ROAD - NASDAQ

Greetings. Welcome to the Construction Partners, Inc. Fourth Quarter Earnings 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, Rick. You may begin.

Thank you, Jule. And good morning, everyone. I'll begin with a review of our key performance metrics for the fiscal year before discussing our outlook for fiscal 2024. Revenue was $1.56 billion, an increase of 20% compared to last year. The mix of our total revenue growth for the year was 8.7% organic revenue and 11.4% from recent acquisitions. During the final quarter of the fiscal year, the weather across our states was better than seasonal averages and compared favorably to the fourth quarter last year. I'd also point out that the liquid asphalt index reimbursements we received this year in the fourth quarter were much lower than last year, as liquid asphalt has trended down for most of the year. Liquid asphalt prices were relatively flat in fiscal 2023. Consequently, we received $1.3 million for liquid asphalt index reimbursements in Q4 2023 compared to $10.7 million in Q4 last year. Excluding the impact of these reimbursements, the company's organic growth rate would be 9.6% and the overall revenue growth would be 21%. Gross profit in fiscal 2023 was $196.4 million, an increase of approximately 41% compared to last year. As a percentage of total revenues, gross profit was 12.6% in fiscal 2023 compared to 10.7% last year. General and administrative expenses as a percentage of total revenue in fiscal 2023 declined to 8.1% compared to 8.3% last year. Net income was $49 million, an increase of 129% compared to $21.4 million last year. Adjusted EBITDA was $174.1 million, an increase of 57% compared to last year. adjusted EBITDA margin for the year was 11.1% compared to 8.5% in fiscal 2022. You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's earnings release. In addition, as Jule mentioned, we are reporting a record project backlog of $1.6 billion at September 30, 2023. Turning now to the balance sheet. We had $48.2 million of cash and cash equivalents and $222.1 million available under the credit facility, net of a reduction for outstanding letters of credit. We have $283.8 million of principal outstanding under the term loan and $93.1 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 a reminder, the company entered into an interest rate swap agreement that fixes SOFR at 1.85%, which results in an interest rate on $300 million of term debt of 3.1%. This is a reduction of 50 basis points from 09/30/2022. The maturity date of this swap is June 30, 2027. As of the end of the quarter, our debt to trailing 12-months EBITDA ratio was 1.72. As Jule mentioned, we also reduced our leverage ratio year-over-year from 2.78, while continuing to grow organically and acquisitively. Our expectation is that leverage ratio will maintain a range of 1.5 to 2.5 while continuing to add sustained profitable growth. Cash provided by operating activities was $157.2 million compared to the $16.5 million in fiscal 2022. Net capital expenditures for fiscal 2023 were $80.1 million, consisting of $97.8 million in capital purchases and $17.7 million of proceeds from the sale of property, plant equipment. 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 the fiscal year 2024 outlook that was introduced at our Analyst Day event last month on October 4, 2023. 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 Instructions]. Our first question is from Kathryn Thompson with Thompson Research Group.

It's actually Brian Biros on for Kathryn. First on the on the EBITDA guidance, top end gets you back to 12%. That'd be great. Low end is more about 20 basis points off of kind of where you ended the current year. Can you just touch on the low end scenario there and kind of what are the building blocks to get to that kind of 20 basis point margin growth there?

Brian, in our guidance and in our Roadmap 2027 that we talked about last month at the Analyst Day, we expect to have 50 basis points to 75 basis points of margin improvement each year. That's what our Roadmap 2027 calls for. But when we give guidance, we give a range to encompass different scenarios, but our guidance that we give, we assume normal weather, a stable economy, and good execution. And so, we're just getting the year started. And as we go through and see how the years going, we'll update that guidance. And as you saw last year, we'll tighten it and raise it accordingly.

Maybe follow-up just then on the mix between public and private. Public, as you mentioned on the call, even on the private side, both good tailwinds going into the next year. Multi-year tailwinds. Do you see the mix between the two changing at all going forward? Perhaps strength between the two came a little bit different? Public maybe a little bit stronger. [indiscernible] states in the southeast that are seeing good trends on the private side, too. So just wondering how that that mix shift looks for you guys, if any mix shift going forward?

Actually, I think what you'll see, if you look at our filing, the mix has changed a little bit in 2023 overall from, basically, 60/40 in prior years to roughly 63 public/37 private in 2023. So I think that shows quite a bit of demand in the public environment, both state and federal levels, as Jule discussed. So, that could go up potentially in the public side based on what the demand provides in the marketplace. But I think we're comfortable with that mix going forward.

Our next question is from Michael Feniger with Bank of America.

I would add to that, that part of the sharp spike in inflation that occurred 18 months ago is difficult for anybody to absorb. But whatever level inflation is at, as long as it's relatively stable, we can pass that along.

Our next question is from Adam Thalhimer with Thompson Davis & Co.

Greg, just real quick for you. The SG&A leverage was particularly strong in Q4. Was there anything unusual in there?

No, I think it's just a normal trend that we talked about, 15 basis points, 20 basis points year-over-year. Of course, the fourth quarter was certainly better than last year. 6.9%, I believe, is what it was this year. So it's just a normal trend, I think we're going to continue to see.

Our next question is from Brian Russo with Sidoti & Company.

Brian, I would say that we still think that 75% of the next 12 months' revenue is covered by our backlog. That hasn't changed.

Just lastly, on the CapEx, the $90 million to $95 million in 2024. Is any of that growth CapEx earmarked for any specific projects at this point? Or is that still kind of being evaluated?