Construction Partners, Inc.

Greetings and welcome to the Construction Partners Incorporated fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. Anyone to 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 Investor Relations. Thank you, Rick. 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 year-end results for fiscal 2022. 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 22nd, 2022. 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 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 disclosure on forward-looking statements. These statements, as well as 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. Reconciliations to the nearest gap measures can be found at the end of today's 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, Jule Smith. Jule?

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 stating how proud I am of the entire team of 3,800 dedicated employees throughout our five states in the Southeast for their continued commitment and hard work to produce a record year at CPI. With the acquisition announced yesterday, I'm excited to welcome our sixth state of Tennessee and the talented new teammates that live and work in the Nashville metro area. In fiscal 2022, our team persevered through inflation that hit hard in the first half of the year and supply chain disruptions that persisted all year and continue to present numerous challenges to our productivity and profitability. Even so, we were able to gain momentum and increase profitability in the second half of fiscal 22, and we now look to carry that momentum into fiscal 23. The company had a record fourth quarter for revenue, adjusted EBITDA, and backlog. Compared to our fourth quarter last year, both revenue and adjusted EBITDA were up over 40%. I would highlight that this marks our first double-digit adjusted EBITDA margin in the last five quarters. This reflects that we have worked through most of our pre-inflationary backlog from one year ago, and we continue to manage through supply chain headwinds. Similar to our third quarter, abnormally high contract adjustments for liquid asphalt pricing again inflated revenue of approximately $10 million. As a reminder, this is effectively a dollar-for-dollar cost reimbursement that has no impact on margin dollars. As we communicated last month, in the last week of our quarter, Hurricane Ian impacted three of our states. While we were fortunate to not have had any loss of life or property, The main effect was the Florida DOT shutdown all projects statewide most of that week to prepare for the storm's arrival. We estimate the impact per million was approximately $8 million of revenue, which is not lost but moves forward as part of a record backlog of $1.4 billion. In Q4, more than $400 million of new work was added to backlog. In FY22, we grew backlog sequentially for both quarters of our busy work season, which is not the historical norm at CPI. This reflects strong project demand and the added contribution of new markets entered this year. This new backlog continues to have both higher inflation factored in on the cost side, while also steadily increasing profitability on the margin side. Using backlog as one indicator of our future, we began FY23 with a more resilient and profitable book of work on hand than we had one year ago. Demand remains strong in both the public and commercial sectors. Healthy funding programs at the state and federal levels are creating numerous public bidding opportunities, and we are beginning to see the funding from the IIJA work its way into project lettings. We still see healthy commercial project opportunities throughout our geographic footprint as migration to the southeastern United States continues to drive growth. As we begin 2023, our initial guidance is driven by three factors. First, a record backlog with strong project demand. Second, higher margins in our backlog. And lastly, the continued economic uncertainty and potential productivity loss due to the supply chain's challenges. We expect the supply chain will begin to normalize over 2023. The midpoint year-over-year reflects revenue growth of approximately 13%, adjusted EBITDA growth of 33%, and double-digit EBITDA margins. This fiscal year should have our typical seasonality of revenue being realized approximately 40% in the first half of the year and 60% in the second half and our margins having caused under-recovery in the first half of the year and over-recovery in the second half of the year during our busy work season. Turning now to acquisitions. During the past year, our record results were held by the additional contributions of numerous new markets we acquired, including a platform company in a new state and several bolt-on acquisitions. Yesterday, we announced the first acquisition of FY23. adding three hot mix asphalt plants and a construction operation in the Nashville metro area, purchased from Blue Water Industries. These new assets and employees will be integrated as a bolt-on acquisition to our Alabama-based platform company, Wiregrass Construction. Wiregrass maintains an outstanding and well-managed operation in North Alabama and Huntsville within close proximity to the Nashville metro area. We expect to take advantage of the growth opportunities in one of the fastest growing regions in the country. In connection with this transaction, we also received cash and transferred ownership of the Doherty Springs Quarry in North Carolina to Blue Water Industries, one of the leading aggregate producers in the Southeast. We believe this strategic transaction with Blue Water strengthens both of our organizations by creating a partnership in two dynamic markets. that retains aggregate sourcing rights and allows each company to focus on their core area of expertise. As we move into a new year, we continue to have conversations with potential sellers, both inside and outside of our current states, and we remain patient and focused on finding the best strategic acquisitions that expand our footprint and relative market share. We strengthen our operations also through building greenfields. such as the HMA plant we recently opened in Benson, North Carolina. An additional example is a greenfield investment we are making to enhance our vertical integration strategy, a new liquid asphalt terminal under construction in northern Alabama. It is expected to be operational this spring. The Hansfull facility will supply 10 hot mix asphalt plants in Alabama, as well as the three acquired Tennessee asphalt plants. This new terminal captures the margin between wholesale and retail for liquid asphalt used in our construction activities, just as we've done successfully at our first liquid asphalt terminal on the Gulf Coast in Panama City. These greenfields require an initial cash investment, as does the double-digit real organic growth we have achieved in our existing markets. Before turning the call over to Alan to review the financials and 2023 outlook, I want to reiterate our optimism for the future of CPI. In 2022, the team successfully managed through numerous challenges and set the table for a new year of growth, all while not losing sight of CPI's strategic model. At CPI, we know who we are and what we do. Our company is well positioned for the numerous opportunities on the road ahead, and we are committed to staying focused and working hard to build value for all of our stakeholders. I'd now like to turn the call over to Alan.