Construction Partners, Inc. (ROAD) is a vertically integrated civil infrastructure company that specializes in the construction and maintenance of roadways, highways, bridges, and other critical transportation infrastructure across the Sunbelt region of the United States. With a rich history spanning over two decades, this Alabama-based firm has established itself as a dominant player in the industry, delivering consistent growth and operational excellence.
Humble Beginnings and Steady Expansion
Founded in 2007 as a holding company to facilitate an acquisition growth strategy in the hot mix asphalt paving and construction industry, Construction Partners has strategically expanded its geographical footprint, leveraging both organic growth and a series of strategic acquisitions. The company's primary operations consist of manufacturing and distributing hot mix asphalt for both internal use and sales to third parties, paving activities, site development, mining aggregates, and distributing liquid asphalt cement. Today, Construction Partners operates in 10 states, with a network of over 70 local market operations across Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee, allowing it to serve a diverse customer base that includes federal, state, and municipal governments, as well as private commercial and residential developers.
Financial Strength and Resilience Financials
Construction Partners' financial performance has been marked by consistent growth and profitability. In the fiscal year ended September 30, 2023, the company reported revenue of $1.56 billion, a 20% increase compared to the previous year. Net income for the same period came in at $49 million, reflecting a robust net profit margin of 3.1%. Operating cash flow for fiscal 2023 was $157.16 million, with free cash flow of $59.35 million.
The most recent quarter (Q3 2024) showed continued strong performance, with revenue of $517.79 million, net income of $30.91 million, operating cash flow of $34.63 million, and free cash flow of $19.74 million. Compared to Q3 2023, these figures represent impressive year-over-year growth, with revenue increasing 22.7%, net income up 42.6%, operating cash flow rising 10.9%, and free cash flow surging 66.2%. This growth was primarily driven by strong demand for infrastructure projects in the company's markets, as well as contributions from recent acquisitions.
The company's balance sheet remains strong, with a debt-to-equity ratio of 0.87 as of the most recent quarter, indicating a healthy capital structure. Construction Partners operates exclusively in the southeastern United States, focusing on Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee, though the company has not disclosed a significant geographic breakdown of its revenue or operations.
Liquidity
Construction Partners maintains a strong liquidity position, which provides financial flexibility and supports its growth initiatives. The company has a $400 million revolving credit facility, with $163 million outstanding as of the most recent quarter. Additionally, Construction Partners has $276 million in outstanding term loans. Total available liquidity, including cash and the undrawn credit facility, stood at $301 million at the end of Q3 2024. The company's current ratio of 1.60 and quick ratio of 1.30 further underscore its solid financial footing.
Diversified Revenue Streams and Operational Efficiency
Construction Partners' revenue is derived from a balanced mix of public infrastructure projects and private commercial developments, providing the company with a degree of stability and resilience. In fiscal 2023, the company's revenue was split approximately 61% from public projects and 39% from private work. This diversification helps to mitigate the impact of fluctuations in any one market segment.
The company operates through two main product segments: Construction Materials and Construction Services. The Construction Materials segment is the primary revenue driver, encompassing the manufacturing and distribution of hot mix asphalt (HMA) for internal use and third-party sales, as well as paving activities, site development, and aggregate mining. The Construction Services segment provides a variety of construction products and services for both public and private infrastructure projects, with a focus on highways, roads, bridges, airports, and commercial and residential developments.
The company's operational efficiency is further supported by its vertically integrated business model, which includes the production and distribution of critical construction materials, such as hot-mix asphalt, aggregates, and liquid asphalt cement. This integration allows Construction Partners to better manage costs and maintain a competitive advantage in its markets.
Strategic Acquisitions Fuel Growth
Acquisitions have played a significant role in Construction Partners' growth strategy. Since its inception, the company has completed over 30 strategic acquisitions, expanding its geographic footprint, increasing production capacity, and enhancing its service capabilities. In the most recent fiscal year, the company completed five acquisitions, including the purchase of Sunbelt Asphalt Surfaces, a leading asphalt and paving company in North Georgia.
These acquisitions have not only bolstered Construction Partners' market share but have also allowed the company to integrate new talent and best practices into its operations. The company's ability to successfully identify, acquire, and integrate complementary businesses has been a key driver of its long-term success.
Commitment to Safety and Sustainability
Construction Partners places a strong emphasis on safety and environmental sustainability, which are integral to the company's core values. The company has implemented comprehensive safety programs and training initiatives to ensure the well-being of its employees and the communities in which it operates. Additionally, Construction Partners is committed to sustainable construction practices, including the use of recycled materials and the development of energy-efficient infrastructure solutions.
Outlook and Future Prospects
Looking ahead, Construction Partners remains optimistic about the company's prospects. The recent passage of the Infrastructure Investment and Jobs Act (IIJA) by the U.S. Congress has provided a significant boost to infrastructure spending, which aligns with Construction Partners' core business. The company's strong backlog of $1.79 billion as of June 30, 2024, combined with its proven ability to win new contracts, positions it well to capitalize on this favorable market environment.
In its most recent guidance, Construction Partners has raised its fiscal 2024 revenue outlook to a range of $1.81 billion to $1.85 billion, with an anticipated adjusted EBITDA range of $211 million to $225 million. This translates to an adjusted EBITDA margin range of 11.7% to 12.2% for fiscal 2024. The company expects the revenue and adjusted EBITDA split between Q3 and Q4 to be similar to fiscal year 2023. Additionally, Construction Partners plans for net capital expenditures in fiscal 2024 to be in the range of $90 million to $95 million.
The company's confidence in its outlook is further bolstered by the fact that 80% to 85% of the next 12 months' contract revenue is already booked in backlog, up from 70% to 75% at the same time last year. This increased visibility into future revenue streams provides a solid foundation for continued growth and profitability.
Industry Trends and Market Position
The civil infrastructure construction industry, in which Construction Partners operates, has experienced a compound annual growth rate (CAGR) of approximately 5-7% over the past 5 years. This growth has been driven by increased federal, state, and local investment in infrastructure projects. Construction Partners' strong market position and vertically integrated business model have allowed it to capitalize on these favorable industry trends.
Conclusion
Construction Partners, Inc. has firmly established itself as a leader in the civil infrastructure industry, with a proven track record of consistent growth, financial stability, and operational excellence. The company's strategic geographic expansion, coupled with its vertically integrated business model and disciplined acquisition strategy, have been instrumental in driving its success. As the need for infrastructure investment continues to grow, Construction Partners is poised to capitalize on the favorable market conditions and deliver long-term value for its shareholders. With a robust backlog, strong financial performance, and an optimistic outlook, Construction Partners is well-positioned to continue its trajectory of growth and success in the civil infrastructure sector.