Construction Partners, Inc. (NASDAQ: ROAD) is a vertically integrated civil infrastructure company specializing in the construction and maintenance of roadways across the Sunbelt region. Founded in 2007 and headquartered in Dothan, Alabama, the company has steadily expanded its footprint, now operating in eight states, including Alabama, Florida, Georgia, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas.
Company Overview and History
The company's business model is centered around a strategy of acquiring and integrating regional civil infrastructure companies, allowing it to leverage operational synergies and expand its geographic reach. This approach has enabled Construction Partners to establish a robust platform for sustained growth, leveraging its collective expertise, resources, and strategic positioning within the attractive Sunbelt market. Construction Partners was formed in 2007 by SunTx Capital Partners, a private equity firm based in Dallas, Texas, as a holding company to facilitate an acquisition growth strategy in the hot mix asphalt (HMA) paving and construction industry. In its early years, the company focused on building a presence across the Sunbelt region through strategic acquisitions in Alabama, Florida, Georgia, North Carolina, and South Carolina. This allowed Construction Partners to establish a diversified footprint and capitalize on growth opportunities in these markets.
Early Challenges and Growth
One of the key challenges the company faced in its early years was managing the integration of acquired businesses and ensuring operational efficiencies across its growing portfolio of subsidiaries. To address this, Construction Partners invested heavily in building out its corporate infrastructure and implementing best practices to drive synergies and operational excellence. Despite these challenges, the company maintained a disciplined approach to growth, focusing on identifying high-quality, accretive acquisition targets that complemented its existing capabilities.
Financials
In the fiscal year ended September 30, 2024, Construction Partners reported revenue of $1.82 billion, representing a year-over-year increase of 16.7%. Net income for the same period stood at $68.94 million, with diluted earnings per share of $1.31. The company's strong financial performance is underpinned by its focus on operational efficiency, strategic acquisitions, and the ongoing demand for infrastructure development within its core markets.
For the first quarter of fiscal 2025 ended December 31, 2024, Construction Partners reported record revenue of $561.58 million, an increase of 41.6% compared to the same quarter a year ago. This growth was driven by 11.2% organic revenue growth and 30.4% from recent acquisitions. The increase in revenue was primarily due to $120.9 million in revenues attributable to recent acquisitions, as well as a $44.2 million increase in revenues from the company's existing markets driven by strong demand in both public and private work.
Adjusted net income in the first quarter was $13.3 million, representing a 35% increase compared to the first quarter of the prior year. Adjusted EBITDA grew 68.3% to $68.8 million, representing an Adjusted EBITDA margin of 12.3% compared to 10.3% in the prior year quarter. The company reported a record project backlog of $2.66 billion as of December 31, 2024.
For the full fiscal year 2025, Construction Partners has provided updated guidance ranges: revenue of $2.66 billion to $2.74 billion, net income of $93 million to $105.6 million, adjusted net income of $109.5 million to $122.1 million, adjusted EBITDA of $335 million, and adjusted EBITDA margin of 14.1% to 14.6%. This guidance includes the contributions from the recent acquisitions of Oberlin Corporation and Mobile Asphalt Company, which are expected to add $120 million to $130 million in revenue for the remainder of fiscal 2025. The backlog from these two recent acquisitions is expected to be $90 million to $100 million.
Key Success Factors
One of the key drivers of Construction Partners' success has been its vertically integrated business model. The company operates hot mix asphalt (HMA) plants, aggregates mining facilities, and a liquid asphalt terminal, allowing it to control the entire value chain of its construction projects. This vertical integration not only enhances the company's profit margins but also provides it with a competitive advantage in terms of cost control and project delivery.
The company's geographic footprint within the Sunbelt region has also been a significant factor in its growth. The Sunbelt states have experienced robust population growth and economic expansion in recent years, fueling the demand for infrastructure investments. Construction Partners has strategically positioned itself to capitalize on this trend, leveraging its local market expertise and established relationships with state and municipal agencies.
Moreover, the company's acquisition strategy has played a crucial role in its expansion. By acquiring regional civil infrastructure companies, Construction Partners has been able to quickly scale its operations, gain access to new geographic markets, and enhance its competitive position. The successful integration of these acquisitions has also allowed the company to realize operational synergies, further improving its profitability.
Liquidity
In terms of financial health, Construction Partners maintains a strong balance sheet, with a debt-to-equity ratio of 0.96 as of December 31, 2024. The company's working capital position is also robust, with a current ratio of 1.54 and a quick ratio of 1.23, indicating its ability to meet short-term obligations. Additionally, Construction Partners generated $209.08 million in operating cash flow during the fiscal year ended September 30, 2024, providing the company with ample resources to fund its growth initiatives and capital expenditures.
As of December 31, 2024, the company had cash and cash equivalents of $132.5 million and $393.4 million available under its Revolving Credit Facility, net of outstanding letters of credit. This strong liquidity position provides Construction Partners with the financial flexibility to pursue strategic growth opportunities and manage potential economic uncertainties.
Product Segments and Operations
Construction Partners operates in several key product segments within the civil infrastructure construction industry:
1. Manufacturing and Distributing Hot Mix Asphalt (HMA): The company manufactures and distributes HMA for both internal use and sales to third-party customers in connection with construction projects.
2. Paving Activities: Construction Partners provides paving services, including the construction of roadway base layers and application of asphalt pavement for both public and private infrastructure projects.
3. Site Development: The company offers site development services, including the installation of utility and drainage systems for construction projects.
4. Aggregates Mining: Construction Partners mines and sells aggregates, such as sand, gravel, and construction stone, used as raw materials in HMA production and sold to third-party customers.
5. Liquid Asphalt Distribution: The company distributes liquid asphalt cement for internal use in HMA production and for sales to third-party customers.
In terms of revenue sources, approximately 57.7% of Construction Partners' revenues in Q1 2025 came from public infrastructure construction projects and the sale of construction materials to public customers. The remaining 42.3% of revenues were derived from private infrastructure construction projects and the sale of materials to private customers.
Future Outlook
Looking ahead, Construction Partners remains well-positioned to capitalize on the ongoing demand for infrastructure development within its core markets. The company has continued to expand its geographic footprint, most recently acquiring Overland Corporation in Oklahoma, Mobile Asphalt Company in Alabama, and Lone Star Paving in Texas. The Lone Star Paving acquisition added 10 HMA plants, 4 aggregate facilities, and 1 liquid asphalt terminal in Texas, further strengthening the company's presence in the Sunbelt region.
Furthermore, the passage of the Infrastructure Investment and Jobs Act (IIJA) in 2021 has provided a significant boost to federal infrastructure funding, which is expected to drive increased construction activity across the Sunbelt states. Construction Partners is well-poised to benefit from this influx of infrastructure spending, as the company's expertise and vertically integrated business model align closely with the types of projects being prioritized under the IIJA.
The civil infrastructure construction industry in the Sunbelt region has seen steady growth, driven by population migration, state and local infrastructure funding initiatives, and the IIJA at the federal level. Management estimates that industry funding and contract awards across its geographic markets have grown at a mid-to-high single-digit rate on average, providing a favorable backdrop for Construction Partners' continued expansion and profitability.
Conclusion
In conclusion, Construction Partners' strong financial performance, strategic acquisitions, and vertical integration have positioned the company as a leading player in the civil infrastructure construction industry within the Sunbelt region. With the continued demand for infrastructure development, a robust project backlog, and the company's proven track record of growth, Construction Partners appears well-equipped to maintain its momentum and deliver long-term value for its shareholders. The company's recent acquisitions and positive guidance for fiscal year 2025 further underscore its potential for sustained growth and market leadership in the civil infrastructure sector.