What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 107 added, 105 removed, 185 unchanged (53% of the section changed)

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Recent Developments

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

We did not incur significant disruptions from the COVID-19 pandemic during the three or nine months ended June 30, 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.

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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.

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 emergence of different COVID-19 variants, 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

During the three months ended December 31, 2020, we acquired the operations of four HMA production and paving companies in North Carolina.

During the nine months ended June 30, 2021, we acquired the operations of four HMA production and paving companies and a grading and site work contractor in North Carolina.

The acquired businesses collectively added thirteen HMA plants in North Carolina, providing us with access to additional markets and expanding our footprint in the state.

For further discussion regarding these transactions, see Note 4 - Business Acquisitions to the unaudited consolidated financial statements included elsewhere in this report.

Inflationary Trends

We are subject to the effects of inflation through wage pressures, increases in the cost of raw materials used to produce HMA, and increases in other items, such as fuel, concrete and steel.

During the three months ended June 30, 2021, we began to experience an upward trend in several of these inflation-sensitive items.

We seek to recover increasing costs by obtaining higher prices for our products or by including the anticipated price increases in the cost of our bids.

Due to the relatively short-term duration of our construction contracts, we are generally able to reduce our exposure to price increases on new contracts, but we are limited in our ability to pass through increased costs for projects already in our backlog.

Going forward, continued cost inflation in these areas may require further price adjustments to maintain profit margin, and any price increases may have a negative effect on demand.

How We Assess Performance of Our Business

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Other income primarily represents other miscellaneous income items.

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, Adjusted EBITDA Margin, and Adjusted Net Income

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

Adjusted net income represents net income before nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations.

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

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

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, 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.

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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 (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,

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 June 30, For the Nine Months Ended June 30,

2021 2020 2021 2020

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

Net income $ 9,340 $ 15,747 $ 12,276 $ 22,745

Interest expense, net 568 575 1,334 2,690

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(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,

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

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

2021 2020 2021 2020

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

Net income $ 9,340 $ 15,747 $ 12,276 $ 22,745

Settlement of legal claim (1)

3,200 — $ 3,200 $ —

Legal expenses associated with settlement of legal claim 134 119 1,166 216

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

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

Adjusted net income $ 9,474 $ 15,866 $ 16,642 $ 22,961

(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 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):

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The following table sets forth selected financial data for the three months ended June 30, 2021 and 2020 (in thousands, except percentages):

Change From the Three Months Ended

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

For the Three Months Ended June 30, June 30, 2020

to the Three Months Ended

2021 2020 March 31, 2021

2021 2020 June 30, 2021

Revenues Dollars % of

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Gain on sale of equipment, net 835 0.3 % 390 0.2 % 445 114.1 %

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

Operating income 14,257 5.4 % 20,424 9.4 % (6,167) (30.2) %

Interest expense, net (568) (0.2) % (575) (0.3) % 7 (1.2) %

Other income (expense) 252 0.1 % 251 0.2 % 1 0.4 %

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) %

Income before provision for income taxes and earnings from investment in joint venture 13,941 5.3 % 20,100 9.3 % (6,159) (30.6) %

Provision for income taxes (4,600) (1.8) % (4,772) (2.2) % 172 (3.6) %

Earnings from investment in joint venture (1) 0.1 % 419 0.2 % (420) (100.2) %

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

Net income $ 9,340 3.6 % $ 15,747 7.3 % $ (6,407) (40.7) %

Adjusted EBITDA $ 29,027 11.1 % $ 31,992 14.7 % $ (2,965) (9.3) %

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.

Adjusted net income $ 9,474 3.6 % $ 15,866 7.3 % $ (6,392) (40.3) %

Revenues for the three months ended June 30, 2021 increased $44.7 million, or 20.6%, to $261.7 million from $217.0 million for the three months ended June 30, 2020.

The increase included $31.4 million of revenues attributable to acquisitions completed subsequent to June 30, 2020 and an increase of approximately $13.3 million of revenues in our remaining markets from contract work and sales of HMA and aggregates to third parties.

