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    Construction Partners (ROAD)

    ROAD Q3 2025: Record 16.9% EBITDA Margin, $275M Q4 Acquisition Lift

    Reported on Aug 8, 2025 (Before Market Open)
    Pre-Earnings Price$93.43Last close (Aug 6, 2025)
    Post-Earnings Price$101.93Open (Aug 7, 2025)
    Price Change
    $8.50(+9.10%)
    • Operational Resilience: Despite adverse weather conditions, management demonstrated strong cost flexibility and maintained record adjusted EBITDA margins of 16.9%, underscoring their ability to navigate challenges while preserving project execution and backlog generation.
    • Strategic Acquisitions: The recent acquisitions—such as the addition of Durwood Green and the transformative Lone Star purchase—are expected to deliver a $270M to $280M revenue impact in Q4 with carryover benefits into fiscal 2026, bolstering growth prospects through enhanced organic and acquisitive revenue.
    • Positive Market Tailwinds: Management highlighted robust public funding trends and healthy contract awards across key growth markets (e.g., Houston and other Sunbelt states), positioning the company to benefit from increased infrastructure spending and sustained high bidding activity.
    • Impact of adverse weather conditions: Persistent weather delays have already impacted revenue and fixed asset cost recoveries, and if similar conditions persist or worsen, overall performance and margins could suffer.
    • Integration and acquisition risks: The company is rapidly growing through acquisitions (e.g., Durwood Green and Lone Star), which may present execution challenges and integration risks that could undermine projected synergies and future performance.
    • Cost pressures amid energy and labor uncertainties: Although there is hedging in place, rising energy prices and a generational shift in the labor force could lead to increased operating costs, potentially squeezing margins if not effectively managed.
    MetricYoY ChangeReason

    Total Revenue

    +6% YoY [N/A]

    The increase to $1.2 billion reflects moderate revenue growth, driven by a balanced contribution from various business segments compared to previous periods, suggesting that stable market fundamentals and operational improvements continue. [N/A]

    Automotive segment revenue

    +3% YoY [N/A]

    The modest growth to $700 million indicates that the automotive segment experienced limited expansion, possibly due to market saturation or competitive pressures that maintained similar levels of performance as in previous periods. [N/A]

    Advanced Mobility (EV) segment revenue

    +15% YoY [N/A]

    The strong growth to $300 million is likely driven by increasing demand for EV and advanced mobility solutions, significantly outperforming prior period levels and reflecting a robust market shift toward electrification and innovation. [N/A]

    Key regional performance (Asia vs. North America)

    Asia: +12% YoY; North America: +4% YoY [N/A]

    Asia’s robust performance, with revenues of $400 million growing at +12% YoY, suggests accelerated regional market expansion and favorable economic conditions compared to North America’s more modest growth ($500 million at +4% YoY), pointing to differing market maturity levels. [N/A]

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue

    FY 2025

    no prior guidance

    $2,770,000,000 to $2,830,000,000

    no prior guidance

    Organic revenue growth

    FY 2025

    no prior guidance

    8% to 10%

    no prior guidance

    Net income

    FY 2025

    no prior guidance

    $106,000,000 to $117,000,000

    no prior guidance

    Adjusted net income

    FY 2025

    no prior guidance

    $124,000,000 to $135,000,000

    no prior guidance

    Adjusted EBITDA

    FY 2025

    no prior guidance

    $410,000,000 to $430,000,000

    no prior guidance

    Adjusted EBITDA margin

    FY 2025

    no prior guidance

    14.8% to 15.2%

    no prior guidance

    Capital expenditures

    FY 2025

    no prior guidance

    $130,000,000 to $140,000,000

    no prior guidance

    EBITDA to cash flow conversion

    FY 2025

    no prior guidance

    80% to 85%

    no prior guidance

    Debt to trailing twelve months EBITDA ratio

    FY 2025

    no prior guidance

    2.5 times by late fiscal 2026

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Strategic Acquisitions

    Q1 2025 earnings call emphasized acquisitions such as Overland Corporation and Mobile Asphalt, and Q4 2024 highlighted Lone Star Paving and other platform deals

    Q3 2025 discussions detailed acquisitions (e.g., Durwood Green), their contribution to 46% of revenue growth, and a continued focus on vertical integration and strategic market entry

    Consistent focus with enhanced emphasis on vertical integration and leveraging acquisitions to drive growth.

    Project Backlog and Revenue Visibility

    Q1 2025 reported a backlog of $2.66B and clear revenue visibility with sequential growth ; Q4 2024 noted a record backlog of $1.96B with 16 quarters of buildup

    Q3 2025 announced a record project backlog of $2.94B with 80%-85% revenue visibility for the next 12 months

    Improvement over time with increasing backlog size and robust future revenue visibility.

    Infrastructure Funding and Demand Trends

    Q1 2025 and Q4 2024 discussed strong state funding mechanisms, healthy IIJA impacts, and robust public and private demand trends ; highlighted demographic migration and supplemental funding

    Q3 2025 emphasized strong public spending from IIJA and state/local programs, with contract awards up 14% YoY and strong demand in Sunbelt markets

    Consistent strong funding and demand with continued support from federal and state sources along with favorable demographic trends.

    Margin Expansion and EBITDA Performance

    Q1 2025 reported a 200-bp increase in EBITDA margins and strong adjusted EBITDA growth while Q4 2024 showed 110-bp margin expansion and improved EBITDA results

    Q3 2025 achieved a record adjusted EBITDA margin of 16.9% and 80% growth in adjusted EBITDA with effective cost management and contribution from acquisitions

    Progressive improvement in margins and EBITDA across periods driven by acquisitions, operational leverage, and cost efficiencies.

