UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2018

OR

For the transition period from                    to                    

Commission File Number:001-38479

Construction Partners, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (334)673-9763

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 31,August 10, 2018, the registrant had 11,950,000 shares of Class A common stock, $0.001 par value per share, and 39,217,53739,464,619 shares of Class B common stock, $0.001 par value per share, outstanding.

EXPLANATORY NOTE

The information contained in this Quarterly Report on Form10-Q should be read in conjunction with the information contained in Construction Partners, Inc.’s final prospectus dated May 3, 2018 (the “IPO Prospectus”) filed with the Securities and Exchange Commission pursuant to
Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), on May 4, 2018.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, such asincluding statements related to future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described under the heading “Risk Factors” in the IPO Prospectus. We believe the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form10-Q are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.

Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described in this Quarterly Report on Form10-Q and in our IPO Prospectus. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by law.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Construction Partners, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

Construction Partners, Inc.

Consolidated Statements of Income

(unaudited in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

Construction Partners, Inc.

Consolidated Statement of Stockholders’ Equity

(unaudited in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

Construction Partners, Inc.

Consolidated Statements of Cash Flows

(unaudited in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

Construction Partners, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1—1 - General

Business Description

Construction Partners, Inc. (the “Company”) is a leading infrastructure and road construction company operating in Alabama, Florida, Georgia, South Carolina and North Carolina through its wholly-owned subsidiaries. The Company provides site development, paving, utility and drainage systems, as well as hot mix asphalt supply. The Company executes projects for a mix of private, municipal, state, and federal customers that are both privately and publicly funded. The majority of the projects are performed under fixed unit price contracts where the ultimate contract amount is based on the fixed unit price applied to actual units of work completed on the project. To a lesser extent, the Company also performs some fixed total price contracts.

Company History

The Company was formed as a Delaware corporation in 2007 as a holding company for its wholly-owned subsidiary, Construction Partners Holdings, Inc. (“Construction Partners Holdings”), a Delaware corporation incorporated in 1999 and which began operations in 2001 to execute an acquisition growth strategy in the hot mix asphalt paving and construction industry. SunTx Capital Partners (“SunTx”), a private equity firm based in Dallas, Texas, is the Company’s majority investor and has owned a controlling interest in the Company’s stock since its inception. On September 20, 2017, the Company changed its name from SunTx CPI Growth Company, Inc. to Construction Partners, Inc. In May 2018, the Company completed an initial public offering of its Class A common stock (the “IPO”), as further described in Note 2.

Seasonality

The use and consumption of our products and services fluctuate some due to seasonality, although we arethe Company is able to perform construction projects during all twelve months in all of ourits markets. Warmer and drier weather during the third and fourth quarters of ourits fiscal year (April 1 - September 30) typically result in higher activity and revenues during those quarters. The first and second quarters of ourthe Company’s fiscal year (October 1 - March 31) typically have lower levels of activity due to adverse weather conditions.

The results of operations and cash flows for any fiscal quarter may not be indicative of future results or of the results of operations or cash flows for a full fiscal year. These interim consolidated financial statements should be read in conjunction with ourthe Company’s audited consolidated financial statements and related notes thereto for the fiscal year ended September 30, 2017 included in the IPO Prospectus.

Note 2—2 – Initial Public Offering

On April 23, 2018, the Company amended and restated its certificate of incorporation to effectuate a dual class common stock structure consisting of Class A common stock and Class B common stock, as a result of which each share of common stock, par value $0.001 per share, was reclassified and changed into 25.2 shares of Class B common stock so that all holders of outstanding common shares became the holders of 41,817,537 shares of Class B common stock and shares held by the Company in treasury became 3,170,034 shares of Class B treasury shares (the “Reclassification”). The amended and restated certificate of incorporation authorizes 400,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock. All share and per share amounts have been retroactively adjusted for all periods presented to give effect to the 25.2 to 1 split of the common stock as part of the Reclassification (the “Stock Split”).

On May 8, 2018, the Company completed an IPO of 11,250,000 shares of Class A common stock for $12.00 per share. Of these shares, 9,000,000 were sold by the Company, for which the Company received approximately $100.4 million in proceeds, after deducting underwriting discounts and commissions of approximately $7.6 million, and prior to additional total offering expenses of approximately $6.3 million. Of the $6.3 million additional offering expenses, $2.2 million are reflected as capitalized equity issuance costs included within other current assets on the Consolidated Balance Sheet at September 30, 2017. All $6.3 million of equity issuance costs were reclassified to additionalpaid-in capital during the three months ended June 30, 2018 in connection with the successful completion of the IPO . The remaining 2,250,000 shares were sold by the holders of Class B common stock, which shares upon sale automatically converted into 2,250,000 shares of Class A common stock, which reduced the issued and outstanding shares of Class B common stock to 42,737,571 and 39,567,537, respectively. The Company did not receive any proceeds from the sale of shares sold by the holders of Class B common stock.

