Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review third quarter results for fiscal 2025. 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, August 7, 2025. 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, adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. And with that, I would now like to turn the call over to Construction Partners' CEO, Jule Smith.

Thank you, Rick, and good morning, everyone. We appreciate you all being on the call today. With me this morning are Greg Hoffman, our Chief Financial Officer; and Ned Fleming, our Executive Chairman. I'd like to begin today by welcoming the 200 employees of Durwood Greene Construction in the Houston area that joined our family of companies earlier this week. As a third-generation family business that will continue to be led by Brad, Jonathan, and Daniel Greene, the company has earned its reputation as a well-respected market leader in Houston, the fifth largest and one of the fastest-growing metro areas in the nation. Led by an entire team of knowledgeable and experienced industry veterans, the company operates 3 hot-mix asphalt plants and a rail service aggregates terminal. Durwood Greene provides construction and paving services for a variety of public and private projects throughout the Houston metro area. We expect Durwood Greene to continue its legacy of operational excellence and to benefit from vertical integration opportunities as a subsidiary to our Texas platform company, Lone Star Paving. In Texas, our first year has been exactly as we had hoped. And I want to thank the Lone Star team for their outstanding leadership and dedication as we begin expanding to new markets. We continue to see strong economic growth, favorable demographic trends and a well-funded transportation program as well as additional opportunities for acquisitive and organic growth. The Durwood Greene acquisition is a great example of our continued execution of the CPI strategy of seeking out growing markets and partnering with an experienced and talented local management team. Turning now to the third quarter. Our results demonstrate the strength of our people, where despite persistent weather-related delays in the quarter, our teams executed with discipline and delivered robust operational results, driving a record adjusted EBITDA margin of 16.9%. In the Southeast alone, May marked the second wettest month on record, leading to project delays and impacting fixed asset cost recoveries. While we can't control the weather, our team's resilience and operational excellence enabled us to still gain margin on many of our projects, generate strong operational cash flow and build backlog to $2.94 billion. Now let's take a closer look at the current market conditions that are driving our ability to build backlog even during our busy construction work season. On the public side of our business, we see strong public contract bidding throughout our 8 states in over 100 local markets. Supporting this strong environment are healthy state infrastructure budgets, including many supplementary state programs as well as local city and county infrastructure programs and the IIJA federal program funds that all add up to significant year-over-year increases in contract awards. As we begin to look to fiscal year 2026, beginning October 1, public spending on roads and bridges, particularly for maintenance and lane expansions is forecasted to once again grow substantially as state and local governments strive to build and maintain the infrastructure necessary to keep up with the migration of both residents and businesses to our Sunbelt footprint. On Capitol Hill, both houses of Congress continue to work with Secretary Duffy on the 5-year reauthorization of the IIJA and Surface Transportation program, and this administration continues to prioritize hard infrastructure investments and decrease permitting delays necessary to support a growing economy. In the commercial markets, we continue to have a steady amount of bidding opportunities with developers and general contractors in our local markets. The makeup of our backlog and percentage of public, private work continues to stay remarkably steady over the last several quarters, which indicates that our Sunbelt markets continue to have healthy private economic growth and activity. Our bidding activity remains focused on the nonresidential type projects such as warehouses, industrial parks, schools, and manufacturing facilities. We expect economic growth to continue in our current markets, driven by migration to the Sunbelt states by both families and businesses. Finally, we expect to benefit from significant new investments in American manufacturing and our business-friendly states as new tariffs begin to incentivize and accelerate the reshoring trend that began after the pandemic several years ago. Fiscal year 2025 has been a dynamic year of growth for CPI as we've increased the size of our business over 50% through both organic growth and acquisitions. We understand the benefits of and remain laser-focused on organic growth. We also continue to focus on the best strategic acquisitions in growing markets, and we are having numerous conversations with potential sellers who would like for their employees to experience the culture and opportunities provided by joining the CPI family of companies. In closing, we are now in the heart of our busy work season and all of our local markets are at full capacity and utilization. Having a record backlog to build, adding the Durwood Greene organization, and now knowing that our July volumes were strong, gives us the confidence to maintain our FY '25 guidance. As we head toward a new fiscal year in the next 60 days, we're excited about the tailwinds at our back, including strong public funding, a growing private economy and a long strategic growth runway ahead.