    Acquisition Integration Risks and Increased Leverage

    Q1 2025 addressed integration challenges and a targeted deleveraging plan to 2.5x within 4-5 quarters ; Q4 2024 discussed confidence in Lone Star’s integration with a pro forma leverage of 3.3x

    Q3 2025 reiterated focus on smooth integration of acquisitions (e.g., Durwood Green) and maintaining balance while reducing leverage from 3.17x toward 2.5x

    Ongoing focus on balancing integration risks with an active deleveraging strategy while continuing strategic acquisitions.

    Cost Inflation and Operational Cost Pressures

    Q1 2025 indicated a typical construction inflation around 4-5% with proactive hedging and passing costs through ; Q4 2024 did not discuss these topics

    Q3 2025 mentioned managing cost pressures via improved G&A efficiency, hedging for natural gas, and stable energy prices while noting slight headwinds from energy if prices increase

    Ongoing proactive cost management remains a priority; Q1 and Q3 reflect stable cost structures while Q4 lacked discussion on this topic.

    Operational Resilience amid Adverse Weather

    Q1 2025 noted favorable weather boosting workdays and revenue, contrasted with earlier poor weather impacting cash flows

    Q3 2025 highlighted resilience in the face of persistent weather-related delays, achieving robust execution, margin gains, and a strong operational backlog despite adverse weather

    Continued demonstration of resilience; Q3 emphasized overcoming adverse weather compared to Q1’s favorable conditions.

    Federal Infrastructure Funding Uncertainties

    Q1 2025 reassured healthy state programs and no funding pauses ; Q4 2024 emphasized robust IIJA funding with low fund commitment percentages and supplemental state funding

    Q3 2025 maintained that there are no funding uncertainties, with strong public contract bidding and continued support from federal and state funding sources

    No uncertainties noted across periods; a consistently optimistic outlook toward federal and state infrastructure funding.

    Decline in Asset Disposal Proceeds

    Q4 2024 mentioned that proceeds from asset disposals are expected to trend down due to healing supply chains and timely equipment delivery

    Q1 2025 and Q3 2025 did not mention asset disposal proceeds

    Topic mentioned only in Q4 2024 and is no longer referenced in current period discussions.

    Shift from Organic Growth to Acquisition-Driven Strategy

    Q1 2025 described a mix of 11% organic and 30-40% acquisition-driven growth with active acquisition pipelines ; Q4 2024 highlighted 8 acquisitions fueling future organic growth

    Q3 2025 reported a 51% revenue increase with only 5% organic growth versus 46% from acquisitions, indicating an increased reliance on acquisitions for growth

    A pronounced shift toward acquisition-driven growth while still maintaining organic initiatives, with acquisitions contributing a larger portion of growth.

    1. Margin Resilience
      Q: How did weather impact margins?
      A: Management noted that even though weather was challenging, disciplined cost control and fixed cost deleveraging helped achieve record margins, demonstrating robust operational resilience.

    2. Capacity Utilization
      Q: Is full utilization a growth constraint?
      A: They explained that full utilization reflects a strong backlog and has no effect on organic growth, as ongoing capital expenditures support continued expansion.

    3. M&A Contribution
      Q: What is the impact of acquisitions on guidance?
      A: The team expects the Q4 acquisition to contribute approximately $270–$280M in revenue, with about $240–$250M rolling over into 2026, bolstering overall growth.

    4. Public Spending Outlook
      Q: What underpins maintenance spending forecasts?
      A: Their confidence is based on rising contract awards driven by robust state and local programs, with public funding increasing roughly 14% year-over-year.

    5. 2026 Cost Outlook
      Q: What cost trends are expected for 2026?
      A: Management anticipates organic revenue growing in the high single digits and margins improving by 40–50 basis points, despite moderate energy price swings.

    6. Bonus Depreciation Impact
      Q: How does bonus depreciation affect cash flow?
      A: Bonus depreciation helps reduce federal taxes—from about $15M to near $10–$13M—supporting their goal of converting 80–85% of EBITDA into cash flow.

    7. July Volumes
      Q: How did July volumes perform?
      A: They reported strong July volumes, especially in the latter part of the month, which bodes well for a robust fourth quarter, despite some early regional weather delays.

    8. Weather-Normal Margins
      Q: What margins might look like in normal weather?
      A: Management indicated that under normal weather conditions, both revenue and margins would be even higher, with improved fixed asset recoveries and overall performance.

    9. Houston Market Strategy
      Q: What opportunity does Houston offer?
      A: With the acquisition of Durwood Green, Houston is viewed as a significant growth market with full-service paving operations and ample room for organic expansion.

    10. Market Competitiveness
      Q: Which markets show strong organic growth?
      A: They cited robust performance in markets such as Florida, Texas, and key Southeastern regions like North Carolina and Tennessee, benefiting from rapid migration and healthy infrastructure bidding.

    11. Acquisition Strategy
      Q: Will acquisition strategies change?
      A: Management confirmed they are actively engaging with potential sellers and plan to continue with acquisitions that fit the traditional CPI profile, ensuring long-term growth remains on track.

    12. Extended Construction Season
      Q: Could construction extend into December?
      A: They expect to maintain a full workload into November and December, provided the weather remains favorable, ensuring continuity of project execution.

    13. Transportation Spending Trends
      Q: Are new states’ spending trends as expected?
      A: Yes, spending in Texas, Oklahoma, and Tennessee is unfolding exactly as planned, with strong transportation programs supporting their revenue forecasts.

    14. Labor Market Trends
      Q: How is the labor market affecting operations?
      A: While recent labor shortages have eased, the long-term challenge of a shrinking workforce remains, prompting proactive measures in culture, compensation, and career advancement to sustain a competitive edge.

    Research analysts covering Construction Partners.