What changed in this filing

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Item 1. Financial Statements

2023-02-09 compared with 2022-08-05 · 257 added, 261 removed, 445 unchanged (54% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, September 30,

December 31, September 30,

Current assets:

32 unchanged sentences

Preferred stock, par value $ 0.001 ;

10,000,000 shares authorized and no shares issued and outstanding at June 30, 2022 and September 30, 2021

10,000,000 shares authorized and no shares issued and outstanding at December 31, 2022 and September 30, 2022

Class A common stock, par value $ 0.001 ;

400,000,000 shares authorized, 41,195,730 issued and 41,193,887 outstanding at June 30, 2022 and 36,600,639 issued and outstanding at September 30, 2021

400,000,000 shares authorized, 41,376,528 shares issued and 41,368,094 shares outstanding at December 31, 2022, and 41,195,730 shares issued and 41,193,024 shares outstanding at September 30, 2022

Class B common stock, par value $ 0.001 ;

100,000,000 shares authorized, 14,275,867 issued and 11,352,915 outstanding at June 30, 2022 and 18,614,791 issued and 15,691,839 outstanding at September 30, 2021

100,000,000 shares authorized, 14,275,867 shares issued and 11,352,915 shares outstanding at December 31, 2022 and September 30, 2022

Additional paid-in capital 259,051 256,571

Treasury stock, at cost, 1,843 shares of Class A common stock, par value $ 0.001

Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $ 0.001

Treasury stock, at cost, 8,434 shares of Class A common stock at December 31, 2022 and 2,706 shares of Class A common stock at September 30, 2022, par value $ 0.001

( 178 ) ( 39 )

Accumulated other comprehensive income (loss), net 8,455 ( 23 )

Treasury stock, at cost, 2,922,952 shares of Class B common stock at December 31, 2022 and September 30, 2022, par value $ 0.001

( 15,603 ) ( 15,603 )

Accumulated other comprehensive income, net 16,364 17,620

Retained earnings 199,166 197,274

5 unchanged sentences

(unaudited in thousands, except share and per share data)

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

2022 2021 2022 2021

For the Three Months Ended December 31,

Revenues $ 341,779 $ 284,964

2 unchanged sentences

General and administrative expenses ( 29,725 ) ( 24,946 )

Gain on sale of equipment, net 333 835 1,788 1,177

Gain on sale of property, plant and equipment 168 441

Gain on facility exchange 5,389 —

Operating income 6,328 8,459

1 unchanged sentence

Other income 34 116

Income before provision for income taxes and earnings from investment in joint venture 16,123 13,941 11,129 18,033

Income before provision for income taxes 2,402 7,311

Provision for income taxes 510 1,800

Earnings from investment in joint venture — ( 1 ) — 10

Net income 1,892 5,511

Other comprehensive income, net of tax

Unrealized gain on interest rate swap contract, net 1,729 — 8,754 —

Unrealized loss on restricted investments, net ( 154 ) — ( 276 ) —

Other comprehensive income 1,575 — 8,478 —

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on interest rate swap contract, net ( 1,292 ) 1,445

Unrealized gain on restricted investments, net 36 —

Other comprehensive (loss) income ( 1,256 ) 1,445

Comprehensive income $ 636 $ 6,956

9 unchanged sentences

(unaudited in thousands, except share data)

For the nine months ended June 30, 2022

For the Three Months Ended December 31, 2022

Class A Common Stock Class B Common Stock Additional

Accumulated Other Comprehensive Income (Loss), Net Total Stockholders’ Equity

Accumulated Other Comprehensive Income, net Total Stockholders’ Equity

Shares Amount Shares Amount

2 unchanged sentences

Equity-based compensation expense — — — — 2,480 — — — 2,480

Issuance of stock awards 145,921 — — — — — — — —

Issuance of stock grant awards 180,798 — — — — — — — —

Purchase of treasury stock — — — — — ( 139 ) — — ( 139 )

Other comprehensive income — — — — — — — 1,445 1,445

Conversion of Class B common stock to Class A common stock 4,338,924 4 ( 4,338,924 ) ( 4 ) — — — — —

Other comprehensive (loss) — — — — — — — ( 1,256 ) ( 1,256 )

December 31, 2022 41,376,528 $ 41 14,275,867 $ 15 $ 259,051 $ ( 15,781 ) $ 199,166 $ 16,364 $ 458,856

Net income (loss) — — — — — — ( 9,418 ) — ( 9,418 )

Equity-based compensation expense — — — — 1,742 — — — 1,742

Issuance of stock awards 107,738 — — — — — — — —

Other comprehensive income — — — — — — — 5,458 5,458

March 31, 2022 41,193,222 $ 41 14,275,867 $ 15 $ 251,817 $ ( 15,642 ) $ 171,991 $ 6,880 $ 415,102

Net income — — — — — — 12,168 — 12,168

Equity-based compensation expense — — — — 1,848 — — — 1,848

Issuance of stock awards 2,508 — — — — — — — —

Other comprehensive income — — — — — — — 1,575 1,575

June 30, 2022 41,195,730 $ 41 14,275,867 $ 15 $ 253,665 $ ( 15,642 ) $ 184,159 $ 8,455 $ 430,693

For the nine months ended June 30, 2021

For the Three Months Ended December 31, 2021

Class A Common Stock Class B Common Stock Additional

Capital Treasury

Stock Retained

Earnings Accumulated Other Comprehensive Income (Loss), Net Total

Stockholders’

Accumulated Other Comprehensive Income (Loss), net Total Stockholders’ Equity

Shares Amount Shares Amount

2 unchanged sentences

Equity-based compensation expense — — — — 1,504 — — — 1,504

December 31, 2020 33,875,884 $ 34 20,828,813 $ 21 $ 245,417 $ ( 15,603 ) $ 163,592 $ — $ 393,461

Net income (loss) — — — — — — ( 4,935 ) — ( 4,935 )

Conversion of Class B common stock to Class A common stock 1,332,952 1 ( 1,332,952 ) ( 1 ) — — — — —

Equity-based compensation expense — — — — 460 — — — 460

Issuance of stock awards 510,733 — — — — — — — —

March 31, 2021 35,719,569 $ 35 19,495,861 $ 20 $ 245,877 $ ( 15,603 ) $ 158,657 $ — $ 388,986

Net income — — — — — — 9,340 — 9,340

Issuance of stock grant awards 145,921 — — — — — — — —

Purchase of treasury stock — — — — — ( 39 ) — — ( 39 )

Other comprehensive income — — — — — — — 1,445 1,445

Conversion of Class B common stock to Class A common stock 4,338,924 4 ( 4,338,924 ) ( 4 ) — — — — —

787,001 1 ( 787,001 ) ( 1 ) — — — — —

Equity-based compensation expense — — — — 1,347 — — — 1,347

June 30, 2021 36,506,570 $ 36 18,708,860 $ 19 $ 247,224 $ ( 15,603 ) $ 167,997 $ — $ 399,673

December 31, 2021 41,085,484 $ 41 14,275,867 $ 15 $ 250,075 $ ( 15,642 ) $ 181,409 $ 1,422 $ 417,320

See notes to consolidated financial statements (unaudited).

2 unchanged sentences

(unaudited in thousands)

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

Cash flows from operating activities:

Net income $ 1,892 $ 5,511

Adjustments to reconcile net income to net cash, cash equivalents and restricted cash (used by) provided by operating activities:

Depreciation, depletion, accretion and amortization of long-lived assets 50,291 36,011

Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by (used in) operating activities:

Depreciation, depletion, accretion and amortization 18,375 15,903

Amortization of deferred debt issuance costs and debt discount 77 57

Unrealized gain on derivative instruments ( 2,589 ) ( 3,141 )

Unrealized loss (gain) on derivative instruments 1,007 ( 136 )

Provision for bad debt 40 113

Gain on sale of equipment, net ( 1,788 ) ( 1,177 )

Gain on sale of property, plant and equipment ( 168 ) ( 441 )

Gain on facility exchange ( 5,389 ) —

Realized loss on sales, calls and maturities of restricted investments 1 —

Equity-based compensation expense 2,480 1,504

Earnings from investment in joint venture — ( 10 )

Distribution of earnings from investment in joint venture — 100

Deferred income tax benefit ( 302 ) ( 295 )

Other non-cash adjustments ( 55 ) 33

Changes in operating assets and liabilities, net of acquisition:

Changes in operating assets and liabilities, net of acquisitions:

Contracts receivable including retainage, net 47,072 776

7 unchanged sentences

Other long-term liabilities 1,404 1,455

Net cash (used by) provided by operating activities, net of acquisitions ( 9,721 ) 9,334

Net cash provided by (used in) operating activities, net of acquisitions 28,884 ( 577 )

Cash flows from investing activities:

Purchases of property, plant and equipment ( 31,663 ) ( 15,106 )

Proceeds from sale of equipment 4,184 2,361

Proceeds from sale of property, plant and equipment 1,607 733

Proceeds from facility exchange 36,422 —

Proceeds from sales, calls and maturities of restricted investments 170 —

Business acquisitions, net of cash acquired ( 77,206 ) ( 65,901 )

Purchase of restricted investments ( 7,662 ) —

Net cash used in investing activities ( 70,670 ) ( 80,274 )

Cash flows from financing activities:

Proceeds from issuance of long-term debt, net of debt issuance costs and discount 142,300 199,198

Principal payments on long-term debt ( 5,000 ) ( 92,850 )

Proceeds from revolving credit facility 53,000 70,000

Repayments of long-term debt ( 3,125 ) ( 2,500 )

Purchase of treasury stock ( 139 ) ( 39 )

Net cash provided by financing activities 49,736 67,461

Net change in cash and cash equivalents ( 31,067 ) ( 13,848 )

Net change in cash, cash equivalents and restricted cash 7,950 ( 13,390 )

Cash, cash equivalents and restricted cash:

3 unchanged sentences

Cash paid for interest $ 4,064 $ 1,608

Cash paid for income taxes $ 1,372 $ 3,568

Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 6,209 $ 1,089

Cash paid for operating lease liabilities $ 734 $ 565

Non-cash items:

Property, plant and equipment included with accounts payable at period end $ 1,236 $ 778

Non-compete agreements to seller in business combination $ — $ 1,700

Amounts payable to seller in business combination $ 600 $ 1,296

Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 4,361 $ 4,991

Property, plant and equipment financed with accounts payable $ 4,953 $ 6,256

See notes to consolidated financial statements (unaudited).

3 unchanged sentences

Construction Partners, Inc.

(the “Company”) is a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina.

(the “Company”) is a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.

Through its wholly-owned subsidiaries, the Company provides 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.

1 unchanged sentence

The Company was formed as a Delaware corporation in 2007 as a holding company to facilitate an acquisition growth strategy in the HMA paving and construction industry.

SunTx Capital Partners (“SunTx”), a private equity firm based in Dallas, Texas, has owned a controlling interest in the Company’s stock since the Company’s inception.

On October 1, 2021, Construction Partners Risk Management, Inc., a captive insurance company and wholly-owned subsidiary of the Company (the “Captive”), commenced operations.

The purpose of the Captive is to provide general liability, automobile liability and workers’ compensation insurance coverage to the Company and its subsidiaries.

SunTx Capital Partners (“SunTx”), a private equity firm based in Dallas, Texas, together with its principals and their respective affiliates, has owned a controlling interest in the Company’s stock since the Company’s inception.

The use and consumption of the Company’s products and services fluctuate due to seasonality.

2 unchanged sentences

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 the third and fourth quarters of the Company’s fiscal year typically result in higher activity and revenues during those quarters.

The first and second quarters of the Company’s fiscal year typically have lower levels of activity due to less favorable weather conditions.

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

Note 2 - Significant Accounting Policies

9 unchanged sentences

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the recorded amounts of assets, liabilities, stockholders’ equity, revenues and expenses during the reporting period, and the disclosure of contingent liabilities at the date of the consolidated financial statements.

Estimates are used in accounting for items such as recognition of revenues and cost of revenues, marketable securities, mineral reserves, goodwill and other intangible assets, business acquisition accounting estimates, valuation of operating lease right-of-use assets, allowance for doubtful accounts, valuation allowances related to income taxes, accruals for potential liabilities related to lawsuits or insurance claims, asset retirement

obligations, the fair value of derivative instruments and the fair value of equity-based compensation awards.

Estimates are used in accounting for items such as recognition of revenues and cost of revenues, investments, mineral reserves, goodwill and other intangible assets, business acquisitions, valuation of operating lease right-of-use assets, allowance for doubtful accounts, valuation allowances related to income taxes, accruals for potential liabilities related to lawsuits or insurance claims, asset retirement obligations, valuation of derivative instruments and valuation of equity-based compensation awards.

Estimates are continually evaluated based on historical information and actual experience;

10 unchanged sentences

Restricted Cash

Restricted cash represents cash held in a fiduciary capacity by the Captive for the payment of casualty insurance claims for the Company's subsidiaries.

The Company had restricted cash of $ 0.1 million and $ 0.0 million at June 30, 2022 and September 30, 2021, respectively.

Construction Partners Risk Management, Inc.

(the “Captive”), a captive insurance company and wholly-owned subsidiary of the Company, provides general liability, automobile liability and workers’ compensation insurance coverage to the Company and its subsidiaries.

Restricted cash represents cash held in a fiduciary capacity by the Captive for the payment of casualty insurance claims.

The Company had restricted cash of $ 0.3 million and $ 0.0 million at December 31, 2022 and September 30, 2022, respectively.

Restricted Investments

The Company's restricted investments consist of debt securities, which are held in a fiduciary capacity by the Captive for the payment of casualty insurance claims for the Company's subsidiaries.

The Company’s restricted investments consist of debt securities, which are held in a fiduciary capacity by the Captive for the payment

of casualty insurance claims.

The Company determines the classification of its securities at the time of purchase and re-evaluates the determination at each balance sheet date.

The Company has classified these securities as available-for-sale.

As a result, these securities are carried at their fair value based on quoted market prices.

The Company has classified securities held by the Captive as available-for-sale.

As a result, these securities are carried at their fair value.

Purchases and sales of debt securities are recorded on the trade date.

Interest income on debt securities is recorded when earned using an effective yield method.

Unrealized gains and losses are reported as components of accumulated other comprehensive income (loss), net.

These securities have been classified as non-current assets based on their respective maturity dates.

The Company had restricted investments of $ 7.3 million and $ 0.0 million at June 30, 2022 and September 30, 2021, respectively.

The Company had restricted investments of $ 6.7 million and $ 6.9 million at December 31, 2022 and September 30, 2022, respectively.

The Company evaluates its available-for-sale debt securities quarterly to determine whether there has been a decline in the fair value below the amortized cost due to credit losses or other factors.

This evaluation process entails judgement by the Company, and considers factors including the issuer’s financial condition and near-term prospects, future economic conditions, interest rate changes and changes in the rating of the security.

When the Company has determined that it intends to sell, or that it is more likely than not that the Company will be required to sell, a security before it recovers its amortized cost basis above fair value, the individual security is written down to fair value, with a corresponding charge to “Other income” within the Consolidated Statements of Comprehensive Income.

For available-for-sale debt securities that do not meet the intent impairment criteria but for which the Company has determined that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss allowance is recorded for the credit loss, limited by the amount by which the fair value is less than the amortized cost basis.

For the three months ended December 31, 2022 and 2021, the Company had no intent impairments or credit losses.

Contracts Receivable Including Retainage, Net

1 unchanged sentence

It is common in the Company’s industry for a small portion of either progress billings or the contract price, typically 10%, to be withheld by the customer until the Company completes a project to the satisfaction of the customer in accordance with the applicable contract terms.

Such amounts, defined as retainage, represent a contract asset and are included on the Consolidated Balance Sheets as “Contracts receivable including retainage, net.” Based on the Company’s experience with similar contracts in recent years, billings for such retainage balances are generally collected within one year of the completion of the project.

Such amounts, defined as retainage, represent a contract asset and are included on the Consolidated Balance Sheets as “Contracts receivable including retainage, net.” Billings for such retainage balances are generally collected within one year of the completion of the project.

Contracts receivable including retainage, net is stated at the amount management expects to collect from outstanding balances.

7 unchanged sentences

Amounts billed to customers are excluded from this asset and reflected on the Consolidated Balance Sheets as “Contracts receivable including retainage, net.” Included in costs and estimated earnings in excess of billings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for (i) errors, (ii) changes in contract specifications or design, (iii) contract change orders in dispute, unapproved as to scope and price, or (iv) other customer-related causes of unanticipated additional contract costs (such as claims).

Such amounts are recorded to the extent that the amount can be reasonably

estimated and recovery is probable.

Such amounts are recorded to the extent that the amount can be reasonably estimated and recovery is probable.

Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation.

12 unchanged sentences

The Company generally has the ability to file liens against the property if payments are not made on a timely basis.

No single customer accounted for more than 10% of the Company’s contracts receivable including retainage, net balance at June 30, 2022 or September 30, 2021.

Projects performed for various departments of transportation accounted for 43.7 % and 35.9 % of consolidated revenues for the three months ended June 30, 2022 and 2021, respectively, and for 37.2 % and 30.7 % of consolidated revenues for the nine months ended June 30, 2022 and 2021, respectively.

Customers that accounted for more than 10% of consolidated revenues during the three and nine months ended June 30, 2022 and 2021 are presented below:

% of Consolidated Revenues

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

2022 2021 2022 2021

No single customer accounted for more than 10% of the Company’s contracts receivable including retainage, net balance at December 31, 2022 or September 30, 2022.

Projects performed for various departments of transportation accounted for 33.7 % and 33.5 % of consolidated revenues for the three months ended December 31, 2022 and 2021, respectively.

Customers that accounted for more than 10% of consolidated revenues during either the three months ended December 31, 2022 or the three months ended December 31, 2021 are presented below:

% of Consolidated Revenues for the Three Months Ended December 31,

Alabama Department of Transportation 6.2 % 10.1 %

North Carolina Department of Transportation 13.6 % 12.2 % 10.3 % 8.7 %

Florida Department of Transportation 8.0 % 10.0 %

North Carolina Department of Transportation 10.9 % 9.4 %

Revenues from Contracts with Customers

2 unchanged sentences

In addition, the Company generates revenues from the sale of construction materials, including HMA, aggregates, liquid asphalt and ready-mix concrete, to third-party public and private customers pursuant to contracts with those customers.

The following table reflects, for the periods presented, (i) revenues generated from public infrastructure construction projects and the sale of construction materials to public customers and (ii) revenues generated from private infrastructure construction projects and the sale of construction materials to private customers.

% of Consolidated Revenues

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

2022 2021 2022 2021

Private 36.6 % 38.5 % 38.8 % 40.0 %

The following table reflects, for the periods presented, the percentage of (i) revenues generated from public infrastructure construction projects and the sale of construction materials to public customers and (ii) revenues generated from private infrastructure construction projects and the sale of construction materials to private customers.

% of Consolidated Revenues for the Three Months Ended December 31,

Public 61.2 % 61.0 %

Private 38.8 % 39.0 %

Revenues derived from construction projects are recognized over time as the Company satisfies its performance obligations by transferring control of the asset created or enhanced by the project to the customer.

28 unchanged sentences

Accordingly, change orders are generally accounted for as a modification of the existing contract and single performance obligation.

We account for the modification using a cumulative catch-up adjustment.

The Company accounts for the modification

using a cumulative catch-up adjustment.

Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work.

22 unchanged sentences

The Company endeavors to utilize the best available information in measuring fair value.

The Company’s financial instruments include cash and cash equivalents, restricted cash, contracts receivable including retainage, accounts payable and accrued expenses reflected as current assets and current liabilities on its Consolidated Balance Sheets at June 30, 2022 and September 30, 2021.

Due to the short-term nature of these instruments, management considers their carrying value to approximate their fair value.

The Company also has debt securities reflected as restricted investments on its Consolidated Balance Sheets at June 30, 2022 and September 30, 2021.

These investments are adjusted to fair value at each balance sheet date based on quoted prices, which are considered Level 1 inputs.

The Company also has debt securities reflected as restricted investments on its Consolidated Balance Sheets at December 31, 2022 and September 30, 2022.

These investments are adjusted to fair value at each balance sheet date and are considered Level 2 fair value measurements.

The Company also has a Term Loan and a Revolving Credit Facility, as defined and further described in Note 8 - Debt.

The carrying value of amounts outstanding under these credit facilities is reflected as long-term debt, net of current maturities and current maturities of long-term debt on the Company’s Consolidated Balance Sheets at June 30, 2022 and September 30, 2021.

The carrying value of amounts outstanding under these credit facilities is reflected as long-term debt, net of current maturities and deferred debt issuance cost and current maturities of long-term debt on the Company’s Consolidated Balance Sheets at December 31, 2022 and September 30, 2022.

Due to the variable rate or short-term nature of these instruments, management considers their carrying value to approximate their fair value.

12 unchanged sentences

net income and other comprehensive income (“OCI”).

OCI includes adjustments for changes in fair value of an interest rate swap contract derivative and debt securities.

OCI includes adjustments for changes in fair value of an interest rate swap contract derivative and available-for-sale restricted investments.

For additional information about comprehensive income, see Note 19 - Other Comprehensive Income.

Note 3 - Accounting Standards

New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, “Simplifying the Accounting for Income Taxes,” which adds new guidance to simplify the accounting for income taxes and changes the accounting for certain income tax transactions.

The new standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company adopted this guidance effective October 1, 2021 as required and noted no material impact to the Company's consolidated financial statements.

Note 4 - Business Acquisitions

On March 7, 2022, the Company acquired substantially all of the assets of Southern Asphalt, Inc., an asphalt paving company headquartered in Burgaw, North Carolina.

The transaction provides access to the Wilmington, North Carolina metro area market.

On March 18, 2022, the Company acquired substantially all of the assets of GAC Contractors, Inc., an asphalt paving, grading and sitework company headquartered in Panama City, Florida.

The transaction enhances the Company's operational resources and capabilities in the growing Panama City, Florida market area.

On October 1, 2021, the Company acquired all of the capital stock of King Asphalt, Inc., a HMA production and paving company headquartered in Liberty, South Carolina.

The transaction established the Company's first platform company in South Carolina and added three HMA plants in the Greenville, South Carolina metro area.

On October 18, 2021, the Company acquired substantially all of the assets of J.

Miller Construction Inc., a grading and site work company headquartered in Pensacola, Florida.

The transaction enhanced the Company’s vertical integration of construction services and supplemented the Company’s capabilities in the greater Pensacola, Florida market area.

These acquisitions were accounted for as business combinations in accordance with FASB Accounting Standards Codification ("ASC") Topic 805 Business Combinations.

The Company consulted with independent third parties to assist in the valuation of various types and classes of assets.

The Company expects to finalize these values as soon as practicable and no later than one year from the acquisition date.

Identifiable tangible assets acquired and liabilities assumed were recorded at their estimated fair values based on the methodology described under "Fair Value Measurements" in Note 2 - Significant Accounting Policies.

The amount of the purchase price exceeding the net fair value of identifiable assets acquired and liabilities assumed was recorded as provisional goodwill in the amount of approximately $ 38.2 million, which is deductible for income tax purposes.

Goodwill primarily represents the assembled work force and synergies expected to result from the acquisition.

Upon finalizing the accounting for these transactions, management expects to ascribe value to other identifiable intangible assets, including customer relationships and customer backlog, which will reduce the provisional amount allocated to goodwill.

Total consideration for these four acquisitions was $ 104.7 million, of which $ 104.1 million has been paid with cash as of June 30, 2022.

These acquisitions were funded with borrowings under the Company's Revolving Credit Facility.

The Company did not adopt any new accounting standards or updates during the three months ended December 31, 2022.

Note 4 - Business Acquisitions and Disposition

Tennessee Acquisition - Provisional

On November 18, 2022, the Company acquired three HMA manufacturing plants and certain related assets located in the Nashville, Tennessee metro area for $ 8.4 million.

In connection with this transaction, the Company disposed of a quarry located near Goldston, North Carolina, resulting in total cash proceeds of $ 36.4 million and a gain on the facility exchange of $ 5.4 million.

North Carolina Acquisition - Provisional

On December 1, 2022, the Company acquired all of the capital stock of Ferebee Corporation, an HMA manufacturing and paving company headquartered in Charlotte, North Carolina for $ 68.8 million.

The transaction established the Company’s second platform company in North Carolina and added three HMA plants in the greater Charlotte/Rock Hill metro area.

Combined Acquisitions During the Three Months Ended December 31, 2022

The foregoing acquisitions were accounted for as business combinations in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”).

As of December 31, 2022, the purchase price allocation has not yet been finalized due to the recent timing of these acquisitions, as certain information was pending on such date to finalize estimates of fair value of certain assets acquired and liabilities assumed.

The Company consulted with independent third parties to assist in the valuation process.

The Company expects to finalize these values as soon as practicable and no later than one year from their respective acquisition dates.

Identifiable assets acquired and liabilities assumed were recorded at their estimated fair values based on the methodology described

under Fair Value Measurements in Note 2 - Significant Accounting Policies.

The amount of the purchase price exceeding the net fair

value of identifiable assets acquired and liabilities assumed was recorded as provisional goodwill in the amount of approximately

$ 32.3 million, which is deductible for income tax purposes.

Goodwill primarily represents the assembled work force and

synergies expected to result from the acquisitions.

Upon finalizing the accounting for these transactions, management

expects to ascribe value to other identifiable intangible assets, including customer relationships and customer backlog, which will

reduce the provisional amount allocated to goodwill.

Total consideration transferred for these acquisitions was $ 77.2 million, which was paid from available cash, proceeds from the exchange of the North Carolina facility and a draw from the Revolving Credit Facility (as defined in Note 8).

The total consideration has been provisionally allocated as follows:

$ 1.2 million of cash and cash equivalents, $ 8.9 million of contracts receivable including retainage, net, $ 0.1 million of costs and estimated earnings in excess of billings on uncompleted contracts, $ 2.0 million of inventory, $ 1.0 million of prepaid expenses and other current assets, $ 2.8 million of accounts payable, $ 0.4 million of billings in excess of costs and estimated earnings on uncompleted contracts, $ 1.2 million of accrued expenses and other current liabilities, $ 49.5 million of property, plant and equipment, $ 8.2 million of intangible assets and $ 38.2 million of goodwill.

Combined Acquisitions During the Three Months and Nine Months Ended June 30, 2022

The Consolidated Statements of Comprehensive Income include $ 40.5 million of revenue and $ 0.5 million of net income

attributable to the operations of these acquisitions for the three months ended June 30, 2022 and $ 70.3 million of revenue and $ 0.8 million of net loss attributable to the operations of these acquisitions for the nine months ended June 30, 2022 from their respective acquisition dates.

The Company recorded certain costs to effect the acquisitions as they were incurred, which are reflected in general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income in the amount of $ 0.0 million for the three months ended June 30, 2022 and $ 0.4 million for the nine months ended June 30, 2022.

The following presents actual or pro forma revenues and net income, as applicable, as though the acquisitions had occurred on October 1, 2020 (unaudited, in thousands):

For the Three Months Ended June 30,

Pro forma revenues $ 380,272 $ 314,819

Pro forma net income $ 12,168 $ 11,833

For the Nine Months Ended June 30,

$ 9.0 million of net working capital, $ 35.9 million of property, plant and equipment and $ 32.3 million of goodwill.

The Consolidated Statements of Comprehensive Income include $ 4.2 million of revenue and $ 0.2 million of net loss attributable to the operations of these acquisitions for the three months ended December 31, 2022 from their respective acquisition dates.

The Company recorded certain costs to effect the acquisitions as they were incurred, which are reflected in general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income in the amount of $ 0.2 million for the three months ended December 31, 2022.

The following table presents pro forma revenues and net income as though the acquisitions had occurred on October 1, 2021 (unaudited, in thousands):

For the Three Months Ended December 31,

Pro forma revenues $ 353,161 $ 300,524

Pro forma net income $ 2,797 $ 6,052

Pro forma financial information is presented as if the acquired operations had been included in the consolidated results of the Company since October 1, 2020, and gives effect to transactions that are directly attributable to the acquisitions, including adjustments to:

(a) Include the pro forma results of operations of the acquisitions for the three and nine months ended June 30, 2022 and 2021.

Pro forma financial information is presented as if the operations of the acquisitions had been included in the consolidated results of the Company since October 1, 2021, and gives effect to transactions that are directly attributable to the acquisitions, including adjustments to:

(a) include the pro forma results of operations of the acquisitions for the three months ended December 31, 2022 and 2021;

(b) include additional depreciation and depletion expense related to the fair value of acquired property, plant and equipment and reserves at aggregates facilities, as applicable, as if such assets were acquired on October 1, 2021 and consistently applied to the Company’s depreciation and depletion methodologies;

(c) Include interest expense under the Term Loan as if the funds borrowed to finance the purchase prices were borrowed on October 1, 2020.

Interest expense calculations further assume that no principal payments were made during the period from October 1, 2020 through June 30, 2022, and that the interest rate in effect on the date the Company made the acquisitions was in effect for the period from October 1, 2020 through June 30, 2022.

(d) Exclude $ 0.4 million of acquisition-related expenses from the three and nine months ended June 30, 2022, as though such expenses were incurred prior to the pro forma acquisition date of October 1, 2020.

(c) include interest expense under the Term Loan as if the funds borrowed to finance the purchase prices were borrowed on October 1, 2021 (interest expense calculations further assume that no principal payments were made during the period from October 1, 2021 through December 31, 2022, and that the interest rate in effect on the date the Company made the acquisitions was in effect for the period from October 1, 2021 through December 31, 2022);

(d) exclude $ 0.2 million of acquisition-related expenses from the three months ended December 31, 2022, as though such expenses were incurred prior to the pro forma acquisition date of October 1, 2021.

Pro forma information is presented for informational purposes and may not be indicative of revenue or net income that would have been achieved if these acquisitions had occurred on October 1, 2022.

Provisional Accounting

In July 2021, the Company acquired a HMA contracting company and related entities, all headquartered in Cullman, Alabama.

In August 2021, the Company acquired a crushed stone and aggregates facility located near Goldston, North Carolina.

As of June 30, 2022, there have been no material adjustments to the September 30, 2021 provisional accounting for either acquisition.

In March 2022, the Company acquired an HMA paving company headquartered in Burgaw, North Carolina.

In August 2022, the Company acquired an HMA paving, grading and sitework company headquartered in Conway, South Carolina.

As of December 31, 2022, there had been no material adjustments to the September 30, 2022 provisional accounting for either acquisition as reported in the 2022 Form 10-K.

Note 5 - Contracts Receivable Including Retainage, Net

Contracts receivable including retainage, net consisted of the following at June 30, 2022 and September 30, 2021 (in thousands):

June 30, 2022 September 30, 2021

Contracts receivable including retainage, net consisted of the following at December 31, 2022 and September 30, 2022 (in thousands):

December 31, 2022 September 30, 2022

Contracts receivable $ 181,752 $ 221,566

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Note 6 - Contract Assets and Liabilities

Costs and estimated earnings compared to billings on uncompleted contracts at June 30, 2022 and September 30, 2021 consisted of the following (in thousands):

June 30, 2022 September 30, 2021

Costs and estimated earnings compared to billings on uncompleted contracts at December 31, 2022 and September 30, 2022 consisted of the following (in thousands):

December 31, 2022 September 30, 2022

Costs on uncompleted contracts $ 1,338,267 $ 1,520,510

3 unchanged sentences

Net billings in excess of costs and estimated earnings on uncompleted contracts $ ( 24,752 ) $ ( 23,206 )

Significant changes to balances of costs and estimated earnings in excess of billings (contract asset) and billings in excess of costs and estimated earnings (contract liability) on uncompleted contracts from September 30, 2021 to June 30, 2022 are presented below (in thousands):

Significant changes to balances of costs and estimated earnings in excess of billings (contract asset) and billings in excess of costs and estimated earnings (contract liability) on uncompleted contracts from September 30, 2022 to December 31, 2022 are presented below (in thousands):

Costs and Estimated Earnings in Excess of Billings on

3 unchanged sentences

Changes in revenue billed, contract price or cost estimates $ 3,124 $ ( 4,670 ) $ ( 1,546 )

June 30, 2022 (unaudited) $ 32,635 $ ( 47,516 ) $ ( 14,881 )

At June 30, 2022, the Company had unsatisfied or partially unsatisfied performance obligations under construction project contracts representing approximately $ 958.9 million in aggregate transaction price.

The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $ 326.8 million during the remainder of the fiscal year ending September 30, 2022 and $ 632.1 million thereafter.

December 31, 2022 (unaudited) $ 32,395 $ ( 57,147 ) $ ( 24,752 )

At December 31, 2022, the Company had unsatisfied or partially unsatisfied performance obligations under construction project contracts representing approximately $ 1.2 billion in aggregate transaction price.

The Company expects to earn revenue as it satisfies its performance obligations under such contracts in the amount of approximately $ 791.1 million during the remainder of the fiscal year ending September 30, 2023 and $ 368.4 million thereafter.

Note 7 - Property, Plant and Equipment

Property, plant and equipment at June 30, 2022 and September 30, 2021 consisted of the following (in thousands):

June 30, 2022 September 30, 2021

Property, plant and equipment at December 31, 2022 and September 30, 2022 consisted of the following (in thousands):

December 31, 2022 September 30, 2022

Construction equipment $ 437,627 $ 402,581

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Total property, plant and equipment, net $ 498,293 $ 481,412

Depreciation, depletion and amortization expense related to property, plant and equipment was $ 17.6 million and $ 12.4 million for the three months ended June 30, 2022 and 2021, respectively, and $ 50.4 million and $ 35.6 million for the nine months ended June 30, 2022 and 2021, respectively.

Depreciation, depletion, and amortization expense related to property, plant and equipment for the three months ended December 31, 2022 and 2021 was $ 19.3 million and $ 15.8 million, respectively.

Note 8 - Debt

The Company maintains credit facilities to finance acquisitions, to fund the purchase of real estate, construction equipment, plants and other fixed assets, and for general working capital purposes.

Debt at June 30, 2022 and September 30, 2021 consisted of the following (in thousands):

June 30, 2022 September 30, 2021

Debt at December 31, 2022 and September 30, 2022 consisted of the following (in thousands):

December 31, 2022 September 30, 2022

Long-term debt:

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Current maturities of long-term debt ( 12,500 ) ( 12,500 )

Long-term debt, net of current maturities $ 341,173 $ 206,175

Long-term debt, net of current maturities and deferred debt issuance costs $ 413,018 $ 363,066

Since 2017, the Company and each of its subsidiaries have been parties to a credit agreement with PNC Bank, National Association (successor in interest to BBVA USA) and certain other lenders party from time to time thereto.

The credit agreement has been amended and restated on multiple occasions since its inception in order to provide for changes in the economic terms of the credit facility and developments at the Company.

On June 30, 2022, the Company and each of its subsidiaries entered into a Third Amended and Restated Credit Agreement with PNC Bank, National Association, as administrative agent and lender, PNC Capital Markets LLC, as joint lead arranger and sole bookrunner, 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 (i) a term loan facility in an initial aggregate principal amount of $ 250.0 million (the “Term Loan”) the full amount of which was drawn at closing, (ii) a revolving credit facility in an initial aggregate principal amount of $ 325.0 million, (the “Revolving Credit Facility”), and (iii) a delayed draw term loan facility in an initial aggregate principal amount of $ 50.0 million.

The Credit Agreement provides for (i) a term loan facility in an initial aggregate principal amount of $ 250.0 million (the “Term Loan”) the full amount of which was drawn at closing, (ii) a revolving credit facility in an initial aggregate principal amount of $ 325.0 million (the “Revolving Credit Facility”), and (iii) a delayed draw term loan facility in an initial aggregate principal amount of $ 50.0 million (the “Delayed Draw Term Loan”).

Among other things, the proceeds of the Term Loan were used to refinance indebtedness of the Company and its subsidiaries under its prior credit facility.

The Term Loan, inclusive of any incremental borrowings made in the form of a term loan, will amortize in quarterly installments commencing on September 30, 2022 in an amount (subject, in each case, to adjustments for prior mandatory and voluntary prepayments of principal) equal to:

(i) 1.25 % of the original principal amount of the Term Loan on September 30, 2022 and on each of the following eleven quarter-end payment dates, and (ii) 1 .875 % of the original principal amount of the Term Loan on each of the next eight quarter-end payment dates.

All outstanding advances under the Term Loan and Revolving Credit Facility are due and payable in full on June 30, 2027.

All outstanding advances under the Term Loan and Revolving Credit Facility are due and payable in full on June 30, 2027 (the “Maturity Date”).

The Term Loan (commencing on September 30, 2022) and the Delayed Draw Term Loan (commencing with the earliest of (i) December 31, 2023, or (ii) the last day of the fiscal quarter in which the commitments under the Delayed Draw Term Loan are fully drawn or terminated, as applicable) will amortize in quarterly installments in an amount (subject, in each case, to adjustments for prior mandatory and voluntary prepayments of principal) equal to:

(a) 1.25 % of the original principal amount of the Term Loan (and, to the extent any Delayed Draw Term Loans are then outstanding, the original principal amount of such loans) and continuing on each of the following eleven quarter-end payment dates;

(b) 1.875 % of the original principal amount of the Term Loan (and, to the extent any Delayed Draw Term Loans are then outstanding, the original principal amount of such loans) on each of the next eight quarter-end payment dates;

and (c) all remaining principal of the Term Loan and the Delayed Draw Term Loans are due and payable in full on the Maturity Date.

The annual interest rates applicable to advances will be calculated, at the Company’s option, by using either a base rate, Daily Simple SOFR plus 0.10 %, or Term SOFR plus 0.10 %, and in each case, plus an applicable margin percentage that corresponds to the Company’s consolidated net leverage ratio.

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The obligations of the Company and its subsidiaries under the Credit Agreement are secured by a first priority security interest in substantially all of the Company’s assets.

At December 31, 2022 and September 30, 2022, there was $ 268.8 million and $ 271.9 million, respectively, of principal outstanding under the Term Loan, $ 158.1 million and $ 105.1 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $ 156.9 million and $ 208.6 million, respectively, under the Revolving Credit Facility, including a reduction for outstanding letters of credit.

The Company also had $ 25.0 million available under the Delayed Draw Term Loan at December 31, 2022 and September 30, 2022.

The Credit Agreement contains customary negative covenants for agreements of this type, including, but not limited to, restrictions on

the Company’s ability to make acquisitions, make loans or advances, make capital expenditures and investments, pay dividends, create

or incur indebtedness, create liens, wind up or dissolve, consolidate, merge or liquidate, or sell, transfer or dispose of assets.

Agreement also 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 3.50 -to-1.00, subject to certain adjustments.

At December 31, 2022 and September 30, 2022, the Company’s fixed charge coverage ratio was 1.87 -to-1.00 and 2.56 -to-1.00, respectively, and the Company’s

consolidated leverage ratio was 2.96 -to-1.00 and 2.79 -to-1.00, respectively.

At both December 31, 2022 and September 30, 2022, the Company was in compliance with all covenants under the Credit Agreement.

From time to time, the Company has entered into interest rate swap agreements to hedge against the risk of changes in interest rates.

both December 31, 2022 and September 30, 2022, the aggregate notional value of these interest rate swap agreements was $ 300.0 million, and the fair value was $ 23.4 million and $ 24.7 million, respectively, which is included within other assets on the Company’s Consolidated Balance Sheets.

Note 9 - Equity

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Class A common stock is not convertible into any other class of the Company’s capital stock.

Conversion of Class B Common Stock to Class A Common Stock

During the nine months ended June 30, 2022, certain stockholders of the Company converted a total of 4,338,924 shares of Class B common stock into shares of Class A common stock on a one -for-one basis.

As of June 30, 2022, there were 41,193,887 shares of Class A common stock and 11,352,915 shares of Class B common stock outstanding.

Treasury Stock

During the nine months ended June 30, 2022, the Company received a total of 1,843 shares of Class A common stock from employees for reimbursement of income taxes paid by the Company on behalf of these employees related to the vesting of restricted stock awards.

During the three months ended December 31, 2022, the Company received a total of 5,267 shares of Class A common stock from employees for reimbursement of income taxes paid by the Company on behalf of these employees related to the vesting of restricted stock awards and 461 shares of Class A common stock through forfeitures of restricted stock awards by terminated employees.

Restricted Stock Awards

During the nine months ended June 30, 2022, the Company awarded a total of 256,167 restricted shares of Class A common stock to certain directors, officers and employees of the Company under the Construction Partners, Inc.

During the three months ended December 31, 2022, the Company awarded a total of 180,798 restricted shares of Class A common stock to certain directors, officers and employees of the Company under the Construction Partners, Inc.

2018 Equity Incentive Plan (the “Equity Incentive Plan”).

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The following table summarizes the weighted-average number of basic common shares outstanding and the calculation of basic earnings per share for the periods presented (unaudited in thousands, except share and per share amounts):

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

2022 2021 2022 2021

Net income (loss) attributable to common stockholders $ 12,168 $ 9,340 $ 8,261 $ 12,276

For the Three Months Ended December 31,

Net income attributable to common shareholders $ 1,892 $ 5,511

Weighted average number of common shares outstanding, basic 51,824,948 51,696,004

Net income (loss) per common share attributable to common stockholders, basic $ 0.23 $ 0.18 $ 0.16 $ 0.24

Net income per common share attributable to common shareholders, basic $ 0.04 $ 0.11

The following table summarizes the calculation of the weighted-average number of diluted common shares outstanding and the calculation of diluted earnings per share for the periods presented (unaudited in thousands, except share and per share amounts):

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

2022 2021 2022 2021

Net income (loss) attributable to common stockholders $ 12,168 $ 9,340 $ 8,261 $ 12,276

For the Three Months Ended December 31,

Net income attributable to common stockholders $ 1,892 $ 5,511

Weighted average number of basic common shares outstanding, basic 51,824,948 51,696,004

Effect of dilutive securities:

Restricted stock grants under 2018 Equity Incentive Plan 95,266 177,668 168,043 106,852

Restricted stock grants 295,636 281,970

Weighted average number of diluted common shares outstanding:

Net income (loss) per diluted common share attributable to common stockholders $ 0.23 $ 0.18 $ 0.16 $ 0.24

52,120,584 51,977,974

Net income per diluted common share attributable to common stockholders $ 0.04 $ 0.11

Note 11 - Provision for Income Taxes

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Management evaluated the Company’s tax positions based on appropriate provisions of applicable tax laws and regulations and believes that they are supportable based on their specific technical merits and the facts and circumstances of the respective transactions.

The Company’s effective income tax rate for the three months ended June 30, 2022 and 2021 was 24.5 % and 33.0 %, respectively.

The Company’s effective tax rate for the nine months ended June 30, 2022 and 2021 was 25.8 % and 32.0 %, respectively.

The changes in the Company's effective rates are due to differences in state tax rates at its operating subsidiaries and an unfavorable impact of a non-deductible legal settlement incurred in the three months ended June 30, 2021.

The Company’s effective income tax rate for the three months ended December 31, 2022 and 2021 was 21.2 % and 24.6 %, respectively.

The changes in the Company’s effective rates are due to differences in state tax rates at its operating subsidiaries.

Note 12 - Related Parties

On December 31, 2017, the Company sold an indirect wholly owned subsidiary to an immediate family member of an executive officer of the Company (“Purchaser of Subsidiary”) in consideration for a note receivable in the amount of $ 1.0 million, which approximated the net book value of the disposed entity.

At June 30, 2022, $ 0.1 million and $ 0.4 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balances on this note receivable.

At December 31, 2022, $ 0.1 million and $ 0.3 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balances on this note receivable.

In connection with this transaction, the Company also received a note receivable from the disposed entity (“Disposed Entity”) on December 31, 2017 in the amount of $ 1.0 million representing certain accounts payable of the Disposed Entity that were paid by the Company.

At June 30, 2022, $ 0.1 million and $ 0.2 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balances on this note receivable.

At December 31, 2022, $ 0.1 million and $ 0.2 million was reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets, respectively, representing the remaining balances on this note receivable.

The notes do not bear interest, and are scheduled to be repaid in periodic installments during fiscal year 2023 through fiscal year 2026.

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• Entities owned by immediate family members of an executive officer of the Company perform subcontract work for a subsidiary of the Company, including trucking and grading services (“Subcontracting Services”).

• From time to time, a subsidiary of the Company provides construction services to various companies owned by family members of an executive officer of the Company (“Construction Services”).

• The Company purchases vehicles from an entity owned by a family member of an executive officer of the Company (“Vehicles - Purchases”).

• The Company rents vehicles from an entity owned by a family member of an executive officer of the Company (“Vehicles - Rent Expense”).

• Since June 1, 2014, the Company has been a party to an access agreement with Island Pond Corporate Services, LLC, which provides a location for the Company to conduct business development activities from time to time on a property owned by the Executive Chairman of the Company’s Board of Directors (“Island Pond”).

• The Company is party to a management services agreement with SunTx, under which the Company pays SunTx $ 0.29 million per fiscal quarter and reimburses certain travel and other out-of-pocket expenses associated with services rendered under the management services agreement.

The following table presents revenues earned and expenses incurred by the Company during the three and nine months ended June 30, 2022 and 2021, and accounts receivable and payable balances at June 30, 2022 and September 30, 2021, related to transactions with the related parties described above (in thousands):

The following table presents revenues earned and expenses incurred by the Company during the three months ended December 31, 2022 and 2021, and accounts receivable and payable balances at December 31, 2022 and September 30, 2022, related to transactions with the related parties described above (in thousands):

Revenue Earned (Expense Incurred) Accounts Receivable (Payable)

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

For the Three Months Ended December 31, December 31, September 30,

2022 2021 2022 2022

(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

(unaudited) (unaudited) (unaudited)

Purchaser of Subsidiary $ — $ — $ 414 $ 414

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Subcontracting Services ( 1,819 ) (1)

Construction Services — (2) 17 (2) — (2) 136 (2) — —

( 2,239 ) (1)

( 568 ) ( 695 )

Island Pond ( 80 ) (2)

Vehicles - Purchases — (3) ( 128 ) (3) — (3) ( 536 ) (3) — —

Vehicles - Rent Expense — (2) ( 31 ) (2) — (2) ( 158 ) (2) — —

SunTx ( 367 ) (2)

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(2) Cost is reflected as general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income.

(3) Purchases reflected in property, plant & equipment, net, on the Company's Consolidated Balance Sheets.

Note 13 - Equity-Based Compensation

Restricted Stock Awards

Compensation expense in connection with the Equity Incentive Plan, is reflected as general and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income.

Compensation expense was $ 1.8 million and $ 1.3 million for the three months ended June 30, 2022 and 2021, respectively, and $ 5.1 million and $ 2.2 million for the nine months ended June 30, 2022 and 2021, respectively.

At June 30, 2022, there was approximately $ 14.9 million of unrecognized compensation expense related to these awards.

The underlying shares subject to awards granted under the Equity Incentive Plan will vest, as follows:

Fiscal Year Number of Shares

Total 751,057

The Company measures and recognizes equity-based compensation expense, net of forfeitures, over the requisite vesting periods for all equity-based payment awards made, and recognizes forfeitures as they occur.

Equity-based compensation is included in general and administrative expenses in the Consolidated Statements of Comprehensive Income.

Restricted Stock

During the quarter ended December 31, 2022, the Company awarded a total of 180,798 restricted shares of Class A common stock to certain members of Company management under the Equity Incentive Plan.

The grants are classified as equity awards.

The aggregate grant date fair value of these restricted awards was $ 5.4 million.

During the quarter ended December 31, 2022, the Company recorded compensation expense in connection with these grants in the amount of $ 0.4 million, which is reflected as general and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income.

At December 30, 2022, there was approximately $ 5.0 million of unrecognized compensation expense related to these awards, which will be recognized over a remaining weighted-average period of 2.8 years.

Performance Stock Units

Performance stock units (“PSUs”) are eligible to vest at the end of the performance period based on achievement of certain performance metrics established by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”).

The preliminary number of shares of common stock issuable upon vesting of PSUs can range from 0 % to 150 % of the number of shares subject to the award, depending on the level of achievement, as determined by the Compensation Committee.

The preliminary number of vested shares may be increased or decreased by up to 15 % based on a comparison of the Company’s total shareholder return over the performance period to that of the Russell 2000.

The Company recognizes expense, net of estimated forfeitures, for PSUs based on the forecasted level of achievement of the applicable performance metrics, multiplied by the fair value of the total number of shares of Class A common stock underlying the PSUs that the Company anticipates will be delivered upon vesting based on such achievement.

During the quarter ended December 31, 2022, the Company awarded PSUs representing a potential vesting of 84,371 shares and forecasted vesting of 63,278 shares of Class A common stock to certain members of Company management.

The grants are classified as equity awards.

The aggregate grant date fair value of these awards was $ 2.1 million.

During the quarter ended December 31, 2022, the Company recorded compensation expense in connection with these awards in the amount of $ 0.1 million, which is reflected as general and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income.

At December 31, 2022, there was approximately $ 2.0 million of unrecognized compensation expense related to these awards.

Note 14 - Leases

The Company leases certain facilities, office space, vehicles and equipment.

As of June 30, 2022, operating leases under ASC Topic 842, Leases (“Topic 842”) were included in (i) operating lease right-of use assets, (ii) current portion of operating lease liabilities and (iii) operating lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets in the amounts of $ 11.2 million, $ 2.1 million and $ 9.3 million, respectively.

As of June 30, 2022, the Company did not have any lease contracts that had not yet commenced but had created significant rights and obligations.

As of December 31, 2022, operating leases under ASC Topic 842, Leases (“Topic 842”) were included in (i) operating lease right-of use assets, (ii) current portion of operating lease liabilities and (iii) operating lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets in the amounts of $ 17.7 million, $ 2.3 million and $ 15.7 million, respectively.

As of December 31, 2022, the Company did not have any lease contracts that had not yet commenced but had created significant rights and obligations.

The components of lease expense were as follows (unaudited, in thousands):

For the Three Months Ended June 30,

Operating lease cost $ 650 $ 593

Short-term lease cost 5,698 3,732

Total lease expense $ 6,348 $ 4,325

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

Operating lease cost $ 726 $ 597

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These leases are entered into at periodic rental rates for an unspecified duration and typically have a termination for convenience provision.

As of June 30, 2022, the weighted-average remaining term of the Company’s leases was 7.7 years, and the weighted-average discount rate was 3.30 %.

As of June 30, 2022, the lease liability was equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on the Company’s secured debt using a single maturity discount rate, as such rate is not materially different from the discount rate applied to each of the leases in the portfolio.

The following table summarizes the Company’s undiscounted lease liabilities outstanding as of June 30, 2022 (unaudited, in thousands):

As of December 31, 2022, the weighted-average remaining term of the Company’s leases was 11.1 years, and the weighted-average discount rate was 3.08 %.

As of December 31, 2022, the lease liability was equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on the Company’s secured debt using a single maturity discount rate, as such rate is not materially different from the discount rate applied to each of the leases in the portfolio.

The following table summarizes the Company’s undiscounted lease liabilities outstanding as of December 31, 2022 (unaudited, in thousands):

Fiscal Year Amount

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Interest Rate Swap Contracts

The Company uses derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates.

We regularly monitor the financial stability and credit standing of the counterparties to our derivative instruments.

We do not enter into derivative financial instruments for speculative purposes.

The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates.

The Company regularly monitor the financial stability and credit standing of the counterparties to its derivative instruments.

The Company does not enter into derivative financial instruments for speculative purposes.

The Company records all derivatives at fair value.

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Changes in the fair value of a derivative that is qualified and designated as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings.

If the Company does not designate a derivative as one of the above, changes in the fair value of the undesignated derivative instrument are reported in current period earnings.

If the Company does not specifically designate a derivative as one of the above, changes in the fair value of the undesignated derivative instrument are reported in current period earnings.

Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the Consolidated Statements of Cash Flows, while cash flows from undesignated derivative financial instruments are included as an investing activity.

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The Company’s operations expose it to a variety of market risks, including the effects of changes in commodity prices.

As part of its risk management process, the Company began entering into commodity swap transactions through regulated commodity exchanges in February 2020.

As part of its risk management process, the Company has entered into commodity swap transactions through regulated commodity exchanges.

The Company does not enter into derivative financial instruments for speculative purposes.

Changes in the fair value of commodity swaps are recognized in earnings.

The following table represents the approximate amount of realized and unrealized gains (losses) and changes in fair value recognized in earnings on commodity derivative contracts for the three and nine months ended June 30, 2022 and 2021 and the fair value of these derivatives as of June 30, 2022 and September 30, 2021 (in thousands):

For the Three Months Ended June 30,

Change in Change in

Income Statement Classification Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss) Realized Gain (Loss) Unrealized Gain (Loss) Total Gain (Loss)

Cost of revenues $ 1,349 $ 143 $ 1,492 $ 302 $ 632 $ 934

Interest expense, net ( 121 ) 316 195 ( 163 ) 132 ( 31 )

Total $ 1,228 $ 459 $ 1,687 $ 139 $ 764 $ 903

For the Nine Months Ended June 30,

Changes in fair value of commodity swaps are recognized in earnings.

The following table represents the approximate amount of realized and unrealized gains (losses) and changes in fair value recognized in earnings on commodity derivative contracts for the three months ended December 31, 2022 and 2021 and the fair value of these derivatives as of December 31, 2022 and September 30, 2022 (in thousands):

For the Three Months Ended December 31,

(unaudited) (unaudited)

Change in Change in

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Total $ 1,936 $ ( 1,007 ) $ 929 $ 15 $ 136 $ 151

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

Balance Sheet Classification (unaudited)

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Other assets - interest rate swaps (1)

23,382 24,719

Accrued expense and other current liabilities - commodity swaps ( 916 ) ( 601 )

Accrued expense and other current liabilities - interest rate swaps — ( 97 )

Other long-term liabilities - commodity swaps — ( 60 )

Other long-term liabilities - interest rate swaps (2)

Net unrealized gain position $ 22,901 $ 25,245

(1) Includes designated cash flow hedge of $ 11,767 and $ 0 as of June 30, 2022 and September 30, 2021, respectively.

(2) Includes designated cash flow hedge of $ 0 and $( 31 ) as of June 30, 2022 and September 30, 2021, respectively.

(1) Includes designated cash flow hedge of $ 23,382 and $ 24,719 as of December 31, 2022 and September 30, 2022, respectively.

Note 16 - Fair Value Measurements

The following table presents the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2022 and September 30, 2021 under ASC 820, Fair Value Measurements (in thousands):

June 30, 2022 September 30, 2021

The following table presents the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2022 and September 30, 2022 under ASC 820, Fair Value Measurements (in thousands):

December 31, 2022 September 30, 2022

Level 2 Level 2

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Interest rate swaps 23,382 24,719

Corporate debt securities 2,398 2,537

government securities 2,359 2,481

Municipal government securities 1,052 1,055

Agency backed securities 928 793

Total assets 30,554 32,772

Commodity swap contracts $ 916 $ 661

Interest rate swap contracts — 845

Total liabilities $ 916 $ 661

The fair value of interest rate swap contracts is based on a model-driven valuation using the observable components (e.g., interest rates), which are observable at commonly quoted intervals for the full term of the contracts.

The fair value of commodity swap contracts is based on an analysis of the expected cash flow of the contract in combination with observable forward price inputs obtained from a third-party pricing source.

The fair value of the Company’s commodity swap contracts is based on an analysis of the expected cash flow of the contract in combination with observable forward price inputs obtained from a third-party pricing source.

The calculations are adjusted for credit risk.

Therefore, derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.

Therefore, the Company’s derivative assets and liabilities are classified within Level 2 of the fair value hierarchy.

Derivative assets are included within “Prepaid expenses and other current assets” and “Other assets” on the Company’s Consolidated Balance Sheets.

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Under the Revolving Credit Facility, the Company has a total capacity of $ 325.0 million that may be used for a combination of cash borrowings and letter of credit issuances.

At June 30, 2022, the Company had aggregate letters of credit outstanding in the amount of $ 11.3 million, primarily related to certain insurance policies.

At December 31, 2022, the Company had aggregate letters of credit outstanding in the amount of $ 10.0 million, primarily related to certain insurance policies as described in Note 2 - Significant Accounting Policies.

Purchase Commitments

As of June 30, 2022, the Company had unconditional purchase commitments for diesel fuel and natural gas in the normal course of business in the aggregate amount of $ 6.9 million and $ 1.5 million, respectively.

As of December 31, 2022, the Company had unconditional purchase commitments for diesel fuel and natural gas in the normal course of business in the aggregate amount of $ 5.9 million.

Management does not expect any significant changes in the market value of these goods during the commitment period that would have a material adverse effect on the financial condition, results of operations and cash flows of the Company.

As of June 30, 2022, the Company's purchase commitments annually thereafter are as follows (in thousands):

As of December 31, 2022, the Company’s purchase commitments for the remainder of 2023 and annually thereafter were as follows (unaudited, in thousands):

Fiscal Year Amount

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however, certain agreements have minimum annual payments.

The Company has commitments in the form of minimum royalties as of June 30, 2022 in the amount of $ 2.7 million, due as follows (in thousands):

The Company had commitments in the form of minimum royalties as of December 31, 2022 in the amount of $ 2.7 million, due as follows (unaudited, in thousands):

Fiscal Year Amount

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Total $ 2,656

Royalty expense recorded in cost of revenue was $ 0.4 million and $ 0.3 million for the three months ended June 30 2022 and 2021, respectively, and $ 1.2 million and $ 0.7 million for the nine months ended June 30, 2022 and 2021, respectively.

Royalty expense recorded in cost of revenue during the three months ended December 31, 2022 and 2021 was $ 0.4 million and $ 0.3 million, respectively.

Note 18 - Restricted Investments

The following is a summary of the Company’s debt securities as of December 31, 2022 and September 30, 2022 (in thousands):

December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Corporate debt securities $ 2,611 $ — $ 213 $ 2,398

government securities 2,492 — 133 2,359

Municipal government securities 1,149 — 97 1,052

Agency backed securities 1,005 — 77 928

Total $ 7,257 $ — $ 520 $ 6,737

September 30, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Corporate debt securities $ 2,797 $ — $ 260 $ 2,537

government securities 2,622 — 141 2,481

Municipal government securities 1,151 — 96 1,055

Agency backed securities 862 — 69 793

Total $ 7,432 $ — $ 566 $ 6,866

The amortized cost and fair value of debt securities classified as available for sale by contractual maturity, as of December 31, 2022, are as follows (unaudited, in thousands):

Amortized Cost Fair Value

Due within one year $ 737 $ 726

Due after one year through three years 3,592 3,380

Due after three years 2,928 2,631

Total $ 7,257 $ 6,737

Note 19 - Other Comprehensive Income

Comprehensive income comprises two subsets:

net income and other comprehensive income (OCI).

The components of other comprehensive income are presented in the accompanying Consolidated Statements of Comprehensive Income and Consolidated Statements of Stockholders’ Equity, net of applicable taxes.

The Company’s interest rate swap contract hedge included in other comprehensive income was entered into on August 13, 2021 with an original notional value of $ 160.0 million.

net income and OCI.

The components of OCI are presented in the accompanying Consolidated Statements of Comprehensive Income and Consolidated Statements of Stockholders’ Equity, net of applicable taxes.

The Company’s interest rate swap contract hedge included in other comprehensive income was entered into on July 1, 2022 with an original notional value of $ 300.0 million.

The maturity date of this swap is June 30, 2027.

In March 2022, the Captive purchased debt securities, which have been classified as available-for-sale as of June 30, 2022.

These securities are carried at their fair value based on quoted market prices.

Unrealized gains and losses are reported as components of accumulated other comprehensive income (loss), net.

Amounts in accumulated other comprehensive income (AOCI), net of tax, at June 30, 2022 and September 30, 2021, were as follows (in thousands):

AOCI June 30, 2022 (unaudited) September 30, 2021

Interest rate swap contract $ 11,767 $ ( 31 )

The Company received a credit of $ 12.6 million under the “blend and extend” arrangement utilizing the fair values of the existing interest rate swap agreements at June 30, 2022.

Amounts in accumulated other comprehensive income (“AOCI”), net of tax, at December 31, 2022 and September 30, 2022, were as follows (in thousands):

AOCI December 31, 2022 (unaudited) September 30, 2022

Interest rate swap contract, net of blend and extend arrangement $ 22,319 $ 23,761

Unrealized loss on available-for-sale securities ( 520 ) ( 566 )

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Changes in AOCI, net of tax, are as follows (in thousands):

AOCI Interest Rate Hedge

Balance at September 30, 2022 $ 17,620

Net OCI changes ( 1,256 )

Balance at June 30, 2021 $ —

Balance at December 31, 2022 (unaudited) $ 16,364

AOCI Interest Rate Hedge

Balance at September 30, 2021 $ ( 23 )

Net OCI changes 1,445

Balance at June 30, 2022 $ 8,455

Amounts reclassified from AOCI to earnings are as follows (in thousands):

For the Three Months Ended June 30,

Interest expense $ 55 $ —

Benefit from income taxes ( 14 ) —

Total reclassifications from AOCI to earnings $ 41 $ —

For the Nine Months Ended June 30,

Interest expense $ 691 $ —

Balance at December 31, 2021 (unaudited) $ 1,422

Amounts reclassified from AOCI to earnings are as follows (unaudited, in thousands):

For the Three Months Ended December 31,

Interest expense (benefit) $ ( 1,335 ) $ 332

Benefit from income taxes 344 ( 86 )

Total reclassifications from AOCI to earnings $ ( 991 ) $ 246

Note 19 - Subsequent Events

On July 1, 2022, the Company entered into a $ 300.0 million notional interest rate swap agreement to hedge against SOFR interest rate fluctuations on a portion of its variable rate debt.

The agreement provides for a fixed rate of 1.85 % and a term through June 30, 2027.

The agreement was designated as a cash flow hedge.

The Company received a credit of $ 12.6 million under the "blend and extend" arrangement utilizing the fair values of the existing interest rate swap agreements at June 30, 2022.

On August 1, 2022, the Company acquired substantially all of the assets of Southern Asphalt, Inc., an asphalt paving company headquartered in Conway, South Carolina.

The acquisition was funded from borrowings under our delayed draw term loan in the amount of $ 25.2 million.

The final amount of consideration for the acquisition remains subject to post-closing adjustments that are in the process of being completed with respect to inventory and certain assumed liabilities.

The transaction extended the Company's footprint into eastern South Carolina and added two HMA plants in the Myrtle Beach, South Carolina metro area.

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

What changed 10-Q

Item 1. Financial Statements