Thank you, Jule. Good morning, everyone. I'll begin with a review of our key performance metrics for the third quarter of fiscal 2025 compared to the third quarter a year ago. Revenue was $779.3 million, an increase of 51% compared to the same quarter a year ago. The mix of our total revenue growth for the quarter was 5% organic revenue and 46% from recent acquisitions. G&A expenses as a percentage of total revenue in the quarter were 6.6% compared to 7.3% in the third quarter last year. As we continue to build scale, we are targeting G&A expenses for the fiscal year to be approximately 7.2% to 7.3% of revenue. As a reminder, FY '24 G&A expenses were 8.3% of revenue. Net income for the quarter was $44 million, and adjusted net income was $45.2 million and $0.81 per diluted share in Q3. Adjusted EBITDA was $131.7 million, an increase of 80% compared to Q3 last year. Our adjusted EBITDA margin was 16.9% for the quarter, up 280 basis points over the same quarter last year. In addition, as Jule mentioned, we are reporting a project backlog of $2.94 billion at June 30, 2025. We have approximately 80% to 85% of the next 12 months revenue covered in backlog. Turning now to the balance sheet. We had $114.3 million of cash and cash equivalents and $493.5 million available under our credit facility at quarter end, net of reduction for outstanding letters of credit. On June 30, we amended our credit agreement by providing for a total facility size of $1.1 billion, consisting of a term loan in the amount of $600 million and a revolving credit facility in the amount of $500 million. We utilized the proceeds from the increased term loan to pay down the outstanding balance on the revolving credit facility, realizing the full availability on the facility net of reduction for outstanding letters of credit. In addition, the amendment extends the facility maturity date to June 2030. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 3.17x. We remain on pace with our strategy of reducing the leverage ratio to approximately 2.5x by late fiscal 2026 to support sustained profitable growth. Cash provided by operating activities was $83 million compared to $35 million in the same quarter a year ago. We remain on pace to convert 80% to 85% of EBITDA to cash flow from operations in FY '25. Capital expenditures for the quarter were $36.7 million. We continue to expect total capital expenditures for fiscal 2025 to be in the range of $130 million to $140 million. This includes maintenance CapEx of approximately 3.25% of revenue, with the remaining amount invested in new growth initiatives. And finally, we are maintaining our prior outlook with revenue in the range of $2.77 billion to $2.83 billion. In regard to our overall revenue mix for the year, we continue to expect organic revenue to be in the range of 8% to 10%. Net income in the range of $106 million to $117 million. Adjusted net income in the range of $124 million to $135 million. Adjusted EBITDA in the range of $410 million to $430 million, and adjusted EBITDA margin in the range of 14.8% to 15.2%. And with that, we will open the call to questions.

Jule, so obviously, a very solid quarter in the face of what was very challenging weather. I think you talked a little bit about the fixed cost deleveraging, but it doesn't really seem that you guys missed a beat. I mean gross margins were maybe the best they've been in 20 quarters on my math. Can you just kind of talk about how you navigated weather so well? I mean how do you flex costs when you have that lack of paving days?

Yes, Tyler, we were very pleased with the results of the quarter and the performance of our margins. It's clear that weather has an impact, especially since we operate in an outdoor environment; it can affect us negatively or, in dry conditions, positively. However, our business is really performing well across the board. We have discussed our three margin drivers: building better markets, vertical integration, and scale. All of these factors are aligning as we expected. Even with the wet conditions, those margin drivers continued to work effectively. While the weather did influence our top line and some fixed asset recovery, the three margin drivers are functioning well together, and we anticipate this will persist into the fourth quarter.

Okay. That's great. Curious about your comments. I think in the prepared remarks, right at the end, you mentioned that you were, roughly at full utilization. So how do we read that? Will that be a bit of a hindrance to organic growth next year? Or are you going to need to step up CapEx to support that growth? Just any color there.

Yes. No, I wasn't trying to signal any capacity constraints. I just was basically saying we have a full backlog, and we're on full cylinders. And our CapEx program supports our organic growth that we expect. As you know, Greg runs a pretty robust program to look for the best organic growth opportunities, and that's where the CapEx dollars flow. So I wasn't trying to communicate any capacity constraints, just that as normal, we are at full utilization and building that record backlog.

Okay. Okay. I just wanted to make sure I had that. And then just a quick modeling question, Greg. Just on the M&A contribution, what will the contribution be here in '25 that's expected in the guidance? And then again, kind of based on what we know today with deals that have closed, how much rollover benefit should we see in fiscal '26 already?

Yes. So Tyler, the Q4 acquisition revenue impact is going to be somewhere in the $270 million, $280 million range. And then carrying over into 2026, we should see somewhere in the neighborhood of $240 million to $250 million.

Okay. So a good kick start into '26. Okay, my last one. Yes, so I think you guys are going to do something, call it, like $2.8 billion in revenue, $420 million or so of EBITDA. Those numbers are actually right at or above the targets that you set out less than 2 years ago and you're achieving them 2 years early. So just I know the complexion of the business has obviously changed a lot, but does it make sense to maybe reset those targets maybe here in the next couple of months?

Yes. Tyler, I do think that the Lone Star acquisition was a transformative acquisition, as we said last October, PRI that joined us in May has had a great 2 months. The Durwood Greene acquisition is going to be very additive. So yes, I mean, we need to update and communicate what our business looks like moving forward now after those transformative acquisitions. I'm going to throw it to Ned, who has some big picture thoughts. I think that's a good time to let him weigh in on this.

Tyler, you're a great straight man, I appreciate it. Thank you, sir. But the honest truth is we're trying to make great long-term decisions. We don't run this business on 90-day increments. We're trying to make great decisions that continue to compound wealth. A good example of that is Houston, and we probably see every transaction that you can see in this space, and we made a decision to invest in Houston. Houston has 7.2 million people. It was the fastest, more people moved there last year than any metropolitan area in the country, except for Dallas, and Dallas beat it by 16,000 people, I believe. And it looks like it's going to continue to grow. That's more people than a lot of states in the country with that kind of growth. And so the first step is we've got great people there. We've got great growth. You're going to see more things happen in growing areas. So we're trying and we'll continue as we have from the very start to make great long-term decisions that continue to compound wealth, not just for 1 or 2 quarters, but for the next 5 to 10 years. So the answer is yes, you will just, I would say, stay tuned. We will have a little bit of a reset here over the next few months as to what we think we're going to do since we hit the projections so quickly. But make no mistake about it, the Board is paying attention to where we invest it. The several members of the Board met the team in Houston. We're paying attention to who we're in business with, that's our first step, where we're placing capital, and we're going to continue to allocate capital that can compound wealth for the next 5 to 10 years.

Just I am curious, Jule, you made a comment earlier about public spending for maintenance and lane expansion is forecast to grow substantially in 2026. Is this based on conversations with customers? Or is this based on your understanding of where budgets are looking as we fast forward to next year? I just want to get a sense if you can kind of flesh out your confidence around that comment.

Yes. Michael, and you and I have discussed, when we're talking about public funding, there are several different ways to measure it, and it can get a little confusing. So we're talking about contract awards. When you add the state programs, which include federal money, local and county programs because that's all part of our backlog and our bidding. We feel like even though nationally, the numbers move around, our states this year in FY '25, contract awards are up about 14%. And so when we look at those programs, the budgets that they have, where they're going in FY '26, we think it’s going to be up a similar amount. And so that's what I was speaking to is really the contract awards as we look at the budgets and programs in place on the public funding side.

