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Item 7. Management’s Discussion and Analysis

2021-11-29 compared with 2020-12-11 · 102 added, 86 removed, 247 unchanged (43% of the section changed)

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

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

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

Historical results may not be indicative of future performance.

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In addition to public infrastructure projects, we provide a wide range of large site work construction and HMA paving services to private construction customers, including commercial and residential developers and local businesses.

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 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.

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

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

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

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

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

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

In North Carolina, the NCDOT has implemented several measures in recent months to address preexisting funding pressures that were exacerbated by the effects of the COVID-19 pandemic, including suspending preliminary engineering work on potential future projects, delaying commencement of certain pending projects and reducing the number and size of projects available for bid, which resulted in decreased revenue during the last quarter of the fiscal year ended September 30, 2020.

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

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

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

The extent to which our operations may be impacted by the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the severity of the pandemic and actions by government authorities to contain the outbreak or mitigate its impact.

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

Fiscal 2021 Developments

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 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 materialized in varying degrees during fiscal 2021, but none of these risks, individually or in the aggregate, have significantly impacted our operations to date.

In addition, the extent to which our operations may be impacted by the COVID-19 pandemic going forward will also depend on 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, we continue to monitor the impact of vaccination requirements imposed by our customers or governmental authorities on our workforce, which could increase employee turnover and thereby impair our ability to perform our construction projects.

Business Acquisitions

We completed eight acquisitions during the fiscal year, through which we added eighteen HMA plants and five aggregates facilities located in North Carolina and Alabama.

As a result of these acquisitions, we entered into several new markets, while also securing crushed stone and aggregates sources for certain of our markets as part of our vertical integration strategy and adding a diverse fleet of trucks and construction equipment to support our operations.

For more information about our acquisitions during fiscal 2021, see Note 4 - Business Acquisitions to our consolidated financial statements included elsewhere in this report.

Amended and Restated Credit Agreement

In June 2021, we amended and restated our existing Credit Agreement to, among other things, increase the amount of our Term Loan to an initial aggregate principal amount of $200 million (the full amount of which was drawn immediately) and the amount of our Revolving Credit Facility to an initial aggregate principal amount of $225 million.

We used a portion of the proceeds advanced to us to refinance our indebtedness outstanding on the restatement date and to pay fees and expenses incurred in connection with the transaction, with the remainder available for our general corporate purposes, including permitted acquisitions.

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

Inflation, Supply Chain and Labor

During fiscal 2021, we began to experience an upward trend in several inflation-sensitive inputs necessary for us to provide our products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items that are critical to our business, including fuel, concrete and steel.

In addition, we experienced some disruptions from various participants in our supply chain, including subcontractors, materials suppliers and equipment manufacturers, who provide the raw materials, equipment, vehicles, construction supplies and other services we require in order to manufacture HMA and perform our construction projects.

To date, we have been able to mitigate some of the effects of inflation, supply chain disruptions and labor constraints on our business by increasing prices for our products and including the anticipated cost increases in the construction

projects we bid.

However, we are limited in our ability to pass through increased costs for projects already in our backlog and, under those circumstances, may be unable to recoup losses or diminished profit margins by passing these costs through to our customers.

How We Assess Performance of Our Business

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We also derive revenues from the sale of HMA, aggregates, and liquid asphalt cement to customers.

Revenues derived from projects are recognized as performance obligations are satisfied over time (formerly known as the percentage-of-completion method), measured by the relationship of total cost incurred compared to total estimated contract costs (cost-to-cost input method).

We recognize revenues derived from projects as we satisfy our performance obligations over time (formerly known as the percentage-of-completion method), measured by the relationship of total cost incurred compared to total estimated contract costs (cost-to-cost input method).

Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined.

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Gross profit represents revenues less cost of revenues.

Cost of revenues consists of all direct and indirect costs associated with construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregate mining facilities, and liquid asphalt cement terminal.

Cost of revenues consists of all direct and indirect costs associated with construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregates mining facilities, and liquid asphalt cement terminal.

Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel.

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These price adjustment provisions are in place for most of our public infrastructure contracts, and we seek to include similar provisions in our private contracts.

Depreciation, Depletion and Amortization

Depreciation, Depletion, Accretion and Amortization

Property, plant and equipment are initially recorded at cost or, if acquired as a business combination, at fair value.

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Our intangible assets were recognized as a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets.

Quarry reserves are depleted in accordance with the units-of-production method as aggregate is extracted, using the initial allocation of cost based on proven and probable reserves.

Mineral reserves are depleted in accordance with the units-of-production method as aggregates are extracted, using the initial allocation of cost based on proven and probable reserves.

General and Administrative Expenses

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

Other Key Performance Indicators — 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 the extinguishment of debt and (vi) certain management fees and expenses.

Other Key Performance Indicators — 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 (benefit) for income taxes, (iii) depreciation, depletion, accretion and amortization, (iv) equity-based compensation expense, (v) loss on the 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 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 or any other performance measure derived in accordance with GAAP as an indicator of our 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.

We present Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted net income 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, Adjusted EBITDA Margin and Adjusted net income 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.

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Provision for income taxes 8,349 12,760

Depreciation, depletion and amortization of long-lived assets 39,301 31,231

Depreciation, depletion, accretion and amortization 49,806 39,301

Equity-based compensation expense 3,549 1,570

Management fees and expenses (1)

Settlement of legal claim and associated legal expenses (2)

Adjusted EBITDA $ 90,582 $ 98,878

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(1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with SunTx Capital Partners, the Company’s controlling stockholder (see Note 17 - Related Parties to the consolidated financial statements included elsewhere in this report).

(2) Reflects $3.2 million legal settlement and associated legal expenses (see Note 26 - Legal Settlement to the consolidated financial statements included elsewhere in this report).

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 Fiscal Year

Ended September 30,

Net income $ 20,177 $ 40,297

Settlement of legal claim and associated legal expenses (1)

Tax impact due to above reconciling items $ (570) $ (109)

Adjusted net income $ 23,969 $ 40,622

(1) Reflects $3.2 million legal settlement and associated legal expenses (see Note 26 - Legal Settlement to the consolidated financial statements included elsewhere in this report).

Results of Operations — Fiscal Year Ended September 30, 2021 Compared to Fiscal Year Ended September 30, 2020

The following table sets forth selected financial data for the fiscal years ended September 30, 2021 (“fiscal 2021”) and September 30, 2020 (“fiscal 2020”) (in thousands, except percentages).

Refer to the Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 11, 2020, for a discussion of results for the fiscal year ended September 30, 2019.

For the Fiscal Year Ended September 30, Change from Fiscal

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Adjusted EBITDA $ 90,582 9.9 % $ 98,878 12.6 % $ (8,296) (8.4) %

Adjusted net income $ 23,969 2.6 % $ 40,622 5.2 % $ (16,653) (41.0) %

Revenues for fiscal 2021 increased $125.0 million, or 15.9%, to $910.7 million from $785.7 million for fiscal 2020.

Revenues in markets we served on September 30, 2019 decreased by $47.1 million during fiscal 2020, primarily due to a reduction in the number of projects available for bid in certain of our markets, including North Carolina, and our resulting efforts to manage our backlog and effectively utilize our workforce in light of the uncertainties caused by the COVID-19 pandemic.

The decrease was offset by a $49.6 million increase in total revenue attributable to acquisitions that we completed during or subsequent to fiscal 2019.

The increase included $87.0 million of revenues attributable to acquisitions completed during or subsequent to fiscal 2020 and an increase of approximately $38.0 million of revenues in our remaining markets from contract work and sales of HMA and aggregates to third parties.

Gross Profit.

Gross profit for fiscal 2020 increased $4.2 million, or 3.6%, to $122.2 million from $118.0 million for fiscal 2019.

The higher gross profit was the result of an increase in gross profit margin to 15.6% for fiscal 2020 from 15.1% for fiscal 2019, primarily due to efficient utilization of our plants and equipment, and the contribution from the liquid asphalt terminal, which we acquired during fiscal 2019 and allows us to purchase liquid asphalt at wholesale prices, thereby reducing our cost of revenues.

Gross profit for fiscal 2021 decreased $2.3 million, or 1.9%, to $119.9 million from $122.2 million for fiscal 2020.

The lower gross profit was the result of a decrease in gross profit margin to 13.2% for fiscal 2021 from 15.6% for fiscal 2020, primarily due to (i) lower margins on construction projects in the fourth quarter of fiscal 2021 due to delays related to weather, labor and trucking and supply chain issues, and (ii) lower profit margins on the projects we assumed in connection with the North Carolina acquisitions we completed during fiscal 2021 and low utilization of the asphalt plants and equipment acquired in those acquisitions.

General and Administrative Expenses.

General and administrative expenses for fiscal 2021 increased $23.3 million, or 33.9%, to $91.9 million from $68.6 million for fiscal 2020.

The increase in general and administrative expenses for fiscal 2020 compared to fiscal 2019 was primarily the result of (i) a $2.9 million increase in overhead expenses attributable to acquisitions that we completed during or subsequent to fiscal 2019, (ii) a $3.1 million increase in management personnel payroll and benefits and (iii) a $0.6 million increase in stock-based compensation expense.

These increases were partially offset by decreases in other general administrative expenses of $0.7 million.

The increase in general and administrative expenses for fiscal 2021 compared to fiscal 2020 was primarily the result of (i) a $2.0 million increase in equity-based compensation expense, (ii) a $3.2 million legal settlement, as described in Note 26 - Legal Settlement, and an increase of $0.7 million for legal fees associated with this settlement, (iii) a $7.8 million increase in management personnel payroll and benefits, (iv) a $3.5 million increase attributable to general and administrative expenses of businesses acquired subsequent to September 30, 2020, and (v) a $3.5 million increase in other professional fees, primarily driven by expenses incurred in support of acquisition activities, information technology expenses and increased accounting and consulting fees.

Interest Expense, Net.

Interest expense, net for fiscal 2020 increased $1.2 million, or 67.3%, to $3.1 million compared to $1.9 million for fiscal 2019.

The increase in interest expense, net reflects a $0.3 million increase in interest expense and a decrease of $0.9 million in interest income.

The increase in interest expense was due to an increase in the average principal debt balance outstanding for fiscal 2020 compared to fiscal 2019 and a $1.4 million charge to interest expense related to a change in the fair value of our interest rate swaps during fiscal 2020, compared to a $0.6 million charge during fiscal 2019.

This increase was partially offset by a reduction in the interest rate on our debt compared to fiscal year 2019.

Interest expense, net for fiscal 2021 decreased $0.7 million, or 22.8%, to $2.4 million compared to $3.1 million for fiscal 2020.

The decrease in interest expense, net reflects a $1.2 million decrease in interest expense and a decrease of $0.5 million in interest income.

The decrease was primarily due to $0.9 million of unrealized gain on interest rate swaps for fiscal 2021, compared to an unrealized loss on interest rate swaps of $1.4 million for fiscal 2020.

This change was offset by an increase in interest paid due to

the increase in long-term debt at September 30, 2021 compared to September 30, 2020.

The decrease in interest income was due to a decrease in interest rates earned on our deposits.

Provision for Income Taxes.

Our effective tax rate decreased to 24.0% for fiscal 2020, from 24.4% for fiscal 2019.

Our lower effective tax rate was the result of filing an amended consolidated state return, as a result of which the Company recorded an amended return benefit of $0.4 million related to the utilization of net operating loss carryforwards and a corresponding release of a valuation allowance.

Our effective tax rate increased to 29.3% for fiscal 2021, from 24.0% for fiscal 2020.

Our higher effective tax rate was due to the unfavorable impact of a non-deductible legal settlement and related legal expenses, as described in Note 26 - Legal Settlement, and other fiscal 2021 permanent non-deductible expenses.

Earnings from Investment in Joint Venture.

During fiscal 2020 and 2019, we earned $0.6 million and $1.3 million of pre-tax income, respectively, from our 50% interest in the earnings of a joint venture that we entered into with a third party in November 2017 for the sole purpose of performing a construction project for ALDOT.

Earnings from investment in joint venture decreased $0.6 million during fiscal 2021 compared to fiscal 2020, as the construction project from which these earnings were derived had a lower level of activity during fiscal 2021.

Net income decreased $20.1 million, or 49.9%, to $20.2 million for fiscal 2021 compared to $40.3 million for fiscal 2020.

This decrease in net income was primarily a result of higher general and administrative expenses and additional interest expense during fiscal 2020, and was substantially offset by higher gross profit.

General and administrative expenses for fiscal 2020 increased $5.9 million, or 9.4%, to $68.6 million from $62.7 million for fiscal 2019.

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, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA and Adjusted EBITDA Margin were $90.6 million and 9.9%, respectively, for fiscal 2021, compared to $98.9 million and 12.6%, respectively, for fiscal 2020.

The increase in Adjusted EBITDA primarily resulted from the increase in gross profit, depreciation, depletion and amortization of long-lived assets for fiscal 2020 compared to fiscal 2019, partially offset by an increase in general and administrative expense and interest expense, net.

The increase in the Adjusted EBITDA Margin was primarily the result of increased depreciation, depletion and amortization of long-lived assets.

The decrease in Adjusted EBITDA primarily resulted from lower gross profit and an increase in general and administrative expenses.

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

For a description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, see “How We Assess Performance of Our Business.”

Adjusted Net Income .

Adjusted net income decreased $16.7 million to adjusted net income of $24.0 million for fiscal 2021, compared to adjusted net income of $40.7 million for fiscal 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.

Inflation and Price Changes

Inflation had an immaterial impact on our results of operations for fiscal 2020 and 2019 due to relatively low inflation in the United States and our ability to recover increasing costs by obtaining higher prices for our products, including through the use of sale price escalator clauses in most of our public sector infrastructure contracts.

Except as described above in Item 1 of this report under the heading “2021 Fiscal Year Developments — Inflationary Trends,” inflation had an immaterial impact on our results of operations for fiscal years 2021 and 2020 due to relatively low inflation in the United States in recent years and our ability to recover increasing costs by charging higher prices for our products, including through 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.

For more information, see the discussion under the heading “Inflation Risk” included in Item 7A of this report.

Liquidity and Capital Resources

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Net cash used in investing activities (263,412) (79,363)

Net cash provided by (used in) financing activities 41,887 (13,567)

Net cash provided by financing activities 123,847 41,887

Net change in cash and cash equivalents $ (91,065) $ 67,697

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During fiscal 2021, cash provided by operating activities, net of acquisitions, was $48.5 million, primarily as a result of:

• net income of $40.3 million, including $39.3 million of depreciation, depletion and amortization of long-lived assets;

• a decrease in prepaid expenses and other current assets of $8.1 million, primarily reflecting the $7.7 million payment received by certain of our subsidiaries from January 2020 to July 2020 in connection with a settlement agreement we entered into in April 2018;

• a decrease in contracts receivable including retainage, net of $7.4 million due to a reduction in fiscal year 2020 fourth quarter job activity in certain of our markets, including North Carolina, compared to the prior year.

