Construction Partners, Inc.

Greetings and welcome to the Construction Partners, Inc. Second 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, with Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review second quarter fiscal 2022 results. 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, May 6th, so please be advised that any time-sensitive information may no longer be accurate as of the time of any replay or reading of the transcript. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance, are forward-looking statements made pursuant to the Safe Harbor's 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 disclosures 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 EBITDA, and a reconciliation to the nearest gap measures can be found at the end of the earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. Now I would like to turn the conference 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. as well as other members of our senior management team. I'd like to start by recognizing the more than 3,500 CPI employees throughout the Southeast and thanking them for their continued focus on safety at our job sites, managing record growth in our operations, and perseverance in dealing with the continued supply and labor challenges in the economy. Because of their hard work, CPI is having a successful current year and laying the groundwork for future growth and success. In this second quarter, our year-over-year revenue grew 36%, of which 17% was from acquisitions and 19% was organic growth. We also ended the second quarter with a record project backlog of nearly $1.3 billion. More importantly, our backlog margins continue to grow, and we anticipate that this healthy backlog margin expansion will mean higher future profit margins as backlog is converted. Taken together, this strong top-line performance, record backlog, and higher backlog margins are evidence of the continued robust demand for our infrastructure services throughout our five states and 57 markets and in multiple sectors. We continue to see healthy growth in the Southeast economy and strong private market bidding activity. On the public side, each of our five states continues to have healthy funding for their transportation and infrastructure programs, boosted this current year by the COVID relief bills. We continue to expect that the federal infrastructure bill will begin to flow into state budgets later in our fiscal year and become a contributor to our fiscal 2023, providing opportunities on numerous types of projects. These include not only highways and bridges, but also airports and railroads. CPI is actively preparing to have the workforce and equipment to participate in this generational investment in our nation's infrastructure. Turning now to the current cost environment. Continued inflation and accelerated costs led to an adjusted EBITDA of $7.8 million compared to $11 million in the same quarter last year. To begin with an update, the supply chain and labor shortages that began in the spring of 2021 are still very much a fact of life throughout the construction industry. But as we predicted for the last few quarters, CPI has learned to manage through these challenges and to acquire the workforce and resources needed to create top line revenue as evidenced by our growth. To protect the bottom line for the last nine months, We have been managing through the inflationary effects of these resource shortages by building contingencies and cost escalations into our newer bids to deal with the unprecedented and sharp inflation that began to accelerate last summer and continues today. This process is ongoing and the results will begin to show as this more resilient and higher margin backlog is converted to revenue. An additional new challenge this quarter was the rapid rise in energy costs driven largely by the invasion of Ukraine. This sharply escalated the cost of all energy commodities, the most impactful to CPI being the price of diesel fuel, which had an approximate 43% increase in the span of just over 60 days. While much of our internal operation is powered by diesel fuel, so also is the fleet of our subcontractors and suppliers. Gasoline, liquid asphalt, and natural gas also experienced significant increased costs in the quarter, and we have taken immediate actions in response. We raised our fleet rates using bids to reflect the new market prices of diesel and other fuels. We are incorporating additional contingencies into project bids, and we have begun implementing diesel fuel index mechanisms with our customers and suppliers where possible. We are assured that our competitors have experienced similar cost increases by the fact that we're still able to win bids and to book record project backlog with expanding margins. So even as we deal with this new inflation caused by geopolitical events, CPI is adapting to succeed in an inflationary environment and remains steadfast on the pathway to higher margins. To illustrate this path and the value of CPI's business model, of shorter duration projects. Remember, we entered into our new fiscal year on October 1st with approximately $1 billion on backlog. And in the first two quarters of our fiscal year, we've completed approximately half of that beginning backlog. Most of this completed backlog was the older half with lower margins and fewer contingencies that was booked prior to the summer of 2021. Most of the remaining backlog from the first of the year will be converted into higher margin revenue during the second half of our fiscal year. We expect this trend of steady growth in margins to continue in FY 2023 as well, as our new backlog being added in FY 2022 reflects approximately 250 to 300 basis points higher margin compared to the previous year. Just as aggregate suppliers are raising prices in this demand environment, CPI is essentially doing the same thing in the contracting space. Turning now to acquisitions, we made two strategic acquisitions in March. In Florida, we acquired GAC contractors, which included one hot mix asphalt plant, as well as experienced asphalt, grading, and site work crews, and the related fleet of equipment. GAC has historically been a large presence in the rapidly growing Florida panhandle region in both the private and public markets. In North Carolina, we acquired an asphalt paving contractor, Southern Asphalt, located in the coastal city of Wilmington. Both of these acquisitions give CPI an opportunity for future organic growth and higher relative market share in those two dynamic regions in the southeast. Our acquisition pipeline continues to be full as we see great companies that strategically fit CPI's business model. While we are a consolidator in a very fragmented industry segment, we remain patient and focused on finding acquisitions that expand our footprint and increase both our manufacturing and construction services vertical integration. Our goal continues to be growing relative market share while also capturing more margins along the value chain of services. The strong revenue and demand environment in both the public and private sectors across our 57 markets provides tremendous growth potential for the future of CPI. We are also well positioned to capitalize on future infrastructure demand that the $1.2 trillion federal bill will create over the next decade. We begin the third quarter with the highest backlog in the company's history in expanding backlog margins. We are adjusting our full year expectations based on high revenue and the cost impacts on profitability in the first half of our fiscal year. This revised outlook reflects revenue and profitability for the second half of the year, which is largely in line with our original expectations. We anticipate a strong second half of fiscal 2022 with both higher revenue and margins and carrying that momentum into fiscal 2023. I'd now like to turn the call over to Alan to discuss our financial results and revised outlook in greater detail.