Construction Partners Q3 2026 Earnings Report

Construction Partners EPS Results

• Actual EPS: $1.08
• Consensus EPS: $1.01
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $0.81

Construction Partners Revenue Results

• Actual Revenue: $999.42 million
• Expected Revenue: $948.78 million
• Beat/Miss: Beat by +$50.64 million
• YoY Revenue Growth: +28.20%

Construction Partners Announcement Details

• Quarter: Q3 2026
• Date: 8/7/2026
• Time: Before Market Opens
• Conference Call Date: Friday, August 7, 2026
• Conference Call Time: 10:00AM ET

Construction Partners (NASDAQ:ROAD) (NASDAQ: ROAD) is a specialty contractor and infrastructure solutions provider focused on road building, paving, site development and aggregate production. The company delivers a comprehensive suite of civil construction services, including roadway paving and milling, site grading and preparation, stormwater and utility installation, and full-scale asphalt plant operations. By integrating materials production with contracting capabilities, the firm aims to streamline project delivery and maintain quality control across its contracting and materials businesses.

At the heart of Construction Partners’ operations are its network of asphalt plants, quarries and aggregate production facilities. The company manufactures a variety of hot-mix asphalt products, aggregates such as crushed stone, sand and gravel, and base materials for use in highway, municipal and private sector projects. Through in-house milling, compaction and asphalt resurfacing services, the business offers turn-key solutions for both public roadway authorities and commercial developers.

Construction Partners primarily serves markets throughout the southeastern United States, with active operations in North Carolina, South Carolina, Virginia, Tennessee, Georgia and Florida. The company’s regional focus allows it to cultivate long-standing relationships with state departments of transportation, county and municipal governments, utility providers and private landowners. This geographic concentration also supports efficient logistics for raw materials sourcing, plant management and equipment deployment.

Founded in 2014 by Travis L. Hooper, who continues to lead the company as President and Chief Executive Officer, Construction Partners has pursued a growth strategy centered on strategic acquisitions and organic expansion. In February 2018, the company completed an initial public offering on the Nasdaq, providing capital to fund further equipment investments, plant development and bolt-on acquisitions. Under its current leadership, the business remains focused on expanding its service footprint, enhancing operational efficiencies and reinforcing its position as a provider of critical infrastructure solutions.

Construction Partners Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong third-quarter performance included revenue of $999.4 million, up 28.2% year over year, adjusted EBITDA growth of 24% to $163 million, and adjusted EPS of $1.08.
• Positive Sentiment: Construction Partners raised fiscal 2026 guidance to revenue of $3.64 billion–$3.68 billion, adjusted EBITDA of $559 million–$569 million, and adjusted EBITDA margins of 15.35%–15.46%, representing roughly 30% growth.
• Positive Sentiment: Record backlog reached $3.36 billion, covering approximately 80%–85% of the next 12 months of contract revenue; management also cited robust public infrastructure demand and expanding data-center opportunities.
• Positive Sentiment: The Ellsworth Construction acquisition expands CPI’s Oklahoma footprint and data-center exposure, while management reported an active pipeline of additional platform and tuck-in acquisition candidates and approximately $140 million of acquired revenue carrying into fiscal 2027.
• Neutral Sentiment: Management expects no meaningful business disruption from a potential continuing resolution for federal transportation funding, though it acknowledged that short-term projects could receive preference until a new multi-year highway bill is enacted.

Presentation

[Operator]

Greetings, welcome to the Construction Partners third 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, with Investor Relations. Please go ahead, sir.

[Rick Black, Investor Relations Contact at Construction Partners]

Thank you, operator, good morning, everyone. We appreciate you joining us for the Construction Partners' conference call to review third quarter fiscal 2026 results. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of www.constructionpartners.net. Information recorded on this call speaks only as of today, which is August 7th, 2026. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations of future events or future financial performance, are considered forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

[Rick Black, Investor Relations Contact at Construction Partners]

We will be making forward-looking statements as a 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 today's earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. Now, I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule?

[Jule Smith, CEO at Construction Partners]

Thank you, Rick, good morning, everyone. We appreciate you joining us for today's call. With me this morning are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to start today's call by addressing the approximately 7,200 employees of the CPI family of companies. Thank you all for daily bringing excellence to our operations. Your hard work, talent, and unwavering commitment to work safely drove another outstanding quarter, building a record backlog and once again allowing us to raise our fiscal 2026 outlook. Simply put, CPI's success begins with our people and the culture of a close-knit family of companies that we cultivate and maintain daily. Our core values, family, opportunity, respect, and excellence are more than words. They guide how we operate every day. We are a family of companies, but more importantly, a company of families.

[Jule Smith, CEO at Construction Partners]

We create opportunities for our employees to build better lives. We treat one another, our customers, and our communities with respect. Finally, we strive daily to do ordinary things extraordinarily well for all of the communities that we serve. Our culture has become a meaningful competitive advantage. It enables us to attract, develop, and retain exceptional people across our more than 115 individual markets and also positions us as the acquirer of choice for sellers that want to take care of their employees. In the third quarter, we delivered another period of strong execution, growing revenue, net income, adjusted EBITDA, and backlog consistent with the momentum we've built throughout fiscal 2026. During the quarter, our business remained resilient despite continued energy cost inflation and unusually wet weather across many of our markets in May.

[Jule Smith, CEO at Construction Partners]

Our cost pass-through model and strong local market operating teams, together with our disciplined operating strategy, enabled us to execute at a high level and deliver another quarter of profitable growth. Before turning to the current demand environment, I'd like to briefly address federal transportation funding, a topic that has understandably raised questions among investors. As many of you know, a five-year federal surface transportation funding bill is moving through the congressional authorization process. Let me begin with three key points. First, we believe that Congress will ultimately approve and increase the funding level of a new multi-year surface transportation bill that continues to support much needed long-term investment in our nation's roads and bridges. Second, while the timing of final passage remains uncertain, the possibility of operating under a continuing resolution is neither new nor concerning for our industry.

[Jule Smith, CEO at Construction Partners]

Finally, based upon what we know today, we do not expect any disruption to federal funding or project activity in either fiscal 2026 or fiscal 2027. Let's discuss where things stand today. Earlier this year, the BUILD America 250 Act was introduced in the House of Representatives and subsequently advanced out of committee with an overwhelming bipartisan support of a 62 to two vote, positioning the legislation for consideration by the full House. While the bill must still pass both chambers of Congress and be signed by the President before becoming law, the House bill represents an important milestone in the reauthorization process. As currently drafted, the BUILD America 250 Act provides approximately 7.2% more funding over the life of the bill than the highway and public transportation funding included in the IIJA.

[Jule Smith, CEO at Construction Partners]

When you dig into the details of the actual programs funded and compare where the money will be spent, the dollars targeted to hard infrastructure projects will have an even greater increase than the past five years. It's also worth noting that for two decades, in each of the last three surface transportation reauthorizations, including IIJA, the FAST Act, and MAP-21, the final enacted legislation ultimately provided higher funding levels than the initial House proposal. Given the longstanding bipartisan support for investing in America's transportation infrastructure, we are confident that Congress will ultimately approve a new bill. That said, the legislative calendar continues to tighten as the midterm elections approach, increasing the likelihood of a continuing resolution, or CR, to temporarily extend current funding. Should that occur, federal highway funding would remain at fiscal 2026 levels, the highest annual funding levels in the program's history.

[Jule Smith, CEO at Construction Partners]

Importantly, we do not believe a CR would have a meaningful impact on our business or industry activity in fiscal 2027. Approximately 45% of IIJA funding has yet to be deployed, and we continue to see very healthy bid activity, project lettings, and contract awards across our markets, as reflected in our record backlog. Turning now to the demand for commercial development as it relates to one of today's fastest-growing end markets, AI data centers. We have been serving data center projects across our footprint for many years. While activity in this segment has accelerated meaningfully, our strategy remains unchanged. We will continue to pursue attractive opportunities in the local markets and states where we already operate.

[Jule Smith, CEO at Construction Partners]

With an estimated 70%-75% of new data center construction nationally expected to occur in our existing states, we believe CPI is well-positioned to participate in this growth through disciplined bidding, established relationships with general contractors, and a focus on projects that meet our commercial margin objectives. Today, our teams are actively bidding and building data center projects, including several notable examples. In Texas, Lone Star Paving is actively working on a portfolio of data center projects in Central Texas and has a pipeline of opportunities exceeding $100 million in contract value. In Oklahoma, where we recently expanded our Overland platform through the addition of Ellsworth, we're building AI data center projects totaling approximately $100 million, with a current pipeline of opportunities exceeding $130 million. Other newly won commercial projects range for construction for national retailers to hospitals, to corporate campuses and manufacturing facilities.

[Jule Smith, CEO at Construction Partners]

These examples represent only a portion of the more than 1,000 commercial sector projects we expect to build this year across our eight states and over 115 local markets. On the public side, federal and state governments continue to invest in infrastructure to support the growing economies across the Sun Belt. From large market-specific projects to recurring repair and maintenance work for state DOTs, cities, and counties, as well as lane widenings and road expansion projects, publicly funded work remains robust. As examples of some of our recent public wins in just one of our states, Florida, we won a contract to reconstruct the existing airfield pavement apron at the main passenger terminal of Pensacola International Airport, involving demolition of existing pavements, new storm drainage, and installation of subgrade and base courses, a multifaceted project that will begin in September and run through the fall of 2027.

[Jule Smith, CEO at Construction Partners]

For the Florida DOT, we recently were awarded two contracts totaling over $80 million to build new rest stop areas along the I-4 corridor. These projects also strengthen our presence with a key transportation client while showcasing our ability to efficiently deliver large, complex infrastructure projects. In addition to these projects, we continue to win project awards across our eight states for resurfacing and repair projects. This is our typical and sustainable work that drives our company forward quarter-after-quarter and year-after-year. Overall, at the state funding level, we continue to see increased budgets and healthy project letting activity across our states. Turning to our growth strategy. Last month, we completed another strategic acquisition with the purchase of Ellsworth Construction, a leading asphalt manufacturing and construction company in Oklahoma.

[Jule Smith, CEO at Construction Partners]

I'd like to welcome Nathan Ellsworth and his group of talented construction professionals to the CPI family of companies. Under our Oklahoma platform company, Overland Construction, Ellsworth expands our footprint in the state and significantly strengthens our presence in the rapidly growing Tulsa and Oklahoma City metropolitan areas. The acquisition adds experienced employees, strategically located facilities, and a strong reputation for execution, while further expanding our capabilities in the fast-growing data center construction market. Ellsworth's established position in Oklahoma complements Overland's extensive data center portfolio in North Texas, creating additional opportunities to service this attractive and expanding end market. We continue to benefit from the ongoing generational transition occurring across our industry and maintain a robust pipeline of high-quality acquisition opportunities throughout our existing footprint and adjacent Sun Belt states. We remain actively engaged in discussions with prospective sellers and encouraged by the opportunities ahead.

[Jule Smith, CEO at Construction Partners]

Organic growth remains an equally important component of our long-term strategy, as evidenced by our strong organic growth both in this quarter and for our entire fiscal year 2026. We continue to invest in our existing business by increasing capacity, broadening our geographic reach, and enhancing our vertical integration network. As part of these efforts, we expect to bring several greenfield facilities online later this year, extending our reach into attractive high-growth markets that are currently underserved. Finally, I'd like to say that we're excited not only for the results of this quarter and expected for this fiscal year, but also for the outlook ahead for fiscal year 2027 that begins October 1st. At CPI, our leadership team annually reads a book together. Several of these books we studied are by the renowned business author Jim Collins.

[Jule Smith, CEO at Construction Partners]

An important concept that we learned from Collins is the idea of the 20 Mile March, having the discipline and planning to make consistent and steady progress towards your goal. Our Road 2035 year plan outlines our strategy to each year have a consistent march of controlled, profitable growth as we execute on our strategy. Today, we are raising our fiscal year 2026 guidance to reflect over 30% growth on both top-line revenue and bottom-line margins. Looking forward to fiscal year 2027, we anticipate strong organic growth again. We already have approximately $140 million of acquisitive revenue carrying over from this year. Another typical CPI year of growth is developing. We will continue to march forward with discipline to deliver long-term strategic value for our shareholders. With that, I'd like now to turn the call over to Greg.

