ROAD

Greetings, and welcome to the Construction Partners second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Rick Black, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review second quarter fiscal 2026 results. 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 8, 2026. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that 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 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 our 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 Net Income and adjusted EBITDA and adjusted EBITDA Margin. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. Now, I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule?

Thank you, Rick. Good morning, everyone. We appreciate you joining us for today's call. With me this morning are Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to begin by thanking our approximately 7,000 employees for their hard work and excellence in achieving a great second quarter, exceeding profitability expectations and growing backlog, which allows us to meaningfully raise our outlook for FY 2026. While the financial results of focusing on our family of companies' culture are hard to measure, we know that building a great culture does have a real impact on bottom-line results. At CPI, we hold ourselves accountable by constantly measuring several key areas of cultural health. First, we focus on keeping a low turnover of employees, which increases the experience and stability of our workforce.

We strive to lower benefit costs, so we maximize the take-home pay to our employees' families. This helps us attract the most talented folks to our teams across all 110 local markets. Finally, every year, we survey all 7,000 employees for honest and candid feedback, which gives us vision on how to improve and innovate as a company. Maintaining this focus on our culture will continue to drive performance and produce great results. In Q2, we grew revenue, adjusted EBITDA, and backlog. Favorable weather in the quarter provided the ability to advance work efficiently and exceed expectations. We play an outdoor game, and when we have dry weather, we can work more days and consequently increase our volumes.

Looking at the cost environment during Q2, energy volatility had a limited impact on results due to the protection of the liquid asphalt index on more than 80% of our total revenue, the physical hedging of diesel fuel, and the oil price hedging mechanism inherent to our vertical integration at the liquid asphalt terminals. Today, we source more than 50% of our liquid AC needs internally. As we look to the future, relative to building our backlog, our pass-through cost model reacts quickly to rising commodity prices. Turning now to the demand environment. Construction project demand throughout our footprint remains strong for both public infrastructure work as well as commercial development for new construction. Our teams are actively bidding and building a wide range of commercial projects. A few examples to highlight.

In Texas, Lone Star Paving is working on a portfolio of eight data center projects totaling approximately $100 million of contract value. In Tennessee, our new acquisition, Four Star Paving, currently is working on 12 warehouse projects in the dynamic Metro Nashville market, totaling a contract value of approximately $28 million. In Alabama, Wiregrass Construction is working on a Mag Seven data center in the northeast region of the state, valued at approximately $4 million. Taken together, these projects reflect an expanded backlog and pipeline of opportunities entering the second half of our fiscal year. These are just a few examples of the approximately 1,000 commercial sector projects we will participate in building this year across our eight states and over 110 local markets.

On the public side, both the federal and state governments are continuing their investment in infrastructure to keep up with the growing economies in the Sunbelt. This is particularly true of the small and medium-sized recurring maintenance projects for state DOTs, cities, and counties that represent a majority of our work. Some examples of new public projects include in the Houston area, Durwood Greene has won several multimillion-dollar projects, which are part of the city's infrastructure preparations for the upcoming FIFA World Cup this summer. In North Carolina, Fred Smith Company won a contract for multiple road widenings and improvements valued at approximately $150 million to prepare for the U.S. Open's return to Pinehurst in 2029. In the Florida Panhandle, CWR is working on a taxiway reconstruction project at Eglin Air Force Base, valued at approximately $27 million.

These projects represent just a few of the different types of public projects we are working on today. With respect to federal funding for the Surface Transportation Program, we continue to engage in productive discussions with key members of Congress regarding reauthorization. Encouragingly, both parties and both chambers are actively working to release a markup of the bill this month to advance a new five-year authorization somewhere in the $500 billion-$600 billion range. This would represent a substantial increase in investment in our nation's transportation infrastructure. Turning to our growth strategy. Last month, we completed our latest strategic acquisition with the purchase of Four Star Paving, the premier commercial paving contractor in the Nashville metro area. I want to welcome all of the great folks at Four Star Paving to the CPI family of companies.

