What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2021-02-05 · 147 added, 69 removed, 143 unchanged (60% of the section changed)

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Recent Developments

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 have implemented a number of safety measures in response to the pandemic, including, among other things, increased focus on appropriate spacing during “toolbox” meetings and our execution of construction projects, enhanced cleaning and disinfection protocols, and added flexibility in the times, locations and manner in which we conduct our work.

Notwithstanding these additional safety measures, we did not incur significant disruptions from COVID-19 during the three months ended December 31, 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 continued 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, as further described under the heading “Concentration of Risks” in Note 2 – Significant Accounting Policies to the unaudited consolidated financial statements included elsewhere in this report.

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 the duration of the pandemic, the rate at which vaccines become available, and actions by government authorities to contain the outbreak or mitigate the impact of the pandemic.

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

We did not incur significant disruptions from the COVID-19 pandemic during the three or six months ended March 31, 2021.

However, we continue to closely monitor the impact of the pandemic on all aspects of our business, including its impact on our customers, employees, suppliers and vendors.

Among the primary risks to our business arising from the pandemic are (i) 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, (ii) 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 HMA or the ability of our subcontractors to complete their required tasks, and (iii) the impact of the COVID-19 pandemic 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.

These risks have materialized in varying degrees since the beginning of the pandemic, 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 the COVID-19 pandemic on fuel and sales tax revenues, which in turn drive funding levels for public projects in our markets.

The extent to which our operations may be impacted by the COVID-19 pandemic will depend on future developments, which are highly uncertain, including the duration of the pandemic, the efficacy and adoption rates of vaccines, and actions by government authorities to contain the outbreak or mitigate the impact of the pandemic.

Due to the continued uncertainties surrounding the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial position, operating results and cash flows in future periods.

North Carolina Acquisitions

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In the normal course of business, we sell construction equipment for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it.

The gain or loss on sale of equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale of equipment during the period.

The gain or loss on sale of equipment reflects the difference between the carrying value at the date of disposal of the equipment and the net consideration received from the sale of equipment during the period.

Interest Expense, Net

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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)

Other income primarily represents other miscellaneous income items.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) 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, Adjusted EBITDA Margin, and Adjusted Net Income (Loss)

Adjusted EBITDA represents net income (loss) before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion and amortization of long-lived assets, (iv) equity-based compensation expense, (v) loss

on extinguishment of debt (vi) certain management fees and expenses and (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations.

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

Adjusted net income (loss) represents net income (loss) before nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, net of tax.

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

These measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income or any other performance measure derived in accordance with GAAP as an indicator of 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.

Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies.

These measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income (loss) or any other performance measure derived in accordance with GAAP as an indicator of operating performance.

We present Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted net income (loss) 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.

Our calculation of these measures may not be comparable to similarly named measures reported by other companies.

Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets.

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

For the Three Months Ended December 31,

Net income $ 7,871 $ 5,461

The following table presents a reconciliation of net income (loss), the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA, 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,

2021 2020 2021 2020

Net income (loss) $ (4,935) $ 1,537 $ 2,936 $ 6,998

Interest expense, net 298 1,834 766 2,115

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Management fees and expenses (1)

521 357 1,138 671

Settlement of legal claim and associated legal expenses (2)

3,876 97 4,232 97

Adjusted EBITDA $ 10,998 $ 14,339 $ 34,479 $ 31,547

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Adjusted EBITDA Margin 6.1 % 8.5 % 9.3 % 9.2 %

(1) Reflects fees and reimbursement of certain travel expenses under a management services agreement with SunTx (see Note 12 - Related Parties to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

(2) Reflects $3.2 million legal settlement and associated legal expenses (see Note 19 - Legal Proceedings to the unaudited consolidated financial statements included elsewhere in this Quarterly Report).

The following table presents a reconciliation of net income (loss), the most directly comparable measure calculated in accordance with GAAP, to adjusted net income (loss) for the periods presented (in thousands):

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

2021 2020 2021 2020

Net income (loss) $ (4,935) $ 1,537 $ 2,936 $ 6,998

Settlement of legal claim (1)

3,200 — $ 3,200 $ —

Legal expenses associated with settlement of legal claim 676 97 $ 1,032 $ 97

Tax impact due to above reconciling items (977) (24) $ (1,066) $ (24)

Adjusted net income (loss) $ (2,036) $ 1,610 $ 6,102 $ 7,071

(1) Reflects $3.2 million legal settlement (see Note 19 - Legal Proceedings to the unaudited consolidated financial statements included elsewhere in this Quarterly Report).

Results of Operations

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

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

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The following table sets forth selected financial data for the three months ended March 31, 2021 and 2020 (in thousands, except percentages):

Change From the Three Months Ended

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

For the Three Months Ended March 31, March 31, 2020

to the Three Months Ended

2020 2019 December 31, 2020

2021 2020 March 31, 2021

Revenues Dollars % of

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Gain on sale of equipment, net 9 — % 435 0.3 % (426) (97.9) %

Operating income (loss) (6,394) (3.6) % 3,788 2.2 % (10,182) (268.8) %

Interest expense, net (298) (0.2) % (1,834) (1.1) % 1,536 (83.8) %

Other income (expense) 244 0.2 % 44 0.1 % 200 454.5 %

Income (loss) before provision for income taxes and earnings from investment in joint venture (6,448) (3.6) % 1,998 1.2 % (8,446) (422.7) %

Provision for income taxes 1,513 0.8 % (531) (0.3) % 2,044 (384.9) %

Earnings from investment in joint venture — — % 70 (0.6) % (70) (100.0) %

Net income (loss) $ (4,935) (2.8) % $ 1,537 0.9 % $ (6,472) (421.1) %

Adjusted EBITDA $ 10,998 6.1 % $ 14,339 8.5 % $ (3,341) (23.3) %

Adjusted net income (loss) $ (2,036) (1.1) % $ 1,610 1.0 % (3,646) (226.5) %

Revenues for the three months ended March 31, 2021 increased $10.4 million, or 6.2%, to $179.1 million from $168.7 million for the three months ended March 31, 2020.

The increase included $14.9 million of revenues attributable to acquisitions completed subsequent to March 31, 2020.

The increase was offset by a $4.5 million decrease in revenue in markets we served on March 31, 2020, primarily due to delays in project completion as a result of adverse weather conditions.

Gross Profit.

Gross profit for the three months ended March 31, 2021 decreased $2.1 million, or 10.4%, to $18.1 million from $20.2 million for the three months ended March 31, 2020.

The lower gross profit was primarily due to (i) lower profit margins on the projects we assumed in connection with the North Carolina acquisitions we completed during the first quarter of fiscal 2021 and (ii) a $3.1 million loss at our asphalt plants and in our equipment fleet due to under utilization caused by project delays.

General and Administrative Expenses.

General and administrative expenses for the three months ended March 31, 2021 increased $7.7 million, or 45.5%, to $24.5 million from $16.8 million for the three months ended March 31, 2020.

The increase in general and administrative expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily the result of (i) a $3.2 million legal settlement as described in Note 19 - Legal Proceedings and an increase of $0.6 million for legal fees associated with this legal settlement, (ii) a $2.4 million increase in management personnel payroll and benefits, and (iii) a $1.0 million increase attributable to acquisitions completed subsequent to March 31, 2020.

Interest Expense, Net.

Interest expense, net for the three months ended March 31, 2021 decreased $1.5 million, to $0.3 million compared to $1.8 million for the three months ended March 31, 2020.

The decrease was primarily due to the $0.4 million of unrealized gain on interest rate swaps for the three months ended March 31, 2021 compared to the unrealized loss on interest rate swaps of $1.5 million for the three months ended March 31, 2020.

Other Income (Expense).

Other income (expense) for the three months ended March 31, 2021 increased $0.2 million compared to the three months ended March 31, 2020.

The increase was primarily attributable to rental income from property acquired in the North Carolina acquisitions we completed during the first quarter of fiscal year 2021.

Provision for Income Taxes.

Our effective tax rate decreased to 23.5% for the three months ended March 31, 2021, from 25.7% for the three months ended March 31, 2020 due to differences in state tax rates at our operating subsidiaries.

Earnings from Investment in Joint Venture.

Earnings from investment in joint venture decreased $0.1 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, as the construction project from which these earnings were derived had a lower level of activity during the three months ended March 31, 2021.

Net Income (Loss).

Net income (loss) decreased $6.4 million to a net loss of $4.9 million for the three months ended March 31, 2021, compared to net income of $1.5 million for the three months ended March 31, 2020.

The decrease in net income was primarily a result of lower gross profit and higher general and administrative expenses, partially offset by a decrease in interest expense, net and a decrease in provision for income taxes, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA and Adjusted EBITDA Margin were $11.0 million and 6.1%, respectively, for the three months ended March 31, 2021, compared to $14.3 million and 8.5%, respectively, for the three months ended March 31, 2020.

The decrease in Adjusted EBITDA was the result of lower gross profit and an increase in general and administrative expenses, partially offset by an increase in depreciation, depletion and amortization of long-lived assets and reduction in the provision for income taxes.

The lower Adjusted EBITDA Margin was primarily a result of a decrease in Adjusted EBITDA and an increase in revenues, all as described above.

See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading “How We Assess Performance of Our Business”.

Adjusted Net Income (Loss).

Adjusted net income (loss) decreased $3.6 million to an adjusted net loss of $2.0 million for the three months ended March 31, 2021, compared to adjusted net income of $1.6 million for the three months ended March 31, 2020.

The decrease in adjusted net income was primarily a result of lower gross profit and higher general and administrative expenses, partially offset by a decrease in interest expense, net and a decrease in provision for income taxes, all as described above.

Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020

The following table sets forth selected financial data for the six months ended March 31, 2021 and 2020 (in thousands, except percentages):

Change From the Six Months Ended

For the Six Months Ended March 31, March 31, 2020

to the Six Months Ended

2021 2020 March 31, 2021

Revenues Dollars % of

Revenues $ 370,041 100.0 % $ 343,993 100.0 % $ 26,048 7.6 %

Cost of revenues 321,375 86.8 % 300,062 87.2 % 21,313 7.1 %

Gross profit 48,666 13.2 % 43,931 12.8 % 4,735 10.8 %

General and administrative expenses (44,559) (12.1) % (33,934) (9.9) % (10,625) 31.3 %

Gain on sale of equipment, net 342 0.1 % 744 0.2 % (402) (54.0) %

Operating income 4,449 1.2 % 10,741 3.1 % (6,292) (58.6) %

Interest expense, net (766) (0.2) % (2,115) (0.6) % 1,349 (63.8) %

Other income 165 — % 65 — % 100 153.8 %

Other income (expense) 409 0.1 % 109 — % 300 275.2 %

Income before provision for income taxes and earnings from investment in joint venture 4,092 1.1 % 8,735 2.5 % (4,643) (53.2) %

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Adjusted EBITDA $ 34,479 9.3 % $ 31,547 9.2 % $ 2,932 9.3 %

Revenues for the three months ended December 31, 2020 increased $15.6 million, or 8.9%, to $190.9 million from $175.3 million for the three months ended December 31, 2019.

The increase included $12.2 million of revenues attributable to acquisitions completed subsequent to December 31, 2019 and an increase of approximately $3.4 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

Adjusted net income $ 6,102 1.6 % $ 7,071 2.1 % (969) (13.7) %

Revenues for the six months ended March 31, 2021 increased $26.0 million, or 7.6%, to $370.0 million from $344.0 million for the six months ended March 31, 2020.

The increase included $27.1 million of revenues attributable to acquisitions completed subsequent to March 31, 2020, offset by a $1.1 million decrease in revenues in markets we served on March 31, 2020.

Gross Profit.

Gross profit for the three months ended December 31, 2020 increased $6.8 million, or 28.8%, to $30.6 million from $23.8 million for the three months ended December 31, 2019.

The increase in gross profit was primarily the result of the 8.9% increase in revenue from the three months ended December 31, 2020 compared to the three months ended December 31, 2019.

Additionally, the higher gross profit was the result of an increase in gross profit margin to 16.0% for the three months ended December 31, 2020 from 13.6% for the three months ended December 31, 2019, primarily due to (i) efficient utilization of our plants and equipment, (ii) a $1.3 million increase in gross profit attributable to our liquid asphalt terminal, at which we purchase liquid asphalt at wholesale prices, thereby reducing our cost of revenues and (iii) net gains of $0.8 million on commodity derivative instruments that we entered into subsequent to December 31, 2019.

Gross profit for the six months ended March 31, 2021 increased $4.7 million, or 10.8%, to $48.7 million from $43.9 million for the six months ended March 31, 2020.

The increase in gross profit was primarily the result of the increase in revenue for the six months ended March 31, 2021 compared to the six months ended March 31, 2020.

Additionally, the higher gross profit was the result of an increase in gross profit margin due to (i) efficient utilization of our plants and equipment, specifically in the three months ended December 31, 2020, (ii) a $1.6 million increase in gross profit attributable to our liquid asphalt terminal, at which we purchase liquid asphalt at wholesale prices, thereby reducing our cost of revenues, and (iii) an increase of $2.6 million in unrealized gains on commodity derivative instruments that are included in cost of revenues.

General and Administrative Expenses.

General and administrative expenses for the three months ended December 31, 2020 increased $3.0 million, or 17.4%, to $20.1 million from $17.1 million for the three months ended December 31, 2019.

The increase in general and administrative expenses for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 was primarily the result of (i) a $1.5 million increase in management personnel payroll and benefits, (ii) a $0.8 million increase in overhead expenses attributable to acquisitions completed subsequent to December 31, 2019 and (iii) a $0.8 million increase in various professional fees, including acquisition related costs.

General and administrative expenses for the six months ended March 31, 2021 increased $10.6 million, or 31.3%, to $44.6 million from $33.9 million for the six months ended March 31, 2020.

The increase in general and administrative expenses for the six months ended March 31, 2021 compared to the six months ended March 31, 2020 was primarily the result of (i) a $3.2 million legal settlement agreement as described in Note 19 - Legal Proceedings and and an increase of $0.9 million for legal fees associated with this legal settlement, (ii) a $4.0 million increase in management personnel payroll and benefits, and (iii) a $1.8 million increase attributable to acquisitions completed subsequent to March 31, 2020.

Interest Expense, Net.

Interest expense, net for the three months ended December 31, 2020 increased $0.2 million, or 66.5%, to $0.5 million compared to $0.3 million for the three months ended December 31, 2019.

The increase in interest expense was due to an increase in the average principal debt balance outstanding during the three months ended December 31, 2020 compared to the corresponding period in 2019.

Interest expense, net for the six months ended March 31, 2021 decreased $1.3 million, to $0.8 million compared to $2.1 million for the six months ended March 31, 2020.

The decrease was primarily due to $0.6 million of unrealized gains on interest rate swaps for the six months ended March 31, 2021, compared to the unrealized loss on interest rate swaps in the amount of $1.5 million for the six months ended March 31, 2020.

Other Income (Expense).

Other income (expense) for the six months ended March 31, 2021 increased $0.3 million, to $0.4 million compared to $0.1 million for the six months ended March 31, 2020.

The increase was primarily attributable to rental income from property acquired in the North Carolina acquisitions completed during the first quarter of fiscal 2021.

Provision for Income Taxes.

Our effective tax rate increased to 25.4% for the three months ended December 31, 2020, from 19.5% for the three months ended December 31, 2019.

Our lower effective tax rate during the three months ended December 31, 2019 was the result of a benefit of $0.4 million related to the utilization of net operating loss carryforwards, reflected in an amended consolidated state return filed during the period.

Our effective tax rate increased to 28.4% for the six months ended March 31, 2021, from 20.9% for the six months ended March 31, 2020.

Our lower effective tax rate for the six months ended March 31, 2020 was the result of a benefit of $0.4 million related to the utilization of net operating loss carryforwards, as reflected in an amended consolidated state return filed during the period and due to differences in state tax rates at our operating subsidiaries.

Earnings from Investment in Joint Venture.

During the three months ended December 31, 2020 and 2019, we earned $11.0 thousand and $43.0 thousand, 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 $2.4 million, or 44.1%, to $7.9 million for the three months ended December 31, 2020, compared to $5.5 million for the three months ended December 31, 2019.

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 additional interest expense during the three months ended December 31, 2020 compared to the three months ended December 31, 2019, all as described above.

Earnings from investment in joint venture decreased $0.1 million during the six months ended March 31, 2021 compared to the six months ended March 31, 2020, as the construction project from which these earnings were derived had a lower level of activity during the six months ended March 31, 2021.

Net income decreased $4.1 million, or 58.0%, to $2.9 million for the six months ended March 31, 2021, compared to $7.0 million for the six months ended March 31, 2020.

The decrease in net income was primarily a result of higher general and administrative expenses, partially offset by an increase in gross profit and a decrease in interest expense, net and provision for income tax, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA and Adjusted EBITDA Margin were $23.1 million and 12.1%, respectively, for the three months ended December 31, 2020, compared to $17.2 million and 9.8%, respectively, for the three months ended December 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 interest expense.

The higher Adjusted EBITDA Margin was a primarily a result of the increase in Adjusted EBITDA during the period.

Adjusted EBITDA and Adjusted EBITDA Margin were $34.5 million and 9.3%, respectively, for the six months ended March 31, 2021, compared to $31.5 million and 9.2%, respectively, for the six months ended March 31, 2020.

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

The higher Adjusted EBITDA Margin was a result of the increase in Adjusted EBITDA during the period.

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”.

Adjusted Net Income.

Adjusted net income decreased $1.0 million to adjusted net income of $6.1 million for the three months ended March 31, 2021, compared to adjusted net income of $7.1 million for the three months ended March 31, 2020.

The decrease in net income was primarily a result of higher general and administrative expenses, partially offset by an increase in gross profit and decrease in interest expense, net and provision for income tax, all as described above.

Inflation and Price Changes

Inflation had an immaterial impact on our results of operations for the three months ended December 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 infrastructure sector contracts.

Inflation had an immaterial impact on our results of operations for the three and six months ended March 31, 2021 and 2020 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 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 $ 2,398 $ 20,615

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Operating Activities

During the three months ended December 31, 2020, cash provided by operating activities, net of acquisitions, was $0.7 million, primarily as a result of:

• net income of $7.9 million, including $11.1 million of depreciation, depletion and amortization of long-lived assets;

During the six months ended March 31, 2021, cash provided by operating activities, net of acquisitions, was $2.4 million, primarily as a result of:

• net income of $2.9 million, including $23.4 million of depreciation, depletion and amortization of long-lived assets and unrealized gains on derivative instruments of $2.4 million;

• a decrease in contracts receivable including retainage, net, of $6.3 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle;

• an increase in prepaid expenses and other current assets of $4.3 million primarily due to overpayment of federal and state income taxes and the timing of payments under our insurance policies;

• an increase in inventories of $3.5 million due to increased inventories from acquisitions and normal fluctuations in our inventory cycle;

• a decrease in accounts payable and accrued expenses and other current liabilities of $2.5 million due to the timing of processing transactions in our accounts payable cycle;

• a net decrease in the difference between costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts of $17.1 million due to the timing of performing and closing projects.

During the three months ended December 31, 2019, cash provided by operating activities, net of acquisitions, was $1.7 million, primarily as a result of:

• net income of $5.5 million, including $9.4 million of depreciation, depletion and amortization of long-lived assets;

During the six months ended March 31, 2020, cash provided by operating activities, net of acquisitions, was $20.6 million, primarily as a result of:

• net income of $7.0 million, including $19.0 million of depreciation, depletion and amortization of long-lived assets and unrealized losses on derivative instruments of $2.3 million;

• a decrease in contracts receivable including retainage, net, of $16.7 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle;

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Investing Activities

During the three months ended December 31, 2020, cash used in investing activities was $94.1 million, of which $84.1 million related to acquisitions completed in the period and $10.5 million was invested in property, plant and equipment, partially offset by $0.5 million of proceeds from the sale of equipment.

During the three months ended December 31, 2019, cash used in investing activities was $40.5 million, of which $17.7 million related to acquisitions completed in the period and $23.6 million was invested in property, plant and equipment, partially offset by $0.5 million of proceeds from the sale of equipment and a $0.3 million distribution from our investment in a joint venture.

During the six months ended March 31, 2021, cash used in investing activities was $110.5 million, $84.5 million of which related to acquisitions completed in the period and $26.9 million of which was invested in property, plant and equipment, partially offset by $0.9 million of proceeds from the sale of equipment.

During the six months ended March 31, 2020, cash used in investing activities was $62.9 million, $30.2 million of which related to acquisitions completed in the period and $34.5 million of which was invested in property, plant and equipment, partially offset by $1.4 million of proceeds from the sale of equipment and a $0.4 million distribution from our investment in a joint venture.

Financing Activities

During the three months ended December 31, 2020, cash used in financing activities was $3.3 million, representing the repayment of principal on long-term debt during the period.

During the three months ended December 31, 2019, cash provided by financing activities was $7.6 million.

We received $9.7 million from proceeds on long-term debt, net of debt issuance costs and discounts, which was offset by $2.1 million of repayments of principal on long-term debt.

During the six months ended March 31, 2021, cash used in financing activities was $6.5 million, representing the repayment of principal on long-term debt during such period.

During the six months ended March 31, 2020, cash provided by financing activities was $15.5 million.

We received $24.8 million from proceeds on long-term debt, net of debt issuance costs and discounts, 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.

These proceeds were offset by $9.3 million of repayments of principal on long-term debt.

Credit Agreement

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

At December 31, 2020 and September 30, 2020, we had $89.6 million and $92.9 million, respectively, of principal outstanding under the Term Loan, $0.0 million and $0.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $38.3 million and $39.3 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

At December 31, 2020, the interest rate on outstanding borrowings under the Term Loan ranged from 1.64% to 2.50%.

The Credit Agreement 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, 2020 and September 30, 2020, our fixed charge coverage ratio was 3.40-to-1.00 and 2.85-to-1.00, respectively, and our consolidated leverage ratio was 0.98-to-1.00 and 1.08-to-1.00, respectively.

At March 31, 2021 and September 30, 2020, we had $86.4 million and $92.9 million, respectively, of principal outstanding under the Term Loan, $0.0 million and $0.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $38.6 million and $39.3 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

At March 31, 2021, the interest rate on outstanding borrowings under the Term Loan ranged from 1.64% to 2.50%.

The Credit Agreement requires us 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, 2021 and September

30, 2020, our fixed charge coverage ratio was 2.93-to-1.00 and 2.85-to-1.00, respectively, and our consolidated leverage ratio was 1.00-to-1.00 and 1.08-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.

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

At December 31, 2020 and September 30, 2020, the aggregate notional value of these interest rate swap agreements was $44.5 million and $46.5 million, respectively, and the fair value was $(1.5) million and $(1.7) million, respectively, which is included within other long-term

At March 31, 2021 and September 30, 2020, the aggregate notional value of these interest rate swap agreements was $42.4 million and $46.5 million, respectively, and the fair value was $(1.1) million and $(1.7) million, respectively, which is included within other long-term

liabilities on our Consolidated Balance Sheets.

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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.

During the three months ended December 31, 2020 and 2019, our capital expenditures were $10.5 million and $23.6 million, respectively.

During the six months ended March 31, 2021 and 2020, our capital expenditures were $26.9 million and $34.5 million, respectively.

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

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

At March 31, 2021, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis.

For fiscal 2021, we expect total capital expenditures to be $47.0 million to $52.0 million.

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We believe that our operating cash flow, together with cash on hand and available borrowings under our credit facilities, will be sufficient to fund our operations and planned capital expenditures 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.

However, future cash flows are subject to a number of variables, including the potential impacts of the COVID-19 pandemic, 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.

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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 2021 and beyond, and our ability to engage in any such transactions may be constrained by economic conditions and other factors outside of our control.

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

As of December 31, 2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 3.7 million gallons, maturing incrementally through fiscal year 2023.

The fair value of these derivative contracts was $0.4 million at December 31, 2020.

As of March 31, 2021, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 3.3 million gallons, maturing incrementally through fiscal year 2023.

The fair value of these derivative contracts was $1.3 million at March 31, 2021.

These fuel swap contracts provide a fixed price for less than 50% of our estimated fuel usage for the remainder of fiscal years 2021 through 2023.

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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, 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 December 31, 2020, we had a total of $16.5 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 March 31, 2021, we had a total of $43.9 million of non-hedged variable rate borrowings outstanding.

Contractual Obligations

The following table sets forth certain information about our contractual obligations as of December 31, 2020 (in thousands):

Payments Due by Fiscal Years

The following table sets forth certain information about our contractual obligations as of March 31, 2021 (in thousands):

Payments Due by Fiscal Year

Total Remainder of 2021 2022 2023 2024 2025 2026 and Thereafter

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Off-Balance Sheet Arrangements

As of December 31, 2020, we had no material off-balance sheet arrangements, except for letters of credit of $11.9 million and purchase commitments for diesel fuel of $0.9 million entered into in the normal course of business.

As of March 31, 2021, we had no material off-balance sheet arrangements, except for letters of credit of $11.7 million and purchase commitments for diesel fuel of $0.6 million entered into in the normal course of business.

Quantitative and Qualitative Disclosures About Market Risk.

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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-Q

Item 2. Management’s Discussion and Analysis