Construction Partners (ROAD) Baird 2024 Global Consumer, Technology, & Services Conference summary

Company overview and market position

• Operates as an infrastructure construction contractor in six southeastern U.S. states, with $1.8B in revenue and a $3B market cap.

• Focuses on both public (60-63%) and private (37-40%) sector projects, with a strong presence in high-growth markets due to population migration.

• Organizes as a family of local platform companies, enabling organic and acquisitive growth.

• Commercial work has shifted from office/retail to corporate facilities, warehouses, and labs, driven by business migration to the Southeast.

• Predictable demand for road maintenance and capacity expansion, supported by recurring public contracts.

Growth strategy and vertical integration

• Five-year plan targets 15%-20% annual top-line growth, split roughly half organic and half acquisitive.

• Organic growth is driven by market share gains, greenfield expansions, and leveraging acquisitions for further growth.

• Vertical integration into grading, utilities, and liquid asphalt terminals enhances margins and value capture.

• Over 1,000 potential acquisition targets identified for further integration in existing markets.

• Platform company model supports scalability and retention of local management culture.

Financial performance and margin outlook

• Adjusted EBITDA margins are near 12% in 2024, with a target of 13%-14% by 2027.

• Margin expansion is expected to come two-thirds from gross margin improvements (vertical integration, organic growth) and one-third from SG&A discipline.

• SG&A expected to improve by 8-10 basis points per year through cost control.

• CapEx for maintenance is about 3.25% of revenue, with total net CapEx around 5% to support growth initiatives.

• Retained cash flow conversion is about 50%-52% of adjusted EBITDA after taxes, interest, and CapEx.