Machinery, E&C and Waste: Day 2 Conference Takeaways

Research evidence excerpt

Machinery, E&C and Waste: Day 2 Conference Takeaways

Construction Partners

Note that the following gives our interpretation of the key points highlighted in our investor

meetings and fireside chat. These conversations featured Greg Hoffman (Chief Financial

Officer and Chief Accounting Officer) and Rick Black (Investor Relations).

• Energy costs: ROAD emphasized that liquid asphalt is the primary energy-related

input, representing roughly ~7x the cost of diesel, and is structurally de-risked by

contract design, with most exposure effectively transferred to the states through

index-based pass-through mechanisms. On public work, ROAD is reimbursed or

clawed back based on the difference between the bid date and installation (i.e.,

when the asphalt is actually laid on the road) date index. Overall, around 80% of

total contract revenue is subject to mechanisms that allow for pass-through of key

cost movements. In addition, ROAD structurally sources liquid asphalt below the

index, embedding a margin advantage independent of price moves, while holding

~2-2.5 months of inventory (FIFO) that can further enhance margins in rising price

environments given typical winter procurement at lower prices, and benefits from

short project durations (6-9 months) that allow relatively rapid repricing of bids as

costs move. Diesel is a much smaller cost component, with ~50% hedged, limited

earnings sensitivity, and some ability to pass through hauling-related costs, while

natural gas remains stable vs pre Middle East conflict levels.

• Public and private demand: ROAD characterized demand as steady, recurring, and

geographically advantaged in the Sunbelt. Specifically, demand remains strong and

highly visible, with ROAD reporting robust bidding activity and backlog conversion,