Construction Partners, Inc. 10-Q

Item 1. Financial Statements CONSTRUCTION PARTNERS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, September 30, 2023 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 30,512 $ 35,531 Restricted cash 119 28 Contracts receivable including retainage, net 243,261 265,207 Costs and estimated earnings in excess of billings on uncompleted contracts 29,126 29,271 Inventories 86,197 74,195 Prepaid expenses and other current assets 16,900 12,957 Total current assets 406,115 417,189 Property, plant and equipment, net 502,985 481,412 Operating lease right-of-use assets 16,792 13,985 Goodwill 163,385 129,465 Intangible assets, net 15,399 15,976 Investment in joint venture 87 87 Restricted investments 11,303 6,866 Other assets 24,755 30,541 Total assets $ 1,140,821 $ 1,095,521 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 121,422 $ 130,468 Billings in excess of costs and estimated earnings on uncompleted contracts 62,004 52,477 Current portion of operating lease liabilities 2,243 2,209 Current maturities of long-term debt 13,500 12,500 Accrued expenses and other current liabilities 26,158 28,484 Total current liabilities 225,327 226,138 Long-term liabilities: Long-term debt, net of current maturities and deferred debt issuance costs 408,967 363,066 Operating lease liabilities, net of current portion 14,982 12,059 Deferred income taxes, net 24,938 26,713 Other long-term liabilities 13,919 11,666 Total long-term liabilities 462,806 413,504 Total liabilities 688,133 639,642 Stockholders’ equity: Preferred stock, par value $ 0.001 ; 10,000,000 shares authorized and no shares issued and outstanding at March 31, 2023 and September 30, 2022 — — Class A common stock, par value $ 0.001 ; 400,000,000 shares authorized, 41,376,528 shares issued and 41,366,691 shares outstanding at March 31, 2023 and 41,195,730 shares issued and 41,193,024 shares outstanding at September 30, 2022 41 41 Class B common stock, par value $ 0.001 ; 100,000,000 shares authorized, 14,275,867 shares issued and 11,352,915 shares outstanding at March 31, 2023 and September 30, 2022 15 15 Additional paid-in capital 261,743 256,571 Treasury stock, at cost, 9,837 shares of Class A common stock at March 31, 2023 and 2,706 shares at September 30, 2022, par value $ 0.001 ( 178 ) ( 39 ) Treasury stock, at cost, 2,922,952 shares of Class B common stock at March 31, 2023 and September 30, 2022, par value $ 0.001 ( 15,603 ) ( 15,603 ) Accumulated other comprehensive income, net 12,985 17,620 Retained earnings 193,685 197,274 Total stockholders’ equity 452,688 455,879 Total liabilities and stockholders’ equity $ 1,140,821 $ 1,095,521 See notes to consolidated financial statements (unaudited). 2 Table of Contents CONSTRUCTION PARTNERS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited in thousands, except share and per share data) For the Three Months Ended March 31, For the Six Months Ended March 31, 2023 2022 2023 2022 Revenues $ 324,850 $ 243,385 $ 666,629 $ 528,349 Cost of revenues 298,570 230,888 609,853 482,888 Gross profit 26,280 12,497 56,776 45,461 General and administrative expenses ( 31,989 ) ( 25,000 ) ( 61,714 ) ( 49,946 ) Gain on sale of property, plant and equipment 3,158 1,014 3,326 1,455 Gain on facility exchange — — 5,389 — Operating income (loss) ( 2,551 ) ( 11,489 ) 3,777 ( 3,030 ) Interest expense, net ( 4,802 ) ( 859 ) ( 8,762 ) ( 2,123 ) Other income 398 43 432 159 Loss before provision for income taxes ( 6,955 ) ( 12,305 ) ( 4,553 ) ( 4,994 ) Provision for income taxes ( 1,474 ) ( 2,887 ) ( 964 ) ( 1,087 ) Net loss ( 5,481 ) ( 9,418 ) ( 3,589 ) ( 3,907 ) Other comprehensive income (loss), net of tax Unrealized gain (loss) on interest rate swap contract, net ( 3,460 ) 5,580 ( 4,752 ) 7,025 Unrealized gain (loss) on restricted investments, net 81 ( 122 ) 117 ( 122 ) Other comprehensive income (loss) ( 3,379 ) 5,458 ( 4,635 ) 6,903 Comprehensive income (loss) $ ( 8,860 ) $ ( 3,960 ) $ ( 8,224 ) $ 2,996 Net loss per share attributable to common stockholders: Basic $ ( 0.11 ) $ ( 0.18 ) $ ( 0.07 ) $ ( 0.08 ) Diluted $ ( 0.11 ) $ ( 0.18 ) $ ( 0.07 ) $ ( 0.08 ) Weighted average number of common shares outstanding: Basic 51,827,365 51,793,443 51,826,143 51,744,052 Diluted 51,827,365 51,793,443 51,826,143 51,744,052 See notes to consolidated financial statements (unaudited). 