Construction Partners, Inc. (NASDAQ:ROAD) Q1 2024 Earnings Call Transcript February 9, 2024
Construction Partners, Inc. beats earnings expectations. Reported EPS is $0.1877, expectations were $0.13. Construction Partners, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Construction Partners First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you, sir. You may begin.
Rick Black: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners call to review first quarter results for fiscal 2024. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, February 9, 2024. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are 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 disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. And now I would like to turn the call over to Construction Partners' CEO, Jule Smith.
Jule?
Jule Smith: Thank you, Rick, and good morning, everyone. Joining me on the call today are Greg Hoffman, our Chief Financial Officer; and Ned Fleming, our Executive Chairman. We are off to a good start to our fiscal year, and I'd first like to thank our 4,400 employees throughout the Southeast for their hard work and professionalism, that contributed to a successful first quarter. Revenue, net income, earnings per share and adjusted EBITDA were all up significantly compared to Q1 last year. We are pleased to report a record backlog of $1.62 billion as of quarter end, reflecting a demand environment that remains strong for both public and private work. This first quarter, we experienced typical seasonal weather with October and November a bit drier than usual while December was a bit wetter than usual.
Our crews and teams were productive and delivered excellent results this quarter. Focusing more on the demand environment for construction services, there continues to be elevated demand for road repair, maintenance and expansion projects across our markets as a result of our country's continued migration soil. Each of our 6 states are well funded for this work. With the federal government's IIJA funding further supporting infrastructure investments from road projects to airports to ports and rail lines. Because of the migration to the Sunbelt of both new residents and businesses, the commercial economic activity in our markets has remained steady with an active bidding environment. We anticipate that our work mix for FY '24 will remain very similar to last year and typical for CPI, with approximately 63% public projects and 37% private projects.
Turning now to CPI's strategic growth model. In this fiscal year, we've so far completed 4 strategic acquisitions, entering new markets, expanding market share in existing markets and adding capacity, services and talented new team members to the CPI family. Most recently, we announced on January 3 the acquisitions of SJ&L General contractor, a hot mix asphalt and site work company headquartered in Huntsville, Alabama and Littlefield Construction Company, a soil base, surface treatment and site work company headquartered in Waycross, Georgia. As we discussed in detail during our Analyst Day, a key component of our growth strategy is to actively expand our relative market share and service capabilities within existing markets. Both the SJ&L and Littlefield acquisitions expand our service offerings in existing markets while also adding valuable crews and equipment.
In the case of SJ&L in Huntsville, Alabama, we are integrating this team with our existing platform company in the state, Wiregrass construction company. The greater Huntsville metro area and interstate 65 corridor continue to experience tremendous growth and as a combined organization, we can now offer turnkey services, spanning the construction value chain on both private and public project opportunities within this market. Likewise, our Georgia platform company, the Scrubs Company entered the Waycross market just a few months ago through the establishment of a greenfield hot mix asphalt plant. Now having acquired Littlefield, we are even better positioned to capitalize on the market that reaches from the Port of Brunswick into South Central Georgia.
An aerial view of a bridge under construction with workers continuing their work despite the early morning light.
We are pleased to expand our presence in these crucial growth markets and proud to welcome the employees of SG&A and Littlefield into our continually growing CPI family. We continue to have numerous and active conversations with potential sellers, both inside and outside of our current states. The universe of potential opportunities in our highly fragmented industry is substantial. However, we remain patient and focused on finding the best strategic acquisitions that expand our footprint, increase capacity, grow relative market share and fit well within our CPI culture. 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 attractive career opportunities for their employees and our track record for successfully integrating and growing companies.
As we continually discuss with the market, CPI's founding strategy has 3 main components: first, to operate a high relative market share business in local markets, building low-risk, high-margin projects from repeat customers and generating strong free cash flow; second, to capitalize on the need for the nation and our states to invest in catching up on deferred infrastructure maintenance and capacity. And third, as our industry goes through a generational consolidation to be the leader in building a scalable business by acquiring businesses in our industry. Our 5-year strategic plan that we call ROAD-Map 2027 simply outlines our plan to continue implementing CPI strategy. With growth targets that represent annual revenue growth of 15% to 20% and EBITDA margins in the range of 13% to 14% by 2027.
The foundation of our strategic plan remains our people. We plan to continue building a competitive advantage through our workforce, maintaining our organizational culture as a family of companies and providing superior benefits and career opportunities, which attract and retain the best construction professionals. At CPI, we are dedicated to building better lives and to building the infrastructure that keeps our communities connected. In summary, we are pleased after Q1 to be right on track with our plan. As we enter the second quarter of our seasonal business, where we are hard at work, maintaining our fleet and asphalt plants and preparing for the busy work season ahead in the spring and the summer. I'd now like to turn the call over to Greg.
Greg Hoffman: Thank you, Jule, and good morning, everyone. I'll begin with a review of our key performance metrics for the first fiscal quarter compared to the fiscal first quarter in 2023. Revenue was $396.5 million, up 16%. The increase included $29.6 million of revenue attributable to acquisitions completed during and subsequent to the 3 months ended December 31, 2022, and an increase of approximately $25.1 million of revenue in the company's existing markets, contract work and sales of HMA and aggregates to third parties. The mix of total revenue growth for the quarter was approximately 7.3% organic revenue and approximately 8.7% from recent acquisitions. Gross profit was $51.9 million or 13.1% of revenue compared to $30.5 million or 8.9% of revenue in Q1 2023.
General and administrative expenses were $36 million and as a percentage of revenue, were 9.1% compared to 8.7% in the same period last year. Net income was $9.8 million and diluted earnings per share were $0.19 up from $1.9 million and diluted earnings per share of $0.04 in the same quarter last year. Adjusted EBITDA was $40.9 million, an increase of 50.4%. Adjusted EBITDA margin for the quarter was 10.3% compared to 8% in the first quarter last year. You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures in today's earnings release. In addition, as Jule mentioned, we are reporting a record project backlog at of $1.62 billion at December 31, 2023, up from $1.6 billion at the end of our Q4 fiscal year 2023.
Turning now to the balance sheet. We had $68.7 million of cash and cash equivalents and $154 million available under the credit facility, net of a reduction for outstanding letters of credit. In addition, we have the ability to establish an incremental revolving credit facility up to the greater of $200 million or total trailing 12 months adjusted EBITDA. We have $280 million of principal outstanding under the term loan and $163 million 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 of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.78 times.
Our expectation is the leverage ratio will maintain a range of 1.5 times to 2.5 times while continuing to add sustained profitable growth. Cash provided by operating activities was $60.4 million compared to the $28.9 million in the same quarter last year. Net capital expenditures in the first quarter were $24.3 million. We expect net capital expenditures for fiscal 2024 to be in the range of $90 million to $95 million. This includes maintenance CapEx of approximately 3.25% of revenue, with the remaining amount invested in high-return growth initiatives. Today, we are maintaining our previously disclosed fiscal year 2024 outlook. We expect revenue in the range of $1.75 billion to $1.825 billion, net income in the range of $63 million to $70 million; and adjusted EBITDA in the range of $197 million to $219 million, which reflects adjusted EBITDA margin in the range of 11.3% to 12%.
And with that, we are now ready to take your questions. Operator?
Operator: [Operator Instructions] Our first question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your question.
