Construction Partners' Q4 2025: Revealing Key Contradictions in Transportation Spending, OBBA Tax Implications, M&A Integration, and Inflation Management

Date of Call: November 20, 2025

Financials Results

• Revenue: $2.812B for FY2025, up 54% YOY; Q4 revenue $900M, up 67% YOY (organic +8.4%)
• Gross Margin: 15.6% of revenue, compared to 14.2% in prior year

Guidance:

• Revenue for FY2026 expected to be $3.4B to $3.5B.
• Net income expected $150M to $155M; adjusted net income $158.1M to $164.2M.
• Adjusted EBITDA expected $520M to $540M; adjusted EBITDA margin 15.3% to 15.4%.
• Capital expenditures expected $165M to $185M (maintenance ~3.25% of revenue).
• Expect 75%–85% conversion of EBITDA to operating cash flow and leverage reduction to ~2.5x by late 2026.
• Record backlog $3.0B with ~80%–85% of next 12 months covered.

Business Commentary:

* Record Revenue and Earnings Growth: - Construction Partners, Inc. reported revenue of $2.812 billion for fiscal year 2025, an increase of 54% compared to the previous year. - The significant revenue growth was driven by 8.4% organic growth and 45.6% acquisitive growth from strategic acquisitions and strong demand in the Sunbelt region.

• Adjusted EBITDA and Margin Expansion:
• The company experienced a 92% increase in adjusted EBITDA year-over-year, reaching $423.7 million, with an adjusted EBITDA margin increasing to 15%.
• This improvement was due to operational efficiencies, strategic acquisitions, and a focus on operational excellence and cost management.

• Strong Acquisition Strategy:
• Construction Partners completed significant acquisitions in fiscal year 2025, including three platform acquisitions and two large subsidiary brands, contributing to a 54% total revenue growth.

• The acquisitions were driven by a strategy of entering growing markets and aligning with strong management teams, resulting in a larger market presence and increased revenue.

• Macro Trends and Infrastructure Demand:

• The company highlighted several macro trends supporting its growth, such as increased migration to the Sunbelt, reshoring of companies, federal and state government investments in infrastructure, and the generational transition in the industry.
• These trends are expected to continue driving demand for Construction Partners' services, particularly in public and private infrastructure projects.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted a "transformational" FY2025 with 54% total revenue growth, 92% increase in adjusted EBITDA, record adjusted EBITDA margin of 15% and a record project backlog of $3.0B. Guidance shows revenue $3.4–3.5B and margin expansion targets under the ROAD 2030 plan toward $1B adjusted EBITDA by 2030.

Q&A:

• Question from Kathryn Thompson (Thompson Research Group, LLC): Could you talk about integration—what you're doing today versus five years ago to smooth integrations?
  Response: Integration has improved via a dedicated acquisition team, focus on cultural fit, broad cross-company integration teams, and stronger leader relationships, producing smoother integrations and more deal flow than five years ago.

• Question from Kathryn Thompson (Thompson Research Group, LLC): Did the recent government shutdown impact your business and how will you plan going forward?
  Response: No material impact—Highway Trust Fund flows insulated operations and bidding during the ~40-day shutdown.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): How confident are you in a spring vote on the 5-year reauthorization bill?
  Response: Management sees bipartisan momentum and expects committees to aim for a spring vote to support an October 1 start, though timing tightened by the shutdown.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): How much rollover M&A revenue should we model and will deals be accretive to margins?
  Response: 2025 deals carry ~$240–250M of revenue and 2026 deals about ~$200M; combined impact is expected to be neutral to the projected 2026 margins.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Do you expect cash from operations to be roughly 75%–85% of EBITDA?
  Response: Yes—expect 75%–85% EBITDA-to-cash conversion (≈80% three‑year average); strong Q4 billing timing shifted some cash into the next year.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Will you remain a de minimis cash taxpayer over the next few years?
  Response: Yes—no material change; recent cash taxes were modest (~$5M) and similar treatment is expected going forward.

• Question from Michael Feniger (BofA Securities, Research Division): Will 2026 focus be bolt-on M&A versus platforms and will you prioritize deleveraging to 2.5x?
  Response: 2026 will emphasize bolt-on deals while prioritizing deleveraging to about 2.5x net debt/EBITDA by late 2026 as cash flow and EBITDA grow.

• Question from Michael Feniger (BofA Securities, Research Division): What are you seeing on cost inflation and price/cost spreads heading into 2026?
  Response: 2025 was a benign inflation year—material and energy costs were stable, liquid AC and diesel steady; labor rising ~3–4% and is being incorporated into estimates.

