Construction Partners, Inc. (NASDAQ:ROAD) Q3 2023 Earnings Conference Call August 2, 2023 10:00 AM ET Company Participants Rick Black - Investor Relations Jule Smith - Chief Executive Officer Greg Hoffman - Chief Financial Officer Ned Fleming - Executive Chairman Conference Call Participants Tyler Brown - Raymond James Brian Biros - Thompson Research Group Andy Wittmann - Robert W. Baird Adam Thalhimer - Thompson Davis & Co Stanley Elliott - Stifel Brian Russo - Sidoti & Company Operator Greetings and welco ...

2 Experienced Leaders LEADING INFRASTRUCTURE CONSTRUCTION SERVICES COMPANY 67 4,000+ ACQUISITIONS SINCE IPO IN 2018 $911mm $1.30bn $1.55bn FY21 FY22 FY23* $91mm $111mm $165mm FY21 FY22 FY23* Revenue Adjusted EBITDA** SUMMER 2023 INVESTOR PRESENTATION Construction Partners, Inc. (CPI) NASDAQ: ROAD | --- | --- | |----------------------------|-------| | | | | FORWARD-LOOKING STATEMENTS | | | --- | --- | |------------------------------|--------------------------------------| | | | | | | | | | | | | | Jule Smith ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38479 Construction Partners, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 26-0758017 (S ...

Construction Partners, Inc. (NASDAQ:ROAD) Q2 2023 Earnings Conference Call May 5, 2023 10:00 AM ET Company Participants Rick Black - Investor Relations Jule Smith - Chief Executive Officer Greg Hoffman - Chief Financial Officer Ned Fleming - Executive Chairman Conference Call Participants Andy Wittmann - Baird Adam Thalhimer - Thompson, Davis & Company Stanley Elliott - Stifel Brian Russo - Sidoti & Company Operator Greetings and welcome to the Construction Partners, Inc. Second Quarter Earnings Conference ...

Construction Partners, Inc. (NASDAQ:ROAD) Q1 2023 Results Conference Call February 10, 2023 10:00 AM ET Company Participants Rick Black - Investor Relations Jule Smith - CEO Alan Palmer - Chief Financial Officer Ned Fleming - Executive Chairman Conference Call Participants Stanley Elliott - Stifel Andy Wittmann - Baird Tyler Brown - Raymond James Michael Feniger - Bank of America Brian Russo - Sidoti & Company Brent Thielman - D.A. Davidson Kevin Gainey - Thompson Davis Operator Good morning. And welcome to ...

[PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the quarter ended December 31, 2022, detailing the company's financial position, performance, and cash flows [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$1.129 billion** driven by acquisitions, while total liabilities rose to **$670.1 million** due to increased long-term debt Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2022 (unaudited) | Sep 30, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $401,115 | $417,189 | | Property, plant and equipment, net | $498,293 | $481,412 | | Goodwill | $159,949 | $129,465 | | **Total Assets** | **$1,129,004** | **$1,095,521** | | **Total Current Liabilities** | $202,892 | $226,138 | | Long-term debt, net | $413,018 | $363,066 | | **Total Liabilities** | **$670,148** | **$639,642** | | **Total Stockholders' Equity** | **$458,856** | **$455,879** | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Revenues increased by **19.9%** to **$341.8 million**, but gross profit declined to **$30.5 million**, leading to a **65.7%** decrease in net income to **$1.9 million** Statement of Comprehensive Income Summary (in thousands, except per share data) | Metric | Q1 FY2023 (ended Dec 31, 2022) | Q1 FY2022 (ended Dec 31, 2021) | | :--- | :--- | :--- | | **Revenues** | $341,779 | $284,964 | | **Gross Profit** | $30,496 | $32,964 | | Operating Income | $6,328 | $8,459 | | **Net Income** | **$1,892** | **$5,511** | | Diluted EPS | $0.04 | $0.11 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly improved to **$28.9 million**, while investing activities used **$70.7 million** primarily for acquisitions, and financing provided **$49.7 million** Cash Flow Summary (in thousands) | Activity | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $28,884 | $(577) | | Net cash used in investing activities | $(70,670) | $(80,274) | | Net cash provided by financing activities | $49,736 | $67,461 | | **Net change in cash, cash equivalents and restricted cash** | **$7,950** | **$(13,390)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail significant accounting policies, recent business acquisitions, debt facilities, and an approximate **$1.2 billion** in performance obligations - The company's primary operations include manufacturing hot mix asphalt (HMA), paving, site development, mining aggregates, and distributing liquid asphalt cement across six southeastern states[18](index=18&type=chunk) - On November 18, 2022, the company acquired three HMA plants in Tennessee for **$8.4 million** and disposed of a quarry in North Carolina, resulting in a **$5.4 million** gain[60](index=60&type=chunk) - On December 1, 2022, the company acquired Ferebee Corporation in North Carolina for **$68.8 million**, adding three HMA plants[61](index=61&type=chunk) - As of December 31, 2022, the company had approximately **$1.2 billion** in unsatisfied or partially unsatisfied performance obligations under construction contracts[70](index=70&type=chunk) - Total long-term debt stood at **$426.9 million** as of December 31, 2022, consisting of a Term Loan and borrowings under a Revolving Credit Facility[72](index=72&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the quarter's financial performance, highlighting revenue growth driven by acquisitions, but noting declines in gross profit and net income due to cost inflation [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Revenues increased by **19.9%** to **$341.8 million**, but gross profit declined **7.5%** to **$30.5 million**, leading to a **65.7%** decrease in net income to **$1.9 million** Q1 FY2023 vs Q1 FY2022 Results (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $341,779 | $284,964 | $56,815 | 19.9% | | **Gross Profit** | $30,496 | $32,964 | $(2,468) | (7.5)% | | Operating Income | $6,328 | $8,459 | $(2,131) | (25.2)% | | **Net Income** | **$1,892** | **$5,511** | **$(3,619)** | **(65.7)%** | - The decrease in gross profit was primarily attributed to rising costs of raw materials, fuel, labor, and trucking, along with supply chain disruptions[137](index=137&type=chunk) - General and administrative expenses increased by **19.2%** due to costs from acquired businesses, higher equity-based compensation, increased payroll, and professional fees[138](index=138&type=chunk) [Adjusted EBITDA](index=34&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA increased **4.7%** to **$27.6 million**, but the Adjusted EBITDA Margin decreased to **8.1%** due to lower gross profit margins Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net income | $1,892 | $5,511 | | Interest expense, net | $3,960 | $1,264 | | Provision for income taxes | $510 | $1,800 | | Depreciation, depletion, etc. | $18,375 | $15,903 | | Equity-based compensation | $2,480 | $1,504 | | Management fees | $367 | $375 | | **Adjusted EBITDA** | **$27,584** | **$26,357** | | **Adjusted EBITDA Margin** | **8.1%** | **9.2%** | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by operating cash flow and credit facilities, with **$156.9 million** available under the Revolving Credit Facility and **$31.7 million** in capital expenditures for the quarter - Net cash from operating activities was **$28.9 million** for the quarter, a significant improvement from a **$0.6 million** use of cash in the prior-year period[145](index=145&type=chunk)[146](index=146&type=chunk) - At December 31, 2022, the company had **$268.8 million** outstanding on its Term Loan and **$158.1 million** on its Revolving Credit Facility, with **$156.9 million** of availability remaining on the revolver[151](index=151&type=chunk) - The company was in compliance with all financial covenants, with a fixed charge coverage ratio of **1.87-to-1.00** (minimum 1.20) and a consolidated leverage ratio of **2.96-to-1.00** (maximum 3.50)[77](index=77&type=chunk)[152](index=152&type=chunk) Contractual Obligations Summary (in thousands) | Obligation Type | Total | Remainder of 2023 | | :--- | :--- | :--- | | Debt obligations | $426,851 | $9,375 | | Operating leases | $21,475 | $2,130 | | Purchase commitments | $5,869 | $3,720 | | Royalty payments | $2,656 | $236 | | **Total** | **$459,223** | **$15,461** | [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from commodity prices, interest rates, and inflation, mitigating these through contract provisions and derivative instruments like fuel and interest rate swaps - The company uses fuel and natural gas swap contracts to fix the price for a portion of its estimated usage for the remainder of fiscal 2023 and part of 2024[162](index=162&type=chunk) - The company has **$426.9 million** of variable rate debt outstanding. A hypothetical **1%** change in borrowing rates would result in a **$4.3 million** change in annual interest expense, absent hedging[165](index=165&type=chunk) - An interest rate swap contract with a notional amount of **$300.0 million** is in place to hedge against interest rate volatility, maturing on June 30, 2027[167](index=167&type=chunk) - The company continues to experience increased costs from inflation but seeks to recover these through higher prices and inclusion in new contract bids, though this is limited for projects already in backlog[169](index=169&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[170](index=170&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine litigation, but management does not expect any pending claims to materially affect its financial condition or operations - The company is involved in routine litigation, but management does not expect any pending claims to have a material adverse effect on its financial condition[173](index=173&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risks from inflation and supply chain disruptions, leading to increased costs and potential harm to profit margins for projects in backlog - A key risk factor is the impact of inflation and supply chain disruptions, which have increased costs for wages, fuel, concrete, and steel[175](index=175&type=chunk) - The company's ability to pass on increased costs is limited for projects already in its backlog, which could lead to diminished profit margins[175](index=175&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell unregistered equity securities but repurchased **5,267** Class A common shares to satisfy employee tax withholding obligations for restricted stock awards - The company did not sell any unregistered equity securities during the period[176](index=176&type=chunk) - A total of **5,267** shares of Class A common stock were repurchased to satisfy employee tax withholding obligations upon the vesting of restricted stock[178](index=178&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and required CEO and CFO certifications

Financial Data and Key Metrics Changes - Revenue for fiscal 2022 was $1.3 billion, up 43% compared to the prior year, with $170.4 million from acquisitions and $220.5 million from existing markets [20] - Adjusted EBITDA for fiscal 2022 was $111.2 million, an increase of 23% compared to last year [23] - Net income was $21.4 million, a 5.9% increase from $20.2 million in the prior year [22] - The company reported a record project backlog of $1.4 billion at September 30, 2022, compared to $966 million a year earlier [26] Business Line Data and Key Metrics Changes - The company achieved a double-digit adjusted EBITDA margin for the first time in five quarters, reflecting improved profitability [6] - More than $400 million of new work was added to the backlog in Q4, indicating strong project demand [9] Market Data and Key Metrics Changes - Demand remains strong in both public and commercial sectors, supported by healthy funding programs at state and federal levels [10] - The company anticipates revenue growth of approximately 13% and adjusted EBITDA growth of 33% for fiscal 2023 [11] Company Strategy and Development Direction - The company is focused on strategic acquisitions to expand its footprint and market share, with recent acquisitions including three hot mix asphalt plants in Tennessee [13][14] - A new liquid asphalt terminal is under construction in Northern Alabama to enhance vertical integration and capture margins [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for fiscal 2023, citing a resilient backlog and strong project demand despite economic uncertainties [18] - The company expects supply chain challenges to begin normalizing in 2023, which could positively impact productivity [11] Other Important Information - General and administrative expenses increased by 17% to $107.6 million, primarily due to expenses from acquired businesses [22] - Capital expenditures for fiscal 2022 were $68.9 million, with expectations for $75 million to $80 million in fiscal 2023 [25] Q&A Session Summary Question: Guidance and EBITDA Range - Management explained the wide EBITDA guidance range is due to uncertainties in the environment, with the low end reflecting potential supply chain issues and the high end assuming favorable conditions [31] Question: Labor Market Conditions - Management acknowledged a tight labor market but emphasized their success in attracting and retaining workers through various initiatives [38] Question: Free Cash Flow and Capital Expenditures - Management clarified that interest and tax figures in the EBITDA bridge reflect cash numbers, and significant capital expenditures are planned for growth initiatives [48] Question: IIJA Funding Timeline - Management indicated that IIJA funding is beginning to flow into project lettings, with expectations for healthy project investments over the next several years [75] Question: Competitor Behavior - Management noted that competitors are also experiencing strong demand and have become more efficient in passing through inflation in their bids [63]

CONSTRUCTION PARTNERS INVESTOR PRESENTATION WINTER 2022 FORWARD-LOOKING STATEMENTS 2 This presentation contains "forward‐looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Construction Partners, Inc. (the "Company"), its financial condition, its results of operations and the Company's current views based on information currently available. This information is, where applicable, based on estimates, assumptions and analysis that the Company believes, as of ...

PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Construction Partners, Inc. is a vertically integrated civil infrastructure company specializing in roadway construction and maintenance in the southeastern U.S., expanding through acquisitions and growing its backlog - The company operates as a civil infrastructure firm with a vertical integration strategy, focusing on manufacturing hot mix asphalt (HMA), paving, site development, aggregate mining, and liquid asphalt distribution across five southeastern states[16](index=16&type=chunk) - During fiscal year 2022, the company executed a significant growth strategy through multiple acquisitions, establishing a new platform in South Carolina and expanding its presence in Florida and North Carolina, also securing a new, larger credit facility to support its operations and growth[20](index=20&type=chunk) - As of September 30, 2022, the company employed **1,035** salaried and **2,755** hourly employees, with hourly employees averaging **2,444** during fiscal year 2022 due to seasonal fluctuations[50](index=50&type=chunk) FY 2022 Revenue Breakdown and Customer Concentration | Category | Percentage/Value | | :--- | :--- | | **Revenue by Funding Source** | | | Publicly Funded Projects | 60.9% | | Privately Funded Projects | 39.1% | | **Major Customers (% of Revenue)** | | | Alabama DOT | 10.0% | | North Carolina DOT | 11.2% | | All DOTs Combined | 36.8% | Contract Backlog Growth | Date | Backlog Amount (in millions) | % Change YoY | | :--- | :--- | :--- | | Sep 30, 2022 | $1,410.8 | 46.0% | | Sep 30, 2021 | $966.2 | N/A | [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces business, financial, and stock ownership risks, including reliance on government spending, acquisition integration, substantial debt, and concentrated voting power - A significant portion of the company's revenue (**60.9%** in FY2022) is derived from publicly funded projects, making it vulnerable to reductions in federal, state, and local government spending[57](index=57&type=chunk) - The company has significant customer concentration, with the Alabama DOT and North Carolina DOT accounting for **10.0%** and **11.2%** of revenues, respectively, in fiscal 2022[60](index=60&type=chunk) - The company's acquisition strategy involves risks related to successful integration, potential for unknown liabilities, and the possibility that acquired businesses may not perform as expected[66](index=66&type=chunk)[67](index=67&type=chunk) - The dual-class stock structure concentrates voting control with SunTx and its affiliates, as Class B stock (10 votes per share) represented approximately **73.3%** of the total voting power as of November 21, 2022, limiting Class A stockholders' influence[113](index=113&type=chunk)[117](index=117&type=chunk) - The company's substantial indebtedness under its Credit Agreement requires significant cash flow for debt service and imposes restrictive covenants that limit its ability to engage in certain business and financial transactions[101](index=101&type=chunk)[103](index=103&type=chunk) [Item 1B. Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[127](index=127&type=chunk) [Item 2. Properties](index=25&type=section&id=Item%202.%20Properties) As of September 30, 2022, the company operates 60 HMA plants, 14 aggregates facilities, and one liquid asphalt terminal across five southeastern states, with a mix of owned and leased properties HMA Plants and Aggregates Facilities by State (as of Sep 30, 2022) | Location | HMA Plants (Owned) | HMA Plants (Leased) | Aggregates Facilities (Owned) | Aggregates Facilities (Leased) | | :--- | :--- | :--- | :--- | :--- | | Alabama | 10 | 8 | 6 | 3 | | Florida | 10 | 1 | 1 | 0 | | Georgia | 5 | 1 | 1 | 2 | | North Carolina | 10 | 10 | 1 | 0 | | South Carolina | 3 | 2 | 0 | 0 | [Item 3. Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation and government inquiries, with no expected material adverse effect on its financial condition or operations - The company is subject to routine litigation and government inquiries but does not expect any pending matters to have a material adverse effect on its financial condition or results of operations[131](index=131&type=chunk)[132](index=132&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, as required by the Dodd-Frank Act, are provided in Exhibit 95.1 of this report - Required mine safety disclosures are included in Exhibit 95.1 to this Form 10-K[133](index=133&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Class A common stock trades on Nasdaq, Class B does not, and the company does not foresee paying cash dividends, preferring to retain earnings for growth - Class A common stock is listed on the Nasdaq Global Select Market (ROAD); there is no public trading market for Class B common stock[137](index=137&type=chunk) - The company does not intend to pay cash dividends in the foreseeable future and plans to retain earnings for business operation and expansion, with the Credit Agreement also restricting dividend payments[140](index=140&type=chunk) Stockholder Information (as of Nov 21, 2022) | Stock Class | Shares Outstanding | Record Holders | | :--- | :--- | :--- | | Class A | 41,338,192 | 143 | | Class B | 11,352,915 | 26 | [Item 6. [Reserved]](index=28&type=section&id=Item%206.%20%5BReserved%5D) This item is intentionally left blank - Item 6 is reserved and contains no information[146](index=146&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2022 revenues grew significantly from acquisitions and organic growth, but margins compressed due to cost inflation, impacting liquidity with increased debt [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Fiscal 2022 revenues increased significantly, but gross margin declined due to cost inflation, while net income and Adjusted EBITDA saw modest growth - The **$391.0 million** revenue increase was composed of **$170.4 million** from acquisitions and **$220.6 million** from organic growth in existing markets, reflecting strong demand for both public and private work[165](index=165&type=chunk) - Gross profit margin decreased due to rising costs of raw materials, fuel, labor, and trucking, as well as project delays from supply chain disruptions[166](index=166&type=chunk) Fiscal 2022 vs. 2021 Performance | Metric | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,301.7M | $910.7M | +$391.0M | +42.9% | | Gross Profit | $139.3M | $119.9M | +$19.4M | +16.1% | | Gross Margin | 10.7% | 13.2% | N/A | -2.5 p.p. | | Operating Income | $35.4M | $30.1M | +$5.3M | +17.6% | | Net Income | $21.4M | $20.2M | +$1.2M | +5.9% | | Adjusted EBITDA | $111.2M | $90.6M | +$20.6M | +22.7% | | Adjusted EBITDA Margin | 8.5% | 9.9% | N/A | -1.4 p.p. | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flow decreased in FY2022, while significant debt was incurred to fund acquisitions, with the company maintaining compliance with covenants and projecting substantial capital expenditures for FY2023 - On June 30, 2022, the company entered into a new Credit Agreement providing a **$250.0 million** Term Loan, a **$325.0 million** Revolving Credit Facility, and a **$50.0 million** Delayed Draw Term Loan[152](index=152&type=chunk)[359](index=359&type=chunk) - As of September 30, 2022, the company was in compliance with its financial covenants, with a fixed charge coverage ratio of **2.56-to-1.00** (minimum 1.20) and a consolidated leverage ratio of **2.79-to-1.00** (maximum 3.50)[180](index=180&type=chunk)[362](index=362&type=chunk) - The company projects total capital expenditures for fiscal 2023 to be between **$75.0 million** and **$80.0 million**[183](index=183&type=chunk) Cash Flow Summary (in thousands) | Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,498 | $48,500 | | Net cash used in investing activities | ($197,326) | ($263,412) | | Net cash provided by financing activities | $159,136 | $123,847 | | **Net change in cash** | **($21,692)** | **($91,065)** | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for revenue recognition on long-term contracts, valuation of long-lived assets and goodwill, income taxes, and insurance accruals - Revenue from long-term construction contracts is recognized over time using the cost-to-cost input method, which requires significant management judgment in estimating total costs to complete a project[192](index=192&type=chunk) - Goodwill and other long-lived assets are tested for impairment annually or when triggering events occur, with the July 1, 2022 test indicating no impairment as the company's single reporting unit's fair value substantially exceeded its carrying value[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - The company accrues for insurance costs covering general liability, auto liability, and workers' compensation for probable losses, with its captive insurance subsidiary retaining the first **$1,000,000** per claim since October 1, 2021[206](index=206&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces commodity price, interest rate, and inflation risks, mitigating some through contract clauses and derivative instruments, but inflation remains a concern for fixed-price contracts - The company is exposed to commodity price risk for liquid asphalt and energy, mitigating this through price escalator provisions in most public contracts and by using fuel and natural gas swap contracts[209](index=209&type=chunk)[210](index=210&type=chunk) - The company has significant interest rate risk with **$377.0 million** of variable-rate debt outstanding at September 30, 2022, where a hypothetical **1%** change in borrowing rates would alter annual interest expense by **$3.8 million**, absent hedges[213](index=213&type=chunk) - Inflation poses a risk by increasing costs for wages, fuel, and materials, and while the company tries to pass these costs to customers in new bids, it has limited ability to do so for projects already in its backlog, potentially reducing