What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-05-08 compared with 2020-02-07 · 145 added, 71 removed, 128 unchanged (63% of the section changed)

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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 under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in our 2019 Form 10-K.

In this discussion, we use certain non-GAAP financial measures.

Explanation of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.

We are one of the fastest growing civil infrastructure companies in the United States, specializing in the building and maintenance of transportation networks.

Explanations of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP.

We are a civil infrastructure company that specializes in the building and maintenance of transportation networks.

Our operations leverage a highly skilled workforce, strategically located HMA plants, substantial construction assets and select material deposits.

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Federal highway spending uses funds predominantly from the Highway Trust Fund, which derives its revenues from fuel taxes and other user fees.

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

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

Recent Developments

We are closely monitoring the impact of the pandemic of the novel strain of coronavirus, known as COVID-19, on all aspects of our business, including its impact on our customers, employees, suppliers, and vendors.

While we did not incur significant disruptions from COVID-19 during the three months ended March 31, 2020, due to the uncertainties surrounding the COVID-19 pandemic, we are unable to predict the impact that COVID-19 will have on our financial position, operating results and cash flows in future periods.

For instance, a significant portion of the Company’s revenues each quarter are derived from projects completed for various Departments of Transportation.

Due to declines in travel and consumer spending resulting from the COVID-19 pandemic, certain Departments of Transportation with whom we do business are generating less tax revenue to spend on construction projects.

To date, these developments have not had a material adverse impact on our business.

However, if a significant number of our customers are unable to undertake new construction projects or are forced to delay major construction due to the COVID-19 pandemic, our results of operations in future quarters could decline.

The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the severity of the pandemic and actions by government authorities to contain the outbreak or mitigate its impact.

Furthermore, the impacts of a potential worsening of economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

Florida Acquisition

On March 23, 2020, we acquired two HMA manufacturing plants and certain related assets located in Pensacola and Defuniak Springs, Florida.

These acquired plants enable us to serve new markets in the western Florida panhandle, and we expect to be able to pursue a variety of public, private and Department of Defense projects from the new locations.

For further discussion regarding this transaction, see Note 4 - Business Acquisitions to the Consolidated Financial Statements included elsewhere in this report.

Changes in Value of Derivative Instruments

From time to time, we enter into interest rate swap agreements in order to manage risks associated with changes in interest rates on our outstanding indebtedness and commodity swap agreements in order to manage risks associated with changes in the price of certain commodities used in our business, such as fuel.

We record these derivative instruments at their fair value and record changes in the fair value of these instruments in current earnings.

During the three months ended March 31, 2020, we incurred a $1.4 million non-cash charge related to interest rate swaps and a $0.8 million non-cash charge related to fuel swaps.

The value of these instruments was

materially impacted by significant volatility in the financial and commodities markets during the quarter, primarily associated with the COVID-19 pandemic and related macroeconomic factors.

Given the current uncertainty regarding the duration, scope and magnitude of the impact that COVID-19 will have on the broader economy and how such an impact will affect the value of our derivative instruments, we could incur losses in future periods related to the value of these instruments.

How We Assess Performance of Our Business

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Gross profit represents revenues less cost of revenues.

Cost of revenues consists of all direct and indirect costs on construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregate mining facilities and liquid asphalt cement terminal.

Cost of revenues consists of all direct and indirect costs of construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregate mining facilities and liquid asphalt terminal.

Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel.

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees.

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 and consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees.

Additional expenses include audit, consulting and professional fees, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses.

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These amounts are partially offset by interest income earned on short-term investments of cash balances in excess of our current operating needs.

Other Income (Expense)

Other income (expense) primarily represents unrealized gains (losses) on commodity derivative instruments and other miscellaneous income (expense) items.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income before (i) interest expense, net, (ii) provision for income taxes, (iii) depreciation, depletion and amortization (iv) equity-based compensation expense, (v) loss on extinguishment of debt and (vi) certain management fees and expenses.

Adjusted EBITDA represents net income before (i) interest expense, net, (ii) provision for income taxes, (iii) depreciation, depletion and amortization of long-lived assets, (iv) equity-based compensation expense, (v) loss on extinguishment of debt and (vi) certain management fees and expenses.

Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period.

These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP.

These measures 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 indicator of operating performance.

We present Adjusted EBITDA and Adjusted EBITDA Margin because management uses these measures as key performance indicators, and we believe that securities analysts, investors and others use these measures to evaluate companies in our industry.

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The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable measure calculated in accordance with GAAP, and the calculation of Adjusted EBITDA Margin for the periods presented (in thousands, except percentages):

For the Three Months Ended December 31,

For the Three Months Ended March 31, For the Six Months Ended March 31,

2020 2019 2020 2019

Net income $ 1,537 $ 4,212 $ 6,998 $ 9,366

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Management fees and expenses (1)

357 387 671 641

Adjusted EBITDA $ 14,242 $ 13,967 $ 31,450 $ 28,679

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Results of Operations

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

The following table sets forth selected financial data for the three months ended December 31, 2019 and December 31, 2018 (in thousands, except percentages):

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following table sets forth selected financial data for the three months ended March 31, 2020 and 2019 (in thousands, except percentages):

Change From the Three Months Ended

For the Three Months Ended December 31, December 31, 2018

For the Three Months Ended March 31, March 31, 2019

to the Three Months Ended

2019 2018 December 31, 2019

2020 2019 March 31, 2020

Revenues Dollars % of

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Interest expense, net (1,834) (1.1) % (379) (0.2) % (1,455) 383.9 %

Other expense 65 — % (17) (0.1) % 82 (482.4) %

Other income (expense) (753) (0.4) % 123 — % (876) (712.2) %

Income before provision for income taxes and earnings from investment in joint venture 1,998 1.2 % 5,467 3.3 % (3,469) (63.5) %

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Adjusted EBITDA $ 14,242 8.4 % $ 13,967 8.5 % $ 275 2.0 %

Revenues for the three months ended December 31, 2019 increased $21.0 million, or 13.6%, to $175.3 million from $154.3 million for the three months ended December 31, 2018.

The increase included $13.1 million of revenues attributable to acquisitions completed subsequent to December 31, 2018 and an increase of approximately $7.9 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

Revenues for the three months ended March 31, 2020 increased $4.4 million, or 2.7%, to $168.7 million from $164.3 million for the three months ended March 31, 2019.

The increase included $11.6 million of revenues attributable to acquisitions completed subsequent to March 31, 2019, which were offset by a $7.2 million decrease in revenues in our existing markets.

Gross Profit.

Gross profit for the three months ended December 31, 2019 increased $2.7 million, or 12.4%, to $23.8 million from $21.1 million for the three months ended December 31, 2018.

The increase in gross profit was primarily the result of the 13.6 % increase in revenue from the three months ended December 31, 2019 compared to the three months ended December 31, 2018.

Gross profit for the three months ended March 31, 2020 increased $1.2 million, or 5.9%, to $21.0 million from $19.8 million for the three months ended March 31, 2019.

The increase in gross profit was primarily the result of the 2.7% increase in revenues for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 and an increase in the gross profit margin.

General and Administrative Expenses.

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 December 31, 2019 increased $2.7 million, or 18.6%, to $17.1 million from $14.4 million for the three months ended December 31, 2018.

The increase in general and administrative expenses for the three months ended December 31, 2019 compared to the three months ended December 31, 2018 was primarily the result of (i) a $1.4 million increase in management personnel payroll and benefits, (ii) a $0.8 million increase attributable to acquisitions completed subsequent to December 31, 2018 and (iii) a $0.4 million increase in stock compensation expense.

General and administrative expenses for the three months ended March 31, 2020 increased $2.0 million, or 13.9%, to $16.8 million from $14.8 million for the three months ended March 31, 2019.

The increase in general and administrative expenses for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily the result of (i) a $0.7 million increase in management personnel payroll and benefits, (ii) a $0.7 million increase attributable to acquisitions completed subsequent to March 31, 2019 and (iii) a $0.4 million increase in stock-based compensation expense.

Interest Expense, Net.

Interest expense, net for the three months ended December 31, 2019 decreased $0.2 million, or 45.4%, to $0.3 million compared to $0.5 million for the three months ended December 31, 2018.

The decrease in interest expense, net, reflects a $0.5 million decrease in interest expense, partially offset by a $0.2 million decrease in interest income.

The decrease in interest expense was due to a decrease in the average principal debt balance outstanding to $56.8 million for the three months ended December 31, 2019 from $60.4 million for the three months ended December 31, 2018 and a decrease in the average interest rate on the Term Loan and the Revolving Credit Facility to 3.044% during the three months ended December 31, 2019 from 4.296% during the three months ended December 31, 2018.

The decrease in interest income was due to a lower average cash balance during the three months ended December 31, 2019 compared to the three months ended December 31, 2018.

Interest expense, net for the three months ended March 31, 2020 increased $1.4 million, to $1.8 million compared to $0.4 million for the three months ended March 31, 2019.

The increase was primarily due to the unrealized loss on interest rate swap derivative instruments of $1.5 million for the three months ended March 31, 2020 compared to $0.1 million for the three months ended March 31, 2019.

Other Income (Expense).

Other income (expense) for the three months ended March 31, 2020 decreased $0.9 million, to $(0.8) million compared to $0.1 million for the three months ended March 31, 2019.

The decrease was primarily attributable to net unrealized losses of $0.8 million on commodity derivative instruments for the three months ended March 31, 2020, as the Company entered into these contracts in February 2020.

These derivative instruments were significantly impacted by financial market volatility during March 2020 due to COVID-19 and other macroeconomic factors.

Earnings from Investment in Joint Venture.

During the three months ended March 31, 2020 and 2019, we earned $0.07 million and $0.2 million, respectively, of pre-tax income from our 50% interest in the earnings of a joint venture that we entered into with a third party in November 2017 for the sole purpose of performing a construction project for the Alabama Department of Transportation.

Net income decreased $2.7 million, or 63.5%, to $1.5 million for the three months ended March 31, 2020, compared to $4.2 million for the three months ended March 31, 2019.

The decrease in net income was primarily a result of total unrealized losses on commodity and interest rate swap derivative instruments of $2.3 million compared to $0.1 million for the three months ended March 31, 2019, and the higher general and administrative expenses, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA and Adjusted EBITDA Margin were $14.2 million and 8.4%, respectively, for the three months ended March 31, 2020, compared to $14.0 million and 8.5%, respectively, for the three months ended March 31, 2019.

The increase in Adjusted EBITDA was the result of a higher gross profit and depreciation, depletion and amortization of long-lived assets, partially offset by an increase in general and administrative expenses and an unrealized loss of $0.8 million on commodity derivatives during the three months ended March 31, 2020.

The lower Adjusted EBITDA Margin was a primarily a result of an increase in general and administrative expenses and unrealized losses of $0.8 million on commodity derivatives during the three months ended March 31, 2020.

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, 2020 Compared to Six Months Ended March 31, 2019

The following table sets forth selected financial data for the six months ended March 31, 2020 and 2019 (in thousands, except percentages):

Change From the Six Months Ended

For the Six Months Ended March 31, March 31, 2019

to the Six Months Ended

2020 2019 March 31, 2020

Revenues Dollars % of

Revenues $ 343,993 100.0 % $ 318,631 100.0 % $ 25,362 8.0 %

Cost of revenues 299,265 87.0 % 277,702 87.2 % 21,563 7.8 %

Gross profit 44,728 13.0 % 40,929 12.8 % 3,799 9.3 %

General and administrative expenses (33,934) (9.8) % (29,202) (9.1) % (4,732) 16.2 %

Gain on sale of equipment, net 744 0.2 % 1,027 0.3 % (283) (27.6) %

Operating income 11,538 3.4 % 12,754 4.0 % (1,216) (9.5) %

Interest expense, net (2,115) (0.6) % (894) (0.3) % (1,221) 136.6 %

Other income (expense) (688) (0.3) % 106 0.1 % (794) (749.1) %

Income before provision for income taxes and earnings from investment in joint venture 8,735 2.5 % 11,966 3.8 % (3,231) (27.0) %

Provision for income taxes 1,850 0.5 % 3,139 1.0 % (1,289) (41.1) %

Our effective tax rate decreased to 19.5% for the three months ended December 31, 2019, from 24.3% for the three months ended December 31, 2018.

