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Item 2. Management’s Discussion and Analysis

2023-02-09 compared with 2022-08-05 · 83 added, 149 removed, 123 unchanged (65% of the section changed)

16 unchanged sentences

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.

Inflationary and Supply Chain Trends

During the three months ended December 31, 2022, we continued to experience an upward trend in several inflation-sensitive inputs that we use 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 continued to experience 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.

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.

Tennessee Acquisition

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

As part of this transaction, we 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.

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

North Carolina Acquisition

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

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

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

How We Assess Performance of Our Business

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

Our unfavorable contract liabilities were recognized as a result of certain acquisitions and are amortized as the associated projects progress.

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.

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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.

Gain on Sale of Property, Plant and Equipment

In the normal course of business, we sell assets 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 property, plant and equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale during the period.

Gain on Facility Exchange

As part of our continued growth strategy, we may exchange or sell other facilities in order to generate capital for use in connection with other strategic initiatives.

The gain or loss on the exchange or sale of a facility reflects the difference between the net carrying value of the facility at the date of disposal and the consideration received from the exchange or sale during the period.

Interest Expense, Net

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

Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income

Other Key Performance Indicators - Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion, 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.

We present Adjusted EBITDA and Adjusted EBITDA Margin because management uses these measures as key performance indicators, and we believe that securities analysts, investors and others use these measures to evaluate companies in our industry.

Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies.

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

For the Three Months Ended December 31,

Net income $ 1,892 $ 5,511

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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 $ 27,584 $ 26,357

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Adjusted EBITDA Margin 8.1 % 9.2 %

(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.

(1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with SunTx (see Note 12 - Related Parties to the unaudited consolidated financial statements included elsewhere in this report).

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):

Three Months Ended December 31, 2022 Compared to Three Months Ended December 31, 2021

The following table sets forth selected financial data for the three months ended December 31, 2022 and 2021 (unaudited in thousands, except percentages):

Change From the Three Months Ended

For the Three Months Ended June 30, June 30, 2021

For the Three Months Ended December 31, December 31, 2021

to the Three Months Ended

2022 2021 June 30, 2022

Revenues Dollars % of

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 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.

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 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.

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

2022 2021 December 31, 2022

Revenues Dollars % of

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General and administrative expenses (29,725) (8.7) % (24,946) (8.8) % (4,779) 19.2 %

Gain on sale of equipment, net 1,788 0.2 % 1,177 0.2 % 611 51.9 %

Gain on sale of property, plant and equipment 168 — % 441 0.2 % (273) (61.9)

Gain on facility exchange 5,389 1.6 % — — % 5,389 — %

Operating income 6,328 1.9 % 8,459 3.0 % (2,131) (25.2) %

Interest expense, net (3,960) (1.2) % (1,264) (0.4) % (2,696) 213.3 %

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) %

Other income 34 — % 116 — % (82) (70.7) %

Income before provision for income taxes 2,402 0.7 % 7,311 2.6 % (4,909) (67.1) %

Provision for income taxes 510 0.1 % 1,800 0.6 % (1,290) (71.7) %

Earnings from investment in joint venture — — % 10 — % (10) (100.0) %

Net income $ 1,892 0.6 % $ 5,511 1.9 % $ (3,619) (65.7) %

Adjusted EBITDA $ 27,584 8.1 % $ 26,357 9.2 % $ 1,227 4.7 %

Adjusted net income $ 8,261 0.9 % $ 16,642 2.6 % $ (8,381) (50.4) %

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.

Revenues for the three months ended December 31, 2022 increased $56.8 million, or 19.9%, to $341.8 million from $285.0 million for the three months ended December 31, 2021.

The increase included $32.1 million of revenues attributable to acquisitions completed subsequent to December 31, 2021 and an increase of $24.7 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

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.

Gross profit for the three months ended December 31, 2022 decreased $2.5 million, or 7.5%, to $30.5 million from $33.0 million for the three months ended December 31, 2021.

The decrease in gross profit was primarily due to (i) increases in the costs of raw materials, fuel, labor and trucking and (ii) supply chain disruptions resulting in project delays and the need to use alternative suppliers and vendors.

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.

General and administrative expenses for the three months ended December 31, 2022 increased $4.8 million, or 19.2%, to $29.7 million from $24.9 million for the three months ended December 31, 2021.

The increase was the result of (i) a $1.0 million increase in equity-based compensation expense, (ii) a $1.4 million increase attributable to general and administrative expenses associated with the businesses acquired subsequent to December 31, 2021, (iii) a $1.4 million increase in management personnel payroll and benefits, and (iv) a $1.0 million increase in other professional fees, primarily driven by expenses incurred in support of acquisition activities, information technology expenses and increased accounting and consulting fees.

Gain on Facility Exchange .

Gain on facility exchange for the three months ended December 31, 2022 was $5.4 million compared to $0.0 million for the three months ended December 31, 2021.

The gain was the result of the disposition of a quarry located near Goldston, North Carolina.

In connection with this transaction, the Company acquired three HMA manufacturing plants and certain related assets located in the Nashville, Tennessee metro area.

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.

Interest expense, net for the three months ended December 31, 2022 increased $2.7 million, or 213.3%, to $4.0 million compared to $1.3 million for the three months ended December 31, 2021.

