Construction Partners, Inc. Announces Fiscal 2020 Second Quarter Results

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Q2 Year-over-Year Revenue Up 2.7% and Gross Profit Up 5.9% Company Revises and Narrows FY 2020 Outlook

DOTHAN, Ala., May 08, 2020 (GLOBE NEWSWIRE) -- Construction Partners, Inc. (NASDAQ: ROAD) (the “Company”), a vertically integrated civil infrastructure company specializing in the construction and maintenance of roadways across five southeastern states, today reported financial and operating results for its second fiscal quarter ended March 31, 2020. Results for the quarter included revenues of $168.7 million, an increase of 2.7%, gross profit of $21.0 million, an increase of 5.9%, net income of $1.5 million, a decrease of 63.5%, and adjusted EBITDA(1) of $14.2 million, an increase of 2.0%, compared to the same quarter last year.

Charles E. Owens, the Company’s President and Chief Executive Officer, stated, “We are pleased with our second quarter results. Notwithstanding the positive start to the year, we are all responding and adjusting to the unprecedented global health and economic impacts from COVID-19. First and foremost, we are focused on the safety and welfare of our employees, our customers, and the general public.  In early March, we implemented additional safety protocols in response to the COVID-19 outbreak. As an essential business, we continued to work throughout the crisis, and we did not incur significant disruptions during the second quarter.”

Alan Palmer, the Company’s Executive Vice President and Chief Financial Officer, commented, “Our second quarter net income was adversely affected by a $1.4 million non-cash charge to interest expense related to interest swaps on our outstanding debt and a $0.8 million non-cash charge to other expense related to fuel swaps that we entered during the quarter to take advantage of historically low diesel fuel prices. We record these derivative instruments at their fair value and record changes in the fair value in current earnings.”

Project backlog at March 31, 2020 was $579.1 million, compared to $539.1 million at December 31, 2019 and $584.8 million at March 31, 2019. Palmer continued, “We maintain a construction backlog consisting primarily of recurring maintenance projects, and we continue to see opportunities to bid on these projects in our markets.”

Owens commented, “During the second quarter, we acquired two hot mix asphalt plants in the Florida panhandle.  The Pensacola plant represents our entry into a new market with the ability to pursue a variety of public, private and Department of Defense projects. This transaction favorably positions us in the Florida panhandle, which we believe is poised for growth in the coming years. Also, this acquisition is already fully integrated.

“Looking forward, while our operations in the second quarter were largely unaffected by COVID-19, visibility on longer-term public and private construction projects is less clear at this time.  Taking into account future economic uncertainties, coupled with our current project work and construction backlog as of March 31, 2020, we are adjusting and narrowing our full-year outlook for fiscal 2020.”

Revised Fiscal Year 2020 Outlook

The Company has revised its outlook for fiscal year 2020 with regard to revenue, net income and Adjusted EBITDA, as follows:

  • Revenue of $820 million to $830 million
  • Net income of $32 million to $34 million
  • Adjusted EBITDA (1) of $88 million to $91 million

Ned N. Fleming, III, the Company’s Executive Chairman, stated, “I’m extremely proud of our organization for always putting safety first. The entire team has exemplified this core value during the pandemic by quickly and effectively implementing new protocols to further the safety and welfare of our employees and the communities in which we work. We will continue to be prudent as we navigate forward through these dynamic economic times. However, we expect the demand for infrastructure projects throughout the country to persist, and we believe that we are well-positioned to continue executing on our proven strategy for long-term growth and value creation.”

Conference Call

The Company will conduct a conference call on Friday, May 8, 2020 at 9:00 a.m. Central Time to discuss financial and operating results for the quarter ended March 31, 2020. To access the call live by phone, dial (412) 902-0003 and ask for the Construction Partners call at least 10 minutes prior to the start time.  A telephonic replay will be available through May 15, 2020 by calling (201) 612-7415 and using passcode 13701537#. A webcast of the call will also be available live and for later replay on the Company’s Investor Relations website at www.constructionpartners.net.

About Construction Partners, Inc.

