Construction Partners, Inc.

Greetings, and 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black of iInvestor Relations. And thank you, Rick Black. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review fourth quarter and fiscal year end results for fiscal year 2021. 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, November 23rd, 2021. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay 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 for future events or future financial performance, are forward-looking statements made pursuant to the Safe Harbors Provision 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 the earnings press release that was issued today 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 net income, loss, and adjusted EBITDA, reconciliations to the nearest gap 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, Jewel Smith. Jewel?

Thank you, Rick, and good morning, everyone. With me on the call today are Alan Palmer, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to begin today by thanking the over 3,000 employees of Construction Partners throughout the Southeast for their hard work and dedication in making fiscal year 2021 a successful and safe year in a challenging environment. I would also like to welcome all the talent employees of two October acquisitions, King Asphalt and J. Miller Construction. Welcome to the CPI family. I'll begin my remarks today with an overview of the fourth quarter and fiscal year 2021, before commenting on the current state of our business and expectations for fiscal year 2022, as well as some thoughts on the impact of the new federal infrastructure bill recently signed into law. Alan will then review the financial results in more detail. In the fourth quarter, construction partners achieved a record quarterly revenue of $279 million, a 24 percent increase compared to the same quarter last year, despite an excessive number of lost workdays due to abnormally wet weather throughout all of our markets in the southeast. Revenue for fiscal year 2021 overall grew approximately 16 percent compared to fiscal year 2020. consisting of approximately 5% organic growth and 11% acquisitive growth. Last quarter, we revised our FY 2021 outlook due to the labor market and supply chain constraints, which I described as ankle weights on our construction operations that suppress top-line revenue. While our adjustment largely covered those effects on our business in Q4, we could not foresee the extremely wet months that were to follow. In each of our states, precipitation was up approximately 30% from July to September compared to typical rainfall levels for these months. This weather significantly impacted our fourth quarter and delayed approximately $30 to $35 million of revenue into next year. We estimate that between seven to nine additional work days over normal expectations were lost during the fourth quarter. The good news is that this business is not lost, but rather moves forward into the current quarter as part of a record backlog that we have booked to begin our fiscal year 2022. Including the two companies acquired in October, we begin our new fiscal year with a record backlog of $1 billion. the largest in the company's history. In addition, we believe profit margins in our backlog can continue to grow with the expanded bidding opportunities and infrastructure. From a margin perspective, fiscal year 2021 adjusted EBITDA margin was 9.9%, a decrease compared to 12.5% in fiscal year 2020. There were three primary factors affecting margins. First, excessive loss of work days in the fourth quarter due to the 30% abnormal precipitation increase does hurt fixed cost recovery and absorption of our fleet and asphalt plants. So while the revenue moves forward and is not lost, margins are impacted by extremely wet weather. Second, the significant and atypical inflation felt throughout the economy has been a drag on margins. Typically, Our short project durations allow normal inflation to be passed on in our bids. However, given the sudden and sharp input costs being felt throughout the economy, we were not able to pass along all of the materials, energy, wages, and transportation costs. We anticipate continuing inflation in fiscal year 2022, and our pass-through mechanisms and contingencies in bids have been adjusted accordingly. And third, as CPI integrates acquisitions, the acquired backlog comes with lower margins, which typically take 12 to 18 months to raise to the CPI level. Longer term, we are expanding our footprint into new and growing markets that will continue to drive future organic growth and margin expansion over time. At CPI, we have managed these economic headwinds in an extremely rainy fourth quarter, and now we enter our new fiscal year as a larger, stronger, and more resilient business. We begin the new year with a record backlog of work and organization prepared for higher levels of infrastructure investment to come. We remain bullish about both organic and inquisitive growth prospects moving forward, as reflected in our fiscal year 2022 outlook. Although we don't know when the labor market and supply chain constraints will ease, we have adapted and are managing the disruptions and will pass the cost through until market dynamics ultimately return business to normal. And finally, have invested in our organization in FY 2021 to prepare for growth We expect those efforts to result in lower G&A costs as a percentage of revenue this year. Turning now to acquisitions. As we begin our fiscal year 2022, on October 4th, we announced an exciting platform acquisition in South Carolina with a purchase of King Asphalt. King is a full-service hot mix asphalt and paving company with three hot mix asphalt plants in the Greenville-Spartanburg metropolitan area. King provides asphalt contracting services for a variety of public, commercial, and residential projects. Under the continuing leadership of Mike Crenshaw and his talented team, we believe King is well-positioned to participate in the dynamic economy and rapid growth occurring in the upstate region of South Carolina. Our second FY22 acquisition announced on October 18, was a strategic purchase that further enhances our vertical integration of construction services in the rapidly growing Florida Panhandle. J. Miller Construction is a well-respected grading and site work contractor in the greater Pensacola area and will allow us to bid a wide array of projects in that market. As a consolidator in a fragmented industry segment, we continue to strategically acquire businesses that expand our footprint and increase both our manufacturing and construction services vertical integration. This strategy leads to growth of our relative market share while also allowing us to capture more margin along the value chain of services. Looking forward, the acquisition pipeline continues to be very strong. We have made the organizational investments in people and technology, and we have the capital structure that provides financial flexibility for us to continue executing the CPI strategy of profitable and disciplined growth. Turning now to the federal funding for infrastructure in our industry. The new infrastructure bill signed into law last week is a transformational investment in the roads, bridges, airports, and ports of our nation. In our five states, federal infrastructure project funding for the next five years will increase approximately 50% over the current baseline. We estimate that this legislation will stimulate economic growth and job creation, while also driving meaningful project demand beginning in late 2022 and beyond. Our investments in the organization, its technology and people, have prepared us to capitalize on this increased infrastructure funding. I'd now like to turn the call over to Alan to discuss our financial results and fiscal year 2022 outlook in greater detail.