• Question from Adam Thalhimer (Thompson, Davis & Company, Inc., Research Division): Are competitors full and is pricing still healthy in recent bids?
  Response: Bidding remains competitive but healthy; growing markets enable patient bidding and support margin expansion.

• Question from Adam Thalhimer (Thompson, Davis & Company, Inc., Research Division): What are you hearing on private construction demand across operating regions?
  Response: Private demand is healthy—about 34%–35% of backlog is private with local variability, and overall Sunbelt migration supports ongoing private activity.

• Question from Adam Thalhimer (Thompson, Davis & Company, Inc., Research Division): Are data center campuses driving meaningful paving work?
  Response: Yes—company participates in site infrastructure for data centers (grading, utilities, access roads) similar to large industrial/warehouse projects.

• Question from Jean Paul Ramirez (D.A. Davidson & Co., Research Division): Are you monitoring state ballot measures or revenue initiatives for infrastructure?
  Response: Yes—multiple state/local infrastructure funding initiatives are active across all eight states (e.g., Tennessee's Transportation Modernization Act), supporting demand.

• Question from Jean Paul Ramirez (D.A. Davidson & Co., Research Division): What are current asphalt mix prices and expectations for FY2026; is this reflected in guidance?
  Response: Hot‑mix asphalt produced in-house; liquid AC is often indexed to bid date enabling pass-through, and guidance assumes the ability to pass through input cost changes as contracts allow.

Contradiction Point 1

Transportation Spending and Contract Awards in 2026

It involves differing expectations regarding the growth of transportation spending and contract awards in 2026, which are critical for revenue projections and strategic planning.

What is the confidence level about passing the reauthorization bill by spring? Are lawmakers indicating support? - Patrick Brown

2025Q4: Contract awards have increased about 14% this year, and we expect similar growth in FY '26 as budgets and programs continue to strengthen. - F. Smith(CEO)

What is the expected public spending growth in 2026? - Michael Feniger

2025Q3: We expect typical CPI growth of 15%-20% in 2026. - Gregory Hoffman(CFO)

Contradiction Point 2

Impact of One Big Beautiful Bill (OBBA) on Tax Payments

It involves differing expectations regarding the impact of the One Big Beautiful Bill (OBBA) on federal tax payments, which could affect cash flow and financial planning.

Are there any issues with rollover revenue modeling for completed M&A deals? - Adam Thalhimer

2025Q4: OBBA was passed in January and will benefit M&A for 2025 and 2026. This bill will accrue approximately $12 million in deferred taxes on prior M&A activity. - Gregory Hoffman(CFO)

How does OBBA impact your cash flow guidance? - Andrew J. Wittmann

2025Q3: The guide remains at 80%-85% conversion of EBITDA to cash flow. OBBA will reduce federal tax payments significantly, potentially by $12 million. - Gregory Hoffman(CFO)

Contradiction Point 3

M&A Integration and Strategy

It involves the company's approach to integrating acquisitions and their strategic focus, which directly impacts their growth trajectory and financial performance.

What are your current integration strategies? And how have integration approaches evolved over the past 5 years on your growth path? - Kathryn Thompson

2025Q4: We have a great team that understands the strategic benefits of each acquisition, understands how to diligence, and knows more about the business than the people we purchased it from. We see more opportunities today than we did 5 years ago, directed due to the generational transition in the industry. Integration is smoother today because we include people throughout the company in the process, allowing better communication and an honor to work on integration teams. The integration process is more efficient at CPI today. - Ned Fleming(CEO)

Why do the Texas and Tennessee acquisitions have higher structural margins than CPI's core business, and what are your M&A criteria? - Kathryn Thompson

2025Q2: In acquisitions, we focus on a great management team to drive future growth and performance. We look for excellent markets, good assets, and bolt-on opportunities in growing markets our core competency is company integration. We see opportunities due to our strong culture and team. We're selective in acquisitions based on those factors. - Ned Fleming(CEO)

Contradiction Point 4

Inflation and Price/Cost Spread

It involves differing perspectives on the company's ability to manage costs and maintain pricing in the face of inflation, which directly impacts profit margins.

What are you seeing regarding cost inflation? How do you assess the price/cost spread? - Michael Feniger (BofA Securities)

2025Q4: 2025 was a normal inflation year with steady construction material costs. Liquid asphalt and energy costs were stable. Labor costs are going up at a typical rate of 3% to 4%. - Gregory Hoffman(CFO)

Can you discuss your cost inflation expectations and price-cost spread for this year? - Kathryn Thompson (Thompson Research Group)

2025Q1: We expect typical inflation of 4% to 5%. We are nimble and adjust input costs quickly. Materials, aggregates, and energy costs are steady, with a slight spike in natural gas this quarter. - F. Smith(CEO)