Perfect. And when we think of 2026, I know you're not guiding Jule and Greg, just kind of following up on Tyler's question about the M&A. Just any other puts and takes we should think about for next year? I mean, obviously, if weather normalizes a positive there. Anything on costs that you're seeing on the liquid side, pricing in the backlog, just kind of thinking of the puts and takes as we kind of start looking at the building blocks for 2026.

Yes. Well, Mike, it's getting about that time. So I'll talk to the backlog, and I'll let Greg speak to the cost that he's seeing. As we look forward into 2026, obviously, as Greg just said, we've got a lot of acquisitive revenue rolling over into '26. We expect organically to be up high single digits like we expect to be this year. We don't really see any change in that. So from a growth standpoint, 2026 is looking like a typical CPI year, being up 15% to 20%, if not a little more. So that's good on the top line side. Greg, do you want to speak to what you see on the margin and cost side?

Sure. I said in the remarks that our backlog covers the next 80% to 85% of our 12-month revenue. And the cost is built in there for the appropriate margin as we think about 40 to 50 basis point improvement in margin. So those costs are set and built in. Certainly, there’s some energy pricing that could impact that. We do talk about a slight headwind if energy prices go up, and the reverse is true if they go down. And so currently, right now, what we see is liquid AC being very stable. Diesel has been very stable. Natural gas is up a little bit, but we do enough hedging to make that a minimal impact on us. So we feel pretty good about cost in the future.

Great. I have one more question. The free cash flow was very strong in the quarter. When we consider that alongside your leverage, do you have any updates on the timeline for getting within your range? Jule, do you feel comfortable pursuing some acquisitions while also working on deleveraging? Or are those two goals somewhat at odds as we move into another quarter and head into 2026?

Yes, Michael, that's a great question. It's something we consider frequently. We are dedicated to returning to our target leverage range. However, we also want to keep operating our business. As Ned mentioned, we are making decisions with a long-term perspective of 5, 10, or even 15 years. While we are looking at acquisition opportunities, we are passing on some and trying to work with sellers to align with our timeline as best as possible. At the same time, we believe there are several key strategic acquisitions this year that are vital for the long-term health of our business. Therefore, we will reduce our leverage while continuing to make sound strategic choices for the company.

In terms of what I mentioned earlier, our leverage ratio is 3.17 times, and we expect it to approach 2.5 times based on normal cash generation through the end of fiscal 2026. To your point, we aim to generate 80% to 85% of our cash flow from operations, translating to 80% to 85% of our EBITDA into cash flow. Currently, we are almost there with a trailing 12-month figure of 79%. We will continue to follow our strategy of reducing leverage over time.

With all the good demand for your services in your markets driving good growth, I was just wondering how this is affecting the competitive environment as it relates to your competitors, maybe also realizing that the services are scarce and they might have some pricing power. Obviously, Jule, this has been a really important part of your strategy to build these better markets. And I was just wondering if you could assess for us what you're seeing in your markets to the extent that you've been able to or see the building of those markets being better and what you're seeing in the marketplace today?

Yes, Andy, you're right. One of our 3 margin levers is building better markets, and we see that the demand side is helping us with that. When there's a good bidding environment, as you would expect, margins stay healthy. And I think you saw that rolling through this quarter is even though our crews and our teams really did a great job growing margin on projects, which we expect, and they had a great quarter doing that, it's really nice to start off with healthy margins at the beginning. And so the demand environment on the public side and the private side gives us the opportunity to be patient at the bid table to add projects in our backlog at good margins. And so I think we continue to see that. It's been something that's been pretty steady for several years now, and we're busy and able to stay patient at the bid table and our competitors are also.

And Andy, strategically, Jule and the team have done a great job of picking markets that are healthy. That's an important part of it, growing healthy markets. Houston is a great example.

Yes. And you heard that in Jule's response previously, there are some key markets that you guys want to be in. It sounds like you've identified the next ones that are the good markets that you want to be in as well, right, Jule?

