Greetings, and welcome to the Construction Partners, Inc. Q4 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black of IR Investor Relations. Thank you, Rick Black. You may begin.
Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review fourth quarter fiscal year-end results for fiscal year 2021. 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, November 23, 2021. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the 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 harbors 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 the earnings press release that was issued today 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, loss, and adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. Now I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule?
Thank you, Rick, and good morning, everyone. With me on the call today are Alan Palmer, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to begin today by thanking the over 3,000 employees of Construction Partners throughout the Southeast for their hard work and dedication in making fiscal year 2021 a successful and safe year in a challenging environment. I would also like to welcome all the talented employees of two October acquisitions, King Asphalt and J. Miller Construction, Inc. Welcome to the CPI family. I'll begin my remarks today with an overview of the fourth quarter and fiscal year 2021 before commenting on the current state of our business and expectations for fiscal year 2022, as well as some thoughts on the impact of the new federal infrastructure bill recently signed into law.
Alan will then review the financial results in more detail. In the Q4 , Construction Partners achieved a record quarterly revenue of $279 million, a 24% increase compared to the same quarter last year, despite an excessive number of lost workdays due to abnormally wet weather throughout all of our markets in the Southeast. Revenue for fiscal year 2021 overall grew approximately 16% compared to fiscal year 2020, consisting of approximately 5% organic growth and 11% acquisitive growth. Last quarter, we revised our FY 2021 outlook due to the labor market and supply chain constraints, which I described as ankle weights on our construction operations that suppress top-line revenue. While our adjustment largely covered those effects on our business in Q4, we could not foresee the extremely wet months that were to follow.
In each of our states, precipitation was up approximately 30% from July to September compared to typical rainfall levels for these months. This weather significantly impacted our Q4 and delayed approximately $30 million-$35 million of revenue into next year. We estimate that between seven-nine additional workdays over normal expectations were lost during the Q4. The good news is that this business is not lost, but rather moves forward into the current quarter as part of a record backlog that we have booked to begin our fiscal year 2022. Including the two companies acquired in October, we begin our new fiscal year with a record backlog of $1 billion, the largest in the company's history. In addition, we believe profit margins in our backlog can continue to grow with the expanded bidding opportunities in infrastructure.
From a margin perspective, fiscal year 2021 adjusted EBITDA margin was 9.9%, a decrease compared to 12.5% in fiscal year 2020. There were three primary factors affecting margins. First, excessive loss of workdays in the fourth quarter due to the 30% abnormal precipitation increase does hurt fixed cost recovery and absorption of our fleet and asphalt plants. While the revenue moves forward and is not lost, margins are impacted by extremely wet weather. Second, the significant and atypical inflation felt throughout the economy has been a drag on margins. Typically, our short project durations allow normal inflation to be passed on in our bids. However, given the sudden and sharp input costs being felt throughout the economy, we were not able to pass along all of the materials, energy, wages, and transportation costs.
We anticipate continuing inflation in fiscal year 2022, and our pass-through mechanisms and contingencies in bids have been adjusted accordingly. Third, as CPI integrates acquisitions, the acquired backlog comes with lower margins, which typically take 12-18 months to raise to the CPI level. Longer term, we are expanding our footprint into new and growing markets that will continue to drive future organic growth and margin expansion over time. At CPI, we have managed these economic headwinds in an extremely rainy fourth quarter, and now we end our new fiscal year as a larger, stronger, and more resilient business. We begin the new year with a record backlog of work and an organization prepared for higher levels of infrastructure investment to come. We remain bullish about both organic and acquisitive growth prospects moving forward, as reflected in our fiscal year 2022 outlook.
Although we don't know when the labor market and supply chain constraints will ease, we have adapted and are managing the disruptions and will pass the cost through until market dynamics ultimately return business to normal. Finally, we have invested in our organization in FY 2021 to prepare for growth. We expect those efforts to result in lower G&A costs as a percentage of revenue this year. Turning now to acquisitions. As we begin our fiscal year 2022, on October 4, we announced an exciting platform acquisition in South Carolina with the purchase of King Asphalt. King is a full-service hot mix asphalt and paving company with three hot mix asphalt plants in the Greenville-Spartanburg metropolitan area. King provides asphalt contracting services for a variety of public, commercial, and residential projects.
Under the continuing leadership of Mike Crenshaw and his talented team, we believe King is well-positioned to participate in the dynamic economy and rapid growth occurring in the upstate region of South Carolina. Our second FY 2022 acquisition, announced on October 18th, was a strategic purchase that further enhances our vertical integration of construction services in the rapidly growing Florida Panhandle. J. Miller Construction is a well-respected grading and site work contractor in the greater Pensacola area and will allow us to bid a wide array of projects in that market. As a consolidator in a fragmented industry segment, we continue to strategically acquire businesses that expand our footprint and increase both our manufacturing and construction services' vertical integration. This strategy leads to growth of our relative market share while also allowing us to capture more margin along the value chain of services.
Looking forward, the acquisition pipeline continues to be very strong. We have made the organizational investments in people and technology, and we have the capital structure that provides financial flexibility for us to continue executing the CPI strategy of profitable and disciplined growth. Turning now to the federal funding for infrastructure in our industry. The new infrastructure bill signed into law last week is a transformational investment into roads, bridges, airports, and ports of our nation. In our 5 states, federal infrastructure project funding for the next 5 years will increase approximately 50% over the current baseline. We estimate that this legislation will stimulate economic growth and job creation while also driving meaningful project demand beginning in late 2022 and beyond. Our investments in the organization, its technology, and people have prepared us to capitalize on this increased infrastructure funding.
I'd now like to turn the call over to Alan to discuss our financial results and fiscal year 2022 outlook in greater detail.
Thank you, Jule, and good morning, everyone. I will begin with a review of our key performance metrics in fiscal 2021 before discussing our outlook for fiscal 2022. Revenue was $910.7 million, up 15.9% compared to the prior year. Acquisitions completed or subsequent to the fiscal year ended September 30, 2020, contributed $87.4 million of revenue, and we had an increase of $37.6 million of revenue in our existing markets. Gross profit was $119.9 million, a decrease compared to $122.2 million in the prior year due to the factors that Jule discussed during his remarks. General and administrative expenses were $91.9 million compared to $68.6 million in the prior year.
Approximately $17 million of the increase was related to management personnel payroll and benefits, a legal settlement and related fees, and other professional fees primarily driven by business acquisition expenses, information technology expenses, and increased accounting and consulting fees. In fiscal year 2022, we expect general and administrative expenses as a percentage of revenue to return to 8.5%-9%. Net income was $20.2 million for fiscal 2021 compared to net income of $40.3 million in the prior year. Adjusted net income in fiscal 2021 was $24 million after an adjustment of $3.8 million for the legal settlement and legal fees previously discussed. Adjusted EBITDA for fiscal 2021 was $90.1 million compared to $98.8 million for the prior year.
You can find GAAP to non-GAAP reconciliations of adjusted net income and adjusted EBITDA financial measures at the end of today's press release. Turning now to the balance sheet. At September 30, 2021, we had $57 million of cash and $197.5 million of availability under our revolving credit facility after the reduction for outstanding letters of credit. As of the end of the quarter, our debt to trailing 12 months EBITDA ratio was 1.99. This liquidity provides financial flexibility and capital capacity potential for potential near-term acquisitions, allowing us to respond to growth opportunities when they arise. Cash provided by operating activities was $48.5 million for the 12 months ended September 30, 2021, compared to $105.2 million for the same period last year.
Capital expenditures for fiscal 2021 were $56.3 million. We are reporting a record project backlog at September 30, 2021 of $966 million, excluding the two acquisitions in October, compared to $608.1 million at September 30, 2020, and $823 million at June 30, 2021. Today, we're announcing our fiscal year 2022 outlook for the year with regard to revenue, adjusted net income, and adjusted EBITDA. We now expect revenue in the range of $1.075 billion-$1.15 billion. Adjusted net income in the range of $34.7-$41.8 million, and adjusted EBITDA in the range of $122-$132 million.
The company's outlook does not assume any impact from the recently passed Infrastructure Investment and Jobs Act or future acquisitions that the company has not already completed. In summary, despite a challenging environment and excessive rain at the end of our fiscal year during our highest production quarter, we're pleased with our overall growth, recent acquisitions, and record high project backlog. I'll now turn the call back over to Jule.
Thank you, Alan. In summary, we are off and running in our new fiscal year with a full plate of work on hand, a transformative investment in our industry, and margin expansion opportunities ahead of us. Our team is prepared to execute on the bright future we see ahead to continue growing the company and delivering value for our stakeholders. With that, we'll now take questions. Operator?
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We also ask that each person limit themselves only one question and one follow-up question due to time. One moment please, as we poll for questions. Our first question comes from the line of Stanley Elliott with B. Riley. Please proceed with your question.
Hey, good morning, everyone. Thank you all for taking the question.
Good morning, Stanley.
In the release you guys mentioned, you know, profit margins in the backlog can continue to grow, pardon me, with bidding. What exactly did you guys mean by that? Are you all repricing contracts? Do you have material escalators? Just curious how to think about that dynamic.
Yes, Stanley. What we mean by that is as we continue to bid work and we see bidding opportunities ahead, we have a lot of bidding opportunities. We feel like we're gonna continue to expand the margins as we put on new work. Our current work, we do have contingencies built in our bids now, just dealing with the supply chain issues, and inflation. What we really mean by that is, you know, due to the short duration of our projects, we're constantly turning over and putting new work onto our books and finishing old work. We just see the economy and the bidding opportunities and the funding allowing us to expand margins just consistently over time.
Perfect. Then, you know, thinking about the M and A plans for the coming year, you've done two acquisitions, I guess, since the quarter closed. You're right around two times, not including those. How should we think about the M and A activity into next year, with the kind of the premise you guys are tracking above two times the EBITDA right now? Do you wanna be aggressive in this market? You know, curious just kind of where your head's at there.
Yeah. You know, Stanley, I would say we're gonna continue to execute our strategy. You know, acquisitions are a large part of our DNA at CPI. We wanna just have controlled profitable growth. We're gonna continue to build relationships with potential sellers. We're gonna talk to them. We're gonna look for bolt-on acquisitions that help us build relative market share in the states we're in. We're gonna continue to talk to folks in adjacent states and get to know them. You know, we're not going to go too fast. The acquisitions are gonna continue to be a big part of what we do moving forward.
Great, guys. Thank you very much.
Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.
Thank you, and good morning, everyone. I guess where I'm gonna start. I'll start with the cash flow actually, Alan. You know, $48 million of cash flow from ops is not a huge number this year. I know that when you guys do acquisitions, correct me if I'm wrong, you guys typically do not buy the working capital associated with those acquisitions, and therefore, you have to fund the entire working capital from the day when you acquire it. Given that, can you tell us what the drag on working capital was as it was reported in your financial statements so that we could get a better sense of kind of what the underlying cash flow of the business might be?
Yeah, Andy, good question. Of course, one of the big drivers of the decline was lower profit. That was about 20 million of the decline from last year. You know, going into 2022, we expect to be able to significantly improve that number. As you mentioned, when we make acquisitions, typically, other than if it's a platform acquisition, we're not acquiring in the purchase price the receivables, payables, and a lot of the working capital. We have to fund those from day one out of our immediate operations. The two largest items besides the profit that caused the decline in the cash flow this year were accounts receivable, which is one of those items that we have to build from the acquisitions, and then our work in progress.
Both of those are really a function somewhat of the shift. We changed the percentage of work that we're doing, private work, compared to public work over the last couple of years to take advantage of the opportunities, and that generally stretches out your receivables. You also have retainage on non-public jobs. Those are the things that this year, of course, we've had inflation just like everyone else in our material costs. To have the same quantity of inventory on hand, we've got a lot more invested in inventory. Those are really the two or three things that have contributed. We feel like with you know the acquisitions working capital behind us, 2022 should return to a much better cash flow from operations.
Andy, I just would add, you know, as we said in our remarks, the fourth quarter was extremely wet. $30 million-$35 million of revenue and some fixed cost recovery were impacted. That revenue moves into Q1 of this year.
Yeah. Right. That makes sense. Well, just kind of, I guess, along that, I wanted to follow up with this question, which is trying to get a little bit better sense about the underlying organic growth rate that's baked into this 22 outlook. I guess I heard you guys say that, clearly here, which was great, that the guidance does not include any acquisitions that have not yet been closed as of today. So that's clear. But there's obviously these two deals that you closed in October which are contributing to revenue. So, Alan, can you talk about what the low end and the high end of your revenue range implies for the organic growth rate in the business?
Andy, I'll take a stab at that first. You know, our range, we are focused on organic growth. In our outlook range, our organic growth has a range there of 5%-10%. And then acquisitively, the acquisitive growth is a range of 13%-16% in our range. We're focused on both of them. The two new acquisitions, we did add that backlog to the 966 million on September 30 because we felt like that's really a more accurate reflection of the backlog that we're gonna be taking into the year to you know, accomplish this outlook. Andy?
Yes.
Any follow-up on that?
I'll queue back in. I'm happy to keep going here, but I was doing one question and one follow-up. I'll queue back in, and if you take me later, that'd be fine.
Okay, Andy. Thank you.
Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys.
Morning, Adam.
Can you help us a little bit on how you see the cadence of EBITDA playing out in fiscal 2022?
Adam, do you mean just from how it's spread out over the year? We typically say.
Yeah, I mean, I guess I know you don't give quarterly guidance, but since we do have this, some projects deferred specifically into Q1, just kinda curious, kinda how you see starting the year versus finishing the year.
Yeah. Well, I'll let Alan give specifics in a minute. We do see in 2022 our typical 40% of revenue in the first half of the year and 60% in the second half of the year is pretty normal, and we anticipate that. As far as the EBITDA, you know, obviously in the winter, we don't get as much recovery on our fixed assets as we do in the summer, so that tends to be more rear loaded to our busy seasons.
Yeah, this is Alan. I'll add to what Jule said. You know, this year, the year that just finished, we had a slightly higher percentage of revenue in the first six months, primarily as a result of just, you know, not being able to get the revenue in the last half. Next year, we do see, at least from our budget standpoint, pretty much a 40-60 split. As Jule said, the fixed cost recovery is not full in the first six months because you're only doing 40% of that revenue. We see a higher EBITDA margin in the second half of the year, but pretty much a return to normal there when you look at it over a 40-60 split for the year.
Okay. That's perfect. As a follow-up, I just wanted to ask about EBITDA margins. I'm just curious, I guess, on the path back to 'cause you had about a 12% average margin in 2019 to 2020, and I know you're not gonna do that in 2022, at least you're not committing to that today, but what would be the path back to those kinds of margins?
Well, I mean, I think in 2020, as we shared last year and as we shared going into this year, we had some items in 2020 with the declining oil prices, significant changes, some of the shutdowns related to COVID that gave us higher productivity because there was no one on the roads that made that, you know, spike up. We knew coming into this year there would be a decline. I think what Jule has talked about, the challenges for 2022, we've kind of reset our expectations and our job pricing, and we feel like we can start moving back to that, you know, approximately 12% or better, you know, EBITDA margin.
Part of that is, as he said, and I said, you know, we're kind of with that higher revenue, it lowers our G&A expense as a percentage. If we get to that higher end of the revenue, that drops from about 9% on the lower end to about 8.5%. That adds, you know, 0.5% to that EBITDA margin. You know, our guidance for this year gets us, you know, substantially back to that on the high end, back to that 12% range that we've been in before.
Adam, I would just add to that. You know, as we execute on our strategy and we build relative market share in the states we're in, it gives us an opportunity not only to bid at higher margins, but we get to take advantage of the vertical integration we have. Just like the Gulf Coast terminal and the aggregate facilities we have, and that just gives us a chance to expand margins. We do feel like moving forward, you know, we're gonna return to those EBITDA margins and just by executing the strategy we have.
Okay. Good color. Thanks, guys.
All right. Thank you, Adam.
Our next question comes from the line of Zane Karimi with D.A. Davidson. Please proceed with your question.
Hey, good morning, gentlemen.
Morning, Zane.
Regarding the record backlog here, from a margin perspective, what sort of gap are you seeing between the new acquisitions and a normalized level? And what portion of the backlog is new from acquisitions, and when do you think that will be completely worked through by?
Well, Zane, you know, acquisitions always come with a little lower backlog margin, and typically it takes about 12 months to normalize those to CPI margins. We have been able to expand our backlog margin as we go into this year, and it's something we see will continue that trend into 2022. We think that the healthy economy in the Southeast and the funding situation is gonna allow us to continue to expand backlog margin. The acquisition backlog does get worked through, and we're putting new work in those on the books in those markets, and we take about 12 months and get those margins up to normal.
Okay. Thank you. I know you guys talked about atypical inflation, but are you guys able to quantify the impact that it had on your quarterly results?
It's hard to quantify exactly, Zane. You know, as I said in my remarks, there's three things that really affected margins for the quarter. Part of it's weather and the fixed cost recovery that the abnormal precipitation caused. Part of it is inflation. Inflation, you know, normally is a pass-through cost for us and nothing's changed there. It's just we're dealing with atypical inflation that the supply chain and the labor market causes. We've had to adjust our pass-through mechanisms and speed it up to adjust for that atypical inflation. We've had to start adding contingencies in our bids to deal with the uncertainty. We really see once these economic realities smooth out in the future, and we don't know exactly when that's gonna be, inflation will continue to be a pass-through cost for us.
It has definitely been an atypical environment the last six months, and that does affect margins.
Appreciate the color.
All right. Thank you.
Our next question comes from the line of Andy Wittmann with Baird. Please proceed with your question.
Yeah, just kinda wanted to build on the last thing and obviously, you know, labor was something you guys mentioned last quarter. You guys even said that this is gonna be something that's probably gonna stick into your fiscal 2022. I was just wondering if you're able how you are on the staffing levels here. Have you been able to at least get the number of people and the quality of the people that you need to execute the plan, or are you having to dip into overtime for the people that you already have to do the work? I was just wondering kind of what your outlook is on this front, specifically in 2022 as it relates to your profit margin.
Yeah, Andy. Good question. Labor is definitely a challenge throughout the economy now. At CPI, we are continuing to fight to retain our workforce. I will say we anticipate that it'll get better over time. We just don't know when. One of the things I will say about labor, I feel like CPI's model is faring better in this environment. What I mean by that is our local workforce model allows people to spend every night at home with their families. Our recurring work and the nature of our work is steady, so people have a steady paycheck. Our scale allows us to offer great benefits, and that's helping us compete in this labor market.
The fact that we're a growing company, you know, the thing I hear and the thing we're focused on is showing people that this is not just a job, but they can make it a career. The labor market is definitely tight. We are competing for workers, but we're gonna continue to press those advantages as we go through 2022.
That's really helpful. Jule, just follow up here too. Much has been said and made about the North Carolina Department of Transportation and how it was kinda shut down for a while and coming back. Last quarter, this was a big factor in kind of, you know, how 2021 played out. The expectation for 2022 was that North Carolina was gonna come back in a pretty material way, frankly, that the acquisitions that you did there, which were probably a little bit below plan to start out, but they were going to kinda resurge and deliver much, a lot of the growth that's in 2022.
My question is, here today, as you sit now in 2022, have the North Carolina acquisitions? Do they have the backlog to deliver the growth that was kind of expected coming out of last quarter?
Yeah. Andy, you said that just right. I mean, when we bought those four acquisitions, it was abnormal times in North Carolina, but we took the long-term view. As you said, North Carolina has really returned, not only to normal, but to a very robust program. I'm very pleased with the backlog that we've been able to build in those 13 new markets and the outlook for them. Even though it's not in the backlog we announced just last week in the highway letting, we won two really nice projects in those markets. You know, it was definitely last year a very abnormal time throughout North Carolina with the DOT's issues, but they have rebounded strongly. They've got a very healthy program. This Infrastructure Act is gonna even add more to that.
you know, I just saw a presentation last week that the NCDOT's really planning well for how they're going to not only use the funded, the allocated money, but to apply for the grants available in the Infrastructure Act. We are very bullish on North Carolina moving forward.
Okay. Great. Thank you for that update. Have a good day.
All right. Thank you, Andy.
Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.
Oh, thanks. Just one more. I was just curious, guys. I'm still trying to figure out how DOTs are reacting to inflation? 'Cause you talked about some things you're doing with your contracts to help protect you. Is it harder to do that with DOT customers versus private customers?
Well, Adam, you know, inflation for the DOT, where we really see them having to adjust is in their estimates and making sure that their estimates are keeping up with inflation. That's been a challenge for them as well as the contractors. Also you see when they're looking out in their programming, they're having to adjust that, the projects in their program are gonna cost more, and so they're having to plan that. You know, inflation's a very real thing for all of us. We certainly anticipate that inflation's gonna continue, and we've had to start and really adjust our mechanisms to pass it through to the customers. Our outlook for 2022, we've assumed that inflation's gonna happen and that we're gonna continue to pass it through.
You know, liquid and diesel fuel, you know, the DOTs have an index. As liquid and energy costs go up, we're covered on that, but the DOTs end up spending more money. Just as if it drops, they save money. Inflation is definitely an issue for our DOTs.
Well, the good news is they've got more money to spend now.
That's right.
Maybe it'll all even out. Okay. Thanks, guys.
Thank you.
Mr. Jule Smith, there are no further questions at this time. I'd like to turn the floor back over to you for any closing comment.
Okay. I'd just like to thank everyone for taking the time to be on our call today, and I wish you and your family a happy and safe Thanksgiving.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your line and have a wonderful day.