| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| Delaware | 26-0758017 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
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290 Healthwest Drive, Suite 2 Dothan, Alabama | 36303 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Class A common stock, par value $0.001 per share | ROAD | The Nasdaq Stock Market LLC | ||||||
| (Nasdaq Global Select Market) | ||||||||
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| Large | ☒ | ☐ | ||||||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||||||||||
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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.
ASSETS Current assets: Cash Contracts receivable including retainage, net Costs and estimated earnings in excess of billings on uncompleted contracts Inventories Other current assets Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Investment in joint venture Other assets Deferred income taxes, net Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Billings in excess of costs and estimated earnings on uncompleted contracts Current maturities of debt Accrued expenses and other current liabilities Total current liabilities Long-term liabilities: Long-term debt, net of current maturities Deferred income taxes, net Other long-term liabilities Total long-term liabilities Total liabilities Commitments and contingencies Stockholders’ Equity Preferred stock, par value $0.001; 1,000,000 shares authorized and no shares issued and outstanding Common stock, $0.001 par value, 126,000,000 shares authorized, 44,987,574 issued and 41,817,541 and 41,691,541 outstanding at March 31, 2018 and December 31, 2017, respectively Additionalpaid-in capital Treasury stock, at cost Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity statements (unaudited). Revenues Cost of revenues Gross profit General and administrative expenses Settlement income Gain on sale of equipment, net Operating income Interest expense, net Other expense Income before provision for income taxes and earnings from investment in joint venture Provision for income taxes Earnings from investment in joint venture Net income Net income per share attributable to common stockholders: Basic Diluted Weighted average number of common shares outstanding: Basic Diluted statements (unaudited). Balance, September 30, 2017 Equity-based compensation expense Issuance of restricted shares from treasury Net income Balance, March 31, 2018 statements (unaudited). Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization of long-lived assets Amortization of deferred debt issuance costs Provision for bad debt Gain on sale of equipment, net Equity-based compensation expense Earnings from investment in joint venture Deferred income taxes Changes in operating assets and liabilities: Contracts receivable including retainage, net Costs and estimated earnings in excess of billings on uncompleted contracts Inventories Other current assets Other assets Accounts payable Billings in excess of costs and estimated earnings on uncompleted contracts Accrued expenses and other current liabilities Other long-term liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property, plant and equipment Proceeds from sales of equipment Investment in joint venture Net cash used in investing activities Cash flows from financing activities: Repayments of revolving credit facility Proceeds from revolving credit facility Repayments of long-term debt Proceeds from reissuance of treasury stock Common stock dividend paid Net cash used in financing activities Net change in cash Cash: Beginning of Period End of Period Supplemental cash flow information: Cash paid for interest Cash paid for income taxes Non cash investing activities: Property, plant and equipment financed by accounts payable statements (unaudited). third parties in connection with HMA production. subsidiaries. carried at their fair value based on quoted market prices. Unrealized gains and losses are reported as components of accumulated other comprehensive income (loss), net. These securities have been classified as non-current assets, based on their respective maturity dates. The Company had restricted investments of $6.2 million and $0.0 million at March 31, 2022 and September 30, 2021, respectively. Net Contract Liabilities billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components. 2021. Alabama Department of Transportation North Carolina Department of Transportation (i) revenues generated from public infrastructure construction projects and the sale of construction materials to public customers and (ii) revenues generated from private infrastructure construction projects and the sale of construction materials to private customers. Contract costs Sheets at March 31, 2022 and September 30, 2021. Due to the variable rate or short-term nature of these instruments, management considers their carrying value to approximate their fair value. transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. This optional guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company net Contracts receivable Retainage Allowance for doubtful accounts Contracts receivable including retainage, net Liabilities Costs on uncompleted contracts Estimated earnings to date on uncompleted contracts Billings to date on uncompleted contracts Net billings in excess of costs and estimated earnings on uncompleted contracts Costs and estimated earnings in excess of billings on uncompleted contracts Billings in excess of costs and estimated earnings on uncompleted contracts Net billings in excess of costs and estimated earnings on uncompleted contracts Long-term debt: Compass Term Loan Compass Revolving Credit Facility Total long-term debt Deferred debt issuance costs Current maturities of long-term debt Long-term debt, net of current maturities Current maturities of debt: Current maturities of long-term debt Total current maturities of debt Outstanding, September 30, 2017 Issuance of treasury shares Outstanding, March 31, 2018 Class B common stock outstanding. Numerator Net income attributable to common stockholders Denominator Weighted average number of basic common shares outstanding Net income per basic common share attributable to common stockholders Numerator Net income attributable to common stockholders Denominator Weighted average number of basic common shares outstanding Effect of dilutive securities: 2016 Equity Incentive Plan options 2010Non-Plan Stock Options Agreement options Weighted average number of diluted common shares outstanding: Net income per diluted common share attributable to common stockholders respective transactions. (“Subcontracting Services”). a property owned by the Executive Chairman of the Company’s Board of Directors (“Island Pond”).Construction Partners, Inc.Consolidated Balance Sheetsand per share data) March 31, 2018 September 30, 2017 (unaudited) $ 25,797 $ 27,547 75,883 120,984 10,132 4,592 19,829 17,487 12,610 4,520 144,251 175,130 125,264 115,911 30,600 30,600 2,400 2,550 630 — 14,442 2,483 2,235 1,876 $ 319,822 $ 328,550 $ 37,324 $ 52,402 32,107 32,108 10,000 10,000 16,789 20,036 96,220 114,546 37,175 47,136 6,556 9,667 4,837 5,020 48,568 61,823 144,788 176,369 — — 45 45 142,536 142,385 (11,525 ) (11,983 ) 43,978 21,734 175,034 152,181 $ 319,822 $ 328,550 The accompanyingMarch 31, September 30, 2022 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 29,608 $ 57,251 Restricted cash 1,721 — Contracts receivable including retainage, net 170,739 158,170 Costs and estimated earnings in excess of billings on uncompleted contracts 24,409 23,023 Inventories 69,500 53,792 Prepaid expenses and other current assets 17,982 7,790 Total current assets 313,959 300,026 Property, plant and equipment, net 454,630 404,832 Operating lease right-of-use assets 11,508 6,535 Goodwill 132,789 85,422 Intangible assets, net 3,986 4,163 Investment in joint venture 108 108 Restricted investments 6,203 — Other assets 14,392 5,534 Total assets $ 937,575 $ 806,620 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 87,323 $ 86,390 Billings in excess of costs and estimated earnings on uncompleted contracts 46,441 33,719 Current portion of operating lease liabilities 2,078 1,395 Current maturities of long-term debt 10,000 10,000 Accrued expenses and other current liabilities 16,832 26,459 Total current liabilities 162,674 157,963 Long-term liabilities: Long-term debt, net of current maturities and deferred debt issuance costs 317,303 206,175 Operating lease liabilities, net of current portion 9,631 5,302 Deferred income taxes, net 19,527 17,362 Other long-term liabilities 13,338 10,919 Total long-term liabilities 359,799 239,758 Total liabilities 522,473 397,721 Commitments and contingencies 0 0 Stockholders’ equity: Preferred stock, par value $0.001; 10,000,000 shares authorized at March 31, 2022 and September 30, 2021 and no shares issued and outstanding — — Class A common stock, par value $0.001; 400,000,000 shares authorized, 41,193,222 shares issued and 41,192,039 outstanding at March 31, 2022 and 36,600,639 issued and outstanding at September 30, 2021 41 37 Class B common stock, par value $0.001; 100,000,000 shares authorized, 14,275,867 shares issued and 11,352,915 outstanding at March 31, 2022 and 18,614,791 shares issued and 15,691,839 outstanding at September 30, 2021 15 19 Additional paid-in capital 251,817 248,571 Treasury stock, at cost, 1,183 shares of Class A common stock, par value $0.001 (39) — Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001 (15,603) (15,603) Accumulated other comprehensive income (loss), net 6,880 (23) Retained earnings 171,991 175,898 Total stockholders’ equity 415,102 408,899 Total liabilities and stockholders’ equity $ 937,575 $ 806,620 are an integral part of theseto consolidated financial statements. For the Three Months Ended
March 31, For the Six Months Ended
March 31, 2018 2017 2018 2017 $ 118,899 $ 110,366 $ 269,320 $ 232,486 105,150 96,005 232,773 199,396 13,749 14,361 36,547 33,090 (13,358 ) (10,965 ) (25,784 ) (21,528 ) 14,803 — 14,803 — 886 2,183 1,031 2,437 16,080 5,579 26,597 13,999 (253 ) (1,096 ) (550 ) (2,143 ) (39 ) (105 ) (60 ) (131 ) 15,788 4,378 25,987 11,725 4,770 1,578 3,973 4,364 230 — 230 — $ 11,248 $ 2,800 $ 22,244 $ 7,361 $ 0.27 $ 0.07 $ 0.53 $ 0.18 $ 0.27 $ 0.07 $ 0.53 $ 0.18 41,717,024 41,502,490 41,704,071 41,502,490 41,910,122 41,505,180 41,874,442 41,502,490 The accompanyingFor the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Revenues $ 243,385 $ 179,112 $ 528,349 $ 370,041 Cost of revenues 230,888 161,040 482,888 321,375 Gross profit 12,497 18,072 45,461 48,666 General and administrative expenses (25,000) (24,475) (49,946) (44,559) Gain on sale of equipment, net 1,014 9 1,455 342 Operating income (loss) (11,489) (6,394) (3,030) 4,449 Interest expense, net (859) (298) (2,123) (766) Other income 43 244 159 409 Income (loss) before provision for income taxes and earnings from investment in joint venture (12,305) (6,448) (4,994) 4,092 Provision for income taxes (2,887) (1,513) (1,087) 1,167 Earnings from investment in joint venture — — — 11 Net income (loss) (9,418) (4,935) (3,907) 2,936 Other comprehensive income, net of tax Unrealized gain on interest rate swap contract, net 5,580 — 7,025 — Unrealized loss on restricted investments, net (122) — (122) — Other comprehensive income 5,458 — 6,903 — Comprehensive income (loss) $ (3,960) $ (4,935) $ 2,996 $ 2,936 Net income (loss) per share attributable to common stockholders: Basic $ (0.18) $ (0.10) $ (0.08) $ 0.06 Diluted $ (0.18) $ (0.10) $ (0.08) $ 0.06 Weighted average number of common shares outstanding: Basic 51,793,443 51,686,652 51,744,052 51,586,846 Diluted 51,793,443 51,686,652 51,744,052 51,673,582 are an integral part of theseto consolidated financial statements. Additional Total Common Stock Paid-in Treasury Retained Stockholders’ Shares Amount Capital Stock Earnings Equity 44,987,574 $ 45 $ 142,385 $ (11,983 ) $ 21,734 $ 152,181 — — 604 — — 604 — — (453 ) 458 — 5 — — — — 22,244 22,244 44,987,574 $ 45 $ 142,536 $ (11,525 ) $ 43,978 $ 175,034 The accompanyingFor the six months ended March 31, 2022 Class A Common Stock Class B Common Stock Accumulated Other Comprehensive Income (Loss), net Total Stockholders’ Equity Shares Amount Shares Amount September 30, 2021 36,600,639 $ 37 18,614,791 $ 19 $ 248,571 $ (15,603) $ 175,898 $ (23) $ 408,899 Net income — — — — — — 5,511 — 5,511 Equity-based compensation expense — — — — 1,504 — — — 1,504 Issuance of stock awards 145,921 — — — — — — — — Purchase of treasury stock — — — — — (39) — — (39) Other comprehensive income — — — — — — — 1,445 1,445 Conversion of Class B common stock to Class A common stock 4,338,924 4 (4,338,924) (4) — — — — — December 31, 2021 41,085,484 $ 41 14,275,867 $ 15 $ 250,075 $ (15,642) $ 181,409 $ 1,422 $ 417,320 Net income (loss) — — — — — — (9,418) — (9,418) Equity-based compensation expense — — — — 1,742 — — — 1,742 Issuance of stock awards 107,738 — — — — — — — — Other comprehensive income — — — — — — — 5,458 5,458 March 31, 2022 41,193,222 $ 41 14,275,867 $ 15 $ 251,817 $ (15,642) $ 171,991 $ 6,880 $ 415,102 For the six months ended March 31, 2021 Class A Common Stock Class B Common Stock Additional
Paid-in
CapitalTreasury
StockRetained
EarningsAccumulated Other Comprehensive Income (Loss), net Total
Stockholders’