3 Table of Contents CONSTRUCTION PARTNERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited in thousands, except share data) For the six months ended March 31, 2023 Class A Common Stock Class B Common Stock Additional Paid-in Capital Treasury Stock Class A Common Stock Treasury Stock Class B Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss), net Total Stockholders’ Equity Shares Amount Shares Amount September 30, 2022 41,195,730 $ 41 14,275,867 $ 15 $ 256,571 $ ( 39 ) $ ( 15,603 ) $ 197,274 $ 17,620 $ 455,879 Net income — — — — — — — 1,892 — 1,892 Equity-based compensation expense — — — — 2,480 — — — — 2,480 Issuance of stock awards 180,798 — — — — — — — — — Purchase of treasury stock — — — — — ( 139 ) — — — ( 139 ) Other comprehensive loss — — — — — — — — ( 1,256 ) ( 1,256 ) December 31, 2022 41,376,528 $ 41 14,275,867 $ 15 $ 259,051 $ ( 178 ) $ ( 15,603 ) $ 199,166 $ 16,364 $ 458,856 Net loss — — — — — — — ( 5,481 ) — ( 5,481 ) Equity-based compensation expense — — — — 2,692 — — — — 2,692 Other comprehensive loss — — — — — — — — ( 3,379 ) ( 3,379 ) March 31, 2023 41,376,528 $ 41 14,275,867 $ 15 $ 261,743 $ ( 178 ) $ ( 15,603 ) $ 193,685 $ 12,985 $ 452,688 For the six months ended March 31, 2022 Class A Common Stock Class B Common Stock Additional Paid-in Capital Treasury Stock Class A Common Stock Treasury Stock Class B Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss), net Total Stockholders’ Equity Shares Amount Shares Amount September 30, 2021 36,600,639 $ 37 18,614,791 $ 19 $ 248,571 $ — $ ( 15,603 ) $ 175,898 $ ( 23 ) $ 408,899 Net income — — — — — — — 5,511 — 5,511 Equity-based compensation expense — — — — 1,504 — — — — 1,504 Issuance of stock 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 ) — — — — — — December 31, 2021 41,085,484 $ 41 14,275,867 $ 15 $ 250,075 $ ( 39 ) $ ( 15,603 ) $ 181,409 $ 1,422 $ 417,320 Net 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 $ ( 39 ) $ ( 15,603 ) $ 171,991 $ 6,880 $ 415,102 See notes to consolidated financial statements (unaudited). 4 Table of Contents CONSTRUCTION PARTNERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited in thousands) For the Six Months Ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 3,589 ) $ ( 3,907 ) Adjustments to reconcile net loss to net cash, cash equivalents and restricted cash provided by operating activities: Depreciation, depletion, accretion and amortization of long-lived assets 38,233 33,047 Amortization of deferred debt issuance costs and debt discount 151 128 Unrealized loss (gain) on derivative instruments 2,286 ( 2,130 ) Provision for bad debt 70 130 Gain on sale of property, plant and equipment ( 3,326 ) ( 1,455 ) Gain on facility exchange ( 5,389 ) — Realized losses on restricted investments 4 — Equity-based compensation expense 5,172 3,246 Deferred income tax benefit ( 224 ) ( 245 ) Other non-cash adjustments ( 69 ) 39 Changes in operating assets and liabilities, net of acquisition: Contracts receivable including retainage 34,092 ( 3,821 ) Costs and estimated earnings in excess of billings on uncompleted contracts 743 ( 1,261 ) Inventories ( 10,152 ) ( 13,665 ) Prepaid expenses and other current assets ( 3,246 ) ( 8,150 ) Other assets ( 206 ) 350 Accounts payable ( 12,764 ) ( 2,426 ) Billings in excess of costs and estimated earnings on uncompleted contracts 7,415 12,304 Accrued expenses and other current liabilities ( 6,289 ) ( 11,957 ) Other long-term liabilities 2,784 3,067 Net cash provided by operating activities, net of acquisitions 45,696 3,294 Cash flows from investing activities: Purchases of property, plant and equipment ( 60,399 ) ( 34,703 ) Proceeds from sale of property, plant and equipment 8,301 3,777 Proceeds from facility exchange 36,987 — Proceeds from restricted investments 866 — Business acquisitions, net of cash acquired ( 77,842 ) ( 102,893 ) Purchase of restricted investments ( 5,148 ) ( 6,358 ) Net cash used in investing activities ( 97,235 ) ( 140,177 ) Cash flows from financing activities: Net proceeds from revolving credit facility 38,000 116,000 Proceeds from issuance of long-term debt, net of debt issuance costs and discount 15,000 — Repayments of long-term debt ( 6,250 ) ( 5,000 ) Purchase of treasury stock ( 139 ) ( 39 ) Net cash provided by financing activities 46,611 110,961 Net change in cash, cash equivalents and restricted cash ( 4,928 ) ( 25,922 ) Cash, cash equivalents and restricted cash: Cash, cash equivalents and restricted cash, beginning of period 35,559 57,251 Cash, cash equivalents and restricted cash, end of period $ 30,631 $ 31,329 Supplemental cash flow information: Cash paid for interest $ 9,047 $ 3,375 Cash paid for income taxes $ 626 $ 1,076 Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 4,062 $ 5,983 Cash paid for operating lease liabilities $ 1,204 $ 1,144 Non-cash items: Property, plant and equipment included with accounts payable at period end $ 3,448 $ 1,042 Amounts payable to seller in business combination $ — $ 600 See notes to consolidated financial statements (unaudited). 5 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 - General Business Description 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, 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. The Company’s primary operations consist of (i) manufacturing and distributing hot mix asphalt (“HMA”) for both internal use and sales to third parties in connection with construction projects, (ii) paving activities, including the construction of roadway base layers and application of asphalt pavement, (iii) site development, including the installation of utility and drainage systems, (iv) mining aggregates, such as sand, gravel and construction stone, that are used as raw materials in the production of HMA and for sales to third parties, and (v) distributing liquid asphalt cement for both internal use and sales to third parties in connection with HMA production. 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, together with its principals and their respective affiliates, has owned a controlling interest in the Company’s stock since the Company’s inception. Seasonality The use and consumption of the Company’s products and services fluctuate due to seasonality. The Company’s products are used, and its construction operations and production facilities are located, outdoors. Therefore, seasonal changes and other weather-related conditions, in particular, extended snowy, rainy or cold weather in the winter, spring or fall and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect the Company’s business and operations through a decline in both the use of the Company’s products and demand for the Company’s services. In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall. 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 the Company’s third and fourth fiscal quarters typically result in higher activity and revenues during those quarters. Note 2 - Significant Accounting Policies Basis of Presentation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. These interim consolidated statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), which permit reduced disclosure for interim periods. The Company's Consolidated Balance Sheets as of September 30, 2022 were derived from the Company's audited financial statements for the fiscal year then ended, but do not include all necessary disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) with respect to annual financial statements. In the opinion of management, these unaudited consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “2022 Form 10-K”). Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period. Management’s Estimates 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, 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; however, actual results could differ from these estimates. 6 Table of Contents A description of certain critical accounting policies of the Company is presented below. Additional critical accounting policies and the underlying judgments and uncertainties are described in the notes to the Company’s annual consolidated financial statements included in the 2022 Form 10-K. Cash and Cash Equivalents Cash consists principally of currency on hand and demand deposits at commercial banks. Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Cash equivalents include investments with original maturities of three months or less. The Company maintains demand accounts, money market accounts and certificates of deposit at several banks. From time to time, account balances have exceeded the maximum available federal deposit insurance coverage limit. The Company has not experienced any losses in such accounts and regularly monitors its credit risk. Restricted Cash 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 $ 0.1 million at March 31, 2023 and at September 30, 2022. 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. 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 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 and the Company’s intent to reinvest sales proceeds into new restricted investments. The Company had restricted investments of $ 11.3 million and $ 6.9 million at March 31, 2023 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 (Loss). 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 six months ended March 31, 2023 and 2022, the Company had no intent impairments or credit losses. Contracts Receivable Including Retainage, Net Contracts receivable are generally based on amounts billed and currently due from customers, amounts currently due but unbilled, and amounts retained by customers pending completion of a project. 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.” 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. Management provides for uncollectible accounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts, type of service performed, current economic conditions, historical losses and other information available to management. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and an adjustment to the contract receivable. 7 Table of Contents Contract Assets and Contract Liabilities Billing practices for the Company’s contracts are governed by the contract terms of each project based on (i) progress toward completion approved by the owner, (ii) achievement of milestones or (iii) pre-agreed schedules. Billings do not necessarily correlate with revenues recognized under the cost-to-cost input method (formerly known as the percentage-of-completion method). The Company records contract assets and contract liabilities to account for these differences in timing. The contract asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” arises when the Company recognizes revenues for services performed under its construction projects, but the Company is not yet entitled to bill the customer under the terms of the contract. 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. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Unapproved change orders and claims also involve the use of estimates, and revenues associated with unapproved change orders and claims are included in the transaction price for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company did not recognize any material amounts associated with claims and unapproved change orders during the periods presented. The contract liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents the Company’s obligation to transfer goods or services to a customer for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract. Revenue for future services reflected in this account are recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract. Costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components. Concentration of Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of contracts receivable including retainage. In the normal course of business, the Company provides credit to its customers and does not generally require collateral. The Company monitors concentrations of credit risk associated with these receivables on an ongoing basis. The Company has not historically experienced significant credit losses, due primarily to management’s assessment of customers’ credit ratings. The Company principally deals with recurring customers, state and local governments and well-known local companies whose reputations are known to management. The Company performs credit checks for significant new customers and generally requires progress payments for significant projects. 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 March 31, 2023 or September 30, 2022. Projects performed for various departments of transportation accounted for 29.8 % and 30.8 % of consolidated revenues for the three months ended March 31, 2023 and 2022, respectively, and for 30.9 % and 32.3 % of consolidated revenues for the six months ended March 31, 2023 and 2022, respectively. Customers that accounted for more than 10% of consolidated revenues during the three and six months ended March 31, 2023 and 2022 are presented below: % of Consolidated Revenues For the Three Months Ended March 31, For the Six Months Ended March 31, 2023 2022 2023 2022 Florida Department of Transportation 11.3 % 12.5 % 9.6 % 11.2 % Revenues from Contracts with Customers The Company derives revenues from contracts with its customers, predominantly by performing construction services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential developments. These projects are performed for a mix of federal, state, municipal and private customers. 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, 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. 8 Table of Contents % of Consolidated Revenues For the Three Months Ended March 31, For the Six Months Ended March 31, 2023 2022 2023 2022 Private 42.1 % 42.1 % 40.4 % 40.5 % Public 57.9 % 57.9 % 59.6 % 59.5 % 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. Recognition of revenues and cost of revenues for construction projects requires significant judgment by management, including, among other things, estimating total costs expected to be incurred to complete a project and measuring progress toward completion. Management reviews contract estimates regularly to assess revisions of estimated costs to complete a project and measurement of progress toward completion. Management believes the Company maintains reasonable estimates based on prior experience; however, many factors contribute to changes in estimates of contract costs. Accordingly, estimates made with respect to uncompleted projects are subject to change as each project progresses and better estimates of contract costs become available. All contract costs are recorded as incurred, and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Provisions are recognized for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue, regardless of the stage of completion. When the Company incurs additional costs related to work performed by subcontractors, the Company may be able to utilize contractual provisions to back charge the subcontractors for those costs. A reduction to costs related to back charges is recognized when estimated recovery is probable and the amount can be reasonably estimated. Contract costs consist of (i) direct costs on contracts, including labor, materials, and amounts payable to subcontractors and (ii) indirect costs related to contract performance, such as insurance, employee benefits, and equipment (primarily depreciation, fuel, maintenance and repairs). Progress toward completion is estimated using the input method, measured by the relationship of total cost incurred through the measurement date to total estimated costs required to complete the project (cost-to-cost method). The Company believes this method best depicts the transfer of goods and services to the customer because it represents satisfaction of the Company’s performance obligation under the contract, which occurs as the Company incurs costs. The Company measures percentage of completion based on the performance of a single performance obligation under its construction projects. Each of the Company’s construction contracts represents a single performance obligation to complete a defined construction project. This is because goods and services promised for delivery to a customer are not distinct, as the customer cannot benefit from any individual portion of the services on its own. All deliverables under a contract are part of a project defined by a customer and represent a series of integrated goods and services that have the same pattern of delivery to the customer and use the same measure of progress toward satisfaction of the performance obligation as the customer’s asset is created or enhanced by the Company. The Company’s obligation is not satisfied until the entire project is complete. Revenue recognized during a reporting period is based on the cost-to-cost input method applied to the total transaction price, including adjustments for variable consideration, such as liquidated damages, penalties or bonuses, related to the timeliness or quality of project performance. The Company includes variable consideration in the estimated transaction price at the most likely amount to which the Company expects to be entitled or the most likely amount the Company expects to incur, in the case of liquidated damages or penalties. Such amounts are included in the transaction price for which it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company accounts for changes to the estimated transaction price using a cumulative catch-up adjustment. The majority of the Company’s public construction contracts are fixed unit price contracts. Under fixed unit price contracts, the Company is committed to providing materials or services required by a contract at fixed unit prices (for example, dollars per ton of asphalt placed). The Company’s private customer contracts are primarily fixed total price contracts, also known as lump sum contracts, which require that the total amount of work be performed for a single price. Contract cost is recorded as incurred, and revisions in contract revenue and cost estimates are reflected in the accounting period when known. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements, may result in revisions to estimated revenues and costs and are recognized in the period in which the revisions are determined. Change orders are modifications of an original contract that effectively change the existing provisions of the contract and become part of the single performance obligation that is partially satisfied at the date of the contract modification. This is because goods and services promised under change orders are generally not distinct from the remaining goods and services under the existing contract, due to the significant integration of services performed in the context of the contract. Accordingly, change orders are generally accounted for as a modification of the existing contract and single performance obligation. The Company accounts for the modification 9 Table of Contents 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. Revenues derived from the sale of HMA, aggregates, ready-mix concrete, and liquid asphalt are recognized at a point in time, which is when control of the product is transferred to the customer. Generally, that point in time is when the customer accepts delivery at its facility or receives product in its own transport vehicles from one of the Company’s HMA plants or aggregates facilities. Upon purchase, the Company generally provides an invoice or similar document detailing the goods transferred to the customer. The Company generally offers payment terms customary in the industry, which typically require payment ranging from point-of-sale to 30 days following purchase. Income Taxes The provision for income taxes includes federal and state income taxes. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which the temporary differences are expected to be reversed or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Management evaluates the realization of deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and deferred tax liabilities are presented on a net basis by taxing authority and classified as non-current on the Consolidated Balance Sheets. Earnings per Share Basic net income per share attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share attributable to common stockholders is the same as basic net income per share attributable to common stockholders, but includes dilutive unvested stock awards using the treasury stock method. