Construction Partners, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 during the period covered by this report. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in the 2021 Form 10-K. In this discussion, we use certain non-GAAP financial measures. Explanations of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP. Overview We are a civil infrastructure company that specializes in the building and maintenance of transportation networks. Our operations leverage a highly skilled workforce, strategically located HMA plants, substantial construction assets and select material deposits. We provide construction products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites in the southeastern United States. Our public projects are funded by federal, state and local governments and include projects for roads, highways, bridges, airports and other forms of infrastructure. Public transportation infrastructure projects historically have been a relatively stable portion of state and federal budgets and represent a significant share of the United States construction market. Federal funds are allocated on a state-by-state basis, and each state is required to match a portion of the federal funds that it receives. Federal highway spending uses funds predominantly from the Highway Trust Fund, which derives its revenues from fuel taxes and other user fees. In addition to public infrastructure projects, we provide a wide range of large sitework construction and HMA paving services to private construction customers, including commercial and residential developers and local businesses. Recent Developments Inflationary Trends During the three months and nine months ended June 30, 2022, we continued 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. Amended and Restated Credit Agreement On June 30, 2022, we entered into a Third Amended and Restated Credit Agreement. The Credit Agreement provides for (i) a Term Loan in an initial aggregate principal amount of $250.0 million, the full amount of which was drawn at closing, (ii) a Revolving Credit Facility in an initial aggregate principal amount of $325.0 million, and (iii) a delayed draw term loan facility in an initial aggregate principal amount of $50.0 million. Among other things, the proceeds of the Term Loan were used to refinance our indebtedness under our prior credit facility. For further discussion regarding the Credit Agreement, see Note 8 - Debt to the unaudited consolidated financial statements included elsewhere in this report. 25 Table of Contents How We Assess Performance of Our Business Revenues We derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites. Our projects represent a mix of federal, state, municipal and private customers. We also derive revenues from the sale of HMA, aggregates, and liquid asphalt cement to customers. 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. Revenues derived from the sale of HMA, aggregates, and liquid asphalt cement are recognized when the risks associated with ownership have passed to the customer. Gross Profit 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, 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. From time to time, when appropriate, we limit our exposure to changes in commodity prices by entering into forward purchase commitments. In addition, our public infrastructure contracts often provide for price adjustments based on fluctuations in certain commodity-related product costs. 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, Accretion and Amortization Property, plant and equipment are initially recorded at cost or, if acquired as a business combination, at fair value. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements and intangible assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. 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. 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 General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate offices. These expenses consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees. General and administrative expenses also include acquisition expenses, audit, consulting and professional fees, stock-based compensation expense, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses. Gain on Sale of Equipment, Net In the normal course of business, we sell construction equipment for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it. The gain or loss on the sale of equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale of equipment during the period. Interest Expense, Net Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, as well as the changes in fair values of interest swap agreements and amortization of deferred debt issuance costs. These amounts are partially offset by interest income earned on short-term investments of cash balances in excess of our current operating needs. 26 Table of Contents 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, 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. 