when you look at our filing that the mix has changed a little bit in 2023 overall from Basically, sixty-forty in prior years to roughly 63 Public, 37 Private in 2023. So I think that's it shows quite a bit of Demand in the public environment, both state and federal levels, as we've discussed and Juul discussed. That could go up, potentially in the public side based on what the demand provides in the marketplace. But I think we're comfortable with that mix going forward. Speaker 400:19:41Makes sense. Thank you. Speaker 200:19:43Thank you, Brian. Operator00:19:45Our next question is from Michael Feniger with Bank of America. Please proceed. Speaker 500:19:52Hi, everyone. Thanks for taking my question. Just following up on the conversation between public and private, I'm just curious on the private side, can you just tell us what you're actually seeing with activity there in recent months? And Do you still expect that business on the private side? Are you expecting that to be up in 2024, High single digit. Speaker 500:20:18You guys are giving great color on the public side. It seems like there's a nice tailwind there. I'm just curious, There's some concerns in the market around private, seeing higher rates potentially impacting some private construction activity. Just curious what you guys are seeing given your geographical footprint. Speaker 200:20:37Yes. Michael, that's a great question and one that we've been getting and It's something that I watch very closely, to look at the bid sheet each week to see in all of our local markets what opportunities we're seeing. And The surprising thing for us this past year and especially the last 6 months is things on the commercial and private side have held up Very well. And as I said at our Analyst Day, the mix, I think, has evolved over the last year. Housing has remained steady even though that's not a big part of what we do. Speaker 200:21:14I think the fact that so many people are not Selling their existing homes, the customers we do support from a residential standpoint, The builders are experiencing good demand for their products. But what we've really seen in addition to the Residential migration to the Southeast is business migration to the Southeast. And I think you've heard that from other customers or other Companies in our industry, there's just a lot of heavy duty industrial demand where businesses are building Fagering facilities, labs and headquarters. And so that continues to just There will be a steady demand for the commercial environment. Ned, you want to weigh in on that? Speaker 600:22:02Michael, it's interesting. We're in a relative market share business. So in the markets that we compete in and we see this because SunTek invests really in the Sunbelt of the country. There continues to be a lot of growth. The demographic trends are driving that, number 1. Speaker 600:22:19And number 2, the business trends are driving that. So In a relative market share business, what we're worried about is the growth in Raleigh Durham, the growth in Huntsville, Alabama. And in each of these 70 plus distinct markets, we continue to see growth commercially, residentially, everything. In fact, in most of the places we're doing business, There is a housing shortage. There is a supply problem. Speaker 600:22:43And that supply problem is going to get solved for somewhere between 6 10 years. Speaker 500:22:50Good to hear, guys. And just my follow-up, we're still seeing pretty high price increases on Aggregates and rocks, and I'm curious what you're seeing in terms of your input and your costs, Your competitors and basically how you feel the environment is to still pass that along. I know you kind of referenced what you're seeing out there in terms of The bids and the prices, just curious how you're kind of thinking with some of the inflation even though inflation is coming down, but you're still seeing some high price increases in some of these more Material spots, material inputs, just curious how you feel like you guys and the competitors' ability to kind of pass it along in 2024? Thank you. Speaker 200:23:37Yes. Well, Michael, CPI, our model is just to pass through the inputs through our bids. And so you're right, we are continuing to see price increases in our input costs and We believe that construction inflation is going to continue to be higher than what you might see CPI Consumer inflation be because of the demand environment, the IJA and just the commercial economy is creating. So You're right. I think that we'll continue to have inflation and we're just our model just passes that through to the customers. Speaker 300:24:17Yes. I would add to that, that part of the sharp spike in inflation that occurred 18 months ago is difficult for anybody to absorb. But Whatever level inflation is at, as long as it's relatively stable, we can pass that along. Speaker 500:24:35Thank you. Speaker 200:24:37Thank you, Michael. Operator00:24:40Our next question is from Adam Thalhimer with Thompson Davis and Company. Please proceed. Speaker 700:24:47Hey, good morning, guys. Speaker 200:24:48Good morning, Adam. Hey. Speaker 700:24:50Jules, are you fully past the Supply chain issues now? Speaker 200:24:56I would say, Adam, that the supply chain, yes. I mean, Is it like it was in 2019 or 2020? No. But I would say we've just gotten to where we can do business in a normal way in the new world. So it's not something we talk about at all now. Speaker 200:25:14So I guess the answer to your question is yes. Speaker 700:25:18Good. Okay. And then I'm curious on the large project side, where you guys would be part of a JV just to do the paving work. Are you seeing more of those types of opportunities with the IIJA? Speaker 200:25:33Well, Adam, I was recently at a conference and I heard an industry economist break down the Use of the IJA Funds in the different states and regions. And I was really Just it was interesting to see and really encouraging for me that in the Southeast, most of the money For the IJA funds are going to either maintenance or capacity increase to existing infrastructure. And so and that's exactly as I said in my prepared remarks, that's exactly what CPI That's our specialty. And so maybe in future years, there might be some bigger projects. But right now, we're seeing A lot of the states that we're in use it to do maintenance and capacity increase. Speaker 200:26:29And so that's what we're bidding on. Speaker 700:26:33And it sounds like that's what you prefer. Speaker 200:26:36Well, it's I mean and certainly on larger projects, as you know, we'll participate as a subcontractor Our specialty is to do smaller projects with higher margins. And so maintenance and capacity and widening of roads, those are the projects that right now are wheelhouse. Speaker 700:26:59Great. And then Greg, just real quick for you. The SG and A leverage was particularly strong in Q4. Was there anything unusual in there? Speaker 300:27:09No, I think it's just a normal trend that we talked about, the 15 to 20 basis points year over year. Of course, The Q4 was certainly better than last year, 6.9% I believe is what it was this year. So It's just a normal trend I think we're going to continue to Speaker 400:27:28see. Great. Okay. Thanks guys. Speaker 200:27:31Thanks Adam. Operator00:27:34Our next question is from Brian Russo with Sidoti and Company. Please proceed. Speaker 800:27:41Hi, good morning. Speaker 300:27:42Good morning, Brian. Hey, Brian. Speaker 800:27:45Hey, maybe you could just elaborate on the September backlog of $1,600,000,000 Still showing a lot of resilience despite DOT lettings seasonality and just the overall Construction seasonality of the business, just curious how that triangulates to your reaffirm 2024 guidance, just any insight there would be great. Speaker 200:28:14Yes. Brian, I'm glad you asked that. Our backlog Has grown now for 12 straight quarters. And you've heard me say this and I want to I'm glad you gave me the opportunity to say it again. It is not atypical at CPI for our backlog to go down sequentially, especially in the busy work season. Speaker 200:28:37And so at some point, that's going to happen and that's not going to surprise us at all because the DOT lettings are not In a steady state, they're coming at different times of the year and we do work at different levels. We're a seasonal business. I think the backlog being at the level it is shows the demand that we have, but We've sold a large percentage of our capacity. As we've said, our next 12 month revenue is a lot of its own backlog and that gives us good visibility. But we can only book so much of our capacity at any one time. Speaker 200:29:19So We feel good about our backlog, but at some point in time, it's going to go down sequentially and that's not going to be anything that surprises us. Speaker 300:29:31Yes. Brian, I would say that we still think that 75% of the next 12 months Revenue is covered by our backlog that hasn't changed. Speaker 800:29:44Okay, great. And you mentioned earlier about The business model and the repeat customers, could you possibly like quantify what percent of the overall business is considered Recurring revenue, is it just the public market of 63% or is the Kind of the strong relationships you have on the commercial side and what's all the economic development, Does that also create another level of recurring revenue for construction parties? Speaker 200:30:18Yes, Brian, absolutely. So the public revenue, virtually all of that's repeat customers. But on the commercial side, a large Part of that is repeat customers and long standing relationships where we do work, whether it be in the Panhandle of Florida for St. Joe's or Pulte Corporation in Raleigh, North Carolina, there's just customers that you build relationships with and provide good service And those are repeat customers year after year. Speaker 800:30:50And then just lastly on the CapEx, the $90,000,000 to $95,000,000 in 2024. Is any of that growth CapEx earmarked for any specific projects At this point or is that still kind of being evaluated? Speaker 300:31:07No, it is earmarked. We go through that process during our budget time. And so yes, there was a process of Evaluating various projects for future growth and that has now been identified and Put in the books, but we're not prepared to announce anything specifically at this time. Speaker 200:31:32And Brian, And I would just say Greg does a great job of leading that process, but that's just really Just where we highlight organic growth, we want to prioritize organic growth. And so each of our local markets Submits their initiatives for what they see as organic growth and that we fund the best initiatives there. And so That's one of our growth levers and that's the process that we make it happen. Speaker 800:32:05Okay, great. Thank you very much. Speaker 200:32:08Thank you, Brian. Operator00:32:23There are no further questions at this time. I would like to hand the conference back over to management for closing comments. Speaker 200:32:31Just like to thank everyone for joining us today. We look forward to having a good fiscal year 2024. Thank you. Operator00:32:38Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallConstruction Partners Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) Construction Partners Earnings HeadlinesConstruction Partners Buys PRI to Expand Tennessee FootprintMay 2, 2025 | marketwatch.com2 Reasons to Watch ROAD and 1 to Stay CautiousMay 2, 2025 | msn.comThe Trump Dump is starting; Get out of stocks now?The first 365 days of the Trump presidency… Will be the best time to get rich in American history.May 6, 2025 | Paradigm Press (Ad)Raymond James Cuts Construction Partners (NASDAQ:ROAD) Price Target to $100.00May 2, 2025 | americanbankingnews.comConstruction Partners Expands with Tennessee AcquisitionsMay 1, 2025 | tipranks.comConstruction Partners, Inc. Acquires Platform Company in TennesseeMay 1, 2025 | prnewswire.comSee More Construction Partners Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Construction Partners? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Construction Partners and other key companies, straight to your email. Email Address About Construction PartnersConstruction Partners (NASDAQ:ROAD), a civil infrastructure company, constructs and maintains roadways in Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee. The company provides various products and services to public and private infrastructure projects, such as highways, roads, bridges, airports, and commercial and residential developments. It also engages in manufacturing and distributing hot mix asphalt (HMA) for internal use and sales to third parties in connection with construction projects; and paving activities, including the construction of roadway base layers and application of asphalt pavement. In addition, the company is involved in site development, including the installation of utility and drainage systems; mining aggregates, such as sand, gravel, and construction stones that are used as raw materials in the production of HMA; and distributing liquid asphalt cement for internal use and sales to third parties in connection with HMA production. The company was formerly known as SunTx CPI Growth Company, Inc. and changed its name to Construction Partners, Inc. in September 2017. 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There are 9 speakers on the call. Operator00:00:00Greetings. Welcome to the Construction Partners Incorporated 4th Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Operator00:00:22It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you. Rick, you may begin. Speaker 100:00:28Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review Q4 and Year End Results for Fiscal 2023. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, November 29, 2023. So please be advised that any Time sensitive information may no longer be accurate as of the date of any replay or transcript reading. Speaker 100:01:05I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward looking statements made pursuant to the Safe Harbor provisions 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 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. Speaker 100:01:49Management 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 release. Construction Partners assumes no obligation to publicly update or revise any forward looking statements. And now, I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule? Speaker 100:02:10Thank you, Rick, and good morning, everyone. Speaker 200:02:13With me on the call today are Greg Hoffman, our Chief Financial Officer and Ned Fleming, our Executive Chairman. I'll begin with an overview of the business, followed by Greg reviewing our financials in more detail. We finished the year with a strong quarter that drove year over year growth for both the Q4 and the year. Fiscal 2023 revenue Was up 20% year over year and adjusted EBITDA was up 57% and net income was up over 129%. And consistent with our goal at the beginning of the year to return to double digit margins, we achieved a full year adjusted EBITDA margin of 11.1%. Speaker 200:02:57We also returned to the normal CPI business model of generating strong cash flow. We ended the year with cash flowed from operations of $157,000,000 and lowered our leverage ratio, while continuing to drive both organic and acquisitive growth throughout the year. Today, we are reporting a record backlog of $1,600,000,000 This is evidence that the demand environment is greater than at any time in our past, supported by healthy public funding programs as well as strong commercial markets throughout our 6 Southeastern States. And in regard to the IIJA, while the bill passed 3 years ago and the funding only began flowing to the states Over the past 2 years, with construction project work starting in the past year, we are still in the early innings on the construction side of this generational investment in our nation's infrastructure. In the Southeast, our states are growing and they remain focused on maintaining and improving the quality of their roads as well as increasing capacity to handle the significant migration to the Southeastern United States. Speaker 200:04:11Both of these types of projects are in the sweet spot for CPI's operational capabilities, along with other types of projects such as airports, ports and rail lines. After decades of falling behind and neglecting infrastructure maintenance needs, we believe the IIJA serves as a down payment on the maintenance and new construction needed to support our country's infrastructure. After this initial down payment, there will remain A great deal of work needed in future years beyond the IIJA. In addition, several states we operate in, such as Tennessee, South Carolina, North Carolina and Florida have also recently passed additional supplemental funding plans on top of their existing funding mechanisms to try and keep pace with their rapid growth and the needs of their states. Turning now to CPI's strategic growth model. Speaker 200:05:08Subsequent to the end of our fiscal year of September 30, We've completed 2 strategic acquisitions that enabled us to enter new growth markets and strengthen our market share in existing ones. First, on October 2, we expanded operations in the upstate area of South Carolina by acquiring Hubbard Paving and Grading in Wallhalla. The acquisition adds a hot mix asphalt plant and related construction operations to our South Carolina platform company, King Asphalt, and expand its service market westward in the upstate region. The second acquisition we announced on November 1 was the Reeves Construction Assets In the Charlotte, Rock Hill area that added 3 hot mix asphalt plants and related construction operations in Concord, North Carolina and Rock Hill and McConnell's South Carolina. We entered the Charlotte market last through our acquisition of Fairview Corporation and the Upstate region of South Carolina 2 years ago through our acquisition of King Asphalt. Speaker 200:06:16In both areas, we continue to experience a strong economic climate, favorable demographic trends and other tailwinds supporting the need for infrastructure services. As we move into a new year, we continue to have numerous conversations with potential sellers both inside and outside of our current states, and we remain patient and focused on finding the best strategic acquisitions that expand our footprint and grow relative market share. We believe CPI is seen as the buyer of choice for many owners in the Southeast Due to our reputation for treating sellers fairly, providing career opportunities for their employees and our track record of successfully integrating and growing companies. Last month, we were pleased to host our first ever Analyst Day in New York. And as we said then, the big news for CPI is that there is no new news. Speaker 200:07:17Our plan is to continue to execute on the same strategy the company was founded on, to capitalize on the substantial need to invest in infrastructure in the growing Sunbelt region of the U. S. Analyst Day allowed us to showcase our unique culture at CPI as a family of companies and to highlight our operating company presidents. They are the industry leaders that drive CPI's differentiated strategy of operating in distinct local markets with local workforces and generating stable recurring revenue from repeat customers, while continuing to build smaller sized projects with lower risk profiles and higher margins. Our Analyst Day also served as an opportunity to introduce our FY 2024 outlook as part of our 5 year strategic plan that we call Roadmap 2027. Speaker 200:08:14This plan outlines our growth targets that represent annual revenue growth of 15% to 20% and EBITDA margins in the range of 13% to 14% by 2027. Our top line growth strategy will continue to prioritize organic growth in our current markets as well as finding opportunities For greenfielding facilities in adjacent markets and finally, our 3rd growth lever of strategic acquisitions. Margin expansion also has 3 levers. 1st, by building better local markets with increased market share as the number 1 or 2 player in each of our local markets and improving our market intelligence. Secondly, we want to use vertical integration to continue to gain more margin along the value chain on materials and services. Speaker 200:09:11And finally, as our business continues to grow, there will be additional benefits of scale that will steadily contribute to margin expansion. Also crucial to our strategic plan is further widening a competitive advantage to our workforce by building on our strong organizational culture As a family of companies and providing superior benefits, career opportunities, which attract and retain the best construction professionals. At CPI, we're dedicated to building better lives and to building the infrastructure that keeps our communities connected. As we wrap up a successful fiscal year, I'd like to thank our hardworking Board of Directors, many of whom have been serving as Directors since to the company's leadership team. I want to conclude by also thanking the more than 4,200 employees at CPI for their hard work and professionalism in delivering a strong fiscal year 2023 and being prepared for dynamic growth in our new fiscal year 2024. Speaker 200:10:24Most importantly, thank you for watching out for your teammates and keeping each other safe each and every day at our worksites. I'd now like to turn the call over to Greg. Thank you, Jill, and Speaker 300:10:37good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal year before discussing our Outlook for fiscal 2024. Revenue was $1,560,000,000 an increase of 20% compared to last year. The mix of our total revenue growth for the year was 8.7 percent organic revenue and 11.4% from recent acquisitions. During the final quarter of the fiscal year, the weather across our states was better than seasonal averages and compared favorably to the Q4 last year. Speaker 300:11:14I'd also point out that the liquid asphalt index reimbursements We received this year in the 4th quarter were much lower than last year as liquid asphalt has trended down for most of the year. Liquid asphalt prices were relatively flat in fiscal 2023. Consequently, we received $1,300,000 Excluding the impact of these reimbursements, the company's organic growth rate would be 9.6% and the overall revenue growth would be 21%. Gross profit in fiscal 2020 3 was $196,400,000 an increase of approximately 41% compared to last year. As a percentage of total revenues, gross profit was 12.6% in fiscal 2023 compared to 10.7% last year. Speaker 300:12:18General and administrative expenses as a percentage of total revenue in fiscal 2023 Declined to 8.1% compared to 8.3% last year. Net income was $49,000,000 an increase of 129% compared to $21,400,000 last year. Adjusted EBITDA was $174,100,000 an increase of 57% compared to last year. Adjusted EBITDA margin for the year was 11.1% compared to 8.5% in fiscal 2022. You can find GAAP to non GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's earnings release. Speaker 300:13:09In addition, as Juel mentioned, we are reporting a record project backlog of $1,600,000,000 at September 30, 2023. Turning now to the balance sheet. We had $48,200,000 Cash and cash equivalents and $222,100,000 available under the credit facility, net We have $283,800,000 of principal outstanding under the term loan and $93,100,000 outstanding under the revolving credit facility. The 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 a reminder, the company entered into 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 3.1%. Speaker 300:14:14This is a reduction of 50 basis points from ninethirtytwenty 2. The maturity date of this swap is June 30, 2027. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.72. As Juel mentioned, we also reduced our leverage ratio year over year from 2.78 while continuing to grow organically and Our expectation is the leverage ratio will maintain a range of 1.5 to 2.5, while continuing to add sustained profitable growth. Cash provided by operating activities was $157,200,000 compared to the $16,500,000 in fiscal 2022. Speaker 300:15:03Net capital expenditures for fiscal 2023 Were $80,100,000 consisting of $97,800,000 in capital purchases and $17,700,000 of proceeds from the sale of property, plant and equipment. We expect net capital expenditures for fiscal 2024 to be in the range of $90,000,000 to $95,000,000 This includes maintenance CapEx Approximately 3.25 percent of revenue with the remaining amount invested in high return growth initiatives. Today, we are maintaining the fiscal year 2024 outlook that was introduced at our Annual Analyst Day event last month on October 4, 2023. We expect revenue in the range of $1,750,000,000 to $1,825,000,000 Net income in the range of $63,000,000 to $70,000,000 and adjusted EBITDA in the range of 197 to $219,000,000 which reflects adjusted EBITDA margin in the range of 11.3% to 12%. And with that, we are now ready to take your questions. Speaker 300:16:18Operator? Speaker 400:16:31And Hey, good morning. This is actually Brian Biros on for Catherine, thank you for taking my questions. Speaker 200:16:52Hey, good morning, Brian. Speaker 400:16:54Good morning. First on the EBITDA guidance, top end gets you back to 12%, That'd be great. Low end, more about 20 basis points off of kind of where you ended the current year. Can you just touch on the low end scenario there and kind of what Are the building blocks to get to that kind of 20 basis point margin growth there? Speaker 200:17:16Yes. Brian, in our guidance and in our roadmap 2027 that we talked about last A month at the Analyst Day, we expect to have 50 to 75 basis points of margin improvement Each year, that's what our roadmap 2027 calls for. But when we give guidance, we give a range, right, to and conference different scenarios. But our guidance that we give, we assume normal weather, a stable economy and good execution. And so we're just getting the year Started and as we go through and see how the year is going, we'll update that guidance. Speaker 200:18:03And as you saw last year, we'll tighten it and raise it accordingly. Speaker 400:18:16Thank you. Maybe a follow-up just then on the mix between public and private. I guess Yes. Callback, as I mentioned in the call, even on the private side, both good tailwinds going into the next year and multiyear tailwinds. Do you see the mix between the two changing at all going forward? Speaker 400:18:36You've had strength between the 2 A little bit different, public maybe a little bit stronger, but you're in good states in the Southeast that are seeing good trends on the private side too. So Just wondering how that mix shift looks for you guys, if any mix shift going forward? Thank you. Speaker 300:18:52Yes, sure, Brian. Yes, Actually, I think what you'll see when you look at our filing that the mix has changed a little bit in 2023 overall from Basically, sixty-forty in prior years to roughly 63 Public, 37 Private in 2023. So I think that's it shows quite a bit of Demand in the public environment, both state and federal levels, as we've discussed and Juul discussed. That could go up, potentially in the public side based on what the demand provides in the marketplace. But I think we're comfortable with that mix going forward. Speaker 400:19:41Makes sense. Thank you. Speaker 200:19:43Thank you, Brian. Operator00:19:45Our next question is from Michael Feniger with Bank of America. Please proceed. Speaker 500:19:52Hi, everyone. Thanks for taking my question. Just following up on the conversation between public and private, I'm just curious on the private side, can you just tell us what you're actually seeing with activity there in recent months? And Do you still expect that business on the private side? Are you expecting that to be up in 2024, High single digit. Speaker 500:20:18You guys are giving great color on the public side. It seems like there's a nice tailwind there. I'm just curious, There's some concerns in the market around private, seeing higher rates potentially impacting some private construction activity. Just curious what you guys are seeing given your geographical footprint. Speaker 200:20:37Yes. Michael, that's a great question and one that we've been getting and It's something that I watch very closely, to look at the bid sheet each week to see in all of our local markets what opportunities we're seeing. And The surprising thing for us this past year and especially the last 6 months is things on the commercial and private side have held up Very well. And as I said at our Analyst Day, the mix, I think, has evolved over the last year. Housing has remained steady even though that's not a big part of what we do. Speaker 200:21:14I think the fact that so many people are not Selling their existing homes, the customers we do support from a residential standpoint, The builders are experiencing good demand for their products. But what we've really seen in addition to the Residential migration to the Southeast is business migration to the Southeast. And I think you've heard that from other customers or other Companies in our industry, there's just a lot of heavy duty industrial demand where businesses are building Fagering facilities, labs and headquarters. And so that continues to just There will be a steady demand for the commercial environment. Ned, you want to weigh in on that? Speaker 600:22:02Michael, it's interesting. We're in a relative market share business. So in the markets that we compete in and we see this because SunTek invests really in the Sunbelt of the country. There continues to be a lot of growth. The demographic trends are driving that, number 1. Speaker 600:22:19And number 2, the business trends are driving that. So In a relative market share business, what we're worried about is the growth in Raleigh Durham, the growth in Huntsville, Alabama. And in each of these 70 plus distinct markets, we continue to see growth commercially, residentially, everything. In fact, in most of the places we're doing business, There is a housing shortage. There is a supply problem. Speaker 600:22:43And that supply problem is going to get solved for somewhere between 6 10 years. Speaker 500:22:50Good to hear, guys. And just my follow-up, we're still seeing pretty high price increases on Aggregates and rocks, and I'm curious what you're seeing in terms of your input and your costs, Your competitors and basically how you feel the environment is to still pass that along. I know you kind of referenced what you're seeing out there in terms of The bids and the prices, just curious how you're kind of thinking with some of the inflation even though inflation is coming down, but you're still seeing some high price increases in some of these more Material spots, material inputs, just curious how you feel like you guys and the competitors' ability to kind of pass it along in 2024? Thank you. Speaker 200:23:37Yes. Well, Michael, CPI, our model is just to pass through the inputs through our bids. And so you're right, we are continuing to see price increases in our input costs and We believe that construction inflation is going to continue to be higher than what you might see CPI Consumer inflation be because of the demand environment, the IJA and just the commercial economy is creating. So You're right. I think that we'll continue to have inflation and we're just our model just passes that through to the customers. Speaker 300:24:17Yes. I would add to that, that part of the sharp spike in inflation that occurred 18 months ago is difficult for anybody to absorb. But Whatever level inflation is at, as long as it's relatively stable, we can pass that along. Speaker 500:24:35Thank you. Speaker 200:24:37Thank you, Michael. Operator00:24:40Our next question is from Adam Thalhimer with Thompson Davis and Company. Please proceed. Speaker 700:24:47Hey, good morning, guys. Speaker 200:24:48Good morning, Adam. Hey. Speaker 700:24:50Jules, are you fully past the Supply chain issues now? Speaker 200:24:56I would say, Adam, that the supply chain, yes. I mean, Is it like it was in 2019 or 2020? No. But I would say we've just gotten to where we can do business in a normal way in the new world. So it's not something we talk about at all now. Speaker 200:25:14So I guess the answer to your question is yes. Speaker 700:25:18Good. Okay. And then I'm curious on the large project side, where you guys would be part of a JV just to do the paving work. Are you seeing more of those types of opportunities with the IIJA? Speaker 200:25:33Well, Adam, I was recently at a conference and I heard an industry economist break down the Use of the IJA Funds in the different states and regions. And I was really Just it was interesting to see and really encouraging for me that in the Southeast, most of the money For the IJA funds are going to either maintenance or capacity increase to existing infrastructure. And so and that's exactly as I said in my prepared remarks, that's exactly what CPI That's our specialty. And so maybe in future years, there might be some bigger projects. But right now, we're seeing A lot of the states that we're in use it to do maintenance and capacity increase. Speaker 200:26:29And so that's what we're bidding on. Speaker 700:26:33And it sounds like that's what you prefer. Speaker 200:26:36Well, it's I mean and certainly on larger projects, as you know, we'll participate as a subcontractor Our specialty is to do smaller projects with higher margins. And so maintenance and capacity and widening of roads, those are the projects that right now are wheelhouse. Speaker 700:26:59Great. And then Greg, just real quick for you. The SG and A leverage was particularly strong in Q4. Was there anything unusual in there? Speaker 300:27:09No, I think it's just a normal trend that we talked about, the 15 to 20 basis points year over year. Of course, The Q4 was certainly better than last year, 6.9% I believe is what it was this year. So It's just a normal trend I think we're going to continue to Speaker 400:27:28see. Great. Okay. Thanks guys. Speaker 200:27:31Thanks Adam. Operator00:27:34Our next question is from Brian Russo with Sidoti and Company. Please proceed. Speaker 800:27:41Hi, good morning. Speaker 300:27:42Good morning, Brian. Hey, Brian. Speaker 800:27:45Hey, maybe you could just elaborate on the September backlog of $1,600,000,000 Still showing a lot of resilience despite DOT lettings seasonality and just the overall Construction seasonality of the business, just curious how that triangulates to your reaffirm 2024 guidance, just any insight there would be great. Speaker 200:28:14Yes. Brian, I'm glad you asked that. Our backlog Has grown now for 12 straight quarters. And you've heard me say this and I want to I'm glad you gave me the opportunity to say it again. It is not atypical at CPI for our backlog to go down sequentially, especially in the busy work season. Speaker 200:28:37And so at some point, that's going to happen and that's not going to surprise us at all because the DOT lettings are not In a steady state, they're coming at different times of the year and we do work at different levels. We're a seasonal business. I think the backlog being at the level it is shows the demand that we have, but We've sold a large percentage of our capacity. As we've said, our next 12 month revenue is a lot of its own backlog and that gives us good visibility. But we can only book so much of our capacity at any one time. Speaker 200:29:19So We feel good about our backlog, but at some point in time, it's going to go down sequentially and that's not going to be anything that surprises us. Speaker 300:29:31Yes. Brian, I would say that we still think that 75% of the next 12 months Revenue is covered by our backlog that hasn't changed. Speaker 800:29:44Okay, great. And you mentioned earlier about The business model and the repeat customers, could you possibly like quantify what percent of the overall business is considered Recurring revenue, is it just the public market of 63% or is the Kind of the strong relationships you have on the commercial side and what's all the economic development, Does that also create another level of recurring revenue for construction parties? Speaker 200:30:18Yes, Brian, absolutely. So the public revenue, virtually all of that's repeat customers. But on the commercial side, a large Part of that is repeat customers and long standing relationships where we do work, whether it be in the Panhandle of Florida for St. Joe's or Pulte Corporation in Raleigh, North Carolina, there's just customers that you build relationships with and provide good service And those are repeat customers year after year. Speaker 800:30:50And then just lastly on the CapEx, the $90,000,000 to $95,000,000 in 2024. Is any of that growth CapEx earmarked for any specific projects At this point or is that still kind of being evaluated? Speaker 300:31:07No, it is earmarked. We go through that process during our budget time. And so yes, there was a process of Evaluating various projects for future growth and that has now been identified and Put in the books, but we're not prepared to announce anything specifically at this time. Speaker 200:31:32And Brian, And I would just say Greg does a great job of leading that process, but that's just really Just where we highlight organic growth, we want to prioritize organic growth. And so each of our local markets Submits their initiatives for what they see as organic growth and that we fund the best initiatives there. And so That's one of our growth levers and that's the process that we make it happen. Speaker 800:32:05Okay, great. Thank you very much. Speaker 200:32:08Thank you, Brian. Operator00:32:23There are no further questions at this time. I would like to hand the conference back over to management for closing comments. Speaker 200:32:31Just like to thank everyone for joining us today. We look forward to having a good fiscal year 2024. Thank you. Operator00:32:38Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.Read morePowered by