Construction Partners, Inc. is a vertically integrated civil infrastructure company operating across five southeastern states, with 35 hot-mix asphalt plants, nine aggregate facilities and one liquid asphalt terminal.  Publicly funded projects make up the majority of its business and include local and state roadways, interstate highways, airport runways and bridges. The majority of the Company’s public projects are maintenance-related. Private sector projects include paving and sitework for office and industrial parks, shopping centers, local businesses and residential developments. To learn more, visit www.constructionpartners.net.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained herein that are not statements of historical or current fact constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the use of words such as “may,” “will,” “expect,” “should,” “anticipate,” “intend,” “project,” “outlook,” “believe” and “plan.” The forward-looking statements contained in this press release include, without limitation, statements related to financial projections, future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. These and other forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Important factors could cause actual results to differ materially from those expressed in the forward-looking statements, including, among others: our ability to successfully manage and integrate acquisitions; failure to realize the expected economic benefits of acquisitions, including future levels of revenues being lower than expected and costs being higher than expected; failure or inability to implement growth strategies in a timely manner; declines in public infrastructure construction and reductions in government funding, including the funding by transportation authorities and other state and local agencies; risks related to our operating strategy; competition for projects in our local markets; risks associated with our capital-intensive business; government requirements and initiatives, including those related to funding for public or infrastructure construction, land usage and environmental, health and safety matters; unfavorable economic conditions and restrictive financing markets; our ability to obtain sufficient bonding capacity to undertake certain projects; our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us; the cancellation of a significant number of contracts or our disqualification from bidding for new contracts; risks related to adverse weather conditions; our substantial indebtedness and the restrictions imposed on us by the terms thereof; our ability to maintain favorable relationships with third parties that supply us with equipment and essential supplies; our ability to retain key personnel and maintain satisfactory labor relations; property damage, results of litigation and other claims and insurance coverage issues; risks related to our information technology systems and infrastructure; our ability to maintain effective internal control over financial reporting; risks from the COVID-19 pandemic, and the risks, uncertainties and factors set forth under “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and its subsequently filed Quarterly Reports on Form 10-Q.  Forward-looking statements speak only as of the date they are made.  The Company assumes no obligation to update forward-looking statements to reflect actual results, subsequent events, or circumstances or other changes affecting such statements except to the extent required by applicable law.

Contacts:

Rick Black / Ken Dennard
Dennard Lascar Investor Relations
ROAD@DennardLascar.com 
(713) 529-6600

- Financial Statements Follow –


CONSTRUCTION PARTNERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except share and per share data)

  For the Three Months Ended March 31,   For the Six Months Ended March 31,
   2020     2019      2020     2019  
Revenues $ 168,679     $ 164,304     $ 343,993     $ 318,631  
Cost of revenues 147,708     144,503     299,265     277,702  
Gross profit 20,971     19,801     44,728     40,929  
General and administrative expenses (16,821 )   (14,771 )   (33,934 )   (29,202 )
Settlement income -     -     -     -  
Gain on sale of equipment, net 435     693     744     1,027  
Operating income 4,585     5,723     11,538     12,754  
Interest expense, net (1,834 )   (379 )   (2,115 )   (894 )
Other income (expense) (753 )   123     (688 )   106  
Income before provision for income taxes and earnings from investment in joint venture 1,998     5,467     8,735     11,966  
Provision for income taxes 531     1,488     1,850     3,139  
Earnings from investment in joint venture 70     233     113     539  
Net income $ 1,537     $ 4,212     $ 6,998     $ 9,366  
               
Net income per share attributable to common stockholders:              
Basic $ 0.03     $ 0.08     $ 0.14     $ 0.18  
Diluted $ 0.03     $ 0.08     $ 0.14     $ 0.18  
               
Weighted average number of common shares outstanding:              
Basic 51,489,211     51,414,619     51,489,211     51,414,619  
Diluted 51,619,403     51,414,619     51,612,340     51,414,619  



CONSTRUCTION PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

    March 31,   September 30,
     2020   2019
ASSETS   (unaudited)    
Current assets:        
Cash   $ 53,794     $ 80,619  
Contracts receivable including retainage, net   122,897     139,882  
Costs and estimated earnings in excess of billings on uncompleted contracts   16,101     12,030  
Inventories   42,010     34,291  
Prepaid expenses and other current assets   11,547     13,144  
Total current assets   246,349     279,966  
Property, plant and equipment, net   240,083     205,870  
Operating lease right of use assets   8,569     -  
Goodwill   46,348     38,546  
Intangible assets, net   3,329     3,434  
Investment in joint venture   109     496  
Other assets   1,952     2,284  
Deferred income taxes, net   1,173     1,173  
Total assets   $ 547,912     $ 531,769  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 57,990     $ 70,442  
Billings in excess of costs and estimated earnings on uncompleted contracts   29,540     31,115  
Current portion of operating lease liabilities   2,722     -  
Current maturities of debt   8,457     7,538  
Accrued expenses and other current liabilities   15,699     19,078  
Total current liabilities   114,408     128,173  
Long-term liabilities:        
Long-term debt, net of current maturities   57,096     42,458  
Operating lease liabilities, net of current portion   6,058     -  
Deferred income taxes, net   11,480     11,480  
Other long-term liabilities   7,759     6,108  
Total long-term liabilities   82,393     60,046  
         
Total liabilities   196,801     188,219  
Commitments and contingencies        
Stockholders’ equity:        
Preferred stock, par value $0.001; 10,000,000 shares authorized at March 31, 2020 and September 30, 2019 and no shares issued and outstanding   -     -  
Class A common stock, par value $0.001; 400,000,000 shares authorized, 32,705,418 shares issued and outstanding at March 31, 2020, and 32,597,736 shares issued and outstanding at September 30, 2019   33     33  
Class B common stock, par value $0.001; 100,000,000 shares authorized, 21,999,279 shares issued and 19,076,327 outstanding at March 31, 2020, and 22,106,961 shares issued and 19,184,009 shares outstanding at September 30, 2019   22     22  
Additional paid-in capital   244,237     243,452  
Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001   (15,603 )   (15,603 )
Retained earnings   122,422     115,646  
Total stockholders’ equity   351,111     343,550  
Total liabilities and stockholders’ equity   $ 547,912     $ 531,769  



CONSTRUCTION PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

  For the Six Months Ended March 31,
  2020   2019
Cash flows from operating activities:      
Net income $ 6,998     $ 9,366  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation, depletion and amortization of long-lived assets 19,031     14,639  
Amortization of deferred debt issuance costs and debt discount 74     55  
(Gain) loss on derivative instruments 2,263     331  
Provision for bad debt 305     290  
Gain on sale of equipment (744 )   (1,027 )
Equity-based compensation expense 785     —  
Earnings from investment in joint venture (113 )   (539 )
  Other non-cash adjustments (11 )   —  
Changes in operating assets and liabilities, net of acquisition:      
Contracts receivable including retainage, net 16,680     14,460  
Costs and estimated earnings in excess of billings on uncompleted contracts (4,071 )   (3,261 )
Inventories (4,632 )   (7,965 )
Prepaid expenses and other current assets 1,597     (2,987 )
Other assets 332     3,865  
Accounts payable (12,452 )   (15,911 )
Billings in excess of costs and estimated earnings on uncompleted contracts (1,575 )   (4,081 )
Accrued expenses and other current liabilities (3,967 )   (1,972 )
Other long-term liabilities (24 )   36  
Net cash provided by operating activities, net of acquisition 20,476     5,299  
Cash flows from investing activities:      
Purchases of property, plant and equipment (34,512 )   (19,802 )
Proceeds from sale of equipment 1,419     2,585  
Business acquisitions, net of cash acquired (30,191 )   (8,854 )
Acquisition of liquid asphalt terminal assets —     (10,848 )
Distributions received from investment in joint venture 500     1,800  
Net cash used in investing activities (62,784 )   (35,119 )
Cash flows from financing activities:      
Proceeds from issuance of long-term debt, net of debt issuance costs and discount 24,777     —  
Repayments of long-term debt (9,294 )   (7,406 )
Net cash provided by (used in) financing activities 15,483     (7,406 )
Net change in cash and cash equivalents (26,825 )   (37,226 )
Cash and cash equivalents:      
Beginning of period 80,619     99,137  
End of period $ 53,794     $ 61,911  
       
Supplemental cash flow information:      
Cash paid for interest $ 924     $ 1,365  
Cash paid for income taxes $ 3,400     $ 1,532  
Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 1,140     $ —  
Cash paid for operating lease liabilities $ 1,672     $ —  
Non-cash items:      
Property, plant and equipment financed with accounts payable $ 794     $ 369  
Amounts payable to Seller in business combination $ 2,642     $ —  

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA represents net income before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion and amortization of long-lived assets, (iv) equity-based compensation expense and (v) certain management fees and expenses, and excludes income recognized in connection with a legal settlement between certain of the Company’s subsidiaries and a third party that did not directly relate to the Company’s business and that the Company does not expect to reoccur. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. Adjusted EBITDA and Adjusted EBITDA Margin are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP as an indicator of our operating performance. Management uses Adjusted EBITDA and Adjusted EBITDA Margin as key performance indicators, and we believe they are measures frequently used by securities analysts, investors and other parties to evaluate companies in our industry. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP.

Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies. Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets.

The following tables present a reconciliation of net income, the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA, and the calculation of Adjusted EBITDA Margin for each of the periods presented:

Construction Partners, Inc.
Net Income to Adjusted EBITDA Reconciliation
Fiscal Quarters Ended March 31, 2020 and 2019
(unaudited, in thousands, except percentages)

   
    For the Three Months Ended March 31,
    2020   2019
Net income   $ 1,537     $ 4,212  
Interest expense, net   1,834     379  
Provision for income taxes   531     1,488  
Depreciation, depletion and amortization of long-lived assets   9,593     7,501  
Equity-based compensation expense   390     —  
Management fees and expenses (1)   357     387  
Adjusted EBITDA   $ 14,242     $ 13,967  
Revenues   $ 168,679     $ 164,304  
Adjusted EBITDA Margin   8.4 %   8.5 %

(1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with an affiliate of SunTx Capital Partners, the Company's controlling stockholder.

Construction Partners, Inc.
Net Income to Adjusted EBITDA Reconciliation
Fiscal Year 2020 Updated Outlook
(unaudited, in thousands)

    For the Fiscal Year Ending
    September 30, 2020
    Low   High
Net income   $ 32,000   $ 34,000
Interest expense, net   3,300   3,300
Provision for income taxes   10,700   11,400
Depreciation, depletion and amortization   39,000   39,300
Equity-based compensation expense   1,600   1,600
Management fees and expenses (2)   1,400   1,400
 Adjusted EBITDA   $ 88,000   $ 91,000

(1) Reflects fees and reimbursement of certain travel expenses under a management services agreement with an affiliate of SunTx Capital Partners, the Company’s controlling stockholder.

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Source: Construction Partners, Inc.

Released May 8, 2020