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 (unaudited in thousands, except percentages): For the Three Months Ended June 30, For the Nine Months Ended June 30, 2022 2021 2022 2021 Net income $ 12,168 $ 9,340 $ 8,261 $ 12,276 Interest expense, net 2,054 568 4,177 1,334 Provision for income taxes 3,955 4,600 2,868 5,767 Depreciation, depletion, accretion and amortization 17,244 12,626 50,291 36,011 Equity-based compensation expense 1,848 1,347 5,094 2,202 Management fees and expenses (1) 370 412 1,129 1,550 Settlement of legal claim and associated legal expenses (2) — 134 — 4,366 Adjusted EBITDA $ 37,639 $ 29,027 $ 71,820 $ 63,506 Revenues $ 380,272 $ 261,656 $ 908,621 $ 631,697 Adjusted EBITDA Margin 9.9 % 11.1 % 7.9 % 10.1 % (1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with an affiliate of SunTx Capital Partners, the Company’s controlling stockholder (see Note 12 - Related Parties to the unaudited consolidated financial statements included elsewhere in this report). (2) Reflects legal expenses associated with a settlement agreement entered into in April 2021 unrelated to the Company's core operations. 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 (unaudited in thousands): For the Three Months Ended June 30, For the Nine Months Ended June 30, 2022 2021 2022 2021 Net income $ 12,168 $ 9,340 $ 8,261 $ 12,276 Settlement of legal claim (1) — — $ — $ 3,200 Legal expenses associated with settlement of legal claim (1) — 134 $ — $ 1,166 Adjusted net income $ 12,168 $ 9,474 $ 8,261 $ 16,642 (1) Reflects legal expenses associated with a settlement agreement entered into in April 2021 unrelated to the Company's core operations. 27 Table of Contents Results of Operations Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 The following table sets forth selected financial data for the three months ended June 30, 2022 and 2021 (unaudited in thousands, except percentages): Change From the Three Months Ended For the Three Months Ended June 30, June 30, 2021 to the Three Months Ended 2022 2021 June 30, 2022 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 380,272 100.0 % $ 261,656 100.0 % $ 118,616 45.3 % Cost of revenues 336,022 88.4 % 225,039 86.0 % 110,983 49.3 % Gross profit 44,250 11.6 % 36,617 14.0 % 7,633 20.8 % General and administrative expenses (26,584) (7.0) % (23,195) (8.9) % (3,389) 14.6 % Gain on sale of equipment, net 333 0.1 % 835 0.3 % (502) (60.1) % Operating income 17,999 4.7 % 14,257 5.4 % 3,742 26.2 % Interest expense, net (2,054) (0.5) % (568) (0.2) % (1,486) 261.6 % Other income (expense) 178 — % 252 0.1 % (74) (29.4) % Income before provision for income taxes and earnings from investment in joint venture 16,123 4.2 % 13,941 5.3 % 2,182 15.7 % Provision for income taxes 3,955 1.0 % 4,600 1.8 % (645) (14.0) % Earnings from investment in joint venture — — % (1) 0.1 % 1 (100.0) % Net income $ 12,168 3.2 % $ 9,340 3.6 % $ 2,828 30.3 % Adjusted EBITDA $ 37,639 9.9 % $ 29,027 11.1 % $ 8,612 29.7 % Adjusted net income $ 12,168 3.2 % $ 9,474 3.6 % $ 2,694 28.4 % Revenues. Revenues for the three months ended June 30, 2022 increased $118.6 million, or 45.3%, to $380.3 million from $261.7 million for the three months ended June 30, 2021. The increase included $53.1 million of revenues attributable to acquisitions completed subsequent to June 30, 2021 and an increase of approximately $65.5 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 25.0% increase in revenues in our existing markets was due to strong demand in both public and private work. Gross Profit. Gross profit for the three months ended June 30, 2022 increased $7.7 million, or 20.8%, to $44.3 million from $36.6 million for the three months ended June 30, 2021. The increase in gross profit was primarily the result of the 45.3% increase in revenues for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The lower gross profit margin was due to (i) lower profit margins on the projects we assumed in connection with recent acquisitions and (ii) increases in the cost of raw materials, fuel, labor, and trucking, and (iii) supply chain issues. General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2022 increased $3.4 million, or 14.6%, to $26.6 million from $23.2 million for the three months ended June 30, 2021. The increase was primarily the result of (i) a $0.5 million increase in equity-based compensation expense, and (ii) a $2.3 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to June 30, 2021. Interest Expense, Net. Interest expense, net for the three months ended June 30, 2022 increased $1.5 million, to $2.1 million compared to $0.6 million for the three months ended June 30, 2021. The increase in interest expense, net was due to an increase in the average principal debt balance outstanding and higher interest rates during the three months ended June 30, 2022 compared to the corresponding period in 2021. 28 Table of Contents Provision for Income Taxes. Our effective tax rate decreased to 24.5% for the three months ended June 30, 2022, from 33.0% for the three months ended June 30, 2021. Our lower effective tax rate during the three months ended June 30, 2022 was the result of an unfavorable impact of a non-deductible legal settlement incurred in the three months ended June 30, 2021. Net Income. Net income increased $2.9 million to $12.2 million for the three months ended June 30, 2022, compared to $9.3 million for the three months ended June 30, 2021. The increase in net income was primarily a result of higher revenues and related gross profit, partially offset by an increase in general and administrative expenses and interest expense, net, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $37.6 million and 9.9%, respectively, for the three months ended June 30, 2022, compared to $29.0 million and 11.1%, respectively, for the three months ended June 30, 2021. The increase in Adjusted EBITDA primarily resulted from higher gross profit, and an increase in depreciation, depletion, accretion and amortization of long-lived assets, partially offset by higher general and administrative expenses. The lower Adjusted EBITDA Margin was primarily a result of a lower gross profit percentage, partially offset by a lower general and administrative expense percentage, 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 increased $2.7 million to $12.2 million for the three months ended June 30, 2022, compared to $9.5 million for the three months ended June 30, 2021. The increase in adjusted net income was primarily a result of higher revenues and related gross profit, partially offset by an increase in general and administrative expenses and interest expense, net, all as described above. 29 Table of Contents Nine Months Ended June 30, 2022 Compared to Nine Months Ended June 30, 2021 The following table sets forth selected financial data for the nine months ended June 30, 2022 and 2021 (unaudited in thousands, except percentages): Change From the Nine Months Ended For the Nine Months Ended June 30, June 30, 2021 to the Nine Months Ended 2022 2021 June 30, 2022 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 908,621 100.0 % $ 631,697 100.0 % $ 276,924 43.8 % Cost of revenues 818,910 90.1 % 546,414 86.5 % 272,496 49.9 % Gross profit 89,711 9.9 % 85,283 13.5 % 4,428 5.2 % General and administrative expenses (76,530) (8.5) % (67,754) (10.7) % (8,776) 13.0 % Gain on sale of equipment, net 1,788 0.2 % 1,177 0.2 % 611 51.9 % Operating income 14,969 1.6 % 18,706 3.0 % (3,737) (20.0) % Interest expense, net (4,177) (0.5) % (1,334) (0.2) % (2,843) 213.1 % Other income (expense) 337 0.1 % 661 0.1 % (324) (49.0) % Income before provision for income taxes and earnings from investment in joint venture 11,129 1.2 % 18,033 2.9 % (6,904) (38.3) % Provision for income taxes 2,868 0.3 % 5,767 1.0 % (2,899) (50.3) % Earnings from investment in joint venture — — % 10 — % (10) (100.0) % Net income $ 8,261 0.9 % $ 12,276 1.9 % $ (4,015) (32.7) % Adjusted EBITDA $ 71,820 7.9 % $ 63,506 10.1 % $ 8,314 13.1 % Adjusted net income $ 8,261 0.9 % $ 16,642 2.6 % $ (8,381) (50.4) % Revenues. Revenues for the nine months ended June 30, 2022 increased $276.9 million, or 43.8%, to $908.6 million from $631.7 million for the nine months ended June 30, 2021. The increase included approximately $120.7 million of revenues attributable to acquisitions completed subsequent to June 30, 2021 and an increase of approximately $156.2 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 24.7% increase in revenues in our existing markets was due to strong demand in both public and private work. Gross Profit. Gross profit for the nine months ended June 30, 2022 increased $4.4 million, or 5.2%, to $89.7 million from $85.3 million for the nine months ended June 30, 2021. The increase in gross profit was primarily the result of the 43.8% increase in revenues for the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021. The lower gross profit margin was due to (i) lower profit margins on the projects we assumed in connection with recent acquisitions, and (ii) increases in the cost of raw materials, fuel, labor, and trucking and (iii) supply chain issues. General and Administrative Expenses. General and administrative expenses for the nine months ended June 30, 2022 increased $8.7 million, or 13.0%, to $76.5 million from $67.8 million for the nine months ended June 30, 2021. The increase was primarily the result of (i) a $2.9 million increase in equity-based compensation expense, (ii) a $5.2 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to June 30, 2021, (iii) a $2.1 million increase in various professional fees, primarily driven by business acquisitions, information technology expenses and increased accounting and consulting fees, and (iv) a $3.8 million increase in management personnel payroll and benefits. These increases were partially offset by a $4.4 million decrease in legal expenses associated with a legal settlement and associated legal fees in April 2021 unrelated to the Company's core operations. Interest Expense, Net. Interest expense, net for the nine months ended June 30, 2022 increased $2.9 million, to $4.2 million compared to $1.3 million for the nine months ended June 30, 2021. The increase in interest expense was due to an increase in the average principal debt balance outstanding and higher interest rates during the nine months ended June 30, 2022 compared to the corresponding period in 2021. 30 Table of Contents Provision for Income Taxes. Our effective tax rate decreased to 25.8% for the nine months ended June 30, 2022, from 32.0% for the nine months ended June 30, 2021. Our lower effective tax rate during the nine months ended June 30, 2022 was the result of an unfavorable impact of a non-deductible legal settlement incurred in the nine months ended June 30, 2021. Net Income (Loss). Net income decreased $4.0 million to $8.3 million for the nine months ended June 30, 2022, compared to $12.3 million for the nine months ended June 30, 2021. The decrease in net income was primarily a result of higher general and administrative expenses and higher interest expense, net, partially offset by higher revenues and related gross profit, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $71.8 million and 7.9%, respectively, for the nine months ended June 30, 2022, compared to $63.5 million and 10.1%, respectively, for the nine months ended June 30, 2021. The increase in Adjusted EBITDA was a result of an increase in gross profit and an increase in depreciation, depletion, accretion and amortization of long-lived assets, partially offset by higher general and administrative expenses. The lower Adjusted EBITDA Margin was primarily a result of a lower gross profit percentage, partially offset by a lower general and administrative expense percentage, 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 $8.4 million to $8.3 million for the nine months ended June 30, 2022, compared to $16.6 million for the nine months ended June 30, 2021. The decrease in adjusted net income was primarily a result of higher general and administrative expenses and higher interest expense, net, all as described above. Inflation and Price Changes As described above under the heading “Inflationary Trends,” during the three and nine months ended June 30, 2022, we continued 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. Inflation had an immaterial impact on our results of operations for the three and nine months ended June 30, 2021 due to relatively low inflation in the United States during that period 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. 31 Table of Contents Liquidity and Capital Resources Cash Flows Analysis The following table sets forth our cash flows for the periods indicated (unaudited in thousands): For the Nine Months Ended June 30, 2022 2021 Net cash (used by) provided by operating activities, net of acquisition $ (9,721) $ 9,334 Net cash used in investing activities (158,607) (129,530) Net cash provided by financing activities 137,261 106,348 Net change in cash and cash equivalents $ (31,067) $ (13,848) Operating Activities During the nine months ended June 30, 2022, cash used by operating activities, net of acquisitions, was $9.7 million, primarily as a result of: • net income of $8.3 million, including $50.3 million of depreciation, depletion, accretion and amortization of long-lived assets, unrealized gains on derivative instruments of $2.6 million and equity-based compensation expense of $5.1 million; • an increase in contracts receivable including retainage, net, of $71.9 million as a result of higher overall revenues due to acquisitions and growth in existing markets; • an increase in prepaid expenses and other current assets of $2.3 million primarily due to timing of deposits for federal and state income taxes and the timing of payments under our insurance policies; • an increase in inventories of $21.8 million due to inventory acquired in acquisitions, higher inventory costs and normal fluctuations in our inventory cycle; • an increase in accounts payable and accrued expenses and other current liabilities of $23.1 million due to increased construction activity; and • a net increase of $3.9 million 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 due to the timing of performing and closing projects and higher revenue from construction activities. 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, accretion 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 inventory acquired in acquisitions and normal fluctuations in our inventory cycle; • an increase in accounts payable and accrued expenses and other current liabilities of $19.8 million due to increased construction activity; and • a net decrease of $10.0 million 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 due to the timing of performing and closing projects. 32 Table of Contents Investing Activities During the nine months ended June 30, 2022, cash used in investing activities was $158.6 million, of which $102.9 million related to acquisitions completed in the period, $52.2 million was invested in property, plant and equipment and $7.7 million was invested in restricted investments by the Captive, partially offset by $4.2 million of proceeds from the sale of equipment. During the nine months ended June 30, 2021, cash used in investing activities was $129.5 million, of which $92.3 million related to acquisitions completed in the period and $39.6 million was invested in property, plant and equipment, partially offset by $2.4 million of proceeds from the sale of equipment. Financing Activities During the nine months ended June 30, 2022, cash provided by financing activities was $137.3 million. We received $142.3 million of proceeds from issuance of long-term debt, net of debt issuance costs and discounts, primarily used for acquisitions completed in the period. This increase in cash was partially offset by $5.0 million of principal payments on long-term debt. 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. Credit Agreement We and each of our subsidiaries are parties to the Credit Agreement, which provides for the Term Loan and the Revolving Credit Facility. At June 30, 2022 and September 30, 2021, we had $250.0 million and $197.5 million, respectively, of principal outstanding under the Term Loan, $105.1 million and $20.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $208.6 million and $193.7 million, respectively, under the Revolving Credit Facility, including reduction for outstanding letters of credit. We also had availability of $50.0 million under the delayed draw term loan facility. Our obligations under the Term Loan and the Revolving Credit Facility are secured by a first priority security interest in substantially all of our assets. The Credit Agreement requires the Company to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.20-to-1.00 and a maximum consolidated leverage ratio of 3.00-to-1.00, subject to certain adjustments. At June 30, 2022 and September 30, 2021, our fixed charge coverage ratio was 2.20-to-1.00 and 3.29-to-1.00, respectively, and our consolidated leverage ratio was 2.99-to-1.00 and 1.99-to-1.00, respectively. From time to time, the Company has entered into interest rate swap agreements to hedge against the risk of changes in interest rates. At June 30, 2022 and September 30, 2021, the aggregate notional value of these interest rate swap agreements was $192.2 million and $198.3 million, respectively, and the fair value was $12.6 million and $(0.8) million, respectively, which is included within other assets, other current liabilities or other long-term liabilities on the Company’s Consolidated Balance Sheets. For more information about the Credit Agreement, see Note 8 - Debt to the unaudited consolidated financial statements included elsewhere in this report. Capital Requirements and Sources of Liquidity During the nine months ended June 30, 2022 and 2021, our capital expenditures were approximately $52.2 million and $39.6 million, respectively. Our capital expenditures are typically made during the same fiscal year in which they are approved. At June 30, 2022, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2022, we expect total capital expenditures to be $60.0 million to $65.0 million. Our capital expenditure budget is an estimate and is subject to change. Historically, we have required significant amounts of cash in order to make capital expenditures, purchase materials and fund our organic expansion into new markets. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements increasing in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancements to our information systems, integration costs related to any acquisitions and our compliance with laws and rules applicable to public companies. We have historically relied on cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. We regularly monitor potential capital sources, including equity and debt markets, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will depend on our ability to access outside sources of capital. 33 Table of Contents We believe that our operating cash flow and available borrowings under the Credit Agreement will be sufficient to fund our operations and planned capital expenditures for at least the next 12 months. However, future cash flows are subject to a number of variables, including the potential impacts of inflation and supply chain constraints, 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. 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, 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. If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to conduct our operations. Contractual Obligations The following table summarizes our significant obligations outstanding as of June 30, 2022: Payments Due by Fiscal Year Total 2022 2023 2024 2025 2026 2027 and Thereafter Debt obligations $ 355,100 $ 3,125 $ 12,500 $ 12,500 $ 15,625 $ 18,750 $ 292,600 Operating leases 13,154 627 2,395 2,004 1,621 1,605 4,902 Purchase commitments 8,402 2,795 4,827 780 — — — Royalty payments 2,688 12 255 245 209 182 1,785 Asset retirement obligations 2,840 — — — — — 2,840 Total $ 382,184 $ 6,559 $ 19,977 $ 15,529 $ 17,455 $ 20,537 $ 302,127 Off-Balance Sheet Arrangements As of June 30, 2022, the Company had aggregate letters of credit outstanding in the amount of $11.3 million, future purchase commitments for diesel fuel and natural gas of $8.4 million and $2.7 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 17 - Commitments to our unaudited consolidated financial statements included elsewhere in this report for additional information.