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. Thank you, Mr. Black. You may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Construction Partners Conference Call to review the second quarter results for fiscal 2023. 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 5, 2023. 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 provisions 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 this morning's earnings press release 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 EBITDA, and reconciliations to the nearest gap measures can be found at the end of our earnings release. Construction Partners assumes no obligation to publicly update or revise these 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 Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to start the call by welcoming Greg to his new role and his first conference call as CFO. Greg and I have worked together at CPI for many years while I was president of Fred Smith Company in North Carolina, and he was CFO of Wiregrass, our Alabama platform company. Alan Palmer hired Greg in 2009, and he has been part of CPI's growth story for well over a decade. He has executed our strategy, he knows our people and our culture, and he deeply understands our financial systems at both the operating company and corporate level. Over the past two years, Greg has been working closely with me and Raleigh on this planned transition, and we both feel it has been a tremendous honor to work with Allen. I'm extremely thankful for Allen's wisdom and hard work in building CPI into one of the leading infrastructure services companies in the nation. Before I provide an overview of our Q2 results, I'd like to thank our nearly 4,000 dedicated employees that move our company forward every day. In our business, safety on job sites and plant sites is a daily commitment, and their vigilance to stay alert and their dedication to their teammates' health and well-being is impressive and greatly appreciated. CPI had an excellent second quarter. which is historically a slower winter period in our seasonal business, and we are right on track with our annual plan for FY23. The second quarter played out just as we had discussed on our last conference call, with strong performance from each of our operating companies in all six states. We also had the added tailwinds of better than expected weather and lower energy and liquid asphalt costs across our geographic footprint. First, warmer and drier than normal weather this winter allowed us to complete more of our higher margin backlog and over-recover on our fixed cost. As I said last quarter, when the weather had a negative effect on our fixed cost recovery, usually over the course of a full year, the weather tends to even out. The second tailwind in the quarter was due to lower energy prices in several areas of our operations. In our fleet and at our asphalt plants, we've seen diesel fuel and natural gas prices steadily moderate down, providing a sooner-than-expected boost to margins as we work on more project backlog with inflation-adjusted estimates and higher input costs. Lower energy costs also provided better economics at our liquid asphalt terminal on the Gulf Coast as we filled our tanks with lower-priced liquid asphalt. This facility is a significant part of our vertical integration strategy to capture more margin along the value chain, and we look forward to our new liquid asphalt terminal in North Alabama being online later this summer. As we move into the busy work season, our view of the second half of the fiscal year remains the same as last quarter, positive and focused on accomplishing a full plate of work. Overall, the construction industry's labor market and supply chain continue to normalize throughout our southeastern footprint. At CPI, we move into Q3 as expected with almost all of our record backlog now containing inflation-adjusted cost estimates and escalators. Accounting for the outperformance in Q2 and our positive expectations for the second half of the fiscal year, we have raised and tightened the ranges in our FY23 outlook. The second quarter also represented another solid period of winning new work and adding to backlog, which is now at a record $1.52 billion. The demand environment continues to remain robust, with continuing migration into the southeast, supporting the private sector and the IIJA fully engaged in funding investments in roads, bridges, and airports. I now want to turn to CPI's strategic model and our three levers for growth. As we continue to consolidate and grow relative market share throughout our footprint, our business scales and margins expand. Our core business generates strong cash flow, and we continually evaluate attractive opportunities throughout the Southeast to make wise investments that compound and grow shareholder value. Our first lever and primary focus is organic growth in our existing markets, as evidenced by this quarter's organic growth of 17.1%. Secondly, we have greenfield investments in new asphalt plants and vertical integration facilities, such as the new asphalt terminal we're building in Alabama. And finally, strategic acquisitions in new markets to expand our geographic footprint and grow relative market share. In early April, we expanded further into the greater Greenville, South Carolina metro area. Our acquisition of Pickens Construction, headquartered in Anderson, South Carolina, added one hot mix asphalt plant and related construction operations with approximately 20 employees. This bolt-on acquisition for our platform company, King Asphalt, expands our reach within the dynamic upstate region of South Carolina along the I-85 growth corridor between Greenville and Atlanta. Earlier this week, we announced an acquisition in Huntsville, Alabama for the operations of Southern Site Contractors, an excavation, grading, and utilities contractor. This strategic acquisition further enhances our vertical integration of construction services in the dynamic Huntsville market. We welcome the talented team of construction professionals whose skills and experience allows us to better serve both public and private customers with a wide range of turnkey development services. We also continue to be very pleased with the beginning of operations for acquisitions made in the first quarter that brought us into two vibrant growth markets, the greater Nashville region and the rapidly growing Charlotte Rock Hill Metro market with the acquisition of Fairby Corporation. Both of these acquisitions will provide opportunities to execute all aspects of CPI's strategy moving forward, from organic growth, adjacent greenfields, bolt-on acquisitions, and capturing more margin through vertical integration. This is the same strategy our company was founded on more than two decades ago, and today it's more relevant and effective than ever in building the infrastructure of the Southeast and growing shareholder value. Now having entered our busy work season, our local teams are building a record high backlog in a more normalized construction economy. We continue to prepare for long-term growth by investing in our workforce. Attracting and retaining the very best construction professionals strengthen CPI with a durable and sustainable competitive advantage as we continue to execute on our strategy and deliver top line and bottom line growth in FY23 and beyond. I'd now like to turn the call over to Greg.