Their assets and customer relationships across central Tennessee will serve as a valuable extension of our platform company in the state, PRI. Four Star represents our 4th acquisition in FY 2026 and our 17th since the beginning of FY 2024, underscoring the continued momentum of our disciplined M&A strategy. These acquisitions are all fully integrated and meaningfully contribute to the growth of our financial results. Today, the generational transition of family companies continues in our industry, and we have a robust pipeline of attractive acquisition opportunities across our existing footprint and adjacent states. We remain in active dialogue with a number of prospective sellers. We also remain focused on organic growth as a strong driver of shareholder value.

Our new Gastonia, North Carolina, greenfield will begin operations this quarter and soon will be servicing a large $60 million contract, expanding and widening I-85 through Gaston County near Charlotte. As a key part of our organic growth, there are several more greenfield facilities that we plan to bring online later this year and early next year. Before turning the call over to Greg, I want to reiterate that our family of companies is now in our busy work season, executing on a record backlog and continuing to deliver excellence to our customers in both the public and private markets. As reflected in our revised guidance, we expect fiscal year 2026 to be another strong year, reinforcing our confidence in achieving our Road 2030 growth plan to double the size of the company, generate $1 billion of annual EBITDA, and expand EBITDA margins to approximately 17%.

With that, I'd like to now turn the call over to Greg. Greg?

Thank you, Jule. Good morning, everyone. As Jule mentioned, we reported a strong second quarter, maintaining the outperformance we experienced in Q1 to start the year. I will review the quarter in more detail before discussing our raised outlook ranges. I'll start with a review of our key performance metrics for the second quarter of FY 2026. Revenue was $769.2 million, an increase of 35% compared to last year. The breakdown of this revenue growth was 11% organic and 24% acquisitive. For the FY 2026 year, we continue to anticipate organic growth of approximately 7%-8%. Gross profit in the second quarter was $98.9 million, an increase of approximately 39% compared to last year.

As a percentage of total revenues, gross profit was 12.9% compared to 12.5% last year. General and administrative expenses as a percentage of total revenue in the second quarter were 8.3% in FY 2026 and 8.2% in FY 2025. Net income was $9.2 million, and adjusted Net Income was $10.4 million. Earnings per diluted share for adjusted Net Income was $0.18. Adjusted EBITDA was $93.3 million, an increase of 35% compared to last year. Adjusted EBITDA Margin for the quarter was 12.1%. You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's earnings release. Turning now to the balance sheet.

We had $77 million of cash and cash equivalents, and $150 million available under our credit facility at March 31st, net of a reduction for outstanding letters of credit. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 3.23x. We remain on pace with our strategy of reducing the leverage ratio to approximately 2.5x to support sustained profitable growth. To that end, we anticipate cash flow generated during the third quarter to fund the Four Star Paving acquisition without the need for additional long-term debt, demonstrating the strength of cash flow from our operating model. In the second quarter of FY 2026, cash flow from operations was $65.2 million, up from $55.6 million in Q2 of FY 2025.

We expect to convert 75%-85% of EBITDA to cash flow from operations in FY 2026. Turning now to our outlook. We are raising our fiscal 2026 outlook to reflect the outperformance of Q2 and to include the contribution for our newest acquisition, Four Star Paving. These are our new ranges. Revenue in the range of $3.59 billion-$3.65 billion. Net income in the range of $159 million-$162 million. Adjusted net income in the range of $170.4 million-$174.2 million. Adjusted EBITDA in the range of $552 million-$564 million. Adjusted EBITDA margin in the range of 15.38%-15.45%.

Lastly, as Jule mentioned, we had a project backlog of $3.14 billion at March 31st, 2026. We have approximately 80%-85% of the next 12 months contract revenue covered in backlog. With that, we will open the call to questions. Operator?

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using a speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We ask that you signal at this time. Thank you. Our first question, we will hear from Kathryn Thompson with Thompson Research Group. Just a moment. We are having some technical difficulties. Please stand by.

Sorry, everyone. We appear to have technical difficulties right now. Operator, can you provide an update on being able to put in our questioners?

Yes. Just one moment, please, while we try to reconnect. If everyone would just please stand by for a moment. Just one moment. I apologize.

How could this happen?

Please remain connected. We are working on the issue.

I can take the next available question we have from Kathryn Thompson of Thompson Research Group. Please proceed with your question.

Hi. Can you guys hear me?

Gotcha.

Yes, we can. Good morning, Kathryn.

Sorry about that.

All right. The way our systems go. All right. Well, it's a case of the Fridays. I wanted to follow up on, you know, this has been a fairly active year with M&A. As we think about modeling for the back half of the year, in light of the companies you've acquired, how should we think about contribution from acquisitions, margin profile, and any other factor we should think about when taking into account these acquisitions?

Kathryn, I'll speak to just the M&A environment since you asked, and call on Ned, who works closely with us on just growth strategy. Greg can give you sort of the modeling question. You know, we've had a busy year with M&A. We continue to talk to a lot of folks in a number of states. I mean, we said that the three acquisition platform acquisitions we did last year would create opportunities in those states, and you saw that happen in Tennessee, you know, this past 30 days with Four Star Paving. We're busy. We're talking to a lot of folks, trying to make good decisions. I'm gonna turn the call over to Ned and then Greg.

Thank you, Jule. You know, I think, Kathryn, it's really interesting, having been part of this now for, you know, 26 years. We continue to see an industry that's in growth mode. I don't think anybody goes anywhere where they say, "Wow, the roads are perfect." The demand curve for that with the voters is increased over time. You've got a large growing industry. The demographics are still moving toward the Sunbelt, which is really our focus and will continue to be our focus. We see more and more people moving there, more and more businesses moving there. You know, if you were just to go chart even data centers, more and more data centers moving there, which creates opportunities for us.

You still have an industry that's very fragmented, where generational transition is happening, every year people are getting older. We see more and more opportunities. It's almost amazing. We see a lot of bolt-on opportunities because of the new states that we've entered. We're seeing real benefits in Texas, from doing the acquisitions in Houston, and that's just a booming market, both from the standpoint of public services as well as private enterprise and commercial. The last piece is, you know, there's no technological obsolescence. I mean, there are ways for us to utilize, and we're looking at that, utilizing technology and AI, and there's some really terrific benefits for the company, and I think we're way ahead of the curve on all of that.

AI is not going to lay asphalt or pave a road or grade a road. For us, I think we see an environment that's almost better today than it was 25 years ago for growth. We see a lot of opportunities that we pass on. I think as you look to the back half of this year, you'll see us do some acquisitions that we think are strategic, where it fits the culture, where there are great long-term benefits as we move into those territories, both bolt-ons. We also see new platforms in new states. I don't know that we'll do any of those at this stage of the game, but we certainly see them. Growth is good at this stage of the game and continues to be a bright future.

Yeah, Kathryn.

Hi.

As far as your modeling questions, the remaining six months will have about $225 million-$235 million of acquisitive revenue. If you do the math there on the center of our guide, that, you know, puts us about right in the heart of that 7%-8% organic growth. You know, with our 11% in Q2 organic growth, that kind of is a 7%-8% organic guide all year.

Okay. That's very helpful. Then you touched on in your prepared commentary, some various jobs in major markets: Texas to Tennessee and along the East Coast. Are you seeing any change in the momentum, either positive or negative with that reindustrialization trend? Maybe putting a finer point to it. If you look at the types of jobs that you have in your backlog today, how does it look today versus two years ago? Thank you.

Kathryn, you know, when we look at our backlog, as we've talked about from several years ago, we still have a good breakdown of public and commercial projects, but the commercial projects are much more weighted in favoring manufacturing and corporate centers and warehouses. The reindustrialization trend that started with COVID supply chains and that has sped up this past year to 18 months is affecting our opportunities. There's no question. You know, I think Q1, our country had record investment in capital infrastructure, and the Sunbelt states are getting a lot of that investment. The article just came out this week that Nvidia and Corning are investing $2.7 billion in three facilities in North Carolina and Texas.

Those are two of our key states, and we're gonna look to participate in that investment. I would say, if anything, the reindustrialization is gonna be a tailwind for the next several years.

Okay, great. Thanks very much, and I'll hop back in the queue.

Thanks, Kathryn.

The next question is from Rohit Seth of B. Riley Securities. Please proceed with your question.

Hey, thanks for taking my question. This is just on the liquid AC and the diesel and the energy shock. Is there any sort of timing delay between, you know, when you incur those costs and when you get the rebates from the DOTs on the escalators as you think about going into the third quarter?

Yeah, Rohit. No, actually not. They're settled monthly in the progress payment that we get from the states. Literally, they're taking, you know, from the time we bid the job, the date we bid the job, the index then, and comparing that to the date we laid it, and then in that month, that settlement is done in that month's payment.

Okay. All right. Just regards to the IIJA reauthorization and your Road 2030 target. When you contemplated that Road 2030, were you of the view that funding level is gonna come out to the $500 billion-$600 billion that you mentioned on the prepared remarks?

Yeah, Rohit, that's a good question. I would say the answer to that's no. We anticipate that each year, the investment in infrastructure at the federal level will go up because it always has. We don't assume some 20% to 30% to 40% increase that could be part of this reauthorization that we're hearing in the $500 billion-$600 billion range. That's not something that we model in. It would be nice. I think it would be good for our country, no. We just assume a normal mid-single digit bump each year, which is what's happened for the last three decades.

Okay, fantastic. Then on the data centers, you mentioned several data centers. Is that becoming a more sizable portion of your book? Like, is there a way to frame the size, the impact relative to the size of the business at the moment?

Yes. I would say, Rohit, that it is becoming more of a part of what we do because there's more being built in our markets. As we get involved with the people building data centers, we build relationships. That's allowing us to have more opportunity to participate up front in helping them plan their projects and participate in them as they're built. You know, we see data centers as a really good opportunity across a number of our states for, I mean, you know, the investment they're talking about for the next five years. You know, these are really nice opportunities for us.

All right. Thank you.

All right. Thank you, Rohit.

The next question is from Michael Feniger of Bank of America. Please proceed with your question.

Hey, guys. Thanks for taking-

Yeah. Good morning, Michael.

Oh, I do apologize. Looks like Michael's, we just lost his connection, so we'll just go to the next questioner for now. Andrew Wittmann of Baird, please proceed with your question.

Sorry about that, Mike. Hopefully you can get back in.

Good morning, Andy.

Yeah. Hi. I guess I just wanted to dig in a little bit more on crude here. Maybe Greg first, can you talk about what the kinda crude, energy, and liquid asphalt assumptions are in this revised guidance? Obviously, the margin percentage range didn't really change very much, but still wanting to understand how you're thinking about that. Maybe just to kind of put a stake in the ground, can you talk about, quantify maybe the impact year-over-year that those prices did have in the one month of the quarter that was affected?

Sure. You know, we're using diesel and natural gas to run our equipment in our, in our plants. Liquid AC, just for the audience, goes into making hot mix asphalt. You know, our guide really certainly is cautious and, you know, we're concerned about the future like everybody is, but we don't think that it really is gonna make a huge difference for us because, you know, I think Liquid AC and what we have at our terminals is driving a little bit of the offset in maybe what we're seeing in diesel. Natural gas has been steady, so no increases there that we're having to deal with. It really didn't have much impact, as Jule said in his remarks in the first quarter.

My understanding, I mean, presumably you use first-in-first-out accounting on your liquid AC in your terminals. Can you maybe just remind us how many months of production you have there, recognizing that I think you said that you supply about 50% of your own liquid AC.

Yeah

Are you bought under contract for the other 50 or? I know you have pass-through for, you know, 80% with the customer.

That's right.

Just trying to understand how the FIFO accounting is a factor, if at all.

Yeah. It is certainly. I mean, if you were following liquid AC in the quarter, it actually was going down for the first couple of months. In fact, our average pricing in the terminals was less than it was at $930 per ton and less than it was this time last year per ton. Kind of what I meant about what I said earlier is that, you know, as liquid AC prices go up, what we have in that terminal, each of those terminals, the value increases. That's, you know, that's powerful for us. In terms of, you know, we have two and a half months this time of year of availability for liquid AC.

Okay. Just maybe final one. I just wanted to, Jule, get a little bit more sense here as we're getting into the real busy season here, and just maybe you could talk about your April awards. You know, the backlog, I think sequentially you had a lot of burn, but kind of sequentially kind of flattish organically. Just as we evolve into the real busy season, just thought I'd have you comment a little about what you've seen in April so far, getting a sense there. I know you always say that your outlook for backlog is lumpy. Obviously, your quarterly performance since the IPO has been almost entirely up into the right every quarter.

I just wanted to kind of get your sense on how the quarter and the year are evolving, if your expectation would continue to be for a book-to-bill from here on out for the year, over 1?

Andy. I mean, you know, as I've said many times and it continues to be true, we're pleased with the amount of opportunities we have to bid. On the private side in our markets, we're still seeing a good amount of opportunities. On the public side, our state and local DOT contract awards are gonna be up this year, somewhere between 10% and 15% overall. We're bidding a lot of opportunities. With the size backlog we have, we can bid patiently, which we're doing. I feel like backlog is gonna continue to build. Having said that, as we've said now for 20 quarters, you know, historically, backlog has gone down sequentially in our busy work season. For the last 20 quarters, it's gone up.

It would not surprise us or bother us if, you know, in our busy work season, it went down sequentially. That would be just fine. We hope we have the weather and the opportunity to burn off a lot of backlog in these next two quarters, and we're gonna continue to build it.

Okay. Thank you very much.

The next question is from Michael Feniger of Bank of America. Please proceed with your question.

Great. Thank you. Appreciate it.

Good morning, Mike

uh, the first-

Michael, you're back.

I'm back. I'm back. The first question, just with these data centers, obviously with these mega projects, big projects, is this changing your overall average project? Does your risk profile, Jule, change at all as maybe you do more private work for these big projects? I'm just kinda putting that in context as we've kind of always known you guys as, you know, kinda doing a lot of these smaller scale projects. I'm just kinda curious if the risk profile is evolving with these larger projects.

Yeah, Michael, that's a fair question because, obviously, when I give projects to highlight, I don't necessarily highlight the $2 million or $3 million county resurfacings. That's still the vast majority of what we do. I don't think our risk profile has gone up. We always have and have had larger projects that we work on the commercial side and the public side. No, our overall average project size really hasn't changed at all other than inflation. Our strategy is still the same. We're gonna work on a lot of projects in the $2 million-$3 million range and that have less risk, higher margins. We are gonna continue to do these projects where we have an opportunity to work on data centers in our markets.

Perfect. Greg, maybe on just the liquid asphalt question with the run up in diesel, can you just help us? You know, some questions we're getting from the audience is, from the investor community is there's been periods when you've seen a spike, and we would see it show up, you know, in the gross margin at some point, in prior periods when we've seen a spike in oil and diesel. I guess, Greg, how have things kind of changed in terms of how you guys have managed liquid asphalt? I think you guys now have terminals. You guys have more storage capabilities.

Just help us understand how things have maybe changed versus the last time we've seen spikes in inflation, particularly when it comes to diesel, and how we should think about it going forward for you guys now.