Our lower effective tax rate was the result of filing an amended consolidated state return, as a result of which the Company recorded an amended return benefit of $0.4 million related to the utilization of net operating loss carryforwards.

Earnings from investment in joint venture 113 — % 539 0.1 % (426) (79.0) %

During the three months ended December 31, 2019 and 2018, we earned $0.04 million and $0.3 million, respectively, of pre-tax income from our 50% interest in the earnings of a joint venture that we entered into with a third party in November 2017 for the sole purpose of performing a construction project for the Alabama Department of Transportation.

Net income increased $0.3 million, or 6.0%, to $5.5 million for the three months ended December 31, 2019, compared to $5.2 million for the three months ended December 31, 2018.

The increase in net income was a result of an increase in gross profit, partially offset by an increase in general and administrative expenses, and a decrease in the effective tax rate during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, all as described above.

Net income $ 6,998 2.0 % $ 9,366 2.9 % $ (2,368) (25.3) %

Adjusted EBITDA $ 31,450 9.1 % $ 28,679 9.0 % 2,771 9.7 %

Revenues for the six months ended March 31, 2020 increased $25.4 million, or 8.0%, to $344.0 million from $318.6 million for the six months ended March 31, 2019.

The increase included $24.7 million of revenues attributable to acquisitions completed subsequent to March 31, 2019.

Gross Profit.

Gross profit for the six months ended March 31, 2020 increased $3.8 million, or 9.3%, to $44.7 million from $40.9 million for the six months ended March 31, 2019.

The increase in gross profit was primarily the result of the 8.0% increase in revenue for the six months ended March 31, 2020 compared to six months ended March 31, 2019 and an increase in gross profit margin.

General and Administrative Expenses.

General and administrative expenses for the six months ended March 31, 2020 increased $4.7 million, or 16.2%, to $33.9 million from $29.2 million for the six months ended March 31, 2019.

The increase in general and administrative expenses for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 was primarily the result of (i) a $2.1 million increase in management personnel payroll and benefits, (ii) a $1.5 million increase attributable to acquisitions completed subsequent to March 31, 2019 and (iii) a $0.8 million increase in stock-based compensation expense.

Interest Expense, Net.

Interest expense, net for the six months ended March 31, 2020 increased $1.2 million, or 136.6%, to $2.1 million compared to $0.9 million for the six months ended March 31, 2019.

The increase was primarily due to the unrealized loss on interest rate swap derivative instruments of $1.5 million for the six months ended March 31, 2020 compared to $0.3 million for the six months ended March 31, 2019.

Other Income (Expense).

Other income (expense) for the six months ended March 31, 2020 decreased $0.8 million, to $(0.7) million compared to $0.1 million for the six months ended March 31, 2019.

The decrease was primarily attributable to net unrealized losses of $0.8 million on commodity derivative instruments for the six months ended March 31, 2020, as the Company entered into these contracts in February 2020.

These derivative instruments were significantly impacted by financial market volatility during March 2020 due to COVID-19 and other macroeconomic factors.

Provision for Income Taxes.

Our effective tax rate decreased to 20.9% for the six months ended March 31, 2020, from 25.1% for the six months ended March 31, 2019.

Earnings from Investment in Joint Venture.

During the six months ended March 31, 2020 and 2019, we earned $0.1 million and $0.5 million, respectively, of pre-tax income from our 50% interest in the earnings of a joint venture that we entered into with a third party in November 2017 for the sole purpose of performing a construction project for the Alabama Department of Transportation.

Net income decreased $2.4 million, or 25.3%, to $7.0 million for the six months ended March 31, 2020, compared to $9.4 million for the six months ended March 31, 2019.

The decrease in net income was primarily a result of total unrealized losses on commodity and interest rate swap derivative instruments of $2.3 million for the six months ended March 31, 2020 compared to $0.3 million for the six months ended March 31, 2019, and the higher general and administrative expenses, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA and Adjusted EBITDA Margin were $17.2 million and 9.8%, respectively, for the three months ended December 31, 2019, compared to $14.7 million and 9.5%, respectively, for the three months ended December 31, 2018.

