What changed in this filing

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Item 1. Business

2020-12-11 compared with 2019-12-13 · 43 added, 56 removed, 159 unchanged (38% of the section changed)

We are a leading infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina.

We are a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina.

Through our wholly owned subsidiaries, we provide a variety of products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports, and commercial and residential developments.

Consistent with our vertical integration strategy, our primary operations consist of (i) manufacturing and distributing hot mix asphalt (“HMA”) for both internal use and sales to third parties in connection with construction projects, (ii) paving activities, including the construction of roadway base layers and application of asphalt pavement, (iii) site development, including the installation of utility and drainage systems, (iv) mining aggregates, such as sand and gravel, that are used as raw materials in the production of HMA, and (v) distributing liquid asphalt cement for both internal use and sales to third parties in connection with HMA production.

The Company was formed as a Delaware corporation in 2007 as a holding company for its wholly owned subsidiary, Construction Partners Holdings, Inc., to facilitate an acquisition growth strategy in the HMA paving and construction industry.

As used in this report, the terms “Company,” “we” and “us” refer to Construction Partners, Inc.

Construction Partners, Inc.

was formed as a Delaware corporation in 2007 as a holding company for its wholly owned subsidiary, Construction Partners Holdings, Inc., to facilitate an acquisition growth strategy in the HMA paving and construction industry.

On December 31, 2019, Construction Partners Holdings, Inc.

merged with and into Construction Partners, Inc., with Construction Partners, Inc.

surviving the merger.

As used in this report, the terms “Company,” “we,” “our” and “us” refer to Construction Partners, Inc.

and its subsidiaries, except when the context requires that those terms mean only the parent company or a particular subsidiary.

2020 Fiscal Year Developments

• Acquisitions of Asphalt Manufacturing and Paving Companies.

In February 2019, we acquired an HMA and ready-mixed concrete business located in Okeechobee, Florida.

This transaction allowed us to serve new markets in south central Florida through an expanded geographic presence in the state.

In July 2019, we acquired an HMA manufacturing plant and paving company located near Gadsden, Alabama that complemented our existing operations in northeast Alabama.

• Acquisition and Operation of Liquid Asphalt Terminal.

In February 2019, we acquired a liquid asphalt terminal located in Panama City, Florida.

The acquisition supports our vertical integration strategy by facilitating our procurement, storage and distribution of a key input for the production of HMA.

Through the terminal, we supply liquid asphalt to a number of our HMA plants in the southern portion of our geographic footprint, including Florida, Alabama and Georgia.

We also are able to blend on-site certain emulsions and polymer-modified asphalt required by some of our project contracts.

To date, sales of liquid asphalt to third parties have not been material.

• Florida Acquisitions.

We completed two acquisitions in Florida during the fiscal year, resulting in the addition of three HMA plants in Pensacola, DeFuniak Springs and Palm City, Florida.

Both acquired businesses were located near or adjacent to markets in which we had preexisting operations and have benefited from those geographic synergies.

These acquisitions have allowed us to serve new markets in central Florida and the western Florida panhandle.

• Amendment to Credit Agreement.

In August 2019, we entered into an amendment to our existing Credit Agreement with BBVA USA (formerly known as Compass Bank) dated June 30, 2017, as amended (the “BBVA Credit Agreement”).

Among other things, the amendment:

(i) reduced the baseline interest rate payable on both the term loan and the revolving facility components of the credit relationship;

(ii) established a four-tier escalating interest rate tied to our leverage ratio;

(iii) reduced the fees for letters of credit issued on our behalf and for unused balances on our revolving credit facility;

(iv) reduced by half the quarterly principal repayments under the term loan;

and (v) amended certain financial covenants.

No additional borrowings were made under the BBVA Credit Agreement in connection with the amendment.

For more information about the BBVA Credit Agreement and the amendment, see Note 11 - Debt to our consolidated financial statements included elsewhere in this report.

• Secondary Offering of Class A Common Stock.

In September 2019, certain stockholders of the Company (the “Selling Stockholders”) completed an underwritten secondary offering (the “Secondary Offering”) of 5,000,000 shares of our Class A common stock at a public offering price of $14.25 per share.

The Company did not receive any proceeds from the sale of shares by the Selling Stockholders and, pursuant to a registration rights agreement with the Selling Stockholders, incurred approximately $0.7 million in expenses in connection with the Secondary Offering.

For more information about the Secondary Offering, see Note 12 - Equity to our consolidated financial statements included elsewhere in this report.

On July 30, 2020, we entered into an Amended and Restated Credit Agreement with BBVA USA (“BBVA”) and certain other lenders party thereto, which amended and restated our preexisting credit agreement (as amended and restated, the “Credit Agreement”).

The Credit Agreement provides for a term loan (the “Term Loan”) and a revolving credit facility (the “Revolving Credit Facility”).

The July 2020 amendment and restatement, among other things, increased the aggregate amount of the lender commitments under the Revolving Credit Facility and the Term Loan and made certain other amendments and modifications to the terms of the Credit Agreement, including with respect to interest rate and our schedule for repayment of indebtedness thereunder.

For more information about the Credit Agreement, see Note 11 - Debt to our consolidated financial statements included elsewhere in this report.

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 fiscal year ended September 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.

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 and to funding levels for transportation infrastructure arising from increasing transmission rates of COVID-19 and measures adopted by governmental and healthcare authorities to mitigate the impact of the pandemic, as further described in Item 1A.

Risk Factors, included elsewhere in this report.

We operate in the large and growing highway and road construction industry and specifically within the asphalt paving materials and services segment.

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Recent growth in our industry has been driven by federal, state and local Department of Transportation (“DOT”) budgets, which annually earmark amounts for transportation and infrastructure spending.

The federal Fixing America’s Surface Transportation Act (the “FAST Act”), which was signed into law in 2015, provides long-term funding for surface transportation infrastructure planning and investment.

Among other things, the FAST Act authorized $305 billion in federal expenditures over fiscal years 2016 through 2020 for highway, motor vehicle safety, public transportation, motor carrier safety, hazardous materials safety, rail, and research, technology, and statistics programs.

In addition to the FAST Act, certain states within our markets have in recent years approved legislation that will increase funding of transportation

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construction for local road, bridge and transit projects.

The non-discretionary nature of highway and road construction services and materials supports stable and consistent industry growth.

The federal Fixing America’s Surface Transportation Act (the “FAST Act”), which was signed into law in 2015, provided funding for surface transportation infrastructure through September 30, 2020, and a continuing resolution approved in October 2020 extended the FAST Act surface transportation programs by one year and added $13.6 billion to the federal Highway Trust Fund.

In addition, certain states within our markets have in recent years approved legislation that supports funding for construction of local road, bridge and transit projects.

The non-discretionary nature of highway and road construction services and materials supports stable and consistent industry funding.

Projects and Customers

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Our projects consist of both new construction and maintenance services.

Publicly and privately funded projects accounted for approximately 69.3% and 30.7% of our fiscal 2019 construction contract revenues, respectively.

Publicly and privately funded projects accounted for approximately 65.3% and 34.7%, respectively, of our fiscal 2020 c onstruction contract revenues.

Our public customers include federal agencies, state DOTs and local municipalities.

Our private clients include commercial and residential developers and local businesses.

Our private clients include commercial and residential developers and businesses.

Our largest customers are state DOTs.

For the fiscal year ended September 30, 2019, the Alabama DOT and the North Carolina DOT accounted for 13.8% and 13.1% of our revenues, respectively.

Other than these customers, no other customer accounted for more than 10% of our revenues for such periods, and projects performed for all DOTs accounted for 40.4% of our revenues.

For the fiscal year ended September 3 0, 2020, the Alabama DOT and t he North Carolina DOT accounted for 11.6% and 7.8% of our revenues, respectively.

Other than the Alabama DOT, no other customer accounted for more than 10% of our revenues for such periods, and projects performed for all DOTs accounted for 32.5% of our revenues.

Our 25 largest projects accounted for 22.0% of our revenues for the fiscal year ended September 30 , 2020.

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We also occasionally enter into design-build contracts, which generally are performed under fixed total price contracts.

For the majority of our customer contracts, we receive our final payment upon completion and final acceptance of the services that we were contracted to perform and delivery of the necessary contract closing documents, and our obligations to the owner are complete at that point.

For the majority of our contracts, we receive our final payment upon completion and final acceptance of the services that we were contracted to perform and delivery of the necessary contract closing documents, and our obligations to the owner are complete at that point.

For some contracts, we are required to furnish a warranty on our construction.

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To ensure that subcontracting costs used in submitting bids for construction contracts do not change, we obtain firm quotations from our subcontractors before submitting a bid.

Also, to mitigate the risk of material price changes, we obtain “not to exceed” quotations

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from our suppliers, which, for projects of longer duration, usually contain price escalator provisions.

Also, to mitigate the risk of material price changes, we obtain “not to exceed” quotations from our suppliers, which, for projects of longer duration, usually contain price escalator provisions.

These quotations typically include quantity guarantees that are tied to our prime contract.

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After a contract has been awarded and during the construction phase, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the project schedule.

Monthly, we review our estimate of total forecasted revenue, cost and expected profit for each contract.

We review our estimate of total forecasted revenue, cost and expected profit for each contract monthly.

During the normal course of some projects, we or our customer may initiate modifications or changes to the original contract to reflect, among other things, changes in quantities, specifications or design, method or manner of performance, facilities, materials, site conditions and period for completion of the work.

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We generally include a construction project in our contract backlog at the time it is awarded and to the extent we believe funding is probable.

Our backlog consists of uncompleted work on contracts in progress and contracts for which we have executed a contract but have not commenced the work.

Our backlog generally consists of uncompleted work on contracts in progress and contracts for which we have executed a contract but have not commenced the work.

For uncompleted work on contracts in progress, we include (i) executed change orders, (ii) pending change orders for which we expect to receive confirmation in the ordinary course of business and (iii) claims that we have made against our customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider collection to be probable.

Backlog of uncompleted work on contracts in progress was $481.1 million and $528.4 million at September 30, 2019 and 2018, respectively.

Backlog of uncompleted work on contracts under which work was either in progress or had not yet begun was $469.7 million and $481.1 million at September 30, 2020 and 2019, respectively.

Our backlog also includes low bid/no contract jobs, which consist of (i) public bid jobs for which we were the low bidder and no contract has been executed and (ii) private work jobs for which we have been notified that we are the low bidder or have been given a notice to proceed, but no contract has been executed.

Low bid/no contract backlog was $138.4 million and $50.5 million at September 30, 2020 and 2019, respectively.

At September 30, 2019, we expect approximately 82% of our contract backlog will be completed during the next 12 months.

At September 30, 2020, we expected approximately 90% of our contract backlog to be completed during the next 12 months.

Certain customer contracts contain options that are exercisable at the discretion of our customer to award additional work to us, without requiring us to go through an additional competitive bidding process.

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Substantially all of the contracts in our contract backlog, as well as unexercised contract options and unissued task orders, may be canceled or modified at the election of the customer.

Historically, we have not experienced material amounts of contract cancellations

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or modifications.

Historically, we have not experienced material amounts of contract cancellations or modifications.

Many projects are added to our contract backlog and completed within the same fiscal year and therefore may not be reflected in our beginning or year-end contract backlog.

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The capacity of the surety market is subject to market-based fluctuations driven primarily by the level of surety industry losses and the degree of surety market consolidation.

We compete against multiple competitors in all of the markets in which we operate.

We compete against multiple competitors in many of the markets in which we operate.

Competition is constrained in our industry because participants are limited by the distance that materials can be efficiently transported, resulting in a fragmented market with thousands of participants nationwide, many of which are local or regional operators.

Our competitors typically range from small, family-owned companies focused on a single material, product or market to multinational corporations that offer a wide array of construction materials, products and paving and related services.

Factors influencing our competitiveness include price, estimating abilities, knowledge of local markets and conditions, project management, financial strength, reputation for quality, aggregate materials availability, and machinery and equipment.

We believe that we are well-positioned to compete effectively in the markets in which we operate.

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• the imposition of substantial liabilities for pollution resulting from our operations.

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Such federal laws include (i) the Resource Conservation and Recovery Act, the Pollution Prevention Act and the Comprehensive Environmental Response, Compensation and Liability Act, governing solid and hazardous waste management, (ii) the Clean Air Act and the Clean Water Act, protecting air and water resources, and (iii) the Emergency Planning and Community Right-to-Know Act and Toxic Substances Control Act, governing the management of hazardous materials, in addition to analogous state laws.

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We believe that our operations and facilities, whether owned or leased, are in substantial compliance with applicable environmental laws and regulations and that any existing non-compliance is not likely to have a material adverse effect on our operations or financial condition.

Industrial operations, including equipment maintenance and storage, asphalt manufacturing and processing, underground storage tank usage, and other storage and use of hazardous materials and petroleum products, have been and/or are conducted at our facilities for, in some cases, more than 50 years.

Industrial operations, including equipment maintenance and storage, asphalt manufacturing and processing, underground storage tank usage, and other storage and use of hazardous materials and petroleum products, are conducted at our facilities, and in some cases, have been conducted at our facilities for more than 50 years.

While we have conducted our operations in substantial compliance with applicable environmental laws, we have, from time to time, identified contamination associated with these activities at certain of our facilities.

We have incurred costs for the investigation and remediation of hazardous substances and petroleum products identified at several facilities, and investigation and remediation activities are ongoing at others.

We have incurred costs in connection with the investigation and remediation of hazardous substances and petroleum products identified at several facilities, and investigation and remediation activities are ongoing at others.

We may also become subject to similar liabilities in connection with prior and future acquisitions.

We do not believe that liabilities associated with known or potential contamination at any of our facilities will have a material adverse effect on our operations or financial condition.

Employees and Human Capital Resources

As of September 30, 2020, we employed 646 salaried employees and 1,643 hourly employees.

The total number of hourly personnel is subject to the volume of projects in progress and fluctuates on a seasonal basis.

The total number of hourly personnel at a given time is subject to the volume of projects in progress and fluctuates on a seasonal basis.

During fiscal year 2020, the number of hourly employees ranged from 1,605 to 1,678 employees and averaged 1,645 employees.

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We believe that we have strong relationships with our employees.

Our business is dependent upon a readily available supply of management, supervisory and field personnel.

Our business depends on a readily available supply of management, supervisory and field personnel.

Attracting, training and retaining key personnel has been and will remain critical to our success.

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Moreover, we proactively recruit additional talent in both conventional and creative manners to fill open positions when promoting internally is not an option.

Like others in our industry, we experience some

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recurring employee turnover;

Like others in our industry, we experience some recurring employee

however, we historically have been able to attract sufficient numbers of personnel to support the growth of our operations.

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Corporate Secretary, 290 Healthwest Drive, Suite 2, Dothan, Alabama 36303.

In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding us and other issuers that file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business