Yes. Andy, as Ned said, Houston is a great example. You say metro area, and you think they're all pretty much the same. Houston, I mean, it's just incredible the amount of people there and the rate of growth when you look at how fast that metro area is growing on an annual basis. So not all states are equal, not all metro areas are equal. And so for us to generate organic growth, which is a big part of our story, we need to be in places that are growing. And so as we look to allocate capital, Ned and I talk a lot about where do we want to be in the United States. Where do we want to direct our growth? We've got a lot of opportunities, we can't do them all. And so we just try to make the best decisions on where we can be that allows our business to grow and have healthy margins.

The One Big Beautiful allows 100% bonus depreciation, and so we're seeing a lot of companies that buy things, equipment like you do. Increasing their cash flow guidance as a result of that. I was wondering if you could help us understand what the benefit is to your cash flow from this year or maybe on an ongoing basis, at least while this law is in effect from that bonus depreciation. And maybe refresh my memory, but I don't know that you updated your cash flow guidance for this. So maybe you did, maybe you didn't, but could you just clarify if there was any change to your cash flow guidance as a result of the OBBA? Yes, our guidance remains that we're converting 80% to 85% of EBITDA to cash flow, and we still fall within that range. We do take bonus depreciation, which this year is down to 60%, and that was definitely included in our guidance. Regarding our cash taxes, I estimated they would be in the $15 million range. However, since the bill has passed, acquisitions or equipment purchases made after January 15, 2025, will qualify for 100% bonus depreciation, although we can't include Lone Star in this. Therefore, the projected $15 million in cash taxes should significantly decrease to around 10, 12, or 13 million, though we will still pay state taxes, which are unaffected. Overall, this provides a nice advantage for us.

This is Brian on for Kathryn Thompson. Q2 obviously had some tough weather, you guys put up a great result, though. I was curious to hear about trends in July so far. We've heard that July was a great quarter for many in the industry. I'm seeing volumes up double digits. So just curious if you could touch on how July trended for you?

Yes, Brian. As I mentioned earlier, July had really good volumes. The first week was particularly wet in North Carolina and Texas, but the last three weeks, especially the last two, saw significant volume increases. As we look ahead to the fourth quarter, we can't predict the weather for August and September. Typically, we base our guidance on normal weather patterns. However, given the strong volumes we experienced in July, we thought it was important to share that information. Like you mentioned, others in our industry have observed similar trends; after a very wet spring quarter, it was beneficial for July to have some favorable weather for us to work effectively.

Got it. And then so Q2 record margins, I think, up 280 basis points, again, in a tough weather quarter. I mean is there a way to frame how much they would have been without weather? I know you mentioned the 3 levers that are really kind of just driving the performance, not regardless of weather, but taking the weather impact to be not as great. But just trying to think through the exercise of if you had normal weather in Q2, what kind of numbers could we have seen, trying to think then for Q3 and even just for next year?

Yes. That's a good question, Brian, and it's not an exact science. Greg and I could sit here and argue for an hour about exactly what may have happened had we had normal weather. But there's no question, our quarter would have been better. We would have had more revenue in the summer where we over-recover on our fixed assets, it would have been higher. And so that's what we're looking forward to happening in the fourth quarter.

Got it. And then last one for me, maybe on the Houston market. You touched a bit on the call so far, massive market. Can you touch on how you plan that market now, kind of like what services you offer and kind of what adjacent services are still out there for bolt-ons? I guess, really just the opportunity set there and maybe how that market looks between public and private trends?

Yes. So Brian, as we start in Houston here this week, really is our first week with the Durwood Greene organization, they look a lot like our typical CPI company. They do paving services, they do some other concrete paving services, which is a characteristic of the Houston market. And they run 3 asphalt plants, do a lot of FOB sales. So very much like a typical CPI company. And as we've said, as we get going in that market, today's acquisitions drive tomorrow's organic growth. So we're going to look for organic growth opportunities in the Houston market, just like we do everywhere else.

Congratulations on navigating some challenging conditions and achieving a strong performance. Jule, I'd like to approach the topic of the weather differently by examining the markets that faced less impact during the quarter. This is relevant to our overall outlook for organic growth this year. Can you provide insights into which markets are currently performing exceptionally well, perhaps even exceeding the 8% to 10% organic growth rate you've mentioned for the year? I'm interested in where you're seeing significant momentum in the business.

Yes, we operate in 100 different markets, and many of them are performing exceptionally well. Florida and Texas are notable growth states, but South Carolina, North Carolina, and Tennessee are also significant contributors. The Austin, San Antonio, and Temple-Calen areas in Texas are major growth hotspots, along with the Panhandle of Florida and the Research Triangle in North Carolina. Overall, we are witnessing substantial growth across all our markets. While not every market performs equally, it's challenging to highlight only a few. The Southeast region continues to experience considerable migration, with states working to keep pace with this growth, as reflected in public funding. Additionally, I believe the tariffs encouraging American manufacturing will benefit companies looking to produce domestically, with the Southeast and Sunbelt likely to attract a large share of that investment.

I find that interesting, Jule, and I wanted to ask about your acquisition strategy moving forward. As this plays out over the next few years, do you believe the types of companies you're acquiring will effectively leverage private markets that could grow in your regions? Can you maintain your current approach, or are you exploring different kinds of deals that might take advantage of those opportunities in the future?

Yes, we are currently in discussions with many potential sellers as part of my role to connect with them. They resemble the businesses we have evaluated over the past 20 years at CPI. Many are solid construction companies, although some focus more on services rather than hot-mix asphalt. These acquisitions are very valuable in the markets where we are already active. Furthermore, companies like PRI, Mobile Asphalt, and Durwood Greene present significant strategic opportunities in our sector that align with our operations.

Nice quarter considering the weather. I was curious, given how wet the summer has been, Jule, would you say you have any color or thoughts on the potential that the construction season could extend further into the December quarter?

Well, Adam, that's an interesting thought. I mean, obviously, every year, when we get into November and December, we have customers that are just begging us to get their projects done. It's a very, very busy time for our different markets. So we're going to extend into the winter as much as we can. Obviously, weather starts to play a factor but I don't envision us going into November and December without a full plate of work with the backlog we already have and what we're bidding now. I think it's going to be very busy, and if we get a good warm November and December, you're going to see us make a lot of hay in those months.

That's what I figured. And then I wanted to ask about your recently acquired states. So Texas, Oklahoma, to some extent, Tennessee. How would you say that transportation spending is trending versus your initial expectation?

I think we assess spending and budgets before making acquisitions. Overall, in Texas, Oklahoma, and Tennessee, things are progressing as we anticipated. Tennessee, in particular, has seen significant year-over-year growth, leading to increased bidding activity. Texas has a reputation for attracting interest from every state in the country, and we are benefiting from that, especially in Houston. Therefore, I can say that all three states are performing very well.

That's good to hear. And then lastly, I wanted to ask on labor. There's got to be a lot of value in your assembled labor force of 6,200 plus. I'm just curious, there's been any changes in the availability of labor either for you or your competitors? What's your sense on that?

I think, Adam, with labor, it's a twofold answer. The labor shortages we saw coming out of COVID, those have dissipated. We're back to a normal labor market when we were struggling to find truck drivers 3 and 4 years ago, that's gone. And labor is available, we're able to build our backlog. But the longer-term picture, as you've heard me say before, is we're going through a generational shrinking slowly but surely of our workforce, and we have a lot of gray hair out on our crews that are retiring. And so that has forced CPI to be proactive in saying how do we attract and retain a workforce, whether it be the culture that we have in our companies, whether it be the compensation that we offer our workers or whether it be the career opportunities. We call it the 3Cs, Culture, Compensation, and Career. And we feel like that if we can do a good job attracting and retaining a workforce, it's actually going to become a competitive advantage for us because the businesses in our industry that can attract and retain a workforce are going to be able to keep bidding and growing. And those that don't attract and retain a workforce are not going to be able to keep bidding and growing. And so it's something long term that we know we have to be proactive. And if we are proactive, it's actually going to help us be one of the winners in our industry. And so workforce is a huge part of what we focus on every day. Yes. Thanks to everyone for being with us, and we look forward to speaking with you next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.