Construction Partners, Inc. Class A Common Stock 2026 Q3 Earnings Call

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 start today's call by addressing the approximately 7,200 employees of the CPI family of companies. Thank you all for daily bringing excellence to our operations. Your hard work, talent, and unwavering commitment to work safely drove another outstanding quarter, building a record backlog and once again allowing us to raise our fiscal 2026 outlook. Simply put, CPI's success begins with our people and the culture of a close-knit family of companies that we cultivate and maintain daily. Our core values, family, opportunity, respect, and excellence are more than words. They guide how we operate every day. We are a family of companies, but more importantly, a company of families.

We create opportunities for our employees to build better lives. We treat one another, our customers, and our communities with respect. Finally, we strive daily to do ordinary things extraordinarily well for all of the communities that we serve. Our culture has become a meaningful competitive advantage. It enables us to attract, develop, and retain exceptional people across our more than 115 individual markets and also positions us as the acquirer of choice for sellers that want to take care of their employees. In the third quarter, we delivered another period of strong execution, growing revenue, net income, adjusted EBITDA, and backlog consistent with the momentum we've built throughout fiscal 2026. During the quarter, our business remained resilient despite continued energy cost inflation and unusually wet weather across many of our markets in May.

Our cost pass-through model and strong local market operating teams, together with our disciplined operating strategy, enabled us to execute at a high level and deliver another quarter of profitable growth. Before turning to the current demand environment, I'd like to briefly address federal transportation funding, a topic that has understandably raised questions among investors. As many of you know, a five-year federal surface transportation funding bill is moving through the congressional authorization process. Let me begin with three key points. First, we believe that Congress will ultimately approve and increase the funding level of a new multi-year surface transportation bill that continues to support much needed long-term investment in our nation's roads and bridges. Second, while the timing of final passage remains uncertain, the possibility of operating under a continuing resolution is neither new nor concerning for our industry.

Finally, based upon what we know today, we do not expect any disruption to federal funding or project activity in either fiscal 2026 or fiscal 2027. Let's discuss where things stand today. Earlier this year, the BUILD America 250 Act was introduced in the U.S. House of Representatives and subsequently advanced out of committee with an overwhelming bipartisan support of a 62 to two vote, positioning the legislation for consideration by the full House. While the bill must still pass both chambers of Congress and be signed by the President before becoming law, the House bill represents an important milestone in the reauthorization process. As currently drafted, the BUILD America 250 Act provides approximately 7.2% more funding over the life of the bill than the highway and public transportation funding included in the IIJA.

When you dig into the details of the actual programs funded and compare where the money will be spent, the dollars targeted to hard infrastructure projects will have an even greater increase than the past five years. It's also worth noting that for two decades, in each of the last three surface transportation reauthorizations, including IIJA, the FAST Act, and MAP-21, the final enacted legislation ultimately provided higher funding levels than the initial House proposal. Given the longstanding bipartisan support for investing in America's transportation infrastructure, we are confident that Congress will ultimately approve a new bill. That said, the legislative calendar continues to tighten as the midterm elections approach, increasing the likelihood of a continuing resolution, or CR, to temporarily extend current funding. Should that occur, federal highway funding would remain at fiscal 2026 levels, the highest annual funding levels in the program's history.

Importantly, we do not believe a CR would have a meaningful impact on our business or industry activity in fiscal 2027. Approximately 45% of IIJA funding has yet to be deployed, and we continue to see very healthy bid activity, project lettings, and contract awards across our markets, as reflected in our record backlog. Turning now to the demand for commercial development as it relates to one of today's fastest-growing end markets, AI data centers. We have been serving data center projects across our footprint for many years. While activity in this segment has accelerated meaningfully, our strategy remains unchanged. We will continue to pursue attractive opportunities in the local markets and states where we already operate.

With an estimated 70%-75% of new data center construction nationally expected to occur in our existing states, we believe CPI is well-positioned to participate in this growth through disciplined bidding, established relationships with general contractors, and a focus on projects that meet our commercial margin objectives. Today, our teams are actively bidding and building data center projects, including several notable examples. In Texas, Lone Star Paving is actively working on a portfolio of data center projects in Central Texas and has a pipeline of opportunities exceeding $100 million in contract value. In Oklahoma, where we recently expanded our Overland platform through the addition of Ellsworth, we're building AI data center projects totaling approximately $100 million, with a current pipeline of opportunities exceeding $130 million. Other newly won commercial projects range for construction for national retailers to hospitals, to corporate campuses and manufacturing facilities.

These examples represent only a portion of the more than 1,000 commercial sector projects we expect to build this year across our eight states and over 115 local markets. On the public side, federal and state governments continue to invest in infrastructure to support the growing economies across the Sun Belt. From large market-specific projects to recurring repair and maintenance work for state DOTs, cities, and counties, as well as lane widenings and road expansion projects, publicly funded work remains robust. As examples of some of our recent public wins in just one of our states, Florida, we won a contract to reconstruct the existing airfield pavement apron at the main passenger terminal of Pensacola International Airport, involving demolition of existing pavements, new storm drainage, and installation of subgrade and base courses, a multifaceted project that will begin in September and run through the fall of 2027.

For the Florida DOT, we recently were awarded two contracts totaling over $80 million to build new rest stop areas along the I-4 corridor. These projects also strengthen our presence with a key transportation client while showcasing our ability to efficiently deliver large, complex infrastructure projects. In addition to these projects, we continue to win project awards across our eight states for resurfacing and repair projects. This is our typical and sustainable work that drives our company forward quarter after quarter and year after year. Overall, at the state funding level, we continue to see increased budgets and healthy project letting activity across our states. Turning to our growth strategy. Last month, we completed another strategic acquisition with the purchase of Ellsworth Construction, a leading asphalt manufacturing and construction company in Oklahoma.