[Greg Hoffman, CFO at Construction Partners]

Thank you, Jule. Good morning, everyone. As Jule mentioned, we reported a strong third quarter, maintaining the outperformance we experienced in the first six months of the year. I will review the quarter in more detail before discussing our raised outlook. I'll start with a review of our key performance metrics for the third quarter of fiscal year 2026. Revenue was $999.4 million, an increase of 28.2% compared to last year. The breakdown of this revenue growth was 8.9% organic and 19.3% acquisitive. Gross profit in the third quarter was $168.4 million, an increase of approximately 28% compared to last year. As a percentage of total revenues, gross profit was 16.8% compared to 16.9% last year. General and administrative expenses as a percentage of total revenue in the third quarter decreased to 6.3% from 6.5% in Q3 2025. Net income was $59.6 million. Adjusted net income was $60.6 million.

[Greg Hoffman, CFO at Construction Partners]

Earnings per diluted share for adjusted net income was $1.08. adjusted EBITDA was $163 million, an increase of 24% compared to last year. adjusted EBITDA margin for the quarter was 16.3%. You can find GAAP to non-GAAP reconciliations at the end of today's earnings release. Turning now to the balance sheet. We had $95 million of cash and cash equivalents and $599 million available under our credit facility at June 30th, net of a reduction for outstanding letters of credit. During the quarter, we amended our Term Loan A and Revolver Credit Agreement, as well as our Term Loan B Credit Agreement. First, we amended the existing revolving credit facility under the Term Loan A Revolver Credit Agreement from $500 million to $700 million.

[Greg Hoffman, CFO at Construction Partners]

In addition, we refinanced and replaced in full all outstanding term loans under the Term Loan B Credit Agreement to reduce the interest rate margins payable and provided for incremental term loans in the amount of $300 million. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio decreased to 3.17 times. We remain committed to our strategy of reducing the leverage ratio to approximately 2.5 times to support sustained profitable growth. In the third quarter of fiscal 2026, cash flow from operations was $93.1 million, up from $83 million in Q3 of fiscal 2025. We expect to convert 75%-85% of EBITDA to cash flow from operations in fiscal year 2026. Turning now to our outlook, we are raising our fiscal 2026 outlook to reflect the outperformance of Q3 and to include the contribution of our newest acquisition, Ellsworth Construction.

[Greg Hoffman, CFO at Construction Partners]

Our new ranges are: revenue in the range of $3.64 billion-$3.68 billion, net income in the range of $165 million-$168 million, adjusted net income in the range of $177.6 million-$181.4 million, adjusted EBITDA in the range of $559 million-$569 million, and adjusted EBITDA margin in the range of 15.35%-15.46%. Lastly, we had a record project backlog of $3.36 billion at June 30th, 2026. We have approximately 80%-85% of the next 12 months contract revenue covered in backlog. With that, we will open the call to questions. Operator?

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Tyler Brown with Raymond James. Please proceed with your question.

[Tyler Brown, Analyst at Raymond James]

Hey, good morning, guys.

[Greg Hoffman, CFO at Construction Partners]

Morning.

[Jule Smith, CEO at Construction Partners]

Hey, Tyler.

[Tyler Brown, Analyst at Raymond James]

Hey, Greg, couple of quick modeling clarifications if I could. One, can you kind of size what the asphalt passthrough revenue impact to growth was? Is that in organic growth? Two, what is the expected total M&A contribution in the 2026 guidance? Three, did I hear it right, Jule, that $140 million rolls into next year? Sorry, I know there's a lot there, but appreciate that.

[Greg Hoffman, CFO at Construction Partners]

Yeah, no problem. Yeah. As you know, we're indexed on liquid AC, and certainly there was an impact there in this fiscal quarter, where probably $8 million-$10 million of additional-

[Tyler Brown, Analyst at Raymond James]

Okay

[Greg Hoffman, CFO at Construction Partners]

revenue for the quarter. That spread kind of both on the acquisitive side and the organic side, right? Because it depends where in the geographical footprint it came. I think your next question was, what's the acquisitive in the next quarter? Is that

[Jule Smith, CEO at Construction Partners]

For the year. Tyler-

[Tyler Brown, Analyst at Raymond James]

Yeah

[Jule Smith, CEO at Construction Partners]

I think the midpoint of our guidance growth is around 30% now for overall growth for the year. If you take out 8% organic growth, that leaves about 22% from acquisitive, which-

[Tyler Brown, Analyst at Raymond James]

Yeah

[Jule Smith, CEO at Construction Partners]

I think at the midpoint of our guidance is somewhere around $780 million-$790 million, if I'm doing

[Tyler Brown, Analyst at Raymond James]

Okay

[Jule Smith, CEO at Construction Partners]

my math right.