The higher Adjusted EBITDA Margin was a primarily a result of increased depreciation, depletion and amortization of long-lived assets during the three months ended December 31, 2019.

Adjusted EBITDA and Adjusted EBITDA Margin were $31.5 million and 9.1%, respectively, for the six months ended March 31, 2020, compared to $28.7 million and 9.0%, respectively, for the six months ended March 31, 2019.

The increase in Adjusted EBITDA was the result of a higher gross profit and depreciation, depletion and amortization of long-lived assets, partially offset by an increase in general and administrative expenses and an unrealized loss on interest rate swap derivative instruments of $1.5 million for the six months ended March 31, 2020 compared to $0.3 million for the six months ended March 31, 2019.

The higher Adjusted EBITDA Margin was a primarily a result of increased depreciation, depletion and amortization of long-lived assets during the six months ended March 31, 2020.

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”.

Inflation and Price Changes

Inflation had an immaterial impact on our results of operations for the three months ended December 31, 2019 and 2018 due to relatively low inflation in the United States in recent years and our ability to recover increasing costs by obtaining higher prices for our products, including sale price escalator clauses in most of our public infrastructure sector contracts.

Inflation had an immaterial impact on our results of operations for three and six months ended March 31, 2020 and 2019 due to relatively low inflation in the United States in recent years and our ability to recover increasing costs by obtaining higher prices for our products, including sale price escalator clauses in most of our public sector infrastructure contracts.

Inflation risk varies with the level of activity in our industry, the number, size and strength of competitors and the availability of products to supply a local market.

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The following table sets forth our cash flows for the periods indicated (in thousands):

For the Three Months Ended December 31,

For the Six Months Ended March 31,

Net cash provided by operating activities, net of acquisition $ 20,476 $ 5,299

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Operating Activities

Cash provided by operating activities was $1.5 million for the three months ended December 31, 2019, an increase of $0.3 million compared to $1.2 million for the three months ended December 31, 2018.

The increase was primarily due to a $0.3 million increase in net income for the three months ended December 31, 2019 compared to the three months ended December 31, 2018 and a $3.0 million increase in adjustments to reconcile net income to cash flows provided by operating activities, partially offset by a $2.9 million decrease in changes in operating assets and liabilities for those same periods.

The $3.0 million increase in adjustments to reconcile net income to cash flows provided by operating activities was primarily due to a $2.3 million increase in depreciation, depletion and amortization of long-lived assets.

The $2.9 million decrease in changes in operating assets and liabilities included (i) a $4.2 million decrease in contracts receivable due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle, (ii) a $2.0 million decrease in accrued expenses and other current liabilities primarily related to payroll and benefits, (iii) a $1.3 million decrease in costs and estimated earnings in excess of billings on uncompleted contracts resulting from the timing of performing and closing projects, (iv) a $3.5 million increase in accounts payable due to normal fluctuations in the timing of processing transaction in our accounts payable cycle and (v) a $2.4 million increase in inventories due to normal fluctuations in our inventory cycle.

Cash provided by operating activities was $20.5 million for the six months ended March 31, 2020, an increase of $15.2 million compared to $5.3 million for the six months ended March 31, 2020.

The increase was primarily due to a $7.8 million increase in adjustments to reconcile net income to cash flows provided by operating activities and a $9.7 million increase in changes in operating assets and liabilities, partially offset by a $2.4 million decrease in net income for the six months ended March 31, 2020 compared to the six months ended March 31, 2019.

The $7.8 million increase in adjustments to reconcile net income to cash flows provided by operating activities was primarily due to a $4.4 million increase in depreciation, depletion and amortization of long-lived assets and a $1.9 million increase in losses on derivative instruments and $0.8 million increase of equity-based compensation expense.

The $9.7 million increase in changes in operating assets and liabilities included (i) a $2.2 million increase in contracts receivable due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle, (ii) a $4.6 million increase in prepaid expenses and other current assets due to the receipt of the settlement receivable and timing of insurance policies, (iii) a $3.5 million decrease in accounts payable due to normal fluctuations in the timing of processing transactions in our accounts payable cycle and (iv) a $3.3 million increase in inventories due to normal fluctuations in our inventory cycle.