profit margins[217](index=217&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=41&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes audited consolidated financial statements and the independent auditor's unqualified opinion, highlighting revenue recognition for long-term contracts as a critical audit matter - The independent registered public accounting firm, RSM US LLP, issued an unqualified opinion on the consolidated financial statements as of September 30, 2022 and 2021[221](index=221&type=chunk) - The auditor identified "Revenue Recognition – Revenue Recognized Over Time Under Uncompleted Long-Term Construction Contracts" as a critical audit matter due to the significant management judgment required in estimating total costs to complete projects[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - The auditor's report on internal control over financial reporting expressed an unqualified opinion on its effectiveness as of September 30, 2022, but excluded the recently acquired King Asphalt, Inc. and Southern Asphalt, Inc. from the scope of the audit[232](index=232&type=chunk)[234](index=234&type=chunk) [Notes to Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, customer concentration, five FY2022 acquisitions totaling **$129.7 million**, a significant increase in debt to **$377.0 million**, and equity-based compensation expenses - During fiscal year 2022, the company completed five business acquisitions for a total cash consideration of **$129.7 million**, resulting in **$45.3 million** of goodwill[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[328](index=328&type=chunk)[331](index=331&type=chunk)[334](index=334&type=chunk) - As of September 30, 2022, total long-term debt was **$377.0 million**, a significant increase from **$217.5 million** at the end of fiscal 2021, primarily to fund acquisitions and operations[358](index=358&type=chunk) - The company had unsatisfied performance obligations (backlog) of approximately **$1,027.8 million** at September 30, 2022, with **$783.5 million** expected to be recognized as revenue in fiscal 2023[346](index=346&type=chunk) Revenue Concentration by Customer Type | Customer Type | % of Consolidated Revenues (FY 2022) | | :--- | :--- | | Public | 60.9% | | Private | 39.1% | Major DOT Customer Revenue Concentration | Customer | % of Consolidated Revenues (FY 2022) | | :--- | :--- | | Alabama DOT | 10.0% | | North Carolina DOT | 11.2% | [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=84&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None reported[432](index=432&type=chunk) [Item 9A. Controls and Procedures](index=84&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2022, excluding recent acquisitions from the internal control assessment - Management concluded that disclosure controls and procedures were effective as of September 30, 2022[433](index=433&type=chunk) - Management concluded that internal control over financial reporting was effective as of September 30, 2022, with the assessment excluding the acquisitions of King Asphalt, Inc. and Southern Asphalt, Inc., which together represented **7%** of total assets (excluding goodwill) and **6%** of revenue for fiscal 2022[435](index=435&type=chunk)[436](index=436&type=chunk) [Item 9B. Other Information](index=84&type=section&id=Item%209B.%20Other%20Information) No other information is reported for this item - None[439](index=439&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=85&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[442](index=442&type=chunk) [Item 11. Executive Compensation](index=85&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[443](index=443&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=85&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[444](index=444&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=85&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[445](index=445&type=chunk) [Item 14. Principal Accountant Fees and Services](index=85&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[446](index=446&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=86&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including financial statements and an exhibit index of agreements and certifications - This section includes the consolidated financial statements, parent-only financial statements, and an index of all exhibits filed with the report[449](index=449&type=chunk)[450](index=450&type=chunk)

Construction Partners, Inc. (NASDAQ:ROAD) Q3 2022 Earnings Conference Call August 5, 2022 10:00 AM ET Company Participants Rick Black - Investor Relations Jule Smith - President and Chief Executive Officer Alan Palmer - Executive Vice President and Chief Financial Officer and Ned Fleming - Executive Chairman Conference Call Participants Michael Feniger - Bank of America Andy Whitman - Baird Stanley Elliott - Stifel Adam Thalhimer - Thompson Davis Brian Russo - Sidoti Operator Greetings and welcome to the C ...