Construction Partners, Inc. Q3 FY2025 earnings call

• Welcomed Durwood Greene Construction in Houston, a third-generation family business with 3 hot-mix asphalt plants and a rail service aggregates terminal, expecting it to benefit from vertical integration with Lone Star Paving.
• Despite weather-related delays in Q3, teams delivered robust results with a record adjusted EBITDA margin of 16.9%.
• Strong economic growth, favorable demographics, and well-funded transportation programs provide growth opportunities. The Durwood Greene acquisition exemplifies the strategy of seeking growing markets and partnering with experienced local teams.
• In Texas, the first year with Lone Star Paving has been as hoped, with expansion to new markets underway.

In the third quarter of fiscal 2025, revenue was $779.3 million, a 51% increase compared to the same quarter a year ago. Adjusted EBITDA was $131.7 million, up 80% year-over-year, with an adjusted EBITDA margin of 16.9%, a record for the quarter. The project backlog was $2.94 billion as of June 30, 2025, with approximately 80%-85% of the next 12 months' revenue covered in backlog. G&A expenses as a percentage of total revenue in the quarter were 6.6%, down from 7.3% in the prior year.

• Maintained FY '25 guidance with revenue in the range of $2.77 billion to $2.83 billion.
• Adjusted net income expected in the range of $124 million to $135 million.
• Adjusted EBITDA expected in the range of $410 million to $430 million, with an adjusted EBITDA margin in the range of 14.8% to 15.2%.
• Expect organic revenue to be in the range of 8%-10% for FY '25.

• Weather-related delays impacted Q3, though teams executed well despite this.
• Energy price fluctuations could impact costs, though hedging mitigates some risk.
• Labor force demographics with aging workers, requiring focus on attracting and retaining a workforce through culture, compensation, and career opportunities.

Q: How did you navigate weather so well and flex costs during paving days?

A: The 3 margin levers (building better markets, vertical integration, scale) were working well, so even with weather delays, margins remained strong.

Q: How to read 'roughly at full utilization'?

A: It means full backlog and utilization, with CapEx program supporting organic growth.

Q: What's the M&A contribution expected in '25 and '26?

A: Q4 M&A contribution around $270-$280 million, with $240-$250 million rolling over into 2026.

Q: Confidence in public spending growth in 2026?

A: Based on contract awards, state programs, local/county programs, and federal funds, expecting similar growth to FY '25.

Q: Impact of free cash flow and leverage timeline?

A: Leverage ratio target of ~2.5x by late fiscal 2026, with plans to deleverage while continuing strategic acquisitions.

Q: Competitive environment and market building?

A: Healthy demand environment on public and private sides allows patient bidding at good margins.

Q: Bonus depreciation impact?

A: Bonus depreciation benefits, with 100% bonus depreciation on acquisitions and equipment purchases post 1/15/25 reducing federal tax impact.

Q: July volumes trend?

A: July had good volumes despite initial wet start, with last few weeks strong.

Q: Potential extension of construction season into December?

A: Expect busy winter months with backlog and bidding, weather permitting.

Q: Transportation spending in acquired states?

A: Trending as expected, with healthy programs in Texas, Oklahoma, and Tennessee.

Q: Labor availability and trends?

A: Labor shortages post-COVID have dissipated, but aging workforce requires focus on culture, compensation, and career to attract/retain workers.