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Construction Partners, Inc. (NASDAQ:ROAD): Steady Growth and Margin Expansion Amid Strong Infrastructure Demand
Published on September 24, 2024 | Ticker: ROAD

Construction Partners, Inc. (NASDAQ:ROAD) is a leading civil infrastructure company that specializes in the construction and maintenance of roadways, highways, bridges, and other transportation infrastructure projects across the southeastern United States. The company has demonstrated consistent financial performance, reporting annual revenue of $1,563,548,000 and net income of $49,001,000 in its most recent fiscal year.

Business Overview

Founded in 2001, Construction Partners has established a strong presence in its core markets, leveraging its expertise, strategic asset base, and long-standing customer relationships to drive growth. The company's business model is centered around providing a comprehensive suite of construction services, including asphalt production, paving, site development, and infrastructure maintenance, to both public and private sector clients.

One of the key factors contributing to Construction Partners' success is the robust demand environment for infrastructure projects in its geographic footprint. The company has benefited from increased federal and state funding for transportation initiatives, as well as a healthy commercial construction market driven by population growth and economic development in the southeastern United States. In the latest quarter, the company reported a 14.3% year-over-year increase in revenue to $371.4 million, with organic growth accounting for approximately 6.6% of the increase and acquisitions contributing the remaining 7.7%.

Financials

Construction Partners' financial performance has been marked by steady growth and margin expansion. In the most recent fiscal year, the company generated $157,157,000 in operating cash flow and $59,347,000 in free cash flow, underscoring its ability to convert earnings into cash. The company's quarterly results have also been impressive, with the second quarter of fiscal 2023 seeing a 47.6% increase in gross profit to $38.8 million and a 44.7% rise in adjusted EBITDA to $29.5 million, compared to the same period in the prior year.

The company's strong backlog, which stood at $1.79 billion as of March 31, 2023, provides excellent visibility into future revenue streams. Construction Partners has been successful in securing a diverse mix of public infrastructure and private commercial projects, with the private sector accounting for approximately 41.7% of consolidated revenues in the first half of fiscal 2023.

Outlook

Looking ahead, Construction Partners has raised its fiscal 2023 guidance, now expecting revenue in the range of $1.81 billion to $1.85 billion, net income between $71 million and $75 million, and adjusted EBITDA in the range of $211 million to $225 million. This guidance implies an adjusted EBITDA margin of 11.7% to 12.2% for the full fiscal year, reflecting the company's ability to maintain pricing discipline and operational efficiency in the face of inflationary pressures.

Construction Partners' growth strategy is multifaceted, combining organic expansion through market share gains and strategic acquisitions. The company has completed five acquisitions so far in fiscal 2023, including the recent purchase of Sunbelt Asphalt Surfaces, which expanded its presence in the high-growth Atlanta metropolitan area. These bolt-on acquisitions have allowed Construction Partners to enhance its geographic coverage, increase production capacity, and add talented personnel to its team.

Liquidity

The company's liquidity position remains strong, with $47.9 million in cash and cash equivalents and $154 million in available borrowing capacity under its credit facility as of March 31, 2023. This financial flexibility supports the company's ability to pursue both organic and inorganic growth opportunities, while maintaining a prudent capital structure.

Construction Partners' success is also underpinned by its focus on operational excellence and a strong safety culture. The company's vertically integrated business model, which includes asphalt production, aggregates mining, and construction services, allows it to maintain tight control over its supply chain and project execution. Additionally, the company's commitment to safety is reflected in its industry-leading safety metrics, which contribute to its reputation as a trusted partner for both public and private clients.

Risks and Challenges

Despite the generally favorable market conditions, Construction Partners is not immune to risks and challenges. The company operates in a highly competitive industry, and it must navigate fluctuations in commodity prices, labor availability, and regulatory changes. Additionally, the company's reliance on public infrastructure funding means that it is exposed to the political and budgetary dynamics at the federal, state, and local levels.

Conclusion

In conclusion, Construction Partners has demonstrated its ability to capitalize on the robust demand for infrastructure projects in the southeastern United States. The company's diversified business model, strong backlog, and disciplined approach to growth have enabled it to deliver consistent financial performance and create value for its shareholders. As the company continues to execute on its strategic initiatives, investors will be closely watching its ability to maintain its growth trajectory and margin expansion in the years ahead.

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