• net income of $20.2 million, including $49.8 million of depreciation, depletion and amortization of long-lived assets, unrealized gains on derivative instruments of $3.2 million and equity-based compensation expense of $3.5 million;

• an increase in contracts receivable including retainage, net of $27.1 million as a result of higher overall revenues due to acquisitions and growth in existing markets;

• an increase in other assets of $2.9 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 $3.9 million due to increased inventories from acquisitions and normal fluctuations in our inventory cycle;

• an increase in accounts payable and accrued expenses and other current liabilities of $24.0 million due to an increase in construction activity;

• 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 $15.1 million due to the timing of performing and closing projects.

During fiscal 2020, cash provided by operating activities, net of acquisitions, was $105.2 million, primarily as a result of:

• net income of $43.1 million, including $31.2 million of depreciation, depletion and amortization of long-lived assets;

• contracts receivable including retainage, net increasing by $20.6 million as a result of higher overall revenues;

• inventory increasing by $8.8 million, of which $6.5 million related to our acquisition and operation of the liquid asphalt terminal and other acquisitions during fiscal 2019.

• net income of $40.3 million, including $39.3 million of depreciation, depletion and amortization of long-lived assets, unrealized losses on derivative instruments of $1.9 million and equity-based compensation expense of $1.6 million;

Investing Activitie s

During fiscal 2020, cash used in investing activities was $79.4 million, of which $30.2 million related to acquisitions completed in the period and $52.6 million of which was invested in property, plant and equipment, which included $11.5 million for the buyout of equipment leases, and was partially offset by $3.0 million of proceeds from the sale of equipment.

During fiscal 2019, cash used in investing activities was $60.2 million, $24.7 million of which related to acquisitions completed in the period and $42.5 million of which was invested in property, plant and equipment, which was partially offset by $4.5 million of proceeds from the sale of equipment.

During fiscal 2021, cash used in investing activities was $263.4 million, of which $210.7 million related to acquisitions completed in the period and $56.3 million of which was invested in property, plant and equipment.

These amounts were partially offset by $3.7 million of proceeds from the sale of equipment.

These amounts were partially offset by $3.0 million of proceeds from the sale of equipment.

Financing Activities

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We received $219.2 million from proceeds on long-term debt, net of debt issuance costs and discounts, which was offset by $95.4 million of principal payments on long-term debt.

During fiscal 2019, cash used in financing activities was $13.6 million, primarily due to principal payments on long-term debt of $13.0 million during the period.

During fiscal 2020, cash provided by financing activities was $41.9 million.

We received $72.3 million from proceeds on long-term debt, net of debt issuance costs and discounts, which was offset by $30.4 million of principal payments on long-term debt.

Credit Agreement

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From time to time, the Company has 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 September 30, 2020 and 2019, the aggregate notional value of these interest rate swap agreements was $46.5 million and $21.5 million, respectively, and the fair value was $(1.7) million and $(0.3) million, respectively, which is included within other liabilities or other assets on the Company’s Consolidated Balance Sheets.

At September 30, 2021 and 2020, the aggregate notional value of these interest rate swap agreements was $198.3 million and $46.5 million, respectively, and the fair value was $(0.8) million and $(1.7) million, respectively, which is included within other current liabilities or other long-term liabilities on the Company’s Consolidated Balance Sheets.

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

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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.

There can be no assurance that

operations and other capital resources will provide sufficient cash to maintain planned or future levels of capital expenditures.

There can be no assurance that operations and other capital resources will provide sufficient cash to maintain planned or future levels of capital expenditures.

In the event that we make one or more acquisitions and the amount of capital required is greater than the amount of cash on hand we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital.

If we seek additional capital, we may do so through borrowings under the Credit Agreement, 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 fiscal year 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.

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 fiscal 2022 and beyond, and 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 additional capital will be available on acceptable terms or at all.

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Off-Balance Sheet Arrangements

As of September 30, 2020, the Company had aggregate letters of credit outstanding in the amount of $10.9 million and future purchase commitments of $1.3 million for diesel fuel.

Other than the letters of credit and future purchase commitments described therein, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of September 30, 2021, the Company had aggregate letters of credit outstanding in the amount of $11.3 million, future purchase commitments of $0.1 million for diesel fuel and $2.4 million of minimum royalty payments related to aggregates facilities.

Other than the letters of credit, future purchase commitments and minimum royalty payments, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

See Note 18 - Commitments and Contingencies to our consolidated financial statements included elsewhere in this report for additional information.

Contractual Obligations

The following table summarizes our significant obligations outstanding as of September 30, 2021

Payments Due by Fiscal Year

Total 2022 2023 2024 2025 2026 2027 and Thereafter

Debt obligations $ 217,500 $ 10,000 $ 10,000 $ 11,250 $ 15,000 $ 171,250 $ —

Operating leases 8,104 1,614 1,223 929 623 600 3,115

Purchase commitments 51 51 — — — — —

Royalty payments 2,395 289 196 189 137 124 1,460

Asset retirement obligations 2,788 — — — — — 2,788

Total $ 230,838 $ 11,954 $ 11,419 $ 12,368 $ 15,760 $ 171,974 $ 7,363

Critical Accounting Policies and Estimates

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Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred.

We recognize revenues equal to costs incurred on unapproved change orders when realization of price approval is

We recognize revenues equal to costs incurred on unapproved change orders when realization of price approval is probable.

Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers.

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

The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts.

The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues

and costs to finish uncompleted contracts.

Our estimates for all of our significant contracts use a highly detailed “bottom up” approach.

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Our test indicated that there was no impairment of goodwill and indefinite-lived intangible assets.

We first evaluate our market capitalization compared to the net assets of the Company overall.

For our goodwill impairment test, we first evaluate our market capitalization compared to the net assets of the Company overall.

Our final determination of valuation is impacted by a number of factors, but the key factors are the price of our common stock, recently completed transactions from both public companies and private transactions and our estimated forecast of future cash flows.

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At September 30, 2021 and 2020, we had goodwill with a carrying amount of $85.4 million and $46.3 million, respectively.

For our indefinite-lived intangible asset impairment test, we performed a qualitative impairment assessment.

The qualitative assessment did not identify indicators of impairment, and it was determined that is more likely than not the indefinite-lived name license fair value was more than its carrying amount.

Accordingly, no further analysis was required or performed.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

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See Note 2 – Significant Accounting Policies and Note 3 – Accounting Standards, to the consolidated financial statements for the fiscal year ended September 30, 2021, which are contained in Part II, Item 8 of this report and are incorporated by reference herein.

Emerging Growth Company

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.

We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

The activity of our business fluctuates due to seasonality because our business is primarily conducted outdoors.

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A cool, wet spring increases drying time on projects, which can delay sales in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.

Commodity Price Risk

We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates and asphalt paving mix production, natural gas for HMA production and diesel fuel for distribution vehicles and production-related mobile equipment.

In order to manage or reduce commodity price risk, we monitor the costs of these commodities at the time of bid and price them into our contracts accordingly.

Furthermore, liquid asphalt escalator provisions in most of our public contracts, and in some of our private and commercial contracts, limit our exposure to price fluctuations in this commodity.

In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials.

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

As of September 30, 2020, we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 2.5 million gallons, maturing incrementally through fiscal year 2022.

The fair value of these derivative contracts was $(0.5) million and $0.0 million respectively, at September 30, 2020 and 2019.

The changes in the fair market value of these derivative contracts are recorded in cost of revenues.

These fuel swap contracts provide a fixed price for less than 50% of our estimated fuel usage for the remainder of fiscal years 2021 and 2022.

Interest Rate Risk

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

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

From time to time, we use derivative instruments as hedges 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 September 30, 2020, we had a total of $92.9 million of variable rate borrowings outstanding.

Holding other factors constant and absent the interest rate swap agreements described above, a hypothetical 1% change in our borrowing rates would result in a $0.9 million change in our annual interest expense based on our variable rate debt at September 30, 2020.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide the information called for by this Item.

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 7. Management’s Discussion and Analysis