Investing Activities

Cash used in investing activities was $40.4 million for the three months ended December 31, 2019 compared to $5.1 million for the three months ended December 31, 2018.

The increase reflects $17.7 million used in connection with a business acquisition in October 2019 and a $16.2 million increase in purchases of property, plant and equipment, which includes $11.5 million for the buyout of equipment leases.

The increase also included a $1.3 million decrease in distributions received from our investment in a joint venture during the three months ended December 31, 2019, compared to the three months ended December 31, 2018.

Cash used in investing activities was $62.8 million for the six months ended March 31, 2020 compared to $35.1 million for the six months ended March 31, 2019.

The increase reflects $17.7 million used in connection with a business acquisition in October 2019 and $12.4 million used in connection with a business acquisition in March 2020.

Business acquisitions totaled $8.9 million for the six months ended March 31, 2019.

There was a $14.7 million increase in purchases of property, plant and equipment, which includes $11.5 million for the buyout of equipment leases during the six months ended March 31, 2020.

These increases were offset by a $8.9 million business acquisition and a $10.8 million acquisition of the liquid asphalt terminal assets during the six months ended March 31, 2019.

Financing Activities

Cash provided by financing activities was $7.6 million for the three months ended December 31, 2019 compared to $3.7 million of cash used during the three months ended December 31, 2018, reflecting a $9.8 million term loan advance, net of issuance cost, related to our buyout of certain lease obligations in October 2019 and a $1.5 million lower repayment of the Term Loan and other debt during the three months ended December 31, 2019 compared to the three months ended December 31, 2018.

Cash provided by financing activities was $15.5 million for the six months ended March 31, 2020 compared to $7.4 million of cash used in financing activities during six months ended March 31, 2019, reflecting a $9.8 million Term Loan advance, net of issuance cost, related to our buyout of certain lease obligations in October 2019 and a $15.0 million advance under our Revolving Credit Facility primarily used to fund the March 2020 acquisition and for liquidity purposes.

Loan repayments increased $1.9 million on the Term Loan, Revolving Credit Facility and other debt during six months ended March 31, 2020 compared to six months ended March 31, 2019.

BBVA Credit Agreement

We and each of our subsidiaries are parties to the BBVA Credit Agreement.

The BBVA Credit Agreement provides for the Term Loan and the Revolving Credit Facility.

At December 31, 2019 and September 30, 2019, we had $52.7 million and $44.7 million, respectively, of principal outstanding under the Term Loan, $5.0 million and $5.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $13.6 million and $14.4 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

The obligations of our subsidiaries under the Term Loan and the Revolving Credit Facility are secured by a first priority security interest in substantially all of our assets and are guaranteed by the Company, as the ultimate parent company of the borrower entities.

We and each of our subsidiaries are parties to the BBVA Credit Agreement, which provides for the Term Loan and the Revolving Credit Facility.

At March 31, 2020 and September 30, 2019, we had $50.6 million and $44.7 million, respectively, of principal outstanding under the Term Loan, $15.0 million and $5.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $4.0 million and $14.3 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

Our obligations under the Term Loan and the Revolving Credit Facility are secured by a first priority security interest in substantially all of our assets.

In August 2019, the BBVA Credit Agreement was amended to, among other things, modify the interest rate and fee structure, as well as the repayment schedule and amounts.

In October 2019, the BBVA Credit Agreement was amended to add Bank of America, N.A.

as a party in connection with the assignment by BBVA to Bank of America of certain of its lending obligations under the BBVA Credit agreement and extend the maturity date for the outstanding term loan advances from July 1, 2022 to October 1, 2024.

Currently, the BBVA Credit Agreement provides for a four-tier escalating interest rate for both the Term Loan and the Revolving Credit Facility that is tied to the London Interbank Offered Rate (“LIBOR”).

The baseline rate for such borrowings is LIBOR plus 1.20%, and the rate may increase up to LIBOR plus 1.70% if the Company’s consolidated leverage ratio exceeds 2.00%.

At December 31, 2019 and September 30, 2019, the interest rate on outstanding borrowings under the Term Loan and Revolving Credit Facility was 2.999% and 3.244%, respectively.

In October 2019, the BBVA Credit Agreement was amended to add Bank of America as a party in connection with the assignment by BBVA to Bank of America of certain of its lending obligations under the BBVA Credit agreement and extend the maturity date for the outstanding term loan advances from July 1, 2022 to October 1, 2024.

As of March 31, 2020, the BBVA Credit Agreement provided for a four-tier escalating interest rate for both the Term Loan and the Revolving Credit Facility that is tied to LIBOR.

The baseline rate for such borrowings was LIBOR plus 1.20%, and the rate may increase up to LIBOR plus 1.70% if the Company’s consolidated leverage ratio exceeds 2.00%.

At March 31, 2020 and September 30, 2019, the interest rate on outstanding borrowings under the Term Loan and Revolving Credit Facility was 2.189% and 3.244%, respectively.

Principal repayments under the Term Loan are made in quarterly installments in an amount equal to 2.50% of the original amount borrowed, a reduction from the 5.00% rate that we paid prior to the August 2019 amendment.

We pay a commitment fee of 0.20% per annum on the aggregate unused commitment amount under the Revolving Credit Facility, a reduction from 0.35% prior to the August 2019 amendment, as well as fees with respect to any letters of credit issued thereunder.

As of December 31, 2019, all amounts borrowed under the BBVA Credit Agreement were scheduled to mature on October 1, 2024.

As of March 31, 2020, all amounts borrowed under the BBVA Credit Agreement were scheduled to mature on October 1, 2024.

On April 30, 2020, we entered into the Amendment, which, among other things, amends the Credit Agreement to (i) provide for a Term Loan advance to the Company in the amount of $18.0 million, (ii) establish a minimum interest rate for the foregoing Term Loan advance and future Term Loan advances, (iii) adjust the Term Loan recourse amounts applicable to the Company and its subsidiaries, (iv) increase the amount of the quarterly principal installment payments under outstanding Term Loan advances to $2.5 million, and (v) set forth procedures by which the parties will select a replacement benchmark interest rate in the event that LIBOR is no longer

available or appropriate as a reference rate upon which to determine the interest rate after December 31, 2021, the date on which contributing banks will no longer be required to submit rate information from which LIBOR is calculated.

The BBVA Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on the Company’s ability to make acquisitions, make loans or advances, make capital expenditures and investments, pay dividends, create or incur indebtedness, create liens, wind up or dissolve, consolidate, merge or liquidate, or sell, transfer or dispose of assets.

The BBVA Credit Agreement also requires the Company to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.20-to-1.00 and a maximum consolidated leverage ratio of 2.75-to-1.00, subject to certain adjustments.

At December 31, 2019 and September 30, 2019, our fixed charge ratio was 3.51-to-1.00 and 4.04-to-1.00, respectively, and our consolidated leverage ratio was 0.73-to-1.00 and 0.66-to-1.00, respectively.

At both December 31, 2019 and September 30, 2019, the Company was in compliance with all covenants under the BBVA Credit Agreement.

At March 31, 2020 and September 30, 2019, our fixed charge ratio was 3.17-to-1.00 and 4.04-to-1.00, respectively, and our consolidated leverage ratio was 0.83-to-1.00 and 0.66-to-1.00, respectively.

At both March 31, 2020 and September 30, 2019, the Company was in compliance with all covenants under the BBVA Credit Agreement.

From time to time, we have entered into interest rate swap agreements to hedge against the risk of changes in interest rates.

On June 30, 2017, we entered into an interest rate swap agreement with a notional amount of $25.0 million, under which we pay a fixed percentage rate of 2.015% and receive a credit based on the applicable LIBOR rate.

On May 15, 2018, we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million amount borrowed under the Term Loan on that date, under which we pay a fixed percentage rate of 3.01% and receive a credit based on the applicable LIBOR rate.

On October 1, 2019, the Company entered into an additional $5.9 million notional interest rate swap agreement applicable to the $10.0 million amount borrowed under the Term Loan on that date, under which we pay a fixed percentage rate of 1.58% and receive a credit based on the applicable LIBOR rate.

On February 27, 2020, the Company entered into an additional $26.3 million notional interest rate swap agreement applicable to the Term Loan on that date, under which we pay a fixed percentage rate of 1.24% and receive a credit based on the applicable LIBOR rate.

