What changed in this filing

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Item 1. Business

2021-11-29 compared with 2020-12-11 · 37 added, 22 removed, 180 unchanged (25% of the section changed)

1 unchanged sentence

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

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

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

Construction Partners, Inc.

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2021 Fiscal Year Developments

• Florida Acquisitions.

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

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

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

• North Carolina Acquisitions.

We completed seven acquisitions in North Carolina during the fiscal year, resulting in the addition of fourteen HMA plants primarily in central and eastern North Carolina, providing us with access to additional markets and expanding our footprint in the state.

We also acquired a crushed stone and aggregates facility located near Goldston, North Carolina, that will be used to support our HMA production operations.

• Alabama Acquisition.

We acquired an HMA production and paving company and its affiliated aggregates company headquartered in Cullman, Alabama.

As a result of the acquisition, we added four HMA plants, four aggregates facilities, and a diverse fleet of trucks and construction equipment to support our operations in central and northern Alabama.

• Amendment to Credit Agreement.

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

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

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

On June 24, 2021, we entered into a Second Amended and Restated Credit Agreement with BBVA USA, as administrative agent, joint lead arranger, sole bookrunner and lender, Regions Bank and BofA Securities, Inc., each as a joint arranger, and certain other lenders (as amended and restated, the “Credit Agreement”).

The Credit Agreement provides for a term loan in an initial aggregate principal amount of $200 million (the “Term Loan”) and a revolving credit facility in an initial aggregate principal amount of $225 million (the “Revolving Credit Facility”).

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

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

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

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

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

Risk Factors, included elsewhere in this report.

We did not incur significant disruptions from the COVID-19 pandemic during the fiscal year ended September 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.

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 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.

For example, vaccination requirements imposed by our customers or governmental authorities could increase employee turnover, thereby impairing our ability to perform our construction projects.

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.

• 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 fiscal year ended September 30, 2021, we began to experience an upward trend in several of these inflation-sensitive items.

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

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

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

In November 2021, the federal Infrastructure Investment and Jobs Act (the “IIJA”) was signed into law.

The IIJA provides for $548 billion in new infrastructure spending over the next five years through a reauthorization of traditional surface transportation programs and additional funding for highways, bridges and airports, among other things.

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

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Our largest customers are state DOTs.

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

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

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

However, no DOT accounted for more than 10% of our revenues for the fiscal year ended September 30, 2021, and projects performed for all DOTs accounted for 33.7% of our revenues.

Our 25 largest projects acco unted for 20.5% of our revenues for the fiscal year ended September 30 , 2021.

Types of Contracts

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We consider several factors that can create variability in contract performance and our financial results compared to our bid assumptions and methodologies on a contract.

As a result, after determining the potential contracts that are available, we decide which contracts to pursue based on a non-exclusive list of factors, which include relevant skills required by the contract, the contract size and duration, availability of our personnel and equipment, size and makeup of our current contract backlog, our competitive advantages and disadvantages, our prior experience, the contracting agency or customer, the source of contract funding, the geographic location, the likely competition, the construction risks, the gross margin opportunities, the penalties or incentives and the type of contract.

funding, the geographic location, the likely competition, the construction risks, the gross margin opportunities, the penalties or incentives and the type of contract.

To ensure the completeness and accuracy of our original bid analysis, the bid preparation for potential projects typically involves three phases.

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

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

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

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

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In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall.

Warmer and drier weather during our third and fourth fiscal quarters typically result in higher activity and revenues during those quarters.

Warmer and drier

weather during our third and fourth fiscal quarters typically result in higher activity and revenues during those quarters.

Our first and second fiscal quarters typically have lower levels of activity due to adverse weather conditions.

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We are able to internally supply RAP, a byproduct of asphalt resurfacing projects, to all of our HMA plants, and virgin aggregates in some of our market areas.

The majority of our HMA plants sit in or near suppliers’ rock quarries, thereby reducing the hauling cost of material to our plant.

The majority of our HMA plants sit in or near suppliers’ aggregates facilities, thereby reducing the hauling cost of material to our plant.

The price and availability of raw materials may vary from year to year due to market conditions and production capacities.

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We have incurred, and may in the future incur, significant capital and operating expenditures to comply with such laws and regulations.

To the extent that laws are enacted or other governmental action is taken that restricts our operations or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, our business, prospects, financial condition or results of operations could be materially adversely affected.

To the extent that laws are enacted or other governmental action is taken that restricts our operations or imposes more

stringent and costly operating, waste handling, disposal and cleanup requirements, our business, prospects, financial condition or results of operations could be materially adversely affected.

We regularly monitor and review our operations, procedures, and policies for compliance with our operating permits and related laws and regulations.

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

Like others in our industry, we experience some recurring employee

Like others in our industry, we experience some recurring employee turnover;

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

18 unchanged sentences

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

What changed 10-K

Item 1. Business