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.

Gross profit for the three months ended June 30, 2021 decreased $0.3 million, or 0.7%, to $36.6 million from $36.9 million for the three months ended June 30, 2020.

The lower gross profit was primarily due to lower profit margins on the

projects we assumed in connection with (i) the North Carolina acquisitions that were completed during the first quarter of fiscal 2021 and (ii) lower utilization of the asphalt plants and equipment acquired in these acquisitions.

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.

General and administrative expenses for the three months ended June 30, 2021 increased $6.3 million, or 37.6%, to $23.2 million from $16.9 million for the three months ended June 30, 2020.

The increase in general and administrative expenses for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily the result of (i) a $1.0 million increase in equity-based compensation expense, (ii) a $2.0 million increase in management personnel payroll and benefits, (iii) a $1.0 million increase attributable to acquisitions completed subsequent to June 30, 2020, and (iv) a $1.6 million increase in various professional fees, primarily driven by business acquisitions, information technology expenses and increased accounting fees.

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.

Interest expense, net for the three months ended June 30, 2021 decreased 1.2%.

The decrease was primarily due to $0.1 million of unrealized gain on interest rate swaps for the three months ended June 30, 2021 compared to unrealized loss on interest rate swaps of $0.1 million for the three months ended June 30, 2020.

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.

Our effective tax rate increased to 33.0% for the three months ended June 30, 2021, from 23.3% for the three months ended June 30, 2020.

Our higher effective tax rate for the three months ended June 30, 2021 was due to the unfavorable impact of a non-deductible legal settlement and related legal expenses, as described in Note 19 - Legal Proceedings.

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.

Earnings from investment in joint venture decreased $0.4 million during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as the construction project from which these earnings were derived had a lower level of activity during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Net income decreased $6.4 million to $9.3 million for the three months ended June 30, 2021, compared to $15.7 million for the three months ended June 30, 2020.

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 $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.

Adjusted EBITDA and Adjusted EBITDA Margin were $29.0 million and 11.1%, respectively, for the three months ended June 30, 2021, compared to $32.0 million and 14.7%, respectively, for the three months ended June 30, 2020.

The decrease in Adjusted EBITDA was the result of lower gross profit and an increase in general and administrative expenses.

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

Adjusted Net Income.

Adjusted net income decreased $6.4 million to an adjusted net income of $9.5 million for the three months ended June 30, 2021, compared to adjusted net income of $15.9 million for the three months ended June 30, 2020.

The decrease in adjusted net income was primarily a result of lower gross profit and higher general and administrative expenses, 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”.

Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020

The following table sets forth selected financial data for the nine months ended June 30, 2021 and 2020 (in thousands, except percentages):

Change From the Nine Months Ended

For the Nine Months Ended June 30, June 30, 2020

to the Nine Months Ended

2021 2020 June 30, 2021

Revenues Dollars % of

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Adjusted net income $ 16,642 2.6 % $ 22,961 4.1 % $ (6,319) (27.5) %

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.

Revenues for the nine months ended June 30, 2021 increased $70.7 million, or 12.6%, to $631.7 million from $561.0 million for the nine months ended June 30, 2020.

The increase included $58.4 million of revenues attributable to acquisitions completed subsequent to October 1, 2019 and an increase of approximately $12.3 million of revenues in our remaining markets from contract work and sales of HMA and aggregates to third parties.

Gross Profit.

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.

Gross profit for the nine months ended June 30, 2021 increased $4.5 million, or 5.5%, to $85.3 million from $80.8 million for the nine months ended June 30, 2020.

The increase in gross profit was primarily the result of the increase in revenue for the nine months ended June 30, 2021 compared to the nine months ended June 30, 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, (ii) a $2.1 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, (iii) an increase of $2.8 million in unrealized gains on commodity derivative instruments that are included in cost of revenues, and (iv) offset by 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 lower utilization of the asphalt plants and equipment acquired in these acquisitions.

General and Administrative Expenses.

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.

General and administrative expenses for the nine months ended June 30, 2021 increased $17.0 million, or 33.4%, to $67.8 million from $50.8 million for the nine months ended June 30, 2020.

The increase in general and administrative expenses for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 was primarily the result of (i) a $1.0 million increase in equity-based compensation expense, (ii) a $3.2 million legal settlement, as described in Note 19 - Legal Proceedings, and an increase of $0.9 million for legal fees associated with this settlement, (iii) a $5.5 million increase in management personnel payroll and benefits, (iv) a $2.9 million increase attributable to acquisitions completed subsequent to June 30, 2020, and (v) a $2.3 million increase in other professional fees, primarily driven by business acquisitions, information technology expenses and increased accounting fees.

Interest Expense, Net.

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.

Interest expense, net for the nine months ended June 30, 2021 decreased $1.4 million, to $1.3 million compared to $2.7 million for the nine months ended June 30, 2020.

The decrease was primarily due to $0.8 million of unrealized gain on interest rate swaps for the nine months ended June 30, 2021, compared to an unrealized loss on interest rate swaps of $1.6 million for the nine months ended June 30, 2020.

This change was offset by an increase in interest paid due to the increase in long-term debt at June 30, 2021 compared to June 30, 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.

Other income (expense) for the nine months ended June 30, 2021 increased $0.3 million, to $0.7 million compared to $0.4 million for the nine months ended June 30, 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 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.

Our effective tax rate increased to 32.0% for the nine months ended June 30, 2021, from 22.5% for the nine months ended June 30, 2020.

Earnings from Investment in Joint Venture.

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.

Earnings from investment in joint venture decreased $0.5 million during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020, as the construction project from which these earnings were derived had a lower level of activity during the nine months ended June 30, 2021.

Net income decreased $10.5 million, or 46.0%, to $12.3 million for the nine months ended June 30, 2021, compared to $22.7 million for the nine months ended June 30, 2020.

Adjusted EBITDA and Adjusted EBITDA Margin.

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.

Adjusted EBITDA and Adjusted EBITDA Margin were $63.5 million and 10.1%, respectively, for the nine months ended June 30, 2021, compared to $63.5 million and 11.3%, respectively, for the nine months ended June 30, 2020.

The lower Adjusted EBITDA Margin was a result of 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.

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.

Adjusted net income decreased $6.3 million to adjusted net income of $16.6 million for the nine months ended June 30, 2021, compared to adjusted net income of $23.0 million for the nine months ended June 30, 2020.

The decrease in adjusted 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, all as described above.

Inflation and Price Changes

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.

Except as described above under the heading “Inflationary Trends,” inflation had an immaterial impact on our results of operations for the three and nine months ended June 30, 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 Six Months Ended March 31,

For the Nine Months Ended June 30,

Net cash provided by operating activities, net of acquisition $ 9,334 $ 51,414

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Operating Activities

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;

During the nine months ended June 30, 2021, cash provided by operating activities, net of acquisitions, was $9.3 million, primarily as a result of:

• net income of $12.3 million, including $36.0 million of depreciation, depletion and amortization of long-lived assets, unrealized gains on derivative instruments of $3.1 million and equity-based compensation expense of $2.2 million;

• an increase in contracts receivable including retainage, net, of $33.0 million as a result of higher overall revenues due to acquisitions and growth in existing markets;

• an increase in other assets of $4.1 million primarily due to capitalized costs related to the amended Revolving Credit Facility and deposits on property, plant and equipment assets;

• an increase in inventories of $8.1 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;

• an increase in accounts payable and accrued expenses and other current liabilities of $19.8 million due to an increase in construction activity as noted above;

• 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 $10.0 million due to the timing of performing and closing projects.

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;

• a decrease in accounts payable and accrued expenses and other current liabilities of $16.4 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 $5.6 million due the timing of performing and closing projects.

During the nine months ended June 30, 2020, cash provided by operating activities, net of acquisitions, was $51.4 million, primarily as a result of:

• net income of $22.7 million, including $29.1 million of depreciation, depletion and amortization of long-lived assets and unrealized losses on derivative instruments of $2.0 million and equity-based compensation expense of $1.2 million;

• a decrease in contracts receivable including retainage, net, of $6.3 million due to a reduction in the number of projects available for bid in certain of our markets;

• a decrease in accounts payable and accrued expenses and other current liabilities of $10.9 million due to decreases related to inventory purchases associated with our liquid asphalt terminal.

Investing Activities

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.

During the nine months ended June 30, 2021, cash used in investing activities was $129.5 million, $92.3 million of which related to acquisitions completed in the period and $39.6 million of which was invested in property, plant and equipment, partially offset by $2.4 million of proceeds from the sale of equipment.

During the nine months ended June 30, 2020, cash used in investing activities was $69.2 million, $30.2 million of which related to acquisitions completed in the period and $41.5 million of which was invested in property, plant and equipment, partially offset by $2.1 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 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.

During the nine months ended June 30, 2021, cash provided by financing activities was $106.3 million.

We received $199.1 million from proceeds on long-term debt, net of debt issuance costs and discounts, reflecting a Term Loan advance, net of issuance costs, to fund acquisitions and for liquidity purposes.

These proceeds were offset by $92.8 million of repayments of long-term debt.

During the nine months ended June 30, 2020, cash provided by financing activities was $15.8 million.

We received $42.7 million from proceeds on long-term debt, net of debt issuance costs and discounts, reflecting (i) a $15.0 million advance under our Revolving Credit Facility primarily used to fund the March 2020 acquisition of two HMA manufacturing plants in Florida and for liquidity purposes, and (ii) $27.7 million of Term Loan advances, net of issuance cost, related to our buyout of certain lease obligations in October 2019 and to pay down the March 2020 $15.0 million advance under the Revolving Credit Facility.

These proceeds were offset by $26.9 million of repayments of principal on long-term debt.

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

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%.

At June 30, 2021 and September 30, 2020, we had $200.0 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 $213.9 million and $39.3 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit.

At June 30, 2021, the interest rate on outstanding borrowings under the Term Loan was 1.35%.

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 3.00-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.

At June 30, 2021 and September 30, 2020, our fixed charge coverage ratio was 4.00-to-1.00 and 2.85-to-1.00, respectively, and our consolidated leverage ratio was 1.86-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 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

At June 30, 2021 and September 30, 2020, the aggregate notional value of these interest rate swap agreements was $40.3 million and $46.5 million, respectively, and the fair value was $(1.0) 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 six months ended March 31, 2021 and 2020, our capital expenditures were $26.9 million and $34.5 million, respectively.

During the nine months ended June 30, 2021 and 2020, our capital expenditures were $39.6 million and $41.5 million, respectively.

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

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

At June 30, 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 have entered into fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices.

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.

As of June 30, 2021, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 2.7 million gallons, maturing incrementally through fiscal year 2023.

The fair value of these derivative contracts was $1.9 million at June 30, 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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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 our credit facilities, 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, 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.

In order to hedge against changes in interest rates and to manage fluctuations in cash flows resulting from interest rate risk, we have entered into several amortizing interest rate swap agreements.

At June 30, 2021, the aggregate notional value of these interest rate swap agreements was $40.3 million for which we pay a fixed rate ranging from 1.24% to 3.01% and, in each case, under which receive a credit based on the applicable LIBOR rate.

At June 30, 2021, we had a total of $159.7 million of non-hedged variable rate borrowings outstanding.

Contractual Obligations

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

The following table sets forth certain information about our contractual obligations as of June 30, 2021 (in thousands):

Payments Due by Fiscal Year

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Off-Balance Sheet Arrangements

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.

As of June 30, 2021, we had no material off-balance sheet arrangements, except for letters of credit of $11.1 million and purchase commitments for diesel fuel of $0.2 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