These interest rate swap agreements do not meet the criteria for hedge accounting treatment in accordance with GAAP.

At December 31, 2019 and September 30, 2019, the aggregate notional value of these interest rate swap agreements was $26.3 million and $21.5 million, respectively, and the fair value was $(0.2) million and $(0.3) million, respectively, which is included within other long-term liabilities on our Consolidated Balance Sheets.

At March 31, 2020 and September 30, 2019, the aggregate notional value of these interest rate swap agreements was $50.6 million and $21.5 million, respectively, and the fair value was $(1.8) million and $(0.3) million, respectively, which is included within other long-term liabilities on our Consolidated Balance Sheets.

Capital Expenditures and Working Capital

During the three months ended December 31, 2019 and 2018, our capital expenditures were $23.6 million and $7.4 million, respectively.

During the six months ended March 31, 2020 and 2019, our capital expenditures were $34.5 million and $19.8 million, respectively.

Our capital expenditures are typically made during the same fiscal year in which they are approved.

At December 31, 2019, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis.

At March 31, 2020, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis.

For fiscal 2020, we expect total capital expenditures to be $40.0 million to $42.0 million, not including $11.5 million for the buyout of equipment leases.

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As described further below, we believe that cash flows from operations combined with existing cash on hand and amounts available under our credit facilities will be sufficient to fund our working capital needs and planned capital expenditures for at least the next 12 months.

Historically, we have had significant cash requirements in order to organically expand our business into new geographic markets.

Our cash requirements include costs related to capital expenditures, purchase of materials, production of materials and organic expansion into new markets.

Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements increasing in periods of growth.

Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancing our information systems, our compliance with laws and rules applicable to public companies and our integration of any acquisitions.

Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancements to our information systems, expenditures related to our compliance with laws and rules applicable to public companies and our integration of any acquired businesses.

We have historically relied upon 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, in an effort to meet our planned capital expenditures and liquidity requirements.

We regularly monitor potential capital sources, including the equity and debt markets, in an effort to meet our planned capital expenditures and liquidity requirements.

Our future success will depend on our ability to access outside sources of capital.

We believe that our operating cash flow and available borrowings under the Revolving Credit Facility will be sufficient to fund our operations for at least the next 12 months.

However, future cash flows are subject to a number of variables, and significant additional capital expenditures will be required to conduct our operations.

We believe that our operating cash flow and available borrowings under the BBVA Credit Agreement will be sufficient to fund our operations for at least the next 12 months.

However, future cash flows are subject to a number of variables, including the potential impacts of COVID-19, and significant additional capital expenditures will be required to conduct our operations.

There can be no assurance that operations and other capital resources will provide cash in sufficient amounts 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 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, joint ventures, asset sales, offerings of debt or equity securities or other means.

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 BBVA Credit Agreement, joint ventures, asset sales, offerings of debt or equity securities or other means.

However, the unprecedented public health and governmental efforts to contain the spread of COVID-19 have created significant uncertainty as to general economic conditions for the remainder of 2020 and beyond, and 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.

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In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials.

We have entered into fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices.

As of March 31, 2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 3.9 million gallons, maturing through 2021.

The fair value of these derivative contracts was $(0.8) million at March 31, 2020.

These fuel swap contracts provide a fixed price for less than 50% of our estimated fuel usage for the remainder of fiscal years 2020 through 2022.

Interest Rate Risk

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Under this additional swap agreement, we pay a fixed percentage rate of 1.58% and receive a credit based on the applicable LIBOR rate.

At December 31, 2019, we had a total of $31.3 million of unhedged variable rate borrowings outstanding.

A hypothetical 1% change in our borrowing rates would result in a $0.3 million change in our annual interest expense based on our variable rate debt at December 31, 2019.

At March 31, 2020, we had a total of $15.0 million of non-hedged variable rate borrowings outstanding.

Off-Balance Sheet Arrangements

As of December 31, 2019, we had no material off-balance sheet arrangements.

As of March 31, 2020, we have no material off balance sheet arrangements, except for purchase commitments for diesel fuel entered into in the normal course of business.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis