Construction Partners, Inc. — Fiscal 2024 Second-Quarter Form 10-Q
Reporting period: Quarter and six months ended March 31, 2024; filed May 10, 2024. The company is a civil infrastructure contractor and materials supplier operating across Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee. Its activities include roadway construction and maintenance, paving, site development, hot-mix asphalt, aggregates and liquid asphalt sales. Results are seasonally weaker in the first and second fiscal quarters because of weather and outdoor operating conditions.
Key Financial Metrics
| Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Six months ended March 31, 2024 | Six months ended March 31, 2023 |
|---|---|---|---|---|
| Revenue | $371.4 million | $324.9 million | $767.9 million | $666.6 million |
| Gross profit | $38.8 million | $26.3 million | $90.7 million | $56.8 million |
| Gross margin | 10.4% | 8.1% | 11.8% | 8.5% |
| Operating income | $3.1 million | $(2.6) million | $19.8 million | $3.8 million |
| Net income (loss) | $(1.1) million | $(5.5) million | $8.7 million | $(3.6) million |
| Adjusted EBITDA | $29.5 million | $20.4 million | $70.4 million | $47.6 million |
| Adjusted EBITDA margin | 7.9% | 6.3% | 9.2% | 7.1% |
| Diluted EPS | $(0.02) | $(0.11) | $0.17 | $(0.07) |
Adjusted EBITDA is a non-GAAP measure defined by the company as net income before interest, taxes, depreciation, depletion, accretion and amortization, share-based compensation and, when applicable, debt extinguishment losses.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $48.0 million at March 31, 2024, compared with $48.2 million at September 30, 2023. Including restricted cash, total cash was $50.4 million.
- Net cash provided by operating activities was $78.6 million for the six months ended March 31, 2024, versus $45.7 million in the prior-year period.
- Capital expenditures were $55.5 million, compared with $60.4 million in the prior-year period. Management expects fiscal 2024 capital expenditures of approximately $90 million to $95 million.
- Investing cash use was $138.4 million, including $87.9 million for acquisitions and $55.5 million for property, plant and equipment.
- Financing cash provided was $61.2 million, including $90.0 million of revolver borrowings, partially offset by $27.5 million of debt repayments.
- Total debt principal was $439.4 million at March 31, 2024, consisting of a $276.3 million term loan and $163.1 million drawn on the revolving credit facility. Revolver availability, including the effect of letters of credit, was $153.7 million.
- The debt facilities mature in 2027 and are secured by substantially all company assets. The company was in compliance with its covenants, including a minimum fixed-charge coverage ratio of 1.20-to-1.00 and maximum consolidated leverage ratio of 3.50-to-1.00. Reported ratios were 3.39-to-1.00 and 1.81-to-1.00, respectively.
- A $300.0 million interest-rate swap had a fair value of $21.0 million at March 31, 2024. The company estimates that, absent the swap, a 1% change in borrowing rates would change annual interest expense by approximately $4.4 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 14.3%, and six-month revenue increased 15.2%. Acquisitions contributed $25.1 million of second-quarter revenue and $54.7 million of six-month revenue; existing markets grew 6.6% and 7.0%, respectively.
- Gross margin improved substantially, which management attributed to efficient plant and equipment utilization and completion of new backlog with more favorable margins.
- Second-quarter operating results improved to income from a prior-year loss, and the six-month period moved from a net loss to net income.
- General and administrative expense increased 14.9% for the quarter and 17.9% for the six-month period, driven by acquired businesses, personnel costs, share-based compensation and other corporate expenses.
- Prior-year six-month results included a $5.4 million gain on a facility exchange; no comparable gain was recorded in 2024. Gains on equipment sales also declined.
- Debt increased by approximately $62.5 million from September 30, 2023, primarily reflecting acquisition financing. Revolver borrowings increased by $70.0 million while term-loan principal declined by $7.5 million.
Outlook, Commentary, Risks and Unusual Items
- Backlog was $1.8 billion at March 31, 2024, comprising $1.4 billion of awarded or in-progress work and $0.4 billion of low-bid/no-contract work. Remaining performance obligations were approximately $1.37 billion, with $743.7 million expected to be earned during the remainder of fiscal 2024.
- Management expects operating cash flow and available credit to fund operations, planned capital expenditures and potential share repurchases for at least the next 12 months, but cautions that acquisitions, inflation, supply-chain constraints and capital needs could require additional financing.
- On April 12, 2024, the board authorized a Class A share-repurchase program of up to $40 million through September 30, 2025. No shares were repurchased under the program during the reported period.
- During the period, the company completed four acquisitions for aggregate consideration of approximately $87.9 million. Purchase accounting remained provisional, including approximately $22.2 million of provisional goodwill.
- On May 1, 2024, after the reporting date, the company acquired Sunbelt Asphalt Surfaces for $28.6 million and issued related equity and performance awards to former Sunbelt employees.
- Key risks include public infrastructure funding, weather and seasonality, competitive bidding, contract-estimate changes, acquisition integration, bonding capacity, debt and covenant restrictions, labor availability and costs, inflation in fuel and materials, supply-chain disruption, regulatory matters, litigation, cybersecurity and interest-rate exposure.
- The company reported no material changes to previously disclosed legal proceedings and stated that its disclosure controls and internal control over financial reporting were effective as of March 31, 2024.
Investor Verification Checklist
- Verify the sustainability of the improved gross margins and whether favorable backlog mix and utilization trends continue.
- Reconcile acquisition contributions, provisional purchase-price allocations and the effect of acquired operations on future margins and leverage.
- Monitor debt repayment, revolver usage, covenant headroom and sensitivity to floating interest rates.
- Assess whether the $90 million to $95 million capital-expenditure plan and the $40 million repurchase authorization remain consistent with liquidity and acquisition priorities.
- Review backlog quality, including the $0.4 billion of low-bid/no-contract work, funding probability and potential contract-estimate revisions.
- Track inflation, fuel and materials costs, labor availability, weather impacts and the company’s ability to pass cost increases through to customers.