Yeah. Good question. Yeah, let me start by just saying, you know, we've said for a while, and I'm sure we'll continue to say that when prices go up, there will be a slight headwind. When they go down, there'll be a slight tailwind. Certainly not immune. Have, you know, evolved, to your point, since the last spike, liquid AC, certainly terminals and having that essentially inherent hedge in our vertical integration operation. Also a more mature hedging program of, for liquid, I mean, I'm sorry, for diesel and natural gas. All of those things help. You know, we're not, you know, managing to 100%, trying to manage 100% of our risk away. We can't do it.

We certainly try to manage some of that risk.

Helpful. I guess I'll sneak one more in, Jule. Just if we do wake up in a couple months and it's a CR, you know, continuing resolution, how do you see DOTs in your state responding? Do they pivot in terms of some of their projects? Do you pivot and say, "All right, let's go out for more private work"? Or do you think it kind of continues to be status quo, you know, for a few more months until we hopefully get a actual bill? Just kind of curious how you're thinking about it, how people on the ground are thinking about this as we head into that October time period. Thank you.

Yeah, Michael. You know, working under a continuing resolution or CR is something that we've done several times in our industry, and it largely feels like business as usual. The states continue to work because there's still funding, and you just fund at the same levels. If there was to be a continuing resolution this fall going into 2027, it would be at record levels because 2026 is a record investment in infrastructure. You know, probably the states would continue to do the maintenance jobs, the small and medium-sized jobs. They may own mega jobs, you know, let's wait and see what happens. For what we do, it's very much business as usual. I'm gonna give it to Ned to speak to that.

You know, it's an interesting question, if we look at it from a historical perspective, I mean, believe six of the eight years of the Obama administration was continuing resolutions, and we continue to grow this business at over 20% a year. It's gonna be, as Jule said, business as usual. Historically, we understand it, the states understand it, we don't hopefully this time we don't anticipate it certainly being the length of time that the Obama administration had.

Thank you.

Thank you, Michael.

Okay.

The next question is from Adam Thalhimer of Thompson Davis & Company. Please proceed with your question.

Hey, good morning, guys. Nice quarter.

Morning, Adam.

Thanks, Adam.

Can you provide some additional details on Four Star? I'm curious how it fits in with the existing Tennessee assets and how many employees they have.

Yeah. Adam, if I remember correctly, there are about 150 employees in Tennessee. It's a great fit. I'm glad you asked that question. PRI, our platform company in Tennessee, does a lot of public work, does a lot of pavement preservation. Four Star does a different type of work. We've known Four Star and those guys for years. They're a great FOB customer for us in Nashville. They are the premier commercial paving contractor in the Nashville metro area. They work about a 70 mi to 80 mi radius around Nashville. They just have deep relationships with the developers and general contractors. I mean, you know how fast Nashville is growing. These guys have just built a great reputation and business in that area.

We enjoyed getting to know these guys over the last few years and talking about what it might look like for them to join our family of companies, and we're really excited about what they bring to the table.

Nice. Thanks for that. Liquid asphalt, you said over 50% supplied internally. Do you have a goal to raise that up, or is that the right percentage for the business long term?

Well, good question. First of all, say, you know, just as I said in my prepared remarks, liquid asphalt, over 80% of our use is indexed. I think people might not realize that, over half of our private contracts, we have an index. We wanted to make sure and call that out. You know, liquid asphalt, over half of what we use now is internally sourced, it's our goal to grow it. You know, as part of our vertical integration strategy to enhance and grow the, our margin profile, being able to source more of our liquid internally at the wholesale and pass it through at retail, that's a big part of our strategy. Our goal is to increase that percentage over time.

Okay, perfect. I'll turn it over. Thanks, Jule.

All right. Thanks, Adam.

Thanks, Adam.

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

We wanna thank everybody for joining us today, and we look forward to talking in the future.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and have a wonderful day.