On May 24, 2018, the underwriters of the IPO partially exercised their over-allotment option to purchase an additional 700,000 shares of our Class A common stock at the IPO price of $12.00 per share less the underwriting discount and commissions. Of these shares, 350,000 were sold by the Company for which the Company received approximately $3.9 million in proceeds, after deducting underwriting discounts and commissions of approximately $0.3 million. The remaining 350,000 shares were sold by the holders of

Class B common stock, which shares upon sale automatically converted into 350,000 shares of Class A common stock, which reduced the issued and outstanding shares of Class B common stock to 42,387,571 and 39,217,537, respectively. The Company did not receive any proceeds from the sale of shares sold by the holders of Class B common stock.

Note 3 - Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Construction Partners, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. These interim consolidated statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. The Consolidated Balance Sheet as ofat September 30, 2017 was derived from audited financial statements for the year then ended, but does not include all necessary disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) with respect to annual financial statements. In the opinion of management, the unaudited consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended September 30, 2017 and notes thereto included in the IPO Prospectus. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

Common share and per share amounts have been retroactively adjusted for all periods presented to give effect to the 25.2 to 1 split of the common stock (the “Stock Split”)Stock Split described in Note 12 –2—Subsequent EventsInitial Public Offering.

Management’s Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the recorded amounts of assets, liabilities, stockholders’ equity, revenues and expenses during the reporting period, and the disclosure of contingent liabilities at the date of the financial statements. Estimates are used in accounting for items such as recognition of revenues and cost of revenues, goodwill and intangible assets, allowance for doubtful accounts, valuation allowances related to income taxes, accruals for potential liabilities related to lawsuits or insurance claims, and the fair value of equity-based compensation awards. Estimates are continually evaluated based on historical information and actual experience. Actual results could differ materially from those estimates.

A description of certain critical accounting policies of the Company is presented below. Additional critical accounting policies and the underlying judgments and uncertainties are described in the notes to the Company’s annual consolidated financial statements for the fiscal year ended September 30, 2017 included in the IPO Prospectus.

Emerging Growth Company

Construction Partners, Inc. is an “emerging growth company” as defined by the Jumpstart Our Business Startups Act, or “JOBS Act” which was enacted in April 2012. As an emerging growth company, the Company may take advantage of an exemption from being required to comply with new or revised financial accounting standards until the effective date of such standards is applicable to private companies. The JOBS Act provides that a company may elect to opt out of the extended transition period and comply with the requirements that apply tonon-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected to opt out of such extended transition period, which means that when a standard is issued or revised, and it has different effective dates for public and private companies, the Company is required to adopt the new or revised standard at the effective date applicable to public companies that are not emerging growth companies.

Contracts Receivable Including Retainage, net

Contracts receivable including retainage, net are generally based on amounts billed and currently due from customers, amounts currently due but unbilled, and amounts retained by the customer pending completion of a project. It is common in the Company’s industry for a small portion of progress billings of the contract price, typically 10%, to be withheld by the customer until the Company completes a project to the satisfaction of the customer in accordance with contract terms. Such amounts are also included as contracts receivable including retainage, net. Based on the Company’s experience with similar contracts in recent years, billings for such retainage balances are generally collected within one year of the completion of the project.

The carrying value of contracts receivable including retainage, net of the allowance for doubtful accounts, represents their estimated net realizable value. Management provides for uncollectible accounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts, type of service performed, and current economic conditions. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and an adjustment of the contract receivable.

Costs and Estimated Earnings on Uncompleted Contracts

Billing practices for the Company’s contracts are governed by the contract terms of each project based on progress toward completion approved by the owner, achievement of milestones orpre-agreed schedules. Billings do not necessarily correlate with revenues recognized under thepercentage-of-completion method of accounting. The Company records current assets and current liabilities to account for these differences in timing.

The current asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues that have been recognized in amounts which have not been billed under the terms of the contracts. Included in costs and estimated earnings in excess of billings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for errors, changes in contract specifications or design, contract change orders in dispute, unapproved as to scope and price, or other customer related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Unapproved change orders and claims also involve the use of estimates, and revenues associated with unapproved change orders and claims are included when realization is probable and amounts can be reliably determined. The Company did not recognize any material amounts associated with claims and unapproved change orders during the periods presented.

The current liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings to customers in excess of revenues recognized.

Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of contracts receivable including retainage. In the normal course of business, the Company provides credit to its customers and does not generally require collateral. Concentrations of credit risk associated with these receivables are monitored on an ongoing basis. The Company has not historically experienced significant credit losses due primarily to management’s assessment of customers’ credit ratings. The Company principally deals with recurring customers, state and local governments and local companies whose reputations are known to the Company. Credit checks are performed for significant new customers. Progress payments are generally required for significant projects. The Company generally has the ability to file liens against the customer’s property if payments are not made on a timely basis. No customer accounted for more than 10% of the Company’s contracts receivable including retainage, net balance at March 31,June 30, 2018 or September 30, 2017.

Projects performed for various Departments of Transportation accounted for 37.6%45.6% and 33.9%43.7% of consolidated revenues for the three months ended March 31,June 30, 2018 and March 31,June 30, 2017, respectively, and 37.4%40.9% and 35.4%38.7% of consolidated revenues for the sixnine months ended March 31,June 30, 2018 and March 31,June 30, 2017, respectively. Two customers accounted for more than 10% of consolidated revenues for the periods presented below (unaudited):

Revenues and Cost Recognition

Revenues from the Company’s contracts are recognized on thepercentage-of-completion method, measured by the relationship of total cost incurred to total estimated contract costs(cost-to-cost method). Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in favorable or unfavorable revisions to estimated costs, revenues and gross profit, and are recognized in the period in which the revisions are determined.

The accuracy of revenues and cost of revenues reported on the consolidated financial statements depends on, among other things, management’s estimates of total costs to complete projects. The Company maintains reasonable estimates based on management’s experience; however, many factors contribute to changes in estimates of contract costs. Accordingly, estimates made with respect to uncompleted projects are subject to change as each project progresses and better estimates of contract costs become available. All contract costs are recorded as incurred and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Provisions are recognized for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue, regardless of the stage of completion. When the Company incurs additional costs related to work performed by subcontractors, the Company may have contractual provisions to back charge the subcontractors for those costs. A reduction to costs related to back charges is recognized when the estimated recovery is probable and the amount can be reasonably estimated.

Contract costs include direct labor and material, amounts paid to subcontractors, direct overhead costs and equipment costs (primarily depreciation, fuel, maintenance and repairs).

As more fully described in the Notes to Consolidated Financial Statements for the year ended September 30, 2017, the Financial Accounting Standards Board issued ASUNo. 2014-09, Revenue from Contracts with Customers (Topic 606) in May 2014, which revised and consolidated previous guidance, eliminated industry-specific revenue recognition guidance and established a comprehensive principle-based approach for determining revenue recognition. This update is effective for the Company’s fiscal year beginning October 1, 2018. Management is in the process of completing an evaluation to select a transition method and determine the potential impact of adoption on its consolidated financial statements.

Income Taxes

The provision for income taxes includes federal and state income taxes. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the realization of deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and deferred tax liabilities are presented net by taxing authority and classified asnon-current on the Company’s Consolidated Balance Sheets.

The Company’s policy is to classify income tax related interest and penalties in interest expense and other expenses, respectively.

Equity Issuance Costs

The Company capitalizes certain third-party fees that are directly associated within-process equity offerings. At March 31, 2018 and September 30, 2017, $4.0 million and $2.2 million respectively, of capitalized equity issuance costs were recorded as prepaid expenses, included in other current assets on the Consolidated Balance Sheets.Sheet. Upon the successful completion of the IPO in May 2018, the equity issuance costs balance of $6.3 million was reclassified from prepaid expenses to additionalpaid-in capital during the three months ended June 30, 2018.

Note 3—4 - Contracts Receivable Including Retainage, Net

Contracts receivable including retainage, net are comprised of the following at March 31,June 30, 2018 and September 30, 2017 (in thousands):

Retainage receivables have been billed, but are not due until contract completion and acceptance by the customer.

Note 4—5 - Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings compared to billings on uncompleted contracts at March 31,June 30, 2018 and September 30, 2017 consist of the following (in thousands):

Reconciliation of net billings in excess of costs and estimated earnings on uncompleted contracts to amounts reflected on the Company’s Consolidated Balance SheetSheets at March 31,June 30, 2018 and September 30, 2017 is as follows (in thousands):

Note 5—6 – Business Acquisition

On May 15, 2018, the Company executed a stock purchase agreement (the “Stock Purchase Agreement”) to complete the acquisition of 100% of the common shares and voting interest of The Scruggs Company (“Scruggs”), a privately-owned infrastructure and road construction company headquartered in Hahira, Georgia, which operates three hot mix asphalt plants, three aggregate mines and one industrial plant (“Scruggs Acquisition”). The Scruggs Acquisition complemented the Company’s vertically integrated Southeastern U.S. operations, providing new bidding areas in the expanding Georgia market. The Company funded the purchase price with cash on hand plus an additional $22.0 million borrowed under its existing Term Loan as described in Note 9. The purchase price of $51.3 million, excluding cash acquired, was paid in cash at closing.

This acquisition was accounted for as a business combination in accordance with ASC 805,Business Combinations. The allocation of the purchase price has not yet been finalized due to the recent timing of the acquisition, and will be completed within one year of the acquisition date.

The following presents the provisional allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, determined in accordance with the methodology described underFair ValueMeasurements in Note 2 to the Company’s audited financial statements for the year ended September 30, 2017 (unaudited, in thousands):

The $3.8 million of purchase price exceeding the net fair value of identifiable assets acquired and liabilities assumed was recorded as goodwill. Under the terms of the Stock Purchase Agreement, the selling stockholders made a Section 338(h)(10) election under the Internal Revenue Code. Accordingly, goodwill allocated to the purchase price and thestep-up to fair value of property, plant and equipment reflected in the acquisition date balance sheet are deductible to the Company for income tax purposes. Goodwill primarily represents the assembled work force and synergies expected to result from the acquisition. Management has determined that Scruggs represents a new reporting unit for purposes of assessing potential impairment of goodwill and has allocated all $3.8 million of goodwill recognized in connection with the acquisition to that new reporting unit. Scruggs represents the Company’s fifth platform operating company and functions one level below the Company’s single operating segment, along with its other platform operating companies, each representing reporting units.

The Consolidated Statements of Income for the three and nine months ended June 30, 2018 includes $11.4 million of revenue and $1.0 million of net income attributable to operations of Scruggs since the acquisition date of May 15, 2018. The Company recorded certain costs to effect the acquisition as they were incurred, which are reflected as general and administrative expenses on the Consolidated Statements of Income in the amount of $0.2 million for the three and nine months ended June 30, 2018. The following presents pro forma revenues and net income as though the Scruggs Acquisition had occurred on October 1, 2016 (unaudited, in thousands):

Pro forma financial information is presented as if the operations of Scruggs had been included in the consolidated results of the Company since October 1, 2016, and gives effect to transactions that are directly attributable to the Scruggs Acquisition, including adjustments to:

Pro forma information is presented for informational purposes and may not be indicative of revenue or net income that would have been achieved if the Scruggs Acquisition had occurred on October 1, 2016.

Note 7 – Settlement Agreement

On April 19, 2018, certain of the Company’s subsidiaries entered into settlement agreements with a third party, pursuant to which they will receive aggregate net payments of approximately $15.7 million, payable in four equal installments between January 2019 and July 2020, in exchange for releasing and waiving all current and future claims against the third party relating to compensation to the Company for a business interruption event that occurred more than five years ago, which did not directly relate to the Company’s business and which has not, and is not expected to, recur (the “Settlement”). The Company recorded apre-tax gain of $14.8 million during the nine months ended June 30, 2018 related to the Settlement, which is reflected as settlement income on the Consolidated Statements of Income. Future payments are reflected on the Consolidated Balance Sheets as other current assets and other assets in the amount of $3.9 million and $10.9 million, respectively at June 30, 2018.

Note 8 – Joint Venture

In November 2017, one of the Company’s wholly-owned subsidiaries entered into a joint venture agreement (the “JV”) with a third-party for the sole purpose of bidding on and, if awarded, performing a construction project for the Alabama Department of Transportation. The Company and the third-party each own a 50% partnership interest in the JV and share revenue and expenses on a 50/50 basis. The JV is jointly managed by representatives of the Company and the third-party and all labor, material and equipment required to perform the contract is subcontracted to parties which may include both the subsidiary of the Company that is party to the JV and the third-party.

The Company accounts for this joint venture as an equity method investment in accordance with U.S. GAAP. Through March 31,June 30, 2018, the Company invested approximately $0.4 million into the JV, which is reflected as investment in joint venture on the Consolidated Balance Sheet. During the three and sixnine months ended March 31,June 30, 2018, the Company recognized $0.2$0.4 million and $0.7 million ofpre-tax income, respectively, representing its 50% interest in the earnings of the JV, which is reflected as earnings from investment in joint venture on the Consolidated Statements of Income and included within investment in joint venture on the Consolidated Balance Sheet. The Company’s income tax impact attributable to its investment in JV is included within the provision for income taxes on its Consolidated Statements of Income.

Note 6—9 - Debt

The Company maintains various credit facilities from time to time to finance acquisitions, the purchase of real estate, construction equipment, asphalt plants and other fixed assets, and for general working capital purposes. Debt at March 31,June 30, 2018 and September 30, 2017 consisted of the following (in thousands):

SeeIn connection with the Scruggs Acquisition described in Note 126 –– Subsequent EventsBusiness Acquisition for, the Company amended the Compass Credit Agreement and borrowed an additional information.$22.0 million under its existing term loan (the “Term Loan”) with Compass Bank, as Agent, Sole Lead Arranger and Sole Bookrunner (as amended, the “Compass Credit Agreement”). The additional borrowing is subject to the same terms and conditions as the Term Loan balance outstanding at September 30, 2017. In connection with this additional Term Loan borrowing, the Company entered into a fair value interest rate swap agreement with a notional amount of $11.0 million under which it pays a fixed percentage rate of 3.01% and receives a credit based on the applicable LIBOR rate.

Note 7—10 - Equity

As described in Note 2 –Initial Public Offering, the Company completed an initial public offering of its Class A common stock and certain related transactions during the third quarter of fiscal year 2018. Holders of Class A Common Stock and Class B Common Stock have identical rights to earnings and dividends of the Company. Holders of Class A Common Stock are entitled to one vote per share, and holders of Class B Common Stock are entitled to ten votes per share.

Shares of outstanding Class B Common Stock at June 30, 2018 include 63,000 shares of unvested restricted stock, which were issued on February 23, 2018 and vest on July 1, 2018 (see Note 11 –Equity-based Compensation).

In June 2018, employees holding options under 2010Non-Plan Stock Option Agreements exercised all options to purchase 768,984 shares of Class B common stock at an exercise price of $5.70. These shares were issued from treasury shares at an average cost of approximately $3.64 per share. The transaction was executed as a cashless exercise through which the Company concurrently repurchased from the option holders the number of shares of Class B common stock required to (i) fund the exercise price for all options and (ii) meet statutory federal, state and payroll tax withholding requirements applicable to the employees associated with their exercises. The Company purchased a total of 521,902 shares of Class B common stock, at the $13.17 closing price of the Company’s Class A common stock on the date of exercise, resulting in a net increase of 247,082 shares of Class B common stock outstanding. Of the aggregate repurchase price, the Company retained $4.4 million which was recorded to additionalpaid-in capital reflecting the total exercise prices, and withheld $2.5 million which was recorded as a payroll tax liability included as other current liabilities on the Company’s Consolidated Balance Sheet at June 30, 2018.

The following presents changes to the Company’s outstanding shares of common stock, and treasury shares and additionalpaid-in capital for the sixnine months ended March 31,June 30, 2018 (unaudited, dollars(dollars in thousands):

See Note 12 –Subsequent Events for additional information regarding the Company’s initial public offering that was completed in May 2018.

Note 8—11 - Equity-based Compensation

Restricted Stock Awards

On February 23, 2018, the Company granted to certain employees an aggregate of 126,000 restricted shares of common stock at a purchase price of $0.04 per share. The Company recorded proceeds of $5,000 from the sale of these restricted shares, which were issued from treasury shares. The Company recorded a reduction to additionalpaid-in capital of approximately $0.5 million representing the cost of treasury shares issued in excess of the purchase price paid by awardees.

Half of the shares granted vested on the award date and the remaining 50% of the shares will vest on July 1, 2018, subject to continuous employment. The grant date fair value of the shares was estimated to be $7.78 per share.

During the three and sixnine months ended March 31,June 30, 2018, the Company recorded compensation expense in connection with these grants in the amount of $0.6$0.4 million and $1.0 million, respectively, which is reflected as general and administrative expenses on the Company’s Consolidated Statements of Income. At March 31,June 30, 2018, there was approximately $0.4 million ofno unrecognized compensation expense related to these awards.

Note 9—12 - Earnings per Share

As described in Note 2 –Initial Public Offering, the Company completed an IPO and reclassification of common stock during the three months ended June 30, 2018. Prior to the Reclassification, all net income of the Company was attributable to the holders of shares of common stock immediately prior to the Reclassification. During the period beginning from the Reclassification through the IPO, all net income of the Company was attributable to holders of Class B Common Stock. Since the IPO, all net income of the Company is attributable equally, on a per share basis, to the holders of Class A and Class B Common Stock.

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average numberweighted average of aggregate shares ofpre-Reclassificationcommon shares outstandingstock, Class A Common Stock and Class B Common Stock, as applicable for the respective periods, calculated on a post-split basis, during the period.respective periods. The calculation of basic earnings per share excludes shares of unvested restricted stock. The following summarizes the weighted-average number of basic common shares outstanding and the calculation of basic earnings per share for the periods presented (in(unaudited in thousands, except share and per share amounts):

Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of common shares and potential dilutive common shares outstanding during the period, including options and shares of unvested restricted stock, determined using the treasury stock method. Securities are excluded from the calculation of diluted earnings per share for any period during which the effect of their inclusion would be anti-dilutive. The following table summarizes the calculation of the weighted-average number of diluted common shares outstanding and the calculation of diluted earnings per share for the periods presented (in(unaudited in thousands, except share and per share amounts):

The Company had 63,000, 768,985, 63,000 and 958,035768,984 common stock equivalents which were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2018 and 2017 and the sixnine months ended March 31, 2018 andJune 30, 2017 respectively, because they were anti-dilutive. There were no anti-dilutive common stock equivalents during the three months or nine months ended June 30, 2018.

Note 10—13 - Provision for Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes broad and complex changes to the U.S. tax code, including a reduction in the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. For the fiscal year ending September 30, 2018, the Company will record its income tax provision based on a blended U.S. statutory tax rate of 24.5%, which is based on a proration of the applicable tax rates before and after the effective date of the Tax Act, and the effect of applicable state income taxes. The federal statutory rate of 21% will apply for fiscal years beginning after September 30, 2018.

During the sixthree months and nine months ended March 31,June 30, 2018, the Company recorded a provisional discrete tax benefit of $3.5$0.9 million and $4.4 million, respectively, related to the Tax Act, primarily due to adjusting its U.S. deferred tax liabilities by the same amount, reflecting the reduction in the U.S. federal corporate tax rate. This net reduction in deferred tax liabilities also included the estimated impact on the Company’s net state deferred tax assets.

The Company’s effective tax rate for the three months ended March 31,June 30, 2018 and 2017 was 29.8%9.5% and 36.0%32.1%, respectively. The effective tax rate for the three months ended March 31,June 30, 2018 was lower than the comparable prior year period primarily due to the decrease in the federal corporate tax rate.rate and the benefit of a tax credit recorded during the three months ended June 30, 2018 related to the enactment of the Tax Act. Similarly, the Company’s effective tax rate for the sixnine months ended March 31,June 30, 2018 and 2017 was 15.2%13.1% and 37.2%34.9%, respectively, due primarily to the decrease in the federal corporate tax rate and the benefit of a tax credit recorded during the sixnine months ended March 31,June 30, 2018 related to the enactment of the Tax Act.

The Company has not yet completed its accountingeffective tax rate for the incomethree and nine months ended June 30, 2018 was also reduced by a $1.3 million permanent tax effects of certain elementsbenefit resulting from the deduction of the Tax Act. In regards toexcess fair market value of options exercised under 2010Non-Plan Stock Option Agreements over the reduction in the U.S. corporate tax rate, the Company is continuing to analyze the temporary differences that existed on the date of the enactment and the temporary differences originating in the current fiscal year. The Company expects to complete its analysis of the accounting guidance related to the Tax Act and its evaluation of the impacts of the Tax Act by September 30, 2018.exercise price (see Note 10—Equity).

Note 11—14 - Related Parties

On December 31, 2017, the Company sold a wholly-owned subsidiary to an immediate family member of a Senior Vice President of the Company in consideration for a note receivable in the amount of $1.0 million, which approximated the net book value of the disposed entity. At March 31,June 30, 2018, $0.9 million iswas reflected on the Company’s Consolidated Balance Sheets representing the remaining balance on this note. In connection with this transaction, the Company also received a note receivable on December 31, 2017 in the amount of $0.9 million representing certain accounts payable of the disposed subsidiary that were paid by the Company. At March 31,June 30, 2018, $0.9 million iswas reflected on the Company’s Consolidated Balance Sheets representing the remaining balance on this note. Principal and interest payments are scheduled to be made in periodic installments from January 2018 through December 2023.

On January 30, 2015, the Company entered into a master services subcontract with Austin Trucking, LLC (“Austin Trucking”), an entity owned by an immediate family member of a Senior Vice President of the Company. Pursuant to the agreement, Austin Trucking performs subcontract work for the Company, including trucking services. For these subcontract services, the Company incurred costs of approximately $1.4$4.3 million and $1.5$3.3 million during each of the three months ended March 31,June 30, 2018 and 2017, respectively, and approximately $4.3$8.6 million and $4.4$7.7 million during the sixnine months ended March 31,June 30, 2018 and 2017, respectively, which iswas included as cost of revenues on the Consolidated Statements of Income. At March 31,June 30, 2018 and September 30, 2017, the Company had $0.5 million and $1.0 million, respectively, due to Austin Trucking reflected as accounts payable on its Consolidated Balance Sheets.

From time to time, the Company provides construction services to various companies owned by a family member of a Senior Vice President of the Company. For these services, the Company earned no revenue during the three months ended June 30, 2018, approximately $0.3 million and $0.7$1.6 million during the three months ended March 31, 2018 andJune 30, 2017, respectively, and approximately $1.5 million and $1.8$3.1 million during the sixnine months ended March 31,June 30, 2018 and 2017, respectively, which iswas included as revenues on the Consolidated Statements of Income. At March 31,June 30, 2018 and September 30, 2017, the Company had $4.6$3.2 million and $5.3 million, respectively, due from these companies reflected as contracts receivable including retainage, net on its Consolidated Balance Sheets.

From time to time, the Company provides construction services to various companies owned by a family member of a Senior Vice President of the Company. For these services, the Company earned no revenue during the three months ended June 30, 2018, approximately $0.1$0.2 million during the three months ended March 31, 2018,June 30, 2017, and approximately $0.2 million during each the sixnine months ended March 31,June 30, 2018, and 2017, which iswas included as revenues on the Consolidated Statements of Income. The Company did not earn any revenues from this company during the three and six months ended March 31, 2017. At March 31,June 30, 2018 and September 30, 2017, the Company had $0.6 million and $1.0 million, respectively, due from this company reflected as contracts receivable including retainage, net on its Consolidated Balance Sheets.

The Company is party to a management services agreement with SunTx under which the Company pays SunTx $0.25 million per fiscal quarter, as well as reimbursement of certainout-of-pocket expenses. The Company paid such fees and expense reimbursements to SunTx aggregating $0.3$0.5 million and $0.4$0.3 million during the three months ended March 31,June 30, 2018 and 2017, respectively, and $0.7$1.1 million and $1.0 million during each of the sixnine months ended March 31,June 30, 2018 and 2017, respectively, and recognized the cost as general and administrative expenses on its Consolidated Statements of Income. In addition, the Company had $0.1 million included as other assets on its Consolidated Balance Sheet at March 31, 2018, representing reimbursements paid to SunTx for certain equity issuance costs in connection with the Company’s initial public offering.

In the normal course of business, the Company maintains relationships and engages in transactions with other related parties. Transaction amounts during the three and sixnine months ended March 31,June 30, 2018 and 2017 are not material to the Consolidated Statements of Income or to cash flows for those periods. Amounts due to or from such related parties are not material to the Company’s Consolidated Balance Sheets at March 31,June 30, 2018 or September 30, 2017. The nature of these relationships and transactions are described in Note 16 to the Company’s audited consolidated financial statements for the year ended September 30, 2017 included in the IPO Prospectus.

Note 12—Subsequent Events

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as result of various factors, including those set forth in “Cautionary Statement Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto for the fiscal year ended September 30, 2017 included in the IPO Prospectus. In this discussion, we use certainnon-GAAP financial measures. Explanation of thesenon-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Thesenon-GAAP financial measures should not be considered in isolation or as substitutes for financial information presented in compliance with GAAP.

Overview

We are one of the fastest growing civil infrastructure companies in the United States specializing in the building and maintenance of transportation networks. Our operations leverage a highly skilled workforce, strategically located hot mix asphalt (“HMA”) plants, substantial construction assets and select material deposits. We provide construction products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites in the Southeastern United States.U.S.

Public infrastructure projects are funded by federal, state and local governments and include projects for roads, highways, bridges, airports and other infrastructure projects. Public transportation infrastructure projects historically have been a relatively stable portion of state and federal budgets, and represent a significant share of the U.S. construction market. Federal funds are allocated on astate-by-state basis and each state is required to match a portion of the federal funds they receive. Federal highway spending uses funds predominantly from the Highway Trust Fund, which derives its revenues from fuel taxes and other user fees.

In addition to public infrastructure projects, we provide a wide range of large sitework construction and HMA paving services to private construction customers, including commercial and residential developers and local businesses.

Recent Developments

Acquisition

On May 15, 2018, we completed the acquisition of 100% of the ongoing operations of The Scruggs Company (“Scruggs”), a privately-owned civil infrastructure company headquartered in Hahira, Georgia, which operates three hot mix asphalt plants, three aggregate mines and one industrial plant. The acquisition complements our vertically integrated Southeastern U.S. operations, providing new bidding areas in the expanding Georgia market. The purchase price of $51.1$51.3 million, excluding certain working capital adjustments,cash acquired, was paid in cash on the date of closing. We funded the purchase price with cash on hand plus an additional $22.0 million borrowed under our Term Loan. The additional borrowing is subject to the same terms and conditions as the Term Loan balance outstanding at March 31, 2018.prior to the additional borrowing. In connection with this additional Term Loan borrowing, we entered into ana fair value interest rate swap agreement with a notional amount of $11.0 million under which we pay a fixed percentage rate of 3.01% and receive a credit based on the applicable LIBOR rate.

Reclassification and Initial Public Offering

On April 23, 2018, we amended and restated our certificate of incorporation to effectuate a dual class common stock structure consisting of Class A common stock and Class B common stock, as a result of which each share of common stock, par value $0.001 per share, was reclassified and changed into 25.2 shares of Class B common stock so that all equity holders became the holders of 41,817,537 shares of Class B common stock (the “Reclassification”). The amended and restated certificate of incorporation authorizes 400,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock.

On May 8, 2018, we completed an initial public offering of 11,250,000 shares of Class A common stock for $12.00 per share. Of these shares, 9,000,000 were sold by the Company for which we received approximately $100.4 million in proceeds, after deducting underwriting discounts and commissions of approximately $7.6 million and prior to additional total estimated offering expenses of approximately $5.8$6.3 million. Of the $5.8$6.3 million additional estimated offering expenses, $4.0$2.2 million is reflected as capitalized equity issuance costs included within other current assets on the Consolidated Balance Sheet at March 31, 2018.September 30, 2017. All $6.3 million of equity issuance costs were reclassified to additionalpaid-in capital during the three months ended June 30, 2018 in connection with the successful completion of the IPO. The remaining 2,250,000 shares were sold by holders of Class B common stock, which shares upon sale automatically converted into 2,250,000 shares of Class A common stock, which reduced the issued and outstanding shares of Class B common stock to 39,567,537. We did not receive any proceeds from the sale of shares sold by the holders of Class B common stock.

On May 24, 2018, the underwriters of the initial public offeringIPO partially exercised their over-allotment option to purchase an additional 700,000 shares of our Class A common stock at the initial public offeringIPO price of $12.00 per share less the underwriting discount and commissions. Of these shares, 350,000 were sold by us for which we received approximately $3.9 million in proceeds, after deducting underwriting discounts and commissions of approximately $0.3 million. The remaining 350,000 shares were sold by the holders of Class B common stock, which shares upon sale automatically converted into 350,000 shares of Class A common stock, which reduced the issued and outstanding shares of Class B common stock to 39,217,537. We did not receive any proceeds from the sale of shares sold by the holders of Class B common stock.

Settlement Agreements

On April 19, 2018, certain of our subsidiaries entered into settlement agreements with a third party, pursuant to which they will receive aggregate net payments of approximately $15.7 million, payable in four equal installments between January 2019 and July 2020, in exchange for releasing and waiving all current and future claims against the third party relating to compensation to us for a business interruption event that occurred more than five years ago, which did not directly relate to our business and which has not, and is not expected to, recur (the “Settlement”).recur. We recorded apre-tax gain of $14.8 million during the three months ended March 31,second quarter of fiscal year 2018 related to the Settlement, which is reflected as settlement income on the Consolidated Statement of Income. Future payments are reflected on our Consolidated Balance Sheets as other current assets and other assets in the amount of $3.9 million and $10.9 million, respectively.

How We Assess Performance of Our Business

Revenues

We derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites. Our projects represent a mix of federal, state, municipal and private customers. We also derive revenues from the sale of HMA and aggregates to customers. Revenues derived from projects are recognized on thepercentage-of-completion basis, measured by the relationship of total cost incurred to total estimated contract costs(cost-to-cost method). Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Revenues derived from the sale of HMA and aggregates are recognized when risks associated with ownership have passed to the customer.

Gross Profit

Gross profit represents revenues less cost of revenues. Cost of revenues consists of all direct and indirect costs on construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants and aggregate mining facilities. Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel. From time to time, when appropriate, we limit our exposure to increases in commodity prices by entering into forward purchase commitments or by increasing the prices for our products in anticipation of impending price increases in the cost of asphalt cement. In addition, our public infrastructure contracts often include provisions that provide for price adjustments based on fluctuations in certain commodity-related products costs. These price adjustment provisions are in place for most of our public infrastructure contracts, and we seek to include similar provisions in our private contracts.

Depreciation, Depletion and Amortization

We carry property, plant and equipment on our balance sheet at cost, net of accumulated depreciation, depletion and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements and intangible assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. Our intangible assets were recognized as result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets. Quarry reserves are depleted in accordance with theunits-of-production method as aggregate is extracted, using the initial allocation of cost based on proven and probable reserves.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses.

Gain on Sale of Equipment, Net

In the normal course of business, we sell construction equipment for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it. The gain or loss on sale of equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale of equipment during the period.

Interest Expense, Net

Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, as well as the cost of interest swap agreements and amortization of deferred debt issuance costs. These amounts are partially offset by interest income earned on short-term investments of cash balances in excess of our current operating needs.

Other Key Performance Indicators

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income before interest expense, net, provision (benefit) for income taxes, depreciation, depletion and amortization, equity-based compensation expense, loss on extinguishment of debt and certain management fees and expenses, and excludes income recognized in connection with the Settlement. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. These metrics 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. We present Adjusted EBITDA and Adjusted EBITDA Margin as management uses these measures 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 between our measure of Adjusted EBITDA compared to other similar companies’ measures of Adjusted EBITDA may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets.

The following table presents 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 (unaudited, dollars in thousands):

Results of Operations

Three Months Ended March 31,June 30, 2018 Compared to Three Months Ended March 31,June 30, 2017

The following table sets forth selected financial data for the three months ended March 31,June 30, 2018 and March 31,June 30, 2017 (unaudited, dollars in thousands):