EquityShares Amount Shares Amount September 30, 2020 33,875,884 $ 34 20,828,813 $ 21 $ 245,022 $ (15,603) $ 155,721 $ — $ 385,195 Net income — — — — — — 7,871 — 7,871 Equity-based compensation expense — — — — 395 — — — 395 December 31, 2020 33,875,884 $ 34 20,828,813 $ 21 $ 245,417 $ (15,603) $ 163,592 $ — $ 393,461 Net income — — — — — — (4,935) — (4,935) Conversion of Class B common stock to Class A common stock 1,332,952 1 (1,332,952) (1) — — — — — Equity-based compensation expense — — — — 460 — — — 460 Issuance of stock awards 510,733 — — — — — — — — March 31, 2021 35,719,569 $ 35 19,495,861 $ 20 $ 245,877 $ (15,603) $ 158,657 $ — $ 388,986 are an integral part of theseto consolidated financial statements. For the Six Months Ended March 31, 2018 2017 $ 22,244 $ 7,361 11,308 10,501 39 366 290 290 (1,031 ) (2,437 ) 604 156 (230 ) — (3,470 ) 23 44,811 27,896 (5,540 ) (3,078 ) (2,342 ) (2,535 ) (8,090 ) (6,350 ) (11,960 ) (1,081 ) (15,078 ) (11,258 ) (1 ) 3,455 (3,247 ) (4,426 ) (183 ) 511 28,124 19,394 (21,966 ) (12,076 ) 2,487 3,254 (400 ) — (19,879 ) (8,822 ) (5,000 ) — — 312 (5,000 ) (7,911 ) 5 — — (31,292 ) (9,995 ) (38,891 ) (1,750 ) (28,319 ) 27,547 51,085 $ 25,797 $ 22,766 $ 970 $ 1,784 $ 2,707 $ 2,975 $ 2,347 $ 315 The accompanyingFor the Six Months Ended March 31, 2022 2021 Cash flows from operating activities: Net income (loss) $ (3,907) $ 2,936 Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities: Depreciation, depletion, accretion and amortization of long-lived assets 33,047 23,385 Amortization of deferred debt issuance costs and debt discount 128 127 Unrealized gain on derivative instruments (2,130) (2,377) Provision for bad debt 130 361 Gain on sale of equipment, net (1,455) (342) Equity-based compensation expense 3,246 855 Earnings from investment in joint venture — (11) Distribution of earnings from investment in joint venture — 100 Deferred income tax benefit (245) — Other non-cash adjustments 39 (24) Changes in operating assets and liabilities, net of acquisition: Contracts receivable including retainage (3,821) 6,263 Costs and estimated earnings in excess of billings on uncompleted contracts (1,261) (9,802) Inventories (13,665) (3,482) Prepaid expenses and other current assets (8,150) (4,343) Other assets 350 (1,275) Accounts payable (2,426) (2,464) Billings in excess of costs and estimated earnings on uncompleted contracts 12,304 (7,261) Accrued expenses and other current liabilities (11,957) (8) Other long-term liabilities 3,067 (240) Net cash provided by operating activities, net of acquisitions 3,294 2,398 Cash flows from investing activities: Purchases of property, plant and equipment (34,703) (26,898) Proceeds from sale of equipment 3,777 927 Business acquisitions, net of cash acquired (102,893) (84,494) Purchase of restricted investments (6,358) — Net cash used in investing activities (140,177) (110,465) Cash flows from financing activities: Proceeds from revolving credit facility 116,000 — Repayments of long-term debt (5,000) (6,500) Purchase of treasury stock (39) — Net cash provided by (used in) financing activities 110,961 (6,500) Net change in cash and cash equivalents (25,922) (114,567) Cash, cash equivalents and restricted cash: Cash, cash equivalents and restricted cash, beginning of period 57,251 148,316 Cash, cash equivalents and restricted cash, end of period $ 31,329 $ 33,749 Supplemental cash flow information: Cash paid for interest $ 3,375 $ 1,303 Cash paid for income taxes $ 1,076 $ 3,318 Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 5,983 $ 615 Cash paid for operating lease liabilities $ 1,144 $ 1,234 Non-cash items: Property, plant and equipment included with accounts payable at period end $ 1,042 $ 1,663 Non-compete agreements to seller in business combination $ — $ 1,700 Amounts payable to seller in business combination $ 600 $ 250 are an integral part of theseto consolidated financial statements.Construction Partners, Inc.Notes to Consolidated Financial Statements1—1 - Generalleadingcivil infrastructure company that specializes in the construction and road construction company operating inmaintenance of roadways across Alabama, Florida, Georgia, SouthNorth Carolina and North Carolina throughSouth Carolina. Through its wholly-owned subsidiaries. Thewholly owned subsidiaries, the Company provides a variety of products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports, and commercial and residential developments. The Company’s primary operations consist of (i) manufacturing and distributing hot mix asphalt (“HMA”) for both internal use and sales to third parties in connection with construction projects, (ii) paving activities, including the construction of roadway base layers and application of asphalt pavement, (iii) site development, paving,including the installation of utility and drainage systems, (iv) mining aggregates, such as well as hot mix asphalt supply. The Company executes projects for a mix of private, municipal, state,sand, gravel and federal customersconstruction stone, that are used as raw materials in the production of HMA and for sales to third parties, and (v) distributing liquid asphalt cement for both privatelyinternal use 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 appliedsales to actual units of work completed on the project. To a lesser extent, the Company also performs some fixed total price contracts.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 executefacilitate an acquisition growth strategy in the hot mix asphaltHMA 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 itsthe Company’s inception.September 20, 2017,October 1, 2021, Construction Partners Risk Management, Inc., a captive insurance company and wholly-owned subsidiary of the Company changed(the “Captive”), commenced operations. The purpose of the Captive is to provide general liability, automobile liability and workers’ compensation insurance coverage to the Company and its name from SunTx CPI Growth Company, Inc. to Construction Partners, Inc.ourthe Company’s products and services fluctuate some due to seasonality, although weseasonality. The Company’s products are able to performused, and its construction projects during all twelve monthsoperations and production facilities are located, outdoors. Therefore, seasonal changes and other weather-related conditions, in allparticular, extended snowy, rainy or cold weather in the winter, spring or fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect the Company’s business and operations through a decline in both the use of our markets.the Company’s products and demand for the Company’s services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the third and fourth quarters of ourthe Company’s fiscal year typically result in higher activity and revenues during those quarters. The first and second quarters of ourthe Company’s fiscal year typically have lower levels of activity due to adverseless favorable 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 our audited consolidated financial statements and related notes thereto for the year ended September 30, 2017 included in the IPO Prospectus.2—2 - Significant Accounting PoliciesTheConstruction Partners, Inc.the Company and its wholly-ownedwholly 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 Company's Consolidated Balance SheetSheets as of September 30, 2017 was2021 were derived from the Company's audited financial statements for the fiscal year then ended, but doesdo 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, thethese 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 its Annual Report on Form 10-K for the IPO Prospectus.fiscal year ended September 30, 2021 (the “2021 Form 10-K”). 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”) described in Note 12 –Subsequent Events. 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 consolidated financial statements. Estimates are used in accounting for items such as recognition of revenues and cost of revenues, marketable securities, mineral reserves, goodwill and other intangible assets, business acquisition accounting estimates, valuation of operating lease right-of-use assets, allowance for doubtful accounts, valuation allowances related to income taxes, accruals for potential liabilities related to lawsuits or insurance claims, asset retirementexperience. Actualexperience; however, actual results could differ materially from thosethese estimates.for the fiscal year ended September 30, 2017 included in the IPO Prospectus.Emerging Growth2021 Form 10-K.Construction Partners, Inc. is an “emerging growth company” as defined by maintains demand accounts, money market accounts and certificates of deposit at several banks. From time to time, account balances have exceeded 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.maximum available federal deposit insurance coverage limit. The Company has elected to opt outnot experienced any losses in such accounts and regularly monitors its credit risk.such extended transition period,casualty insurance claims for the Company's subsidiaries. The Company had restricted cash of $1.7 million and $0.0 million at March 31, 2022 and September 30, 2021, respectively.means that whenare held in a standard is issued or revised and it has different effective datesfiduciary capacity by the Captive for public and private companies, the payment of casualty insurance claims for the Company's subsidiaries. The Company is required to adoptdetermines the new or revised standardclassification of its securities at the effective date applicable to public companies thattime of purchase and re-evaluates the determination at each balance sheet date. The Company has classified these securities as available-for-sale. As a result, these securities are not emerging growth companies.net including retainage, net are generally based on amounts billed and currently due from customers, amounts currently due but unbilled, and amounts retained by the customercustomers pending completion of a project. It is common in the Company’s industry for a small portion of either progress billings ofor 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 the applicable contract terms. Such amounts, defined as retainage, represent a contract asset and are also included on the Consolidated Balance Sheets as contracts“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 contractsofis stated at the allowance for doubtful accounts, represents their estimated net realizable value.amount management expects to collect from outstanding balances. 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.conditions, historical losses and other information available to management. 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 ofto the contract receivable.CostsEstimated Earnings on Uncompleted Contractspercentage-of-completion cost-to-cost input method of accounting.(formerly known as the percentage-of-completion method). The Company records currentcontract assets and currentcontract liabilities to account for these differences in timing.currentcontract asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” representsarises when the Company recognizes revenues that have been recognized in amounts which havefor services performed under its construction projects, but the Company is not been billedyet entitled to bill the customer under the terms of the contracts.contract. Amounts billed to customers are excluded from this asset and reflected on the Consolidated Balance Sheets as “Contracts receivable including retainage, net.” 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 (i) errors, (ii) changes in contract specifications or design, (iii) contract change orders in dispute, unapproved as to scope and price, or (iv) other customer relatedcustomer-related causes of unanticipated additional contract costs (claims and unapproved change orders)(such as claims). Such amounts are recorded at estimated net realizable value when realization is probable andto the extent that the amount can be reasonably estimated.when realizationin the transaction price for which it is probable and amounts can be reliably determined.that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company did not recognize any material amounts associated with claims and unapproved change orders during the periods presented.currentcontract liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billingsthe Company’s obligation to customerstransfer goods or services to a customer for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract. Revenue for future services reflected in this account are recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract.revenues recognized.ConcentrationsThe Company monitors 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 well-known local companies whose reputations are known to the Company. Creditmanagement. The Company performs credit checks are performed for significant new customers. Progresscustomers and generally requires 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 single customer accounted for more than 10% of the Company’s contracts receivable including retainage, net balance at March 31, 20182022 or September 30, 2017.Departmentsdepartments of Transportationtransportation accounted for 37.6%30.8% and 33.9%26.1% of consolidated revenues for the three months ended March 31, 20182022 and March 31, 2017,2021, respectively, and 37.4%for 32.3% and 35.4%27.0% of consolidated revenues for the six months ended March 31, 20182022 and March 31, 2017,2021, respectively. Two customersCustomers that accounted for more than 10% of consolidated revenues during the three and six months ended March 31, 2022 and 2021 are presented below:% of Consolidated Revenues For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Florida Department of Transportation 12.5 % 9.5 % 11.2 % 9.1 % below (unaudited): % of Consolidated
Revenues
for the Three Months
Ended March 31, % of Consolidated
Revenues
for the Six Months
Ended March 31, 2018 2017 2018 2017 13.2 % 10.7 % 13.2 % 12.3 % 11.8 % 11.1 % 12.6 % 11.0 % % of Consolidated Revenues For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Private 42.1 % 41.8 % 40.5 % 41.2 % Public 57.9 % 58.2 % 59.5 % 58.8 % and Cost RecognitionRevenuesderived from the Company’s contractsconstruction projects are recognized onover time as thepercentage-of-completion method, measured Company satisfies its performance obligations by transferring control of the asset created or enhanced by the relationship of total cost incurredproject 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 accuracycustomer. Recognition of revenues and cost of revenues reported on the consolidated financial statements depends on,for construction projects requires significant judgment by management, including, among other things, management’sestimating total costs expected to be incurred to complete a project and measuring progress toward completion. Management reviews contract estimates regularly to assess revisions of totalestimated costs to complete projects. Thea project and measurement of progress toward completion.management’sprior 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 havebe able to utilize 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.includeconsist of (i) direct costs on contracts, including labor, materials, and material, amounts paidpayable to subcontractors direct overheadand (ii) indirect costs related to contract performance, such as insurance, employee benefits, and equipment costs (primarily depreciation, fuel, maintenance and repairs).recoveredreversed or settled. The effect of a change in tax rates 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 on a net basis by taxing authority and classified asnon-current on the Consolidated Balance Sheets.Sheets.Company’s policyCompany also has derivative instruments. The fair value of commodity and interest rate swaps are based on forward and spot prices, as described in Note 16 - Fair Value Measurements.classifymineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would assume if purchasing the acquired business.related interesttransactions. The new standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this guidance effective October 1, 2021 as required and penalties in interest expensenoted no material impact to the Company's consolidated financial statements.expenses, respectively.Equity Issuance Costscapitalizesdoes not expect such adoption to have a material impact on the Company’s consolidated financial statements.third-party feescosts to effect the acquisitions as they were incurred, which are reflected in general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income in the amount of $0.2 million for the three months ended March 31, 2022 and $0.4 million for the six months ended March 31, 2022.For the Three Months Ended March 31, 2022 2021 Pro forma revenues $ 271,322 $ 222,760 Pro forma net income $ (8,180) $ (3,335) For the Six Months Ended March 31, 2022 2021 Pro forma revenues $ 583,301 $ 457,765 Pro forma net income $ (1,479) $ 6,352 associated within-process equity offerings. Atattributable to the acquisitions, including adjustments to:20182022 and 2021.2017, $4.0 million and $2.2 million, respectively,2021 provisional accounting for either acquisition.3—5 - Contracts Receivable Including Retainage, Netare comprisedconsisted of the following at March 31, 20182022 and September 30, 20172021 (in thousands): March 31, 2018 September 30, 2017 (unaudited) $ 63,688 $ 109,538 13,528 13,180 77,216 122,718 (1,333 ) (1,734 ) $ 75,883 $ 120,984 March 31, 2022 September 30, 2021 (unaudited) Contracts receivable $ 143,583 $ 132,456 Retainage 29,242 27,640 172,825 160,096 Allowance for doubtful accounts (2,086) (1,926) Contracts receivable including retainage, net $ 170,739 $ 158,170 4—Costs6 - Contract Assets and Estimated Earnings on Uncompleted Contracts20182022 and September 30, 2017 consist2021 consisted of the following (in thousands): March 31, 2018 September 30, 2017 (unaudited) $ 545,216 $ 489,661 68,428 62,193 613,644 551,854 (635,619 ) (579,370 ) $ (21,975 ) $ (27,516 ) ReconciliationMarch 31, 2022 September 30, 2021 (unaudited) Costs on uncompleted contracts $ 1,239,920 $ 1,058,434 Estimated earnings to date on uncompleted contracts 120,673 110,430 1,360,593 1,168,864 Billings to date on uncompleted contracts (1,382,625) (1,179,560) Net billings in excess of costs and estimated earnings on uncompleted contracts $ (22,032) $ (10,696) netcosts and estimated earnings in excess of billings (contract asset) and billings in excess of costs and estimated earnings (contract liability) on uncompleted contracts from September 30, 2021 to amounts reflected onMarch 31, 2022 are presented below (in thousands):Costs and Estimated Earnings in Excess of Billings on
Uncompleted ContractsBillings in Excess of Costs and Estimated Earnings on
Uncompleted ContractsNet Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts September 30, 2021 $ 23,023 $ (33,719) $ (10,696) Changes in revenue billed, contract price or cost estimates 1,386 (12,722) (11,336) March 31, 2022 (unaudited) $ 24,409 $ (46,441) $ (22,032) Company’s Consolidated Balance SheetCompany had unsatisfied or partially unsatisfied performance obligations under construction project contracts representing approximately $985.9 million in aggregate transaction price. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $577.1 million during the remainder of the fiscal year ending September 30, 2022 and $408.8 million thereafter.20182022 and September 30, 2017 is as follows2021 consisted of the following (in thousands): March 31, 2018 September 30, 2017 (unaudited) $ 10,132 $ 4,592 (32,107 ) (32,108 ) $ (21,975 ) $ (27,516 ) Note 5—Joint VentureIn November 2017, one of the Company’s wholly-owned subsidiaries entered into a joint venture agreement (the “JV”) with a third-partyMarch 31, 2022 September 30, 2021 (unaudited) Construction equipment $ 377,311 $ 333,966 Plants 153,140 143,172 Mineral reserves 86,920 $ 86,556 Land and improvements 61,547 53,415 Buildings 29,720 27,163 Furniture and fixtures 6,639 6,426 Leasehold improvements 1,230 1,230 Total property, plant and equipment, gross 716,507 651,928 Accumulated depreciation, depletion and amortization (275,953) (250,803) Construction in progress 14,076 3,707 Total property, plant and equipment, net $ 454,630 $ 404,832 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. Throughthree months ended March 31, 2018,2022 and 2021, respectively, and $32.8 million and $23.2 million for 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 six months ended March 31, 2018,2022 and 2021, respectively.recognized $0.2 millionpre-tax income representingand each of 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.Note 6—DebtThe Company maintains varioussubsidiaries have been parties to a credit facilitiesagreement with certain lenders party from time to time thereto (as amended and restated, the “Credit Agreement”). The Credit Agreement has been amended and restated on multiple occasions since its inception in order to provide for changes in the economic terms of the credit facility and developments at the Company. The Credit Agreement provides for a credit facility consisting of a term loan (the “Term Loan”) and a revolving credit facility (the “Revolving Credit Facility”). The obligations of the Company and its subsidiaries under the Credit Agreement are secured by a first priority security interest in substantially all of the Company’s assets. asphalt plants and other fixed assets, and for general working capital purposes. Debt at March 31, 20182022 and September 30, 20172021 consisted of the following (in thousands): March 31, 2018 September 30, 2017 (unaudited) $ 42,500 $ 47,500 5,000 10,000 47,500 57,500 (325 ) (364 ) (10,000 ) (10,000 ) $ 37,175 $ 47,136 10,000 10,000 $ 10,000 $ 10,000 See March 31, 2022 September 30, 2021 (unaudited) Long-term debt: Term Loan $ 192,500 $ 197,500 Revolving Credit Facility 136,000 20,000 Total long-term debt 328,500 217,500 Deferred debt issuance costs (1,197) (1,325) Current maturities of long-term debt (10,000) (10,000) Long-term debt, net of current maturities $ 317,303 $ 206,175 12– Subsequent Events for additional information.Note 7—9 - Equityfollowing presents changesholders of Class A common stock are entitled to 1 vote per share, and the holders of Class B common stock are entitled to 10 votes per share. The holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, including the election of directors, unless otherwise required by applicable law or the Company’s certificate of incorporation or bylaws. Shares of Class B common stock are convertible into shares of Class A common stock at any time at the option of the holder or upon any transfer, subject to certain limited exceptions. In addition, upon the election of the holders of a majority of the then-outstanding shares of Class B common stock, all outstanding shares of Class B common stock and treasurywill be converted into shares forof Class A common stock. Once converted into shares of Class A common stock, shares of Class B common stock will not be reissued. Class A common stock is not convertible into any other class of the Company’s capital stock.2018 (unaudited, dollars in thousands): Common Shares
Outstanding Treasury Shares Shares Cost 41,691,541 (3,296,034 ) $ (11,983 ) 126,000 126,000 458 41,817,541 (3,170,034 ) $ (11,525 ) See Note 12 –Subsequent Events for additional information regarding the Company’s initial public offering that was completed in May 2018.Note 8—Equity-based CompensationOn February 23, 2018,2022, certain stockholders of the Company granted to certain employees an aggregateconverted a total of 126,000 restricted4,338,924 shares of Class B common stock atinto shares of Class A common stock on a purchase price1-for-one basis. As of $0.04 per share. The Company recorded proceedsMarch 31, 2022, there were 41,192,039 shares of $5,000 from the saleClass A common stock and 11,352,915 shares of these restricted shares, which were issued from treasury shares. The Company recorded 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. three and six months ended March 31, 2018,2022, the Company recorded compensation expense in connection withreceived a total of 1,183 shares of Class A common stock from employees for reimbursement of income taxes paid by the Company on behalf of these grants inemployees related to the amountvesting of $0.6 million, which is reflected as general and administrative expenses onrestricted stock awards.Company’s Consolidated Statements of Income. Atsix months ended March 31, 2022, the Company awarded a total of 253,659 restricted shares of Class A common stock to certain directors, officers and employees of the Company under the Construction Partners, Inc. 2018 there was approximately $0.4 millionEquity Incentive Plan (the “Equity Incentive Plan”).these awards.Note 9—Earnings per ShareBasicvoting rights, conversion rights and transfer restrictions applicable to shares of Class B common stock, the Company has not presented earnings per share is computed by dividing net income attributable tounder the two-class method, as the earnings per share are the same for both Class A common stockholders by the weighted-average number ofstock and Class B common shares outstanding during the period.stock. The following table 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): For the Three Months
Ended March 31, For the Six Months Ended
March 31, 2018 2017 2018 2017 $ 11,248 $ 2,800 $ 22,244 $ 7,361 41,717,024 41,502,490 41,704,071 41,502,490 $ 0.27 $ 0.07 $ 0.53 $ 0.18 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, 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. For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Numerator Net income (loss) attributable to common stockholders $ (9,418) $ (4,935) $ (3,907) $ 2,936 Denominator Weighted average number of common shares outstanding, basic 51,793,443 51,686,652 51,744,052 51,586,846 Net income (loss) per common share attributable to common stockholders, basic $ (0.18) $ (0.10) $ (0.08) $ 0.06 (in(unaudited in thousands, except share and per share amounts): For the Three Months
Ended March 31, For the Six Months Ended
March 31, 2018 2017 2018 2017 $ 11,248 $ 2,800 $ 22,244 $ 7,361 41,717,024 41,502,490 41,704,071 41,502,490 — 2,690 — — 193,098 — 170,371 — 41,910,122 41,505,180 41,874,442 41,502,490 $ 0.27 $ 0.07 $ 0.53 $ 0.18 The Company had 63,000, 768,985, 63,000 and 958,035 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 six months ended March 31, 2018 and 2017, respectively, because they were anti-dilutive.For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Numerator Net income (loss) attributable to common stockholders $ (9,418) $ (4,935) $ (3,907) $ 2,936 Denominator Weighted average number of basic common shares outstanding, basic 51,793,443 51,686,652 51,744,052 51,586,846 Effect of dilutive securities: Restricted stock grants under 2018 Equity Incentive Plan — — — 86,736 Weighted average number of diluted common shares outstanding 51,793,443 51,686,652 51,744,052 51,673,582 Net income (loss) per diluted common share attributable to common stockholders $ (0.18) $ (0.10) $ (0.08) $ 0.06 10—11 - Provision for Income TaxesOn December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). Tax Act includes broad and complex changes to the U.S. tax code, includingCompany files a reduction in the U.S.consolidated United States 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 provisionreturn and income tax returns in various states. Management evaluated the Company’s tax positions based on a blended U.S. statutoryappropriate provisions of applicable tax rate of 24.5%, which islaws and regulations and believes that they are supportable based on a prorationtheir specific technical merits and the facts and circumstances 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 six months ended March 31, 2018, the Company recorded a provisional discrete tax benefit of $3.5 million 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.20182022 and 20172021 was 29.8%23.5% and 36.0%23.5%, respectively. The effective tax rate for the three months ended March 31, 2018 was lower than the comparable prior year period primarily due to the decrease in the federal corporate tax rate. Similarly, the Company’s effective tax rate for the six months ended March 31, 20182022 and 20172021 was 15.2%21.8% and 37.2%28.4%, respectively, due primarily to the decreaserespectively. The changes in the federal corporateCompany's effective rates are due to differences in state tax rate and the benefitrates at its operating subsidiaries.11—12 - Related Partiesa wholly-ownedan indirect wholly owned subsidiary to an immediate family member of a Senior Vice Presidentan executive officer of the Company (“Purchaser of Subsidiary”) 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, 2018, $0.92022, $0.1 million isand $0.4 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balancebalances on this note.note receivable. In connection with this transaction, the Company also received a note receivable from the disposed entity (“Disposed Entity”) on December 31, 2017 in the amount of $0.9$1.0 million representing certain accounts payable of the disposed subsidiaryDisposed Entity that were paid by the Company. At March 31, 2018, $0.92022, $0.1 million isand $0.2 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balancebalances on this note. Principalnote receivable. The notes do not bear interest, and interest payments are scheduled to be made in periodic installments from January 2018during fiscal year 2022 through December 2023.On January 30, 2015,fiscal year 2026.entered into a master services subcontract with Austin Trucking, LLC (“Austin Trucking”),current subsidiary of the Company advanced funds to an entity owned by an immediate family member of a Senior Vice Presidentan officer of the Company. PursuantCompany in connection with a land development project. The obligations of the borrower entity to repay the advances were guaranteed by a separate entity owned by the same family member of the officer. Amounts outstanding under the advances did not bear interest and matured in full in March 2021. In March 2021, the subsidiary of the Company amended and restated the terms of the repayment obligation, as a result of which the officer personally assumed the remaining balance of the obligation. No new amounts were advanced to the agreement, Austin Trucking performsofficer by the Company or any subsidiary or affiliate thereof in connection with the transaction. Under the amended and restated terms, the officer executed a promissory note in favor of the Company’s subsidiary in the principal amount of $0.8 million. The note bears simple interest at a rate of 4.0% and requires annual minimum payments of $0.1 million inclusive of principal and accrued interest, with any remaining principal and accrued interest due and payable in full on December 31, 2027. As security for his payment obligations, the officer pledged as collateral 30,000 shares of the 140,389 shares of Class B common stock that had previously been pledged as collateral and 7,500 shares of Class A common stock owned by the officer personally. Amounts outstanding under the note are reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets (“Land Development Project”).services. For these subcontractand grading services the Company incurred costs of approximately $1.4 million and $1.5 million during each of the three months ended March 31, 2018 and 2017, respectively, and approximately $4.3 million and $4.4 million during the six months ended March 31, 2018 and 2017, respectively, which is included as cost of revenues on the Consolidated Statements of Income. At March 31, 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.a family membermembers of a Senior Vice Presidentan executive officer of the Company. For these services, the Company earned approximately $0.3 million and $0.7 million during the three months ended March 31, 2018 and 2017, respectively, and approximately $1.5 million and $1.8 million during the six months ended March 31, 2018 and 2017, respectively, which is included as revenues on the Consolidated Statements of Income. At March 31, 2018 and September 30, 2017, the(“Construction Services”).had $4.6 million and $5.3 million, respectively, duepurchases vehicles 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 companiesan entity owned by a family member of a Senior Vice Presidentan executive officer of the Company. For these services,Company (“Vehicles - Purchases”).earned approximately $0.1 million during the three months ended March 31, 2018, and approximately $0.2 million during the six months ended March 31, 2018, which is 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, 2018 and September 30, 2017,(“Vehicles - Rent Expense”).had $0.6 million and $1.0 million, respectively, duehas been a party to an access agreement with Island Pond Corporate Services, LLC, which provides a location for the Company to conduct business development activities from this company reflected as contracts receivable including retainage, nettime to time on its Consolidated Balance Sheets.$0.25$0.27 million per fiscal quarter as well as reimbursementand reimburses certain travel and other out-of-pocket expenses associated with services rendered under the management services agreement.Company paid such feesfollowing table presents revenues earned and expense reimbursements to SunTx aggregating $0.3 million and $0.4 million during the three months ended March 31, 2018 and 2017, respectively, and $0.7 million during each of the six months ended March 31, 2018 and 2017, and recognized the cost as general and administrative expenses on its Consolidated Statements of Income. In addition,incurred by 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 six months ended March 31, 20182022 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 Sheets2021, and accounts receivable and payable balances at March 31, 2018 or2022 and September 30, 2017. The nature of these relationships and2021, related to transactions arewith the related parties described in above (in thousands):Revenue Earned (Expense Incurred) Accounts Receivable (Payable) For the Three Months Ended March 31, For the Six Months Ended March 31, March 31, September 30, 2022 2021 2022 2021 2022 2021 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Purchaser of Subsidiary $ — $ — $ — $ — $ 518 $ 518 Disposed Entity — — — — 330 330 Land Development Project — — — — 701 788 Subcontracting Services (853) (1) (425) (1) (3,092) (1) (2,603) (1) (226) (563) Construction Services — (2) 119 (2) 3 (2) 119 (2) — — Island Pond (80) (2) (80) (2) (160) (2) (160) (2) — — Vehicles - Purchases — (3) (98) (3) — (3) (408) (3) — — Vehicles - Rent Expense — (2) (49) (2) — (2) (127) (2) — — SunTx (384) (2) (521) (2) (759) (2) (1,138) (2) — — 16 to13 - Equity-Based CompensationCompany’s audited consolidated financial statements for the yearsix months ended September 30, 2017 included in the IPO Prospectus.Note 12—Subsequent EventsAcquisitionOn May 15, 2018,March 31, 2022, the Company completed the acquisitionawarded a total of 100%253,659 restricted shares of Class A common stock to certain directors, officers and employees of the ongoing operations of The Scruggs Company 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. The acquisition complements the Company’s vertically integrated Southeastern U.S. operations, providing new bidding areas in the expanding Georgia market. The purchase price of $51.1 million, excluding certain working capital adjustments, was paid in cash on the date of closing. The Company funded the purchase price with cash on hand plus an additional $22.0 million borrowed under its $50.0 million term loan (the “Term Loan”) under the credit agreement 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 March 31, 2018. InEquity Incentive Plan.this additional Term Loan borrowing, the Company entered into an interest rate swap agreement with a notional amount of $11.0 million under which it pays a fixed percentage rate of 3.01%Equity Incentive Plan, is reflected as general and receives a credit based on the applicable LIBOR rate.The Company is in the process of completing the initial accounting of this acquisition as a business combination in accordance with ASC 805,Business Combinations, including the allocation of the purchase price to the fair value of identifiable assets acquired and liabilities assumed. There are no revenues or results of operations of The Scruggs Company includedadministrative expenses in the Company’s Consolidated Statements of Income for the three or six months ended March 31, 2018. Pro forma adjustments and results of operations cannot yet be determined. The acquisition did not meet the significance criteria under SEC RegulationS-X Rule3-05.Reclassification and Initial Public OfferingOn 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,Comprehensive Income. Compensation expense 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. All share and per share amounts have been retroactively adjusted for all periods presented to give effect to the Stock Split.On May 8, 2018, the Company 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 the Company received approximately $100.4 million in proceeds, after deducting underwriting discounts and commissions of approximately $7.6$1.7 million and prior to additional total estimated offering expenses of approximately $5.8 million. Of the $5.8$0.4 million additional estimated offering expenses, $4.0 million and $2.2 million are reflected as capitalized equity issuance costs included within other current assets on the Consolidated Balance Sheets at March 31, 2018 and September 30, 2017, respectively. 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 39,567,537. 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 initial public offering partially exercised their over-allotment option to purchase an additional 700,000 shares of our Class A common stock at the initial public offering 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 39,217,537. The Company did not receive any proceeds from the sale of shares sold by the holders of Class B common stock.Settlement AgreementsOn 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 three months ended March 31, 20182022 and 2021, respectively, and $3.2 million and $0.9 million for the six months ended March 31, 2022 and 2021, respectively. At March 31, 2022, there was approximately $16.5 million of unrecognized compensation expense related to these awards.Settlement,Equity Incentive Plan will vest, as follows:Fiscal Year Number of Shares 2022 34,058 2023 36,558 2024 351,556 2025 311,378 2026 15,000 Total 748,550 For the Three Months Ended March 31, 2022 2021 Operating lease cost $ 637 $ 553 Short-term lease cost 4,114 2,635 Total lease expense $ 4,751 $ 3,188 For the Six Months Ended March 31, 2022 2021 Operating lease cost $ 1,234 $ 1,353 Short-term lease cost 8,207 5,125 Total lease expense $ 9,441 $ 6,478 Fiscal Year Amount Remainder of 2022 $ 1,213 2023 2,290 2024 1,931 2025 1,602 2026 1,592 2027 and thereafter 4,893 Total future minimum lease payments $ 13,521 Less: imputed interest 1,812 Total $ 11,709 reflectedqualified and designated as settlement incomea fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings.Income. Future paymentsCash Flows, while cash flows from undesignated derivative financial instruments are reflected onincluded as an investing activity.SheetsSheets.For the Three Months Ended March 31, 2022 2021 Change in Change in Income Statement Classification Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss) Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss) Cost of revenues $ 364 $ 1,055 $ 1,419 $ 94 $ 813 $ 907 Interest expense, net (431) 939 508 (168) 400 232 Total $ (67) $ 1,994 $ 1,927 $ (74) $ 1,213 $ 1,139 For the Six Months Ended March 31, 2022 2021 Change in Change in Income Statement Classification Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss) Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss) Cost of revenues $ 857 $ 778 $ 1,635 $ (45) $ 1,758 $ 1,713 Interest expense, net (909) 1,352 443 (348) 619 271 Total $ (52) $ 2,130 $ 2,078 $ (393) $ 2,377 $ 1,984 March 31, 2022 September 30, 2021 Balance Sheet Classification (unaudited) Prepaid expenses and other current assets - commodity swaps $ 2,616 $ 990 Other assets - commodity swaps 39 822 9,991 — Accrued expense and other current liabilities - interest rate swaps (16) (97) Other long-term liabilities - commodity swaps (65) — — (748) Net unrealized gain position $ 12,565 $ 967 March 31, 2022 September 30, 2021 (unaudited) Level 2 Level 2 Assets Commodity swap contracts $ 2,655 $ 1,812 Interest rate swaps 9,991 — Liabilities: Commodity swap contracts $ 65 $ — Interest rate swap contracts 16 845 assetsassets” and “Other assets” on the Company’s Consolidated Balance Sheets. Derivative liabilities are included within “Accrued expense and other assetscurrent liabilities” and “Other long-term liabilities” on the Company’s Consolidated Balance Sheets.$3.9$11.3 million, primarily related to certain insurance policies.$10.9$2.1 million, respectively. Management does not expect any significant changes in the market value of these goods during the commitment period that would have a material adverse effect on the financial condition, results of operations and cash flows of the Company. As of March 31, 2022, our purchase commitments annually thereafter are as follows (in thousands):Fiscal Year Amount Remainder of 2022 $ 3,164 2023 3,781 2024 780 Total $ 7,725 Fiscal Year Amount Remainder of 2022 $ 89 2023 230 2024 220 2025 184 2026 157 Thereafter 1,760 Total $ 2,640 AOCI March 31, 2022 (unaudited) September 30, 2021 Interest rate swap contract $ 9,437 $ (31) Unrealized loss on available-for-sale securities (154) — Less tax effect of other comprehensive income (loss) items (2,403) 8 Total 6,880 (23) AOCI Interest Rate Hedge Balance at September 30, 2020 $ — Net OCI changes — Balance at March 31, 2021 $ — AOCI Interest Rate Hedge Balance at September 30, 2021 $ (23) Net OCI changes 6,903 Balance at March 31, 2022 $ 6,880 For the Three Months Ended March 31, 2022 2021 Interest expense $ 304 $ — Benefit from income taxes (78) — Total reclassifications from AOCI to earnings $ 226 $ — For the Six Months Ended March 31, 2022 2021 Interest expense $ 636 $ — Benefit from income taxes (164) — Total reclassifications from AOCI to earnings $ 472 $ —
