Construction Partners - $ROAD - Earnings Analysis: Record revenue and backlog reflect strong demand.

Business Model

Construction Partners, Inc. (CPI) generates revenue primarily through civil infrastructure projects, specializing in the construction and maintenance of roadways. It also derives revenue from the sale of HMA, aggregates, and liquid asphalt cement.

Revenue Sources

• Construction services for public and private infrastructure projects
• Sale of Hot Mix Asphalt (HMA)
• Sale of aggregates
• Sale of liquid asphalt cement

Income Statement Analysis

• Revenue increased 41.6% year-over-year, driven by acquisitions and organic growth in existing markets.
• Gross profit increased 47.6%, indicating improved profitability.
• General and administrative expenses increased but decreased as a percentage of revenue, showing improved efficiency.
• Operating income decreased 17.5% due to acquisition-related expenses and increased interest expense.
• Net loss reported due to acquisition-related expenses and increased interest expenses.

Balance Sheet Analysis

• Total assets significantly increased, primarily due to the Lone Star Paving acquisition and investements in property plant and equipment.
• Total stockholders' equity increased, reflecting the value of acquired assets and overall business expansion.
• Total liabilities increased, mainly due to debt incurred to finance the Lone Star Paving acquisition. Increased debt increases risk but indicates the company's willingness to take on strategic investments.

Cash Flow Analysis

• Net cash provided by operating activities decreased due to weather changes from Q4 to Q1 affecting revenue and billing. Company expects this to improve in later quarters to reach 80-85% of EBITDA.
• Net cash used in investing activities significantly increased because of the Lone Star Paving acquisition.
• Net cash provided by financing activities increased dramatically primarily from proceeds from Term Loan B.
• Net change in cash increased due to financing activities exceeding investing activities.

Capital Allocation

The Company has allocated capital towards acquisitions such as Lone Star Paving, Overland Corporation, and Mobile Asphalt Company LLC. It maintains capital expenditures to modernize equipment, enhance current operations and invest in organic growth. It also uses a stock repurchase program to minimize the dilutive impact of awards granted under the equity incentive plans and to repurchase shares opportunistically.

Management Commentary

We're pleased to report a strong start to our fiscal year twenty twenty five with record revenue, strong year over year growth in margins and another record quarter backlog built on continued strong demand for our infrastructure services.

Favorable weather gave us a few more workdays than normal due to dry conditions in October and we were able to generate a record revenue quarter and grow year over year revenue by 42%.

Our vertical integration strategy continues to enhance margins through both construction services and manufacturing asphalt, as well as contribution at our liquid asphalt terminals

Overall Sentiment: Management expresses optimism regarding the company's performance, growth prospects, and strategic initiatives. They highlight the strength of the backlog, the effectiveness of their vertical integration strategy, and the benefits of operating in high-growth Sunbelt states.

Recommendation

Rating: Hold

Reason for Rating: The company shows positive growth and strong backlog but faces increased liabilities and acquisition integration costs.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/8/2025, 5:08:47 AM