[Tyler Brown, Analyst at Raymond James]

You're right. Yeah.

[Jule Smith, CEO at Construction Partners]

Go ahead. Well, I was just gonna say you're right. We've got about $140 million of those acquisitions of that revenue carrying over now into FY 2027.

[Tyler Brown, Analyst at Raymond James]

Okay, perfect. Okay. Jule, obviously it's a really strong quarter. You called out May. It was very wet. Maybe you can help us just understand a bit how the business works a little bit better. When we see the weather data, what are some things that we should consider, let's call it regarding your operational flexibility? For example, does the timing of the rain matter? If you guys typically you're working late at night, early in the morning, so maybe afternoon showers don't impact you as much. Or do you push workdays into the weekend if you miss? Or do you just run double time when it's nice outside? Maybe you can just kind of help us understand how you navigate weather in what is clearly an outdoor sport.

[Jule Smith, CEO at Construction Partners]

Right. That's a good question, Tyler, and you're right in some of what you said. Obviously, when it rains, we cannot work, when it's wet. In our work season, it's hot, it dries out pretty quick. Those days that we miss do create the need to be more productive to make up because our customers still want their projects delivered. When it rains, during the one day, we might make up for it on the weekend.

[Jule Smith, CEO at Construction Partners]

When it dries out, we can make a lot of time up. I would just continue to say, as you've heard me say before, weather for us almost always evens out. We had some good weather quarters in the first and second quarter. This quarter was a little wetter than normal. It can be part of the narrative quarter-to-quarter, for the year, it almost never is part of the story.

[Tyler Brown, Analyst at Raymond James]

Okay. Fair. Good. My last one here. I appreciate all the color on IIJA replacement and obviously continuing resolution, et cetera. Kind of a bigger picture question, let's call it in times of more funding uncertainty, if we want to call it that, could there be more of a shift towards those $2 million-$3 million resurfacing projects versus, call it, larger multi-year projects? Is that what happens at the state DOT level, am I just kind of overthinking that? Thanks, guys.

[Jule Smith, CEO at Construction Partners]

No, you're not overthinking it. We've been discussing that the last a month or so. Ned's older than me. He's seen a lot more. I'm going to let him speak to the history of continuing resolutions and how that's affected the business.

[Ned Fleming, Executive Chairman at Construction Partners]

I guess, Tyler, what we really just learned is experience does have its benefits from time to time. Thank you, Jule. I think the easy answer to your question is yes. If we take a historical perspective, first and foremost, we're at an all-time funding high from a federal level. Number two is the states continue to find ways to create capital for their own projects as well as to match the federal funding. The third thing that we learned is it does not really affect operations. Capital continues to flow. During the Obama administration, about four and a half years of it, we lived through a continuing resolution. It's just a fact. You can go Google it, use any of the AI you want. What we learned is there were no disruptions.

[Ned Fleming, Executive Chairman at Construction Partners]

There were more maintenance and short-term projects because people are waiting on the longer-term funding to make big project decisions. Number three is the states really stepped up and create funding. I'm talking about local governments and municipalities. The last piece, which has always been real interesting to me that we figured out is, we continue to have very strong opportunities for acquisition growth. From a historical perspective, I would say those four and a half years were some of the best years the company had.

[Tyler Brown, Analyst at Raymond James]

All right. Perfect. Thank you for the color.

[Ned Fleming, Executive Chairman at Construction Partners]

All right, Tyler. Thank you.

[Operator]

Our next question comes from Andrew Wittmann with Baird. Please proceed with your question.

