What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-08 · 104 added, 107 removed, 166 unchanged (56% of the section changed)

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

T his discussion and analysis of our financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition.

Historical results may not be indicative of future performance.

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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.

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

We did not incur significant disruptions from COVID-19 during the three months ended June 30, 2020, as road construction has been designated a “critical infrastructure” industry and an “essential business” in each state within our footprint, which has allowed us to continue to operate without significant delays related to state and local shelter-in-place orders.

In fact, in certain states in which we operate, including Florida and Alabama, some public projects have been accelerated in order to leverage construction efficiencies driven by lower vehicle traffic during the shelter-in-place orders resulting from the COVID-19 pandemic.

However, 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.

We continue to monitor risks to our business arising from increasing transmission rates of COVID-19, including (i) our need to adopt enhanced safety and cleaning protocols, which have required significant time and attention from our management and workforce, (ii) employee absences, which could adversely affect our productivity and our ability to complete projects in accordance with our contractual obligations, and could require us to temporarily close our facilities or project sites, (iii) potential disruptions in our supply chains for raw materials or equipment, whether as a result of facility closures or otherwise, which could increase our labor and materials costs and impair our ability to manufacture hot-mix asphalt, and (iv) the impact of COVID-19 on our customers, which could cause these customers to cancel or delay current or prospective projects or become delinquent in their payments to us for work that we have performed.

Several of these risks have materialized in varying degrees, but none of these risks, individually or in the aggregate, have significantly impacted our operations to date.

In addition, we continue to monitor the impact of COVID-19 on fuel and sales tax revenues, which in turn drive funding levels for public projects in our markets.

For instance, a substantial portion of our revenues each quarter are derived from projects completed for various Departments of Transportation, including ALDOT and NCDOT, each of which has accounted for more than 10% of our consolidated revenues for various periods within the past two fiscal years, as further described under the heading “Concentration of Risks” in Note 2 – Significant Accounting Policies to the Consolidated Financial Statements included elsewhere in this report.

In North Carolina, the NCDOT implemented several measures in recent months to address preexisting funding pressures that were exacerbated

by the effects of the COVID-19 pandemic, including suspending preliminary engineering work on potential future projects, delaying commencement of certain pending projects and reducing the number and size of projects available for bid, which resulted in decreased revenue during the three months ended June 30, 2020.

However, recent legislative efforts and increased fuel tax receipts have facilitated the generation of cash reserves in excess of the statutory minimum (a prerequisite for future project lettings) and approvals for future bond issuances that will be used for funding projects in subsequent periods.

Management believes that this market remains poised for future growth in light of its favorable population trends and adequate structural long-term funding mechanisms.

In Alabama, the decline in gas tax revenue receipts related to reductions in fuel purchased by motorists in recent months has been largely offset by an increase in the fuel tax that became effective in late 2019.

The extent to which our operations may be impacted by the COVID-19 pandemic will depend 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.

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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.

During the three months ended June 30, 2020, we incurred a $0.1 million non-cash charge related to interest rate swaps and a $0.4 million non-cash benefit related to fuel swaps.

The value of these instruments was impacted by 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.

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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.

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.

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Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, as well as the cost of interest swap agreements and amortization of deferred debt issuance costs.

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

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

Other Income (Expense)

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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 March 31, For the Six Months Ended March 31,

For the Three Months Ended June 30, For the Nine Months Ended June 30,

2020 2019 2020 2019

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Results of Operations

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):

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The following table sets forth selected financial data for the three months ended June 30, 2020 and 2019 (in thousands, except percentages):

Change From the Three Months Ended

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

For the Three Months Ended June 30, June 30, 2019

to the Three Months Ended

2020 2019 March 31, 2020

2020 2019 June 30, 2020

Revenues Dollars % of

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Adjusted EBITDA $ 31,873 14.7 % $ 31,279 13.8 % $ 594 1.9 %

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.

Revenues for the three months ended June 30, 2020 decreased $10.3 million, or 4.5%, to $217.0 million from $227.3 million for the three months ended June 30, 2019.

Revenues in markets we served on June 30, 2019 decreased by $20.0 million, primarily due to a reduction in the number of projects available for bid in certain of our markets, including North Carolina, and our resulting efforts to manage our backlog and effectively utilize our workforce in light of the uncertainties caused by the COVID-19 pandemic.

The decrease was offset by a $9.7 million increase in total revenue attributable to acquisitions that we completed subsequent to June 30, 2019.

Gross Profit.

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.

Gross profit for the three months ended June 30, 2020 decreased $1.6 million, or 4.2%, to $36.5 million from $38.1 million for the three months ended June 30, 2019.

The decrease in gross profit was primarily the result of the 4.5% decrease in revenues for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

General and Administrative Expenses.

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.

General and administrative expenses for the three months ended June 30, 2020 increased $0.9 million, or 5.5%, to $16.9 million from $16.0 million for the three months ended June 30, 2019.

The increase in general and administrative expenses for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily the result of (i) a $0.4 million increase in management personnel payroll and benefits, (ii) a $0.7 million increase attributable to acquisitions completed subsequent to June 30, 2019 and (iii) a $0.4 million increase in stock-based compensation expense.

These increases were partially offset by decreases in other general and administrative expenses of $0.6 million.

Interest Expense, Net.

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.

Interest expense, net was $0.6 million for the three months ended June 30, 2020 and 2019.

The impact of a higher average outstanding balance of indebtedness during the three months ended June 30, 2020 was offset by a decrease in interest rates paid on such indebtedness during the period.

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.

Other income (expense) for the three months ended June 30, 2020 increased $0.4 million, to $0.6 million compared to $0.2 million for the three months ended June 30, 2019.

The increase was primarily attributable to net unrealized gains of $0.4 million on commodity derivative instruments for the three months ended June 30, 2020, as the Company entered into these contracts in February 2020.

The value of these derivative instruments was impacted by financial market volatility during the quarter ended June 30, 2020 due to COVID-19 and other macroeconomic factors.

Provision for Income Taxes.

Our effective tax rate increased to 23.3% for the three months ended June 30, 2020, from 22.3% for the three months ended June 30, 2019.

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.

Earnings from investment in joint venture was $0.4 million for the three months ended June 30, 2020 and 2019, which represents 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 ALDOT.

Net income decreased $1.5 million, or 8.5%, to $15.7 million for the three months ended June 30, 2020, compared to $17.2 million for the three months ended June 30, 2019.

The decrease in net income was primarily a result of lower gross profit and 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.

Adjusted EBITDA and Adjusted EBITDA Margin were $31.9 million and 14.7%, respectively, for the three months ended June 30, 2020, compared to $31.3 million and 13.8%, respectively, for the three months ended June 30, 2019.

The increase in Adjusted EBITDA was the result of a higher depreciation, depletion and amortization of long-lived assets, partially offset by lower gross profit and an increase in general and administrative expenses.

The higher Adjusted EBITDA Margin was a primarily a result of an increase in Adjusted EBITDA and a decrease in revenues, all 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, 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

Nine Months Ended June 30, 2020 Compared to Nine Months Ended June 30, 2019

The following table sets forth selected financial data for the nine months ended June 30, 2020 and 2019 (in thousands, except percentages):

Change From the Nine Months Ended

For the Nine Months Ended June 30, June 30, 2019

to the Nine Months Ended

2020 2019 June 30, 2020

Revenues Dollars % of

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Adjusted EBITDA $ 63,323 11.3 % $ 59,958 11.0 % $ 3,365 5.6 %

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.

Revenues for the nine months ended June 30, 2020 increased $15.1 million, or 2.8%, to $561.0 million from $545.9 million for the nine months ended June 30, 2019.

The increase included $33.8 million of revenues attributable to acquisitions completed subsequent to June 30, 2019, offset by a $18.7 million decrease in revenues in markets we served on June 30, 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.

Gross profit for the nine months ended June 30, 2020 increased $2.2 million, or 2.8%, to $81.2 million from $79.0 million for the nine months ended June 30, 2019.

The increase in gross profit was primarily the result of the increase in revenue for the nine months ended June 30, 2020 compared to nine months ended June 30, 2019.

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.

General and administrative expenses for the nine months ended June 30, 2020 increased $5.6 million, or 12.4%, to $50.8 million from $45.2 million for the nine months ended June 30, 2019.

The increase in general and administrative expenses for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 was primarily the result of (i) a $2.5 million increase in management personnel payroll and benefits, (ii) a $2.2 million increase attributable to acquisitions completed subsequent to June 30, 2019 and (iii) a $1.2 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.

Interest expense, net for the nine months ended June 30, 2020 increased $1.2 million, or 78.3%, to $2.7 million compared to $1.5 million for the nine months ended June 30, 2019.

The increase was primarily due to the unrealized loss on interest rate swap derivative instruments of $1.6 million for the nine months ended June 30, 2020 compared to $0.5 million for the nine months ended June 30, 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.

Other income (expense) for the nine months ended June 30, 2020 decreased $0.4 million, to ($0.1) million compared to $0.3 million for the nine months ended June 30, 2019.

The decrease was primarily attributable to net unrealized losses of $0.4 million on commodity derivative instruments for the nine months ended June 30, 2020, as the Company entered into these contracts in February 2020.

The value of these derivative instruments was impacted by financial market volatility during the nine months ended June 30, 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.

Our effective tax rate decreased to 22.5% for the nine months ended June 30, 2020, from 23.3% for the nine months ended June 30, 2019.

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 and related release of valuation allowance.

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.

During the nine months ended June 30, 2020 and 2019, we earned $0.5 million and $0.9 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 ALDOT.

Net income decreased $3.8 million, or 14.4%, to $22.7 million for the nine months ended June 30, 2020, compared to $26.6 million for the nine months ended June 30, 2019.

The decrease in net income was primarily a result of lower gross profit, higher general and administrative expenses and additional unrealized losses on commodity and interest rate swap derivative instruments, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

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.

Adjusted EBITDA and Adjusted EBITDA Margin were $63.3 million and 11.3%, respectively, for the nine months ended June 30, 2020, compared to $60.0 million and 11.0%, respectively, for the nine months ended June 30, 2019.

The increase in Adjusted EBITDA was the result of a higher depreciation, depletion and amortization of long-lived assets, partially offset by an increase in general and administrative expenses and unrealized losses on commodity and interest rate swap derivative instruments.

The higher Adjusted EBITDA Margin was primarily a result of increased depreciation, depletion and amortization of long-lived assets during the nine months ended June 30, 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 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 had an immaterial impact on our results of operations for three and nine months ended June 30, 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 Six Months Ended March 31,

For the Nine Months Ended June 30,

Net cash provided by operating activities, net of acquisition $ 51,414 $ 17,963

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Operating Activities

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.

Cash provided by operating activities was $51.4 million for the nine months ended June 30, 2020, an increase of $33.5 million compared to $18.0 million for the nine months ended June 30, 2019.

The increase was primarily due to a $9.3 million increase in adjustments to reconcile net income to cash flows provided by operating activities and a $28.0 million increase in changes in operating assets and liabilities, partially offset by a $3.8 million decrease in net income for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019.

The $9.3 million increase in adjustments to reconcile net income to cash flows provided by operating activities was primarily due to a $6.4 million increase in depreciation, depletion and amortization of long-lived assets and a $1.5 million increase in non-cash losses on derivative instruments and $1.0 million increase of non-cash equity-based compensation expense.

The $28.0 million increase in changes in operating assets and liabilities included (i) a $21.2 million decrease in the change in contracts receivable as a result of increased contract billings due to acquisitions and growth in existing markets in the previous year, (ii) a $10.1 million decrease in the change in inventories primarily due to the liquid asphalt terminal acquired during the nine months ended June 30, 2019 and (iii) a $9.8 million increase in billings in excess of costs and estimated earnings on uncompleted contracts due to the increase in construction activity as noted above.

These changes were offset by a $14.6 million decrease in accounts payable due to the decrease in inventory purchases and normal fluctuations resulting from the timing of processing transactions in our accounts payable.

Investing Activities

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.

Cash used in investing activities was $69.2 million for the nine months ended June 30, 2020 compared to $46.3 million for the nine months ended June 30, 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.

Business acquisitions totaled $8.9 million for the nine months ended June 30, 2019.

There was a $9.8 million increase in purchases of property, plant and equipment, which includes $11.5 million for the buyout of equipment leases during the nine months ended June 30, 2020.

These increases were offset by a $10.8 million acquisition of the liquid asphalt terminal assets during the nine months ended June 30, 2019.

Financing Activities

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.

Cash provided by financing activities was $15.8 million for the nine months ended June 30, 2020 compared to $11.1 million of cash used in financing activities during nine months ended June 30, 2019, reflecting a $9.8 million Term Loan advance, net of issuance cost, related to our buyout of certain lease obligations in October 2019, a $15.0 million advance under our Revolving Credit Facility primarily used to fund the March 2020 acquisition and for liquidity purposes and a $18.0 million Term Loan advance, net of issuance cost, to pay down the March 2020 $15.0 million advance under the Revolving Credit Facility.

Loan repayments increased $15.8 million on the Term Loan, Revolving Credit Facility and other debt during nine months ended June 30, 2020 compared to the nine months ended June 30, 2019, due to the repayment of principal under the Revolving Credit Facility as noted above.

BBVA Credit Agreement

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 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 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 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.

During the three and nine months ended June 30, 2020, we and each of our subsidiaries were parties to the BBVA Credit Agreement, which provided for the Term Loan and the Revolving Credit Facility.

At June 30, 2020 and September 30, 2019, we had $66.1 million and $44.7 million, respectively, of principal outstanding under the Term Loan, $0.0 million and $5.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $19.3 million and $14.4 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

At June 30, 2020, the interest rate on outstanding borrowings under the Term Loan and Revolving Credit Facility ranged from 1.38% to 2.20%.

The BBVA Credit Agreement required 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 June 30, 2020 and

September 30, 2019, our fixed charge coverage ratio was 3.18-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.

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

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 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.

At June 30, 2020 and September 30, 2019, the aggregate notional value of these interest rate swap agreements was $48.6 million and $21.5 million, respectively, and the fair value was $(1.9) million and $(0.3) million, respectively, which is included within other long-term liabilities on our Consolidated Balance Sheets.

Subsequent to June 30, 2020 we entered into the Amended Credit Agreement, which amended and restated the BBVA Credit Agreement in its entirety.

For more information about the Amended Credit Agreement, see the discussion under the heading “Recent Financing Developments” in Note 20 - Subsequent Events to the Consolidated Financial Statements included elsewhere in this report.

Capital Expenditures and Working Capital

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

During the nine months ended June 30, 2020 and 2019, our capital expenditures were $41.5 million and $31.7 million, respectively.

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

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.

At June 30, 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 during the first quarter of the fiscal year.

Our capital expenditure budget is an estimate and is subject to change.

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.

As described further below, we believe that cash flows from operations, together 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.

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

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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 BBVA Credit Agreement will be sufficient to fund our operations for at least the next 12 months.

We believe that our operating cash flow and available borrowings under our credit facilities 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.

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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.

If we seek additional capital, we may do so through borrowings under our credit facilities, 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.

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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.

As of June 30, 2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 3.3 million gallons, maturing incrementally through 2021.

The fair value of these derivative contracts was $(0.4) million at June 30, 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.

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We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions.

We have LIBOR-based floating rate borrowings under the BBVA Credit Agreement, which expose us to variability in interest payments due to changes in the reference interest rates.

We have LIBOR-based floating rate borrowings under our credit facilities, which expose us to variability in interest payments due to changes in the reference interest rates.

From time to time, we use derivative instruments to hedge 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 entered into an amortizing interest rate swap agreement applicable to $25.0 million of outstanding debt under the Term Loan, for which we pay a fixed rate of 2.015% and receive a credit based on the applicable LIBOR rate.

In connection with the amendment to the BBVA Credit Agreement and the additional borrowing on May 15, 2018, we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million of 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.

In connection with the amendment to the BBVA Credit Agreement and the additional borrowing on October 1, 2019, we entered into an additional $5.9 million notional interest rate swap agreement applicable to the $10.0 million of additional debt under the Term Loan.

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

In order to hedge against changes in interest rates and to manage fluctuations in cash flows resulting from interest rate risk, we entered into amortizing interest rate swap agreements (i) on June 30, 2017, with respect to $25.0 million of outstanding debt under the Term Loan, for which we pay a fixed rate of 2.015%, (ii) on May 15, 2018,with respect to $11.0 million of the $22.0 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed percentage rate of 3.01%, (iii) on October 1, 2019, with respect to $5.9 million of the $10.0 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed interest rate of 1.58% and (iv) on February 27, 2020, with respect to $26.3 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed percentage rate of 1.24% and, in each case, under which receive a credit based on the applicable LIBOR rate.

At June 30, 2020, we had a total of $17.6 million of non-hedged variable rate borrowings outstanding.

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.

As of June 30, 2020, we had 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