and Adjusted Net Income Our calculation of Adjusted EBITDA, Net income Interest expense, net Provision for income taxes Depreciation, depletion and amortization of long-lived assets Equity-based compensation expense Loss on extinguishment of debt Settlement income (1) Management fees and expenses(2) Adjusted EBITDA Revenues Adjusted EBITDA Margin 2021 Revenues Cost of revenues Gross profit General and administrative expenses Settlement income Gain on sale of equipment, net Operating income Interest expense, net Other expense Income before provision for income taxes and earnings from investment in joint venture Provision for income taxes Earnings from investment in joint venture Net income Adjusted EBITDA private work. supply chain issues. Company's core operations. 2021 Change from Six March 31, 2017 to Ended March 31, Revenues Cost of revenues Gross profit General and administrative expenses Settlement income Gain on sale of equipment, net Operating income Interest expense, net Other expense Income before provision for income taxes and earnings from investment in joint venture Provision for income taxes Earnings from investment in joint venture Net income Adjusted EBITDA private work. supply chain issues. Company's core operations. 2021. Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Net change in cash : assets. interest rates. At March 31, this report. Our capital expenditures are typically made during the same fiscal year in which they are approved. At March 31, 2022, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2022, we expect total capital expenditures to be $60.0 million to $65.0 million. Our capital expenditure budget is an estimate and is subject to change. companies.Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionour financial condition and Resultsresults of Operationsoperations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition.condition during the period covered by this report. 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 a result of various factors, including those set forth inunder the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our auditedunaudited consolidated financial statements and the notes thereto for the fiscal year ended September 30, 2017included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in the IPO Prospectus.2021 Form 10-K. In this discussion, we use certainnon-GAAP financial measures. ExplanationExplanations of thesenon-GAAP financial measures and reconciliationreconciliations to the most directly comparable GAAP financial measures are included in this Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations. These” Investors should not consider non-GAAP financial measures should not be considered in isolation or as substitutes for financial information presented in compliance with GAAP.one of the fastest growinga civil infrastructure companies in the United States specializingcompany that specializes in the building and maintenance of transportation networks. Our operations leverage a highly skilled workforce, strategically located hot mix asphalt (“HMA”)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 Southeasternsoutheastern United States.Public infrastructureinfrastructure projects.forms of infrastructure. 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.United States 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.that it receives. Federal highway spending uses funds predominantly from the Highway Trust Fund, which derives its revenues from fuel taxes and other user fees.AcquisitionOn May 15, 2018, we completedacquisition 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 minesmonths 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 million, excluding certain working capital adjustments, 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. In connection with this additional Term Loan borrowing, we entered into an 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 OfferingOn 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 million. Of the $5.8 million additional estimated offering expenses, $4.0 million is reflected as capitalized equity issuance costs included within other current assets on the Consolidated Balance Sheet at March 31, 2018. 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 offering partially exercised their over-allotment option to purchase an additional 700,000 shares of our Class A common stock at the initial public offering 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 AgreementsOn 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”). We recorded apre-tax gain of $14.8 million during the threesix months ended March 31, 2018 related2022, we continued to experience an upward trend in several inflation-sensitive inputs necessary for us to provide our products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items that are critical to our business, including fuel, concrete and steel. In addition, we experienced some disruptions from various participants in our supply chain, including subcontractors, materials suppliers and equipment manufacturers, who provide the raw materials, equipment, vehicles, construction supplies and other services we require in order to manufacture HMA and perform our construction projects. To date, we have been able to mitigate some of the effects of inflation, supply chain disruptions and labor constraints on our business by increasing prices for our products and including the anticipated cost increases in the construction projects we bid. However, we are limited in our ability to pass through increased costs for projects already in our backlog and, under those circumstances, may be unable to recoup losses or diminished profit margins by passing these costs through to our customers.Settlement, which is reflected as settlement income onWilmington, North Carolina metro area. For further discussion regarding this transaction, see Note 4 - Business Acquisitions to the Consolidated Statementunaudited consolidated financial statements included elsewhere in this report.Income. Future payments are reflected on our Consolidated Balance Sheets as other currentthe assets of GAC Contractors, Inc., an asphalt paving, grading and other assetssite work company headquartered in Panama City, Florida. The transaction enhances the amountCompany's operational resources and capabilities in growing Panama City, Florida market area. For further discussion regarding this transaction, see Note 4 - Business Acquisitions to the unaudited consolidated financial statements included elsewhere in this report.aggregatesliquid asphalt cement to customers. RevenuesWe recognize revenues derived from projects are recognized onas we satisfy our performance obligations over time (formerly known as thepercentage-of-completion basis, method), measured by the relationship of total cost incurred compared to total estimated contract costs(cost-to-cost (cost-to-cost input 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, aggregates, and aggregatesliquid asphalt cement are recognized when the risks associated with ownership have passed to the customer.onassociated with construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregates mining facilities, and aggregate mining facilities.liquid asphalt cement terminal. 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 increaseschanges 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.commitments. In addition, our public infrastructure contracts often include provisions that provide for price adjustments based on fluctuations in certain commodity-related productsproduct 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.We carry property,on our balance sheetare initially recorded at cost net of accumulated depreciation, depletion and amortization.or, if acquired as a business combination, at fair value. 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 a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets. QuarryMineral reserves are depleted in accordance with theunits-of-production method as aggregate isaggregates are extracted, using the initial allocation of cost based on proven and probable reserves.AdditionalGeneral and administrative expenses also include acquisition expenses, audit, consulting and professional fees, stock-based compensation expense, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses.costchanges in fair values 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 and Adjusted EBITDA Margin,and(vi) certain management fees and expenses and excludes income recognized in connection with(vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Settlement.Company’s core operations. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. Adjusted net income represents net income before nonrecurring legal settlement costs and associated legal expenses unrelated to the Company’s core operations. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures have limitations as analytical tools and should not be considered in isolation or 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 asand Adjusted net income because management uses these measures as key performance indicators, and we believe they are measures frequently used bythat securities analysts, investors and other partiesothers use these measures 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.and Adjusted EBITDA Margin and Adjusted net income 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.eachthe periods presented (unaudited in thousands, except percentages):For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Net income (loss) $ (9,418) $ (4,935) $ (3,907) $ 2,936 Interest expense, net 859 298 2,123 766 Provision for income taxes (2,887) (1,513) (1,087) 1,167 Depreciation, depletion, accretion and amortization 17,144 12,291 33,047 23,385 Equity-based compensation expense 1,742 460 3,246 855 384 521 759 1,138 — 3,876 — 4,232 Adjusted EBITDA $ 7,824 $ 10,998 $ 34,181 $ 34,479 Revenues $ 243,385 $ 179,112 $ 528,349 $ 370,041 Adjusted EBITDA Margin 3.2 % 6.1 % 6.5 % 9.3 % For the Three Months Ended
March 31, For the Six Months Ended
March 31, 2018 2017 2018 2017 $ 11,248 $ 2,800 $ 22,244 $ 7,361 253 1,096 550 2,143 4,770 1,578 3,973 4,364 5,633 5,279 11,308 10,501 604 74 604 156 — — — — (14,803 ) — (14,803 ) — 311 373 651 684 $ 8,016 $ 11,200 $ 24,527 $ 25,209 $ 118,899 $ 110,366 $ 269,320 $ 232,486 6.7 % 10.1 % 9.1 % 10.8 % (1)Representspre-tax income recognized in connection with the Settlement.(2)Reflects fees and reimbursement of certainout-of-pocket expenses under a management services agreement with SunTx.For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Net income (loss) $ (9,418) $ (4,935) $ (3,907) $ 2,936 — 3,200 $ — $ 3,200 Legal expenses associated with settlement of legal claim — 676 $ — $ 1,032 Tax impact due to above reconciling items — (977) $ — $ (1,066) Adjusted net income (loss) $ (9,418) $ (2,036) $ (3,907) $ 6,102 20182022 Compared to Three Months Ended March 31, 201720182022 and March 31, 20172021 (unaudited dollars in thousands)thousands, except percentages): Change from Three
Months Ended
March 31, 2017 to
Three Months
Ended March 31,
2018 For the Three Months Ended March 31, 2018 2017 Dollars % of
Revenues Dollars % of
Revenues Change %
Change $ 118,899 100.0 $ 110,366 100.0 $ 8,533 7.7 105,150 88.4 96,005 87.0 9,145 9.5 13,749 11.6 14,361 13.0 (612 ) (4.3 ) (13,358 ) (11.3 ) (10,965 ) (9.9 ) (2,393 ) 21.8 14,803 12.5 — — 14,803 — 886 0.7 2,183 2.0 (1,297 ) (59.4 ) 16,080 13.5 5,579 5.1 10,501 188.2 (253 ) (0.2 ) (1,096 ) (1.0 ) 843 (76.9 ) (39 ) — (105 ) (0.1 ) 66 (62.9 ) 15,788 13.3 4,378 4.0 11,410 260.6 4,770 4.0 1,578 1.5 3,192 202.3 230 0.2 — — 230 — $ 11,248 9.5 $ 2,800 2.5 $ 8,448 301.7 $ 8,016 6.7 $ 11,200 10.1 $ (3,184 ) (28.4 ) Change From the Three Months Ended For the Three Months Ended March 31, March 31, 2021 to the Three Months Ended 2022 2021 March 31, 2022 Dollars % of
RevenuesDollars % of
Revenues$
Change%
ChangeRevenues $ 243,385 100.0 % $ 179,112 100.0 % $ 64,273 35.9 % Cost of revenues 230,888 94.9 % 161,040 89.9 % 69,848 43.4 % Gross profit 12,497 5.1 % 18,072 10.1 % (5,575) (30.8) % General and administrative expenses (25,000) (10.3) % (24,475) (13.7) % (525) 2.1 % Gain on sale of equipment, net 1,014 0.4 % 9 — % 1,005 11,166.7 % Operating income (loss) (11,489) (4.7) % (6,394) (3.6) % (5,095) 79.7 % Interest expense, net (859) (0.4) % (298) (0.2) % (561) 188.3 % Other income (expense) 43 — % 244 0.2 % (201) (82.4) % Income (loss) before provision for income taxes and earnings from investment in joint venture (12,305) (5.1) % (6,448) (3.6) % (5,857) 90.8 % Provision for income taxes (2,887) (1.2) % (1,513) (0.8) % (1,374) 90.8 % Earnings from investment in joint venture — — % — — % — — % Net income (loss) $ (9,418) (3.9) % $ (4,935) (2.8) % $ (4,483) 90.8 % Adjusted EBITDA $ 7,824 3.2 % $ 10,998 6.1 % $ (3,174) (28.9) % Adjusted net income (loss) $ (9,418) (3.9) % $ (2,036) (1.1) % $ (7,382) 362.6 % .Due to an increase in contract backlog, we added personnel and equipment which allowed us to increase our revenues by $8.5 million, or 7.7%, to $118.9 million in for the three months ended March 31, 20182022 increased $64.3 million, or 35.9%, to $243.4 million from $110.4$179.1 million for the three months ended March 31, 2017. However, this2021. The increase wasincluded $29.9 million of revenues attributable to acquisitions completed subsequent to March 31, 2021 and an increase of approximately $4.5$34.4 million lower than expectedof revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 19.2% increase in revenues in our existing markets was due to extended cold weather delays during the three months ended March 31, 2018. These delayed projects remaina strong demand in our contract backlog at March 31, 2018both public and are expected to be completed during the third and fourth quarters of fiscal year 2018.20182022 decreased $0.6$5.6 million, or 4.3%30.8%, to $13.7$12.5 million from $14.4$18.1 million for the three months ended March 31, 2017.2021. The lower gross profit and gross profit margin for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017 was primarily due to (i) lower profit margins on the timing of priceprojects we assumed in connection with recent acquisitions and (ii) continued lower margins due to increases in the costcosts of asphalt cement as well as costs related to cold weather delays. During the first quarter of fiscal year 2017, we increased our price for both internalraw materials, fuel, labor, trucking and external HMA sales in anticipation of an impending price increase in the cost of asphalt cement, a key component in the manufacture of HMA. The anticipated price increase did not occur until the third and fourth quarter of fiscal year 2017, which benefitted gross profit by approximately $1.6 million in the three months ended March 31, 2017 as compared to the three months ended March 31, 2018. In addition, as noted above, we added personnel and equipment in fiscal 2018 due to an increase in backlog. The underutilization of this added equipment during the three months ended March 31, 2018 as a result of cold weather delays resulted in a $2.0 million increase in unabsorbed period costs compared to the three months ended March 31, 2017. We anticipate that our gross profit percentage will increase during the third and fourth quarters of fiscal year 2018 as utilization of equipment and our revenue-generating activity increases, and our period costs are allocated over a larger revenue base. These gross profit declines were partially offset by an increase in realized margin on construction jobs in the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017 and realized margin on the increase in revenues as described above. As a result of the above, gross profit as a percentage of revenue decreased from 13.0% for the three months ended March 31, 2017 to 11.6% for the three months ended March 31, 2018. General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate offices. General and administrative expenses for the three months ended March 31, 20182022 increased $2.4$0.5 million, or 21.8%2.1%, to $13.4$25.0 million from $11.0$24.5 million for the three months ended March 31, 2017.2021. The increase was primarily the result of (i) a $1.3 million increase in equity-based compensation expense, (ii) a $2.7 million increase attributable to general and administrative expenses forassociated with the three months endedoperations of businesses acquired subsequent to March 31, 2018 was attributable primarily to2021, and (iii) a $1.9$1.2 million increase in management personnel payrollvarious professional fees, primarily driven by business acquisitions, information technology expenses and benefitsincreased accounting and consulting fees. These increases were partially offset by a $0.5$3.9 million increasedecrease in other generallegal expenses primarily attributable to support our growth. We expect generala legal settlement and administrative expenses to continue to increase moderately throughout the remainder of fiscal 2018 as a result of increased regulatory and public entity reporting requirements.Settlement Income. During the three months ended March 31, 2018, we recorded settlement income of $14.8 million reflecting the net present value of future payments to be receivedassociated legal fees in connection with the Settlement, which resolved conditions that existed at March 31, 2018. PursuantApril 2021 unrelated to the Settlement, we 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 a third party.2018 decreased $0.82022 increased $0.6 million, or 76.9%, to $0.3$0.9 million compared to $1.1$0.3 million for the three months ended March 31, 2017.2021. The decreaseincrease in interest expense, net was due to a $9.2 million decreasean increase in the average principal amount ofdebt balance outstanding debt, and a $0.2 million lower amortization of deferred debt issuance costs during the three months ended March 31, 2018 as2022 compared to the three months ended March 31, 2017. Our former CIT Credit Facilitycorresponding period in place during the three months ended March 31, 2017 was a variable rate facility based on the three-month LIBOR rate plus 3.5%. On June 30, 2017, we refinanced all2021. effective tax rate decreased to 29.8% for the three months ended March 31, 2018 from 36.0% for the three months ended March 31, 2017. Our lower effective tax rate for the three months ended March 31, 20182022 and 2021 was primarily due to the impacts of comprehensive tax legislation enacted by the U.S. government on December 22, 2017, known as the Tax Cuts and Jobs Act (the “Tax Act”)23.5%. 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. Accordingly, the effective tax rate for the three months ended March 31, 2018 reflects a federal income tax provision based on a blended U.S. statutory tax rate of 24.5% applicable to the full fiscal year ending September 30, 2018, which is calculated based on a proration of the applicable tax rates before and after the effective date of the Tax Act during the current fiscal year.Earnings From Investment in Joint Venture.During the three months ended March 31, 2018, we earned $0.2 millionpre-tax income representing our 50% interest in the earnings of a joint venture partnership entered into with a third-party in November 2017 for the sole purpose of performing a construction project for the Alabama Department of Transportation. We did not have interest in any joint venture during the three months ended March 31, 2017.increased $8.4(loss) decreased $4.5 million to $11.2a net loss of $9.4 million for the three months ended March 31, 20182022, compared to $2.8net loss of $4.9 million for the three months ended March 31, 2017. This increase2021. The decrease in net income (loss) was primarily a result of the gain from the Settlement discussed above and the lower effective income tax rate, partially offset by the lower gross profit, and higher general and administrative expenses discussedand higher interest expense, net, all as described above.$8.0$7.8 million and 6.7%3.2%, respectively, for the three months ended March 31, 2018, as2022, compared to $11.2$11.0 million and 10.1%6.1%, respectively, for the three months ended March 31, 2017.2021. The decrease in Adjusted EBITDA and Adjusted EBITDA Margin was primarily the result of lower gross profit a lower gain on sale of equipment and higherincreases in general and administrative expenses.expenses and interest expense, net, partially offset by an increase in depreciation, depletion, accretion and amortization of long-lived assets and a reduction in expenses related to a legal settlement. The lower Adjusted EBITDA Margin was primarily a result of a decrease in Adjusted EBITDA and an increase in revenues, all as described above. See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading “How We Assess Performance of Our Business”.20182022 Compared to Six Months Ended March 31, 201720182022 and March 31, 20172021 (unaudited dollars in thousands)thousands, except percentages):
Months Ended
Six Months For the Six Months Ended March 31, 2018 2017 2018 Dollars % of
Revenues Dollars % of
Revenues $ Change %
Change $ 269,320 100.0 $ 232,486 100.0 $ 36,834 15.8 232,773 86.4 199,396 85.8 33,377 16.7 36,547 13.6 33,090 14.2 3,457 10.4 (25,784 ) (9.6 ) (21,528 ) (9.2 ) (4,256 ) 19.8 14,803 5.5 — — 14,803 — 1,031 0.4 2,437 1.0 (1,406 ) (57.7 ) 26,597 9.9 13,999 6.0 12,598 90.0 (550 ) (0.2 ) (2,143 ) (0.9 ) 1,593 (74.3 ) (60 ) — (131 ) (0.1 ) 71 (54.2 ) 25,987 9.6 11,725 5.0 14,262 121.6 3,973 1.4 4,364 1.8 (391 ) (9.0 ) 230 0.1 — — 230 — $ 22,244 8.3 $ 7,361 3.2 $ 14,883 202.2 $ 24,527 9.1 $ 25,209 10.8 $ (682 ) (2.7 ) Change From the Six Months Ended For the Six Months Ended March 31, March 31, 2021 to the Six Months Ended 2022 2021 March 31, 2022 Dollars % of
RevenuesDollars % of
Revenues$
Change%
ChangeRevenues $ 528,349 100.0 % $ 370,041 100.0 % $ 158,308 42.8 % Cost of revenues 482,888 91.4 % 321,375 86.8 % 161,513 50.3 % Gross profit 45,461 8.6 % 48,666 13.2 % (3,205) (6.6) % General and administrative expenses (49,946) (9.5) % (44,559) (12.1) % (5,387) 12.1 % Gain on sale of equipment, net 1,455 0.3 % 342 0.1 % 1,113 325.4 % Operating income (3,030) (0.6) % 4,449 1.2 % (7,479) (168.1) % Interest expense, net (2,123) (0.4) % (766) (0.2) % (1,357) 177.2 % Other income (expense) 159 0.1 % 409 0.1 % (250) (61.1) % Income before provision for income taxes and earnings from investment in joint venture (4,994) (0.9) % 4,092 1.1 % (9,086) (222.0) % Provision for income taxes (1,087) (0.2) % 1,167 0.3 % (2,254) (193.1) % Earnings from investment in joint venture — — % 11 — % (11) (100.0) % Net income $ (3,907) (0.7) % $ 2,936 0.8 % $ (6,843) (233.1) % Adjusted EBITDA $ 34,181 6.5 % $ 34,479 9.3 % $ (298) (0.9) % Adjusted net income $ (3,907) (0.7) % $ 6,102 1.6 % $ (10,009) (164.0) % . Due to an increase in contract backlog, we added personnel and equipment which allowed us to increase our revenues by $36.8 million, or 15.8%, to $269.3 million in for the six months ended March 31, 20182022 increased $158.3 million, or 42.8%, to $528.3 million from $232.5$370.0 million for the six months ended March 31, 2017. However, this2021. The increase wasincluded $67.6 million of revenues attributable to acquisitions completed subsequent to March 31, 2021 and an increase of approximately $4.5$90.7 million lower than expectedof revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 24.5% increase in revenues in our existing markets was due to extended cold weather delays during the three months ended March 31, 2018. These delayed projects remaina strong demand in our contract backlog at March 31, 2018both public and are expected to be completed during the third and fourth quarters of fiscal year 2018.2018 increased $3.52022 decreased $3.2 million, or 10.4%6.6%, to $36.5$45.5 million from $33.1$48.7 million for the six months ended March 31, 2017.2021. The lower gross profit margin for the six months ended March 31, 2018 compared to the six months ended March 31, 2017 was primarily due to (i) lower profit margins on the timing of priceprojects we assumed in connection with recent acquisitions and (ii) continued lower margins due to increases in the costcosts of asphalt cement as well as costs related to cold weather delays. During the first quarter of fiscal year 2017, we increased our price for both internalraw materials, fuel, labor, trucking and external HMA sales in anticipation of an impending price increase in the cost of asphalt cement, a key component in the manufacture of HMA. The anticipated price increase did not occur until the third and fourth quarter of fiscal year 2017, which benefitted gross profit by approximately $3.5 million in the six months ended March 31, 2017 as compared to the six months ended March 31, 2018. In addition, as noted above, we added personnel and equipment in fiscal 2018 due to an increase in backlog. The underutilization of this added equipment during the six months ended March 31, 2018 as a result of cold weather delays resulted in a $0.6 million increase in unabsorbed period costs compared to the six months ended March 31, 2017. We anticipate that our gross profit percentage will increase during the third and fourth quarters of fiscal year 2018 as utilization of equipment and our revenue-generating activity increases, and our period costs are allocated over a larger revenue base. These gross profit declines were offset by an increase in realized margin on construction jobs during the six months ended March 31, 2018 compared to the six months ended March 31, 2017, and realized margin on the increase in revenues as described above. As a result of the above, gross profit as a percentage of revenue decreased from 14.2% for the six months ended March 31, 2017 to 13.6% for the six months ended March 31, 2018. General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate offices. General and administrative expenses for the six months ended March 31, 20182022 increased $4.3$5.4 million, or 19.8%12.1%, to $25.8$49.9 million from $21.5$44.6 million for the six months ended March 31, 2017.2021. The increase was primarily the result of (i) a $2.4 million increase in equity-based compensation expense, (ii) a $5.0 million increase attributable to general and administrative expenses forassociated with the six months endedoperations of businesses acquired subsequent to March 31, 2018 was attributable primarily to2021, and (iii) a $3.4$2.4 million increase in management personnel payrollvarious professional fees, primarily driven by business acquisitions, information technology expenses and benefitsincreased accounting and consulting fees. These increases were partially offset by a $0.9$4.2 million decrease in other generallegal expenses to support our growth. We expect generalassociated with a legal settlement and administrative expenses to continue to increase moderately throughout the remainder of fiscal 2018 as a result of increased regulatory and public entity reporting requirements.Settlement Income. During the six months ended March 31, 2018, we recorded settlement income of $14.8 million reflecting the net present value of future payments to be receivedassociated legal fees in connection with the Settlement, which resolved conditions that existed at March 31, 2018. PursuantApril 2021 unrelated to the Settlement, we 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 a third party.2018 decreased $1.62022 increased $1.3 million, or 74.3%, to $0.6$2.1 million compared to $2.2$0.8 million for the six months ended March 31, 2017.2021. The decreaseincrease in interest expense net was due to a $6.9 million decreasean increase in the average principal amount ofdebt balance outstanding debt and a $0.4 million lower amortization of deferred debt issuance costs during the six months ended March 31, 2018 as2022 compared to the six months ended March 31, 2017. Our former CIT Credit Facilitycorresponding period in place during the six months ended March 31, 2017 was a variable rate facility based on the three-month LIBOR rate plus 3.5%. On June 30, 2017, we refinanced all of our outstanding debt under the CIT Credit Facility with proceeds from the Compass Credit Agreement. The Compass Credit Agreement is a variable rate facility based on theone-month LIBOR rate plus 2.0%, thereby reducing our interest costs during the six months ended March 31, 2018. The Compass Credit Agreement also replaced some higher fixed rate facilities. To hedge against future changes in variable interest rates of the Compass Credit Agreement, on June 30, 2017, we entered into an amortizing $25.0 million interest rate swap agreement tied to the Term Loan. This interest rate swap agreement does not qualify for hedge accounting treatment in accordance with U.S. GAAP, thus changes in fair value are reflected within interest expense on the Consolidated Statements of Income. During the six months ended March 31, 2018, the change in the fair value of the interest rate swap resulted in a $0.4 million credit to interest expense.15.3%21.8% for the six months ended March 31, 20182022, from 37.2%28.4% for the six months ended March 31, 2017.2021. Our lower effective tax rate for the six months ended March 31, 20182022 was primarily due to the impacts of the Tax Act. The effective tax rate for the six months ended March 31, 2018 reflects a federal income tax provision based on a blended U.S. statutory tax rate of 24.5% applicable to the full fiscal year ending September 30, 2018, which is calculated based on a proration of the applicabledifferences in state tax rates before and after the effective dateat our operating subsidiaries.Income.Income (Loss).Net income increased $14.9decreased $6.8 million or 202.2%, to $22.2a net loss of $3.9 million for the six months ended March 31, 20182022, compared to $7.4net income of $2.9 million for the six months ended March 31, 2017. This increase2021. The decrease in net income (loss) was primarily a result of the gain from the Settlement discussed above and the lower effective income tax rate, partially offset by thegross profit, higher general and administrative expenses discussedand higher interest expense, net, all as described above.$24.5$34.2 million and 9.1%6.5%, respectively, for the six months ended March 31, 2018, as2022, compared to $25.2$34.5 million and 10.8%9.3%, respectively, for the six months ended March 31, 2017.2021. The decrease in Adjusted EBITDA and Adjusted EBITDA Margin was primarily the result of increasedlower gross profit and increases in general and administrative expenses and a lower gain on sale of equipment,interest expense, net, partially offset by an increase in gross profit.depreciation, depletion, accretion and amortization of long-lived assets and a reduction in expenses related to a legal settlement. The lower Adjusted EBITDA Margin was primarily a result of a decrease in Adjusted EBITDA and an increase in revenues, all as described above. See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading “How We Assess Performance of Our Business”.six months ended March 31, 2018 and March 31, 2017periods indicated (unaudited in thousands). For the Six Months Ended March 31, 2018 2017 $ 28,124 $ 19,394 (19,879 ) (8,822 ) (9,995 ) (38,891 ) $ (1,750 ) $ (28,319 ) For the Six Months Ended March 31, 2022 2021 Net cash provided by operating activities, net of acquisition $ 3,294 $ 2,398 Net cash used in investing activities (140,177) (110,465) Net cash provided by (used in) financing activities 110,961 (6,500) Net change in cash and cash equivalents $ (25,922) $ (114,567) Cash provided by operating activities was $28.1 million for2018, 2022, cash provided by operating activities, net of acquisitions, was $3.3 million, primarily as a result of:$8.7$3.8 million comparedas a result of higher overall revenues due to $19.4acquisitions and growth in existing markets;forprimarily due to overpayment of federal and state income taxes and the timing of payments under our insurance policies;2017. The increase represents a $14.9 million increase in net income, partially offset by a $1.3 million decrease in adjustments to reconcile net income to2021, cash provided by operating activities, andnet of acquisitions, was $2.4 million, primarily as a $3.7 million decrease in the changes in operating assets and liabilities. The decrease in adjustments to reconcile result of:to cash flows from operating activities was primarily driven by the $3.1of $2.9 million, decrease in deferred tax liabilities resulting from the Tax Act, partially offset by a $1.4including $23.4 million decrease in gains on sale of equipment and a $0.8 million increase in depreciation, depletion, accretion and amortization of long-lived assets and unrealized gains on derivative instruments of $2.4 million;additiontiming of equipment to supportprocessing transactions in our growth. The most significant components of changes in operating assets and liabilities were (1) a $10.9 million greateraccounts receivable cycle;Settlement, (2) a $5.9timing of payments under our insurance policies;greaterdue to increased inventories from acquisitions and normal fluctuations in our inventory cycle;projects resulting fromcontracts due to the timing of performing and closing projects, and (3) a $3.8 million greater reductionprojects.Cash used in investing activities was $19.9 million for2018 compared2022, cash used in investing activities was $140.2 million, of which $102.9 million related to $8.8acquisitions completed in the period, $34.7 million forwas invested in property, plant and equipment and $6.4 million was invested in restricted investments by the Captive, partially offset by $3.8 million of proceeds from the sale of equipment.2017. The increase2021, cash used in investing activities was primarily due$110.5 million, of which $84.5 million related to increased net purchases ofacquisitions completed in the period and $26.9 million was invested in property, plant and equipment, partially offset by $0.9 million of proceeds from the sale of equipment.Cash used in financing activities was $10.0 million for2018 compared to $38.92022, cash provided by financing activities was $111.0 million. We received $116.0 million of proceeds from our Revolving Credit Facility, primarily used for acquisitions completed in the period. This increase in cash was offset by $5.0 million of principal payments on long-term debt.2017. The decrease2021, cash used in financing activities was primarily due$6.5 million, representing the repayment of principal on long-term debt during such period.a $31.3 million dividend paid during the six months endedCredit Agreement, which provides for the Term Loan and the Revolving Credit Facility. At March 31, 2017 that did not recur during the six months ended March 31, 2018.Compass Credit AgreementOn June2022 and September 30, 2017, Construction Partners Holdings, our wholly owned subsidiary, entered into a credit agreement with Compass Bank, as agent (the “Agent”), sole lead arranger2021, we had $192.5 million and sole bookrunner (the “Compass Credit Agreement”). The Compass Credit Agreement initially provided for a $50.0$197.5 million, term loan (the “Term Loan”) and a $30.0 million revolving credit facility (the “Revolving Credit Facility”). In connection with the Scruggs acquisition, the Company amended the Compass Credit Agreement on May 15, 2018 (the “Compass Amendment”) and borrowed an additional $22.0 millionrespectively, of principal outstanding under the Term Loan, to fund a portion$136.0 million and $20.0 million, respectively, of the purchase price. The principal amount of the Term Loan, including the additional borrowing, must be paid in quarterly installments of $3.6 million beginning with the June 30, 2018 payment. All amounts borrowedoutstanding under the Compass Credit Agreement mature on July 1, 2022.Construction Partners Holdings’ obligations under the Compass Credit Agreement are guaranteed by the Company and all of Construction Partners Holdings’ direct and indirect subsidiaries and are secured by first priority security interests in substantially all of the Company’s assets.Under the Compass Credit Agreement, borrowings can be designated as base rate loans or Euro-Dollar Loans. The interest rate on base rate loans fluctuates and is equal to (i) the highest of: (a) the rate of interest in effect for such day as publicly announced from time to time by the Agent as its “prime rate,” (b) the federal funds rate plus 0.50% and (c) the quotient of the London interbank offered rate for deposits in U.S. dollars as obtained from Reuter’s, Bloomberg or another commercially available source designated by the Agent two Euro-Dollar Business Days (as defined in the Compass Credit Agreement) before the first day of the applicable interest period (“LIBOR”) divided by 1.00 minus the Euro-Dollar Reserve Percentage (as defined in the Compass Credit Agreement) plus 1.0% for aone-month interest period, plus (ii) the applicable rate, which ranges from 2.0% to 2.25%. The interest rate for Euro-Dollar loans fluctuates and is equal to the sum of the applicable rate, which ranges from 2.0% to 2.25%, plus LIBOR for the interest period selected by the Agent.At March 31, 2018 and September 30, 2017, the interest rate on outstanding borrowings under the Term Loan and Revolving Credit Facility, was 3.887% and 3.235%, respectively, before giving effect to the interest rate swap discussed below. At March 31, 2018 and September 30, 2017, we had availability of $25.0$77.7 million and $20.0$193.7 million, respectively, under the Revolving Credit Facility, less amountsincluding reduction for outstanding under letters of credit. Letters of credit outstanding at March 31, 2018 and September 30, 2017 were $9.4 million and $8.7 million, respectively. In order to hedge against changes in interest rates, on June 30, 2017, we entered into an amortizing $25.0 million interest rate swap agreement applicable to outstanding debtOur obligations under the Term Loan under which we pay a fixed percentage rate of 2.015% and receive a credit based on the applicable LIBOR rate. At March 31, 2018 and September 30, 2017, the notional value of this interest rate swap agreement was $21.3 million and $23.8 million, respectively, and the fair value was $0.2 million and $(0.2) million, respectively, which is included within other liabilities onRevolving Credit Facility are secured by a first priority security interest in substantially all of our Consolidated Balance Sheets. In connection with the Compass Amendment and the additional borrowing on May 15, 2018, we entered into an additional $11.0 million interest rate swap agreement applicable to the $22.0 million additional debt under the Term Loan. Under this additional swap agreement, we pay a fixed percentage rate of 3.01% and receive a credit based on the applicable LIBOR rate.We must pay a commitment fee of 0.35% per annum on the aggregate unused revolving commitments under the Compass Credit Agreement. We also must pay fees with respect to any letters of credit issued under the Compass Credit Agreement. Compass Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on our ability to make acquisitions, make loans or advances, make capital expenditures and investments, create or incur indebtedness, create liens, wind up or dissolve, consolidate, merge or liquidate, or sell, transfer or dispose of assets. The Compass Credit Agreement requires usthe Company to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.201.20-to-1.00 and a maximum consolidated leverage ratio of 3.00-to-1.00, subject to 1.00.certain adjustments. At March 31, 20182022 and September 30, 2017,2021, our fixed charge coverage ratio was 1.96 to 1.003.24-to-1.00 and 1.63 to 1.00, respectively. The Compass Credit Agreement also requires us to maintain a consolidated leverage ratio not to exceed 2.00 to 1.00, subject to certain adjustments as further described in the Compass Credit Agreement. At March 31, 20183.29-to-1.00, respectively, and September 30, 2017, our consolidated leverage ratio was 0.702.74-to-1.00 and 1.99-to-1.00, respectively.1.00 and 0.95time, the Company has entered into interest rate swap agreements to 1.00, respectively. The Compass Credit Agreement includes customary eventshedge against the risk of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain changes of control, material money judgments and failure to maintain subsidiary guarantees. The Compass Credit Agreement prevents us from paying dividends or otherwise distributing cash to our stockholders unless, after giving effect to such dividend, we would be in compliance with the financial covenants and, at the time any such dividend is made, no default or event of default exists or would result from the payment of such dividend.20182022 and September 30, 2017, we were2021, the aggregate notional value of these interest rate swap agreements was $194.2 million and $198.3 million, respectively, and the fair value was $10.0 million and $(0.8) million, respectively, which is included within other assets, other current liabilities or other long-term liabilities on the Company’s Consolidated Balance Sheets.compliance with all covenants under the Compass Credit Agreement.20182022 and 2017,2021, our capital expenditures were approximately $22.0$34.7 million and $12.1$26.9 million, respectively.maderequired significant amounts of cash investments in order to organically expand our business into new geographic markets. Our cash investments include increasedmake capital expenditures, purchase of materials, production of materials and cash to fund our organic expansion.expansion into new markets. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements greaterincreasing in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancingenhancements to our information systems, and, in the future, our integration ofcosts related to any acquisitions and our compliance with laws and rules applicable to being a public company. We expect our primary uses of cash will continue to be investing in property and equipment used to provide our services and funding organic and acquisitive growth initiatives.uponon cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. We regularly monitor potential capital sources, including equity and debt financings,markets, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will be highly dependentdepend on our ability to access outside sources of capital.Revolving Credit Facility areAgreement will be sufficient to fund our operations and planned capital expenditures for at least the next twelve12 months. However, future cash flows are subject to a number of variables,cash in sufficient amountscash to maintain planned or future levels of capital expenditures. In the event that we make one or more acquisitions and the amount of capital required is greater than the amount of cash on hand we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under the Revolving Credit Facility,Agreement, joint ventures, asset sales, offerings of debt or equity securities or other means. However, our ability to engage in any such transactions may be constrained by economic conditions and other factors outside of our control. We cannot guarantee that this additional capital will be available on acceptable terms or at all. If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to conduct our operations.Seasonalityuse and consumptionfollowing table summarizes our significant obligations outstanding as of our products and services fluctuate some due to seasonality, although we are able to perform construction projects during all twelve months in allMarch 31, 2022:Payments Due by Fiscal Year Total 2022 2023 2024 2025 2026 2027 and Thereafter Debt obligations $ 328,500 $ 5,000 $ 10,000 $ 11,250 $ 15,000 $ 287,250 $ — Operating leases 13,521 1,213 2,290 1,931 1,602 1,592 4,893 Purchase commitments 7,725 3,164 3,781 780 — — — Royalty payments 2,640 89 230 220 184 157 1,760 Asset retirement obligations 2,823 — — — — — 2,823 Total $ 355,209 $ 9,466 $ 16,301 $ 14,181 $ 16,786 $ 288,999 $ 9,476 our markets. Our products are used, and our construction operations and production facilities are located, outdoors. Therefore, seasonal changes and other weather-related conditions, in particular extended rainy and cold weatherMarch 31, 2022, the Company had aggregate letters of credit outstanding in the springamount of $11.3 million, future purchase commitments of $7.7 million for diesel fuel and fallnatural gas and major weather events, such as hurricanes, tornadoes, tropical storms$2.6 million of minimum royalty payments related to aggregates facilities. Other than the letters of credit, future purchase commitments and heavy snows, can adversely affectminimum royalty payments, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our business andfinancial condition, changes in our financial condition, revenue or expenses, results of operations, through a declineliquidity, capital expenditures or capital resources. See Note 17 - Commitments to our unaudited consolidated financial statements included elsewhere in both the use of our products and demandthis report for our services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. Warmer and drier weather during the third and fourth quarters of our fiscal year typically result in higher activity and revenues during those quarters. The first and second quarters of our fiscal year typically have lower levels of activity due to adverse weather conditions.additional information.
commodity prices, specifically diesel fuel and natural gas, as of March 31, 2022. speculative or trading purposes. At March 31, one year,18 months, for certain raw materials. From time to time, weincreaseinclude the prices for our productsuse of financial derivative instruments. We have entered into fuel swap and natural gas swap contracts to mitigate the financial impact of fluctuations in commodity prices. We do not enter into commodity swap contracts for speculative or trading purposes. These fuel and natural gas swap contracts provide a fixed price increasesfor less than 50% of our estimated fuel and natural gas usage for the remainder of fiscal year 2022 and fiscal years 2023 and 2024.raw materials.
(1)See also Note 15 - Investment in Derivative Instruments and Note 16 - Fair Value Measurements to the unaudited consolidated financial statements included in this report.Carrying Amount Fair Value Contract volumes (1,000 gallons) 2,856 Weighted average price (per gallon) 2.08 Contract amount (in thousands) $ 2,432 $ 2,432 Contract volumes (1,000 MMBTU) 80 Weighted average price (per MMBTU) 3.70 Contract amount (in thousands) $ 158 $ 158 Compass Credit Agreement, which expose us to variability in interest payments due to changes in the reference interest rates. From time to time, we use derivative instruments as hedges against the impact of interest rate changes on future earnings and cash flows. In order to hedge against changes in interest rates and to manage fluctuations in cash flows resulting from interest rate risk, on June 30, 2017, we enteredWe do not enter into an amortizing interest rate swap agreement applicable to $25.0 million outstanding debt under the Term Loan,such derivative instruments for which we pay a fixed rate of 2.015% and receive a credit based on the applicable LIBOR rate.2018 and September 30, 2017,2022, we had a total of $47.5 million and $57.5$328.5 million of variable rate borrowings outstanding, respectively.outstanding. Holding other factors constant and absent the interest rate swap agreementagreements described above, a hypothetical 1% change in our borrowing rates would result in a $0.5 million and $0.6$3.3 million change in our annual interest expense based on our variable rate debt at March 31, 20182022.September 30, 2017, respectively.fair values associated with the Company’s debt instruments assuming the Company’s actual level of variable rate debt as of March 31, 2022 (in thousands).For the Fiscal Year Ending September 30, Fair 2022 2023 2024 2025 2026 Thereafter Total Value Debt obligations Term loan $ 5,000 $ 10,000 $ 11,250 $ 15,000 $ 151,250 $ — $ 192,500 $ 192,500 Revolving credit facility — — — — 136,000 — 136,000 136,000 3,195 6,243 6,044 5,777 4,149 —
Procedures.ProceduresControlsControl and ProceduresWe maintainare designedevaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms and that such information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report onForm-10-Q. As a result of the material weaknesses described below and previously disclosed in our IPO Prospectus, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report onForm-10-Q, our disclosure controls and procedures were not effective at the reasonable assurance level.ChangesIn the course of preparing financial statements for the fiscal year ended September 30, 2017, our management identified material weaknesses inwhich related to the design and operation of our information technology general controls and overall closing and financial reporting processes, including our accounting for significant and unusual transactions. The nature of these material weaknesses and our remediation actions are more fully described in the IPO Prospectus. As a newly public company, neither we nor our independent registered public accounting firm are yet required to perform an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and neither we nor our independent registered public accounting firm have performed such an evaluation.We continue to implement actions to remediate these material weaknesses, including: (i) actively seeking and onboarding additional accounting and finance staff members and a senior accounting officer with public company reporting experience, to augment our current staff and to improve the effectiveness of our closing and financial reporting processes; and (ii) we engaged a third-party to assist us with formalizing our business processes, accounting policies and internal controls. Other than ongoing remediation actions described above, there were no changes in our internal control over financial reporting (as defined in Rules13a-15(e) and15d-15(e) under the Act) during the three monthsquarter ended March 31, 20182022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Limitations on the EffectivenessII—OTHER INFORMATIONII - Other Information
Proceedings.Proceedingsemployment-related disputes.(iii) liability issues or breach of contract or tortious conduct claims in connection with the performance of services and provision of materials. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcome of which cannot be predicted with certainty. In the opinion of our management, after consultation with legal counsel, none of the pending inquiries, litigation, disputes or claims against us, if decided adversely to us, would have a material adverse effect on our financial condition, cash flows or results of operations. There have been no material changes to the legal proceedings disclosed in the 2021 Form 10-K.
FactorsAny ofFactors.risksother financial information set forth in this report, you should carefully consider the factors discussed in thisPart I, Item 1A, “Risk Factors,” in the 2021 Form10-Q and our other SEC filings 10-K that could have a material and adverse effect onmaterially affect our business, financial condition or results of operations.future operating results. There have been no material changes from the information set forth in Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K. The risks described in the 2021 Form 10-K are not the only risks that we face. Additional risks and uncertainties not presentlycurrently known to us or that we currently considerdeem to be immaterial also may alsomaterially adversely affect us. For a discussion of our potential risksbusiness, financial condition and uncertainties, see the information in our IPO Prospectus. There have been no material changes in our risk factors from those described in our IPO Prospectus.operating results.
Proceeds. ProceedsUnregisteredEquity SecuritiesIn February 2018,Company granted to certain employees an aggregate of 126,000 restricted shares of our Class B common stock under the 2016 Equity Incentive Plan, a portion of which vested on the date of grant and a portion of which will vest on July 1, 2018, for a purchase price of $0.04 per share (after giving effect to the Reclassification), for an aggregate price of $5,000. Each of these issuances was made in reliance on Section 4(a)(2) and Rule 701period covered by this report that were not registered under the Securities Act. The issuances were made for compensatory purposes pursuant to a written plan or contract, a copyplan or contract was delivered to each purchaser.Use of Proceeds from our Initial Public Offering of Class A Common StockOn May 3, 2018, our registration statement on FormS-1 (No.333-224174), filed in connection with our initial public offering, was declared effective by the Securities and Exchange Commission and, on May 8, 2018, we closed our initial public offering consisting of 11,250,000 shares of our Class A common stock, of which 9,000,000 shares were issued and sold by us and 2,250,000 shares were sold by the selling stockholders, in each case at a public offering price of $12.00 per share. On May 24, 2018, the underwriters of the initial public offering partially exercised their over-allotment option (the “Over-Allotment Option”) to purchase an additional 700,000 shares of our Class A common stock at the initial public offering 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 unexercised portion of the Over-Allotment Option expired on June 2, 2018. Robert W. Baird & Co. Incorporated, Raymond James & Associates and Stephens Inc. acted as the representatives of the several underwriters in our initial public offering.Following the sale of the shares in connection with the closing of our initial public offering on May 8, 2018 and the closing of the partial exercise of the Over-Allotment Option on May 29, 2018, and the expiration of the Over-Allotment Option, the offering was terminated. In our initial public offering, including the partial exercise of the Over-Allotment Option, we received approximately $104.3 million in net proceeds, after deducting underwriting discounts and commissions of approximately $7.9 million, but before total estimated offering expenses of approximately $5.8 million. Except for approximately $0.1 million ofout-of-pocket expenses which were reimbursable under our management services agreement with SunTx, no payments for offering expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. Of the net proceeds from our initial public offering, we used approximately $29.1 million to fund the acquisition of The Scruggs Company, which was completed on May 15, 2018. We intend to use the balance of our net proceeds from our initial public offering to provide growth capital, fund acquisitions and for general corporate purposes, which may include the repayment of debt from time to time.There has been no material change in the planned use of proceeds from our initial public offering from that described in the IPO Prospectus.
Securities.Securities
Disclosures.Disclosures (17CFR (17 C.F.R. Part 229.104) is included in Exhibit 9595.1 to this Quarterly Report on Form10-Q.
Information. its behalf by the undersigned, thereunto duly InformationExhibitsExhibits.*Filed herewith.**Furnished herewith.authorized.CONSTRUCTION PARTNERS, INC. Construction Partners, Inc.By:/s/ Fred J. Smith, III Fred J. Smith, III President and Chief Executive Officer Name and Signature Title Date Date: June 4, 2018/s/ Fred J. Smith, III By:/s/ Charles E. OwensCharles E. OwensPresident and Chief Executive Officer May 6, 2022 Fred J. Smith, III (Principal Executive Officer) Date: June 4, 2018By:/s/ R. Alan Palmer R. Alan PalmerExecutive Vice President and Chief Financial Officer May 6, 2022 R. Alan Palmer (Principal Financial Officer) 28