[Andrew Wittmann, Analyst at Baird]

Yeah. Great. Good morning. Thanks for taking my questions. I don't know. I just want to talk about the fourth quarter implied margin here. Obviously, it's another step up. I guess it's implying around flat year-over-year despite some of the inflation in your commodities. Obviously you're getting that pass-through and discussed that already. Is there anything more to it than that, Greg? Is it just really the seasonal cost leverage that gives you the Q3 to Q4 bump? Is there help from Ellsworth in terms of the margin up or down in terms of the mix that that brings in with the backlog that they bring to you? Just kind of curious about some of the other puts and takes into that fourth quarter.

[Jule Smith, CEO at Construction Partners]

Yeah, certainly Ellsworth is a help. Other acquisitions we've made throughout the year are a help and become fully integrated in the fourth quarter and start turning on the revenue to the margin. I would also say that just like every fourth quarter, as you start over absorbing all that fixed cost, that just really starts the engine moving and starts generating more profit and more EBITDA.

[Andrew Wittmann, Analyst at Baird]

Got it. I guess just bigger picture besides the crude complex, are there any other inflationary or deflationary factors that you're seeing in your cost structure right now? The one that I always like to check in on is labor, but maybe anything else, Jule, that you'd make a comment on there?

[Jule Smith, CEO at Construction Partners]

Andy, I can't think of anything that's out of the ordinary. We're experiencing normal cost adjustments with labor, concrete, pipe, and we have a pass-through model. As you know, every day our estimators are turning in bids and they're putting the current input cost in with some contingency factors in there. There's really nothing that's affecting our business in an outsized way. Even the energy costs, we've started immediately putting that in our pass-through model, and that's what you're seeing now reflected in our guidance.

[Andrew Wittmann, Analyst at Baird]

Great. Just wanted to check. Thanks a lot.

[Jule Smith, CEO at Construction Partners]

All right, Andy. Thank you.

[Operator]

Our next question comes from Kathryn Thompson with the Thompson Research Group. Please proceed with your question.

[Kathryn Thompson, Analyst at Thompson Research Group]

Hi, thank you for taking our questions today.

[Jule Smith, CEO at Construction Partners]

Morning.

[Kathryn Thompson, Analyst at Thompson Research Group]

Even just stepping back and look at the forest for the trees, you have the obvious top-line add. For the companies that you have acquired, let's just say within this past 6-12 months, how much of overall margin improvement or operational improvement is adding to this raised momentum and earnings growth as we go into the balance of the year? Because it's understandable if you've acquired companies, but you're also seeing some margin improvement on top of it. Help us connect the dots on that because

[Jule Smith, CEO at Construction Partners]

Yeah. Thank you, Kathryn. I think obviously in 2025, when we added Lone Star Paving, that was a transformational acquisition. It took us from 12%-15% EBITDA margins. You've seen this year us take another step kind of along our path, and clearly the new acquisitions we've made are helping that. Durwood Greene, GMJ, Four Star Paving in Tennessee, and now Ellsworth. They all are really good companies that have good margin in their backlogs. They're well-run operations. The acquisitions that we're adding are helping us become more profitable.

[Kathryn Thompson, Analyst at Thompson Research Group]

Okay. I know we focused a little bit on the federal side for the new highway bill reauthorization. We hosted a meeting with TxDOT in June, and they were pretty optimistic, even with CRs. What are your other state DOTs telling you about what they are or are not doing, or their overall perspective on this federal highway bill reauthorization? Importantly, how they're planning in and around that journey. Thank you.

[Jule Smith, CEO at Construction Partners]

Yeah. Kathryn, I've heard what the Texas DOT said at that meeting in June. I think the other states would largely say the same thing. They don't expect any interruption in their planning. Obviously, everybody would like to get the five-year bill passed. We think it'll happen late this fall. The DOTs may do a little more short-term projects at the very beginning. Once the five-year bill passes, they'll start planning longer-term projects. There should be really no interruption to the state's programs.

[Kathryn Thompson, Analyst at Thompson Research Group]

Okay, great. Thanks very much. I'll hop back in the queue.

[Jule Smith, CEO at Construction Partners]

Thanks, Kathryn.

[Operator]

Our next question comes from Michael Feniger with Bank of America. Please proceed with your question.

[Michael Feniger, Analyst at Bank of America]

Hey, guys. Thanks for letting me jump on. Gentlemen, just on the data centers, maybe for you, Jule, just is there anything different on how you guys are tackling this opportunity or going after it? Is it more than just your normal type of work and services? Are there other ways you can deploy the team and get a couple more bites out of the apple? Is the pricing or project length a little different than what you normally look after? Just kind of curious how, as you guys have built out in some of these geographies, and you look at this pipeline on data center work, is there other things that Road can do here that maybe we don't see you guys do on a typical project?

[Jule Smith, CEO at Construction Partners]

Yeah. Good question, Michael. Obviously, data centers are a big topic in our economy these days. I would say, first of all, our model hasn't changed. We have 115 local markets. We're in eight states, our teams pursue projects in their geography. Data centers are part of that ecosystem now. Our model hasn't changed, but clearly, they're great opportunities. We're doing more and more of them simply because we're building relationships with the people that are building them, 70%-75% of the data centers being built are in our eight states right now. They're a growing part of our business, but we're simply allocating people and equipment to the highest margin opportunities. I would say these projects are good projects. They're nice margin projects. Size varies.

[Jule Smith, CEO at Construction Partners]

There's some really large ones, and there's some that we're doing just a couple million dollars of paving, and there's some we're doing $30 million or $40 million worth of work. It varies, but I would just say it's fitting to our overall business model just like a normal commercial project would.

[Michael Feniger, Analyst at Bank of America]

Just given fuel and liquid asphalt, are you guys seeing— I know there's the public side, but on the private side and maybe more open market biddings, are you seeing this cost inflation reflected in biddings with your work, but also what you see with others? How is that, you think, informing people's views on 2027? Are you thinking any differently, Jule, on your storage capabilities, and do you want more terminals? I'm just kind of curious with what we've seen this year, how you think that might impact people's bidding and also your own ability for internalization as we head into 2027.

[Jule Smith, CEO at Construction Partners]

Mike, I would say for us, it really hasn't affected our outlook. We continue to run our business passing through the costs. It's a normal inflation environment from that standpoint. We do love being in the terminal business. It's been very additive to have that as part of our vertical integration strategy. We will look for opportunities to expand that part of our business. I'm going to let Greg answer in terms of how it's affecting bidding.

[Greg Hoffman, CFO at Construction Partners]

I think, Mike, in the short term, we have the protections we've talked about, hedging as well as the terminals as well as the indexes. Over time, the pass-through model kicks in, right? Six to nine months, from two or three months ago when this all kind of kicked off from an energy inflation standpoint, we immediately, as Jule said earlier, start putting it in those higher prices in the bids. There are already some jobs that we've bid with that new pricing mechanisms or those new pricing mechanisms and completed the work. Some of the book and burn work that we do. Over the long term, I think all that settles out to be just a normal part of our cost makeup bidding process as we work through the jobs we have on the backlog now.

[Operator]

Our next question comes from Rohit Seth with B. Riley Securities. Please proceed with your question.

[Rohit Seth, Analyst at B. Riley Securities]

Hey, thanks for taking my question. Just curious if you can go through the footprint. Talk about which markets are performing better and which ones are maybe lagging.

[Jule Smith, CEO at Construction Partners]

Rohit, I would just say we're in 115 local markets. They all have different competitive dynamics. They all don't have the same margin profile, but overall, most of the markets, almost all the markets are doing really well. We don't really get into the specifics of each market, but generally, you can tell by our guidance that our markets are growing. We're working steadily to make them more profitable. We expect that to continue into 2027.

[Rohit Seth, Analyst at B. Riley Securities]

All right. Thank you.

[Jule Smith, CEO at Construction Partners]

Thank you.

[Operator]

Our next question comes from Keith Hughes with Truist Securities. Please proceed with your question.

[Keith Hughes, Analyst at Truist Securities]

Thank you. The guidance implies some really good margins in the fourth quarter. You touched on this a little bit earlier, but is there anything specific or specifics that are driving the margins up year-over-year? A pretty strong clip here in the fourth quarter.

[Jule Smith, CEO at Construction Partners]

Yeah, Keith, I would just say that's part of what we expected this year. This quarter we had good margins. We had some impact from weather and diesel. We feel like that our pass-through model starts to make that up in the fourth quarter. Obviously we don't guide for any kind of weather impact. It's too early in the quarter to deal with that.

[Keith Hughes, Analyst at Truist Securities]

Right

[Jule Smith, CEO at Construction Partners]

either good or bad weather. Largely the fourth quarter's guide is what we kind of expected for this whole work season. If you look at it annually, what we're guiding to is that 30 to 40 basis point increase in our margins annually. I know we talk about it quarterly, but what we really look at is are we making progress annually.

[Keith Hughes, Analyst at Truist Securities]

Okay. Thank you.

[Jule Smith, CEO at Construction Partners]

Thanks, Keith.

[Operator]

Our next question comes from Adam Thalhimer with Thompson Davis & Co.. Please proceed with your question.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Hey, good morning, guys. Great quarter.

[Jule Smith, CEO at Construction Partners]

Good morning, Adam.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Sorry you couldn't find an extra 600,000 of sales to have your first billion-dollar quarter, looks like you're going to get there in September.

[Greg Hoffman, CFO at Construction Partners]

I know. Blame the weather

[Jule Smith, CEO at Construction Partners]

Greg is very accurate. Adam, it came in what it came in.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Hey, Jule, when you talk about state DOTs and budgets on the public side, is that uniformly good, or are there some good states, some bad states?

[Jule Smith, CEO at Construction Partners]

I would say of our eight states, Adam, I wouldn't characterize any as bad. Clearly, each state has their own funding profile. I would say all of our states have indexed their gas taxes. They have healthy programs. Clearly, if you look at what Florida and Texas have done, those are clearly outsized programs that stand out. All of our states have healthy programs. They're all a little different.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Nobody's touched on the M&A pipeline. Hoping you could comment on that?

[Jule Smith, CEO at Construction Partners]

Yes. I say this often, it's true. We're very busy right now, we're in discussions with a lot of sellers. It's very active. We're very encouraged by some of the opportunities we're looking at and talking about. I would expect it to be a quite busy fall. Ned, do you have any thoughts on that?

[Ned Fleming, Executive Chairman at Construction Partners]

I think, Adam, one of the things we just finished our quarterly board meeting, I think one of the things that comes out in those meetings is what a terrific job Jule and Greg and the team are doing. I think we're seeing a whole lot more things than we're actually acquiring. I think this is a company that even more today than ever before is becoming the acquirer of choice. We've become not only a bigger team, more sophisticated. That pipeline is, I would say, strong. It's well thought out. They have plans as we move forward. We're excited about the future of the acquisition profile of this business.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Is it still more on the tuck-in side, or you also have some platform ideas kicking around?

[Jule Smith, CEO at Construction Partners]

We're actually seeing both, and that has always been the case.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Last one for me. Greg, wanted to ask you about, and you touched on this. You basically gave a soft Q4 guide for free cash flow, that looks like it's going to be your best quarter of the year for operating and free cash flow.

[Greg Hoffman, CFO at Construction Partners]

Yeah, absolutely. It's kind of funny. In Q3, the last month of the quarter, June, was great. It's a lot of billings. That comes on the heels of not a great month in May. The cash is going to flow through in the fourth quarter. That's very exciting. We're pleased about that.

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

I'll leave it there. Thanks, guys.

[Jule Smith, CEO at Construction Partners]

All right, Adam. Thank you.

[Operator]

We've reached the end of our question-and-answer session. I would now like to turn the floor back over to management for closing comments.

[Jule Smith, CEO at Construction Partners]

We thank everyone for joining us today. We look forward to speaking again next quarter. Thank you.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Rick Black, Investor Relations Contact
• Jule Smith, CEO
• Greg Hoffman, CFO
• Ned Fleming, Executive Chairman

Analysts

• Tyler Brown, Analyst at Raymond James
• Andrew Wittmann, Analyst at Baird
• Kathryn Thompson, Analyst at Thompson Research Group
• Michael Feniger, Analyst at Bank of America
• Rohit Seth, Analyst at B. Riley Securities
• Keith Hughes, Analyst at Truist Securities
• Adam Thalhimer, Analyst at Thompson Davis & Co.