The increase in interest expense was due to a $150.7 million increase in the average principal debt balance outstanding and higher interest rates during the three months ended December 31, 2022 compared to the corresponding period in 2021.

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.

Our effective tax rate decreased to 21.2% for the three months ended December 31, 2022, from 24.6% for the three months ended December 31, 2021.

Our lower effective tax rate during the three months ended December 31, 2022 was due to differences in state tax rates at our operating subsidiaries.

Net income decreased $3.6 million, or 65.7%, to $1.9 million for the three months ended December 31, 2022, compared to $5.5 million for the three months ended December 31, 2021.

The decrease in net income was a result of lower gross profit and increases in general and administrative expenses and interest expense, net, partially offset by the gain on facility exchange, 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.

Adjusted EBITDA and Adjusted EBITDA Margin were $27.6 million and 8.1%, respectively, for the three months ended December 31, 2022, compared to $26.4 million and 9.2%, respectively, for the three months ended December 31, 2021.

The increase in Adjusted EBITDA was the result of higher depreciation, depletion, accretion and amortization and equity-based compensation expense, partially offset by a decrease in net income.

The lower Adjusted EBITDA Margin was primarily a result of lower gross profit margins, 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.

Liquidity and Capital Resources

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The following table sets forth our cash flows for the periods indicated (unaudited, in thousands):

For the Nine Months Ended June 30,

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

For the Three Months Ended December 31,

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

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

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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;

• 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;

• 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.

During the three months ended December 31, 2022, cash provided by operating activities, net of acquisitions, was $28.9 million, primarily as a result of:

• net income of $1.9 million, including $18.4 million of depreciation, depletion, accretion and amortization and $2.5 million of equity-based compensation expense;

• a decrease in contracts receivable including retainage, net of $47.1 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle;

• an increase in inventories of $3.5 million due to increased inventories from acquisitions, growth in existing markets, higher inventory costs and normal fluctuations in our inventory cycle;

• a decrease in accounts payable and accrued expenses and other current liabilities of $33.2 million due to the timing of processing transactions in our accounts payable cycle;

• a net decrease in the difference between costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts of $0.2 million due to the timing of performing and closing projects.

During the three months ended December 31, 2021, cash used in operating activities, net of acquisitions, was $0.6 million, primarily as a result of:

• net income of $5.5 million, including $15.9 million of depreciation, depletion, accretion and amortization and $1.5 million of equity-based compensation expense;

• an increase in inventories of $2.5 million due to acquisitions and normal fluctuations in our inventory cycle;

• an increase in prepaid expenses and other current assets of $3.5 million due to the timing of payments for various insurance policies and expenses;

• a decrease in accounts payable and accrued expenses and other current liabilities of $24.2 million due to the timing of processing transactions in our accounts payable cycle;

• a net increase in the difference between costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts of $5.8 million due to the timing of performing and closing projects.

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.

During the three months ended December 31, 2022, cash used in investing activities was $70.7 million, of which $77.2 million related to acquisitions completed in the period and $31.7 million was invested in property, plant and equipment, partially offset by $1.6 million of proceeds from the sale of property, plant and equipment and $36.4 million of proceeds from the facility exchange.

During the three months ended December 31, 2021, cash used in investing activities was $80.3 million, of which $65.9 million related to acquisitions completed in the period and $15.1 million was invested in property, plant and equipment, partially offset by $0.7 million of proceeds from the sale of property, plant and 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.

During the three months ended December 31, 2022, cash provided by financing activities was $49.7 million.

We received $53.0 million of proceeds from our Revolving Credit Facility, which were primarily used for acquisitions completed in the period.

This cash flow was partially offset by $3.1 million of principal payments on long-term debt.

During the three months ended December 31, 2021, cash provided by financing activities was $67.5 million.

We received $70.0 million of proceeds from our Revolving Credit Facility, which were primarily used for acquisitions completed in the period.

This cash flow was partially offset by $2.5 million of principal payments on 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.

At December 31, 2022 and September 30, 2022, we had $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 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 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 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.

At December 31, 2022 and September 30, 2022, our fixed charge coverage ratio was 1.87-to-1.00 and 2.56-to-1.00, respectively, and our consolidated leverage ratio was 2.96-to-1.00 and 2.79-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.

At December 31, 2022 and September 30, 2022, the aggregate notional value of the interest rate swap agreement was $300.0 million, and the fair value was $23.4 million and $24.7 million, respectively, which amounts are included within other assets 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.

During the three months ended December 31, 2022 and 2021, our capital expenditures were approximately $31.7 million and $15.1 million, respectively.

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

At December 31, 2022, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis.

For fiscal 2023, we expect total capital expenditures to be $85.0 million to $90.0 million.

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Contractual Obligations

The following table summarizes our significant obligations outstanding as of June 30, 2022:

The following table summarizes our significant obligations outstanding as of December 31, 2022 (unaudited, in thousands):

Payments Due by Fiscal Year

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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.

As of December 31, 2022, the Company had aggregate letters of credit outstanding in the amount of $10.0 million, future purchase commitments of diesel fuel and natural gas of $5.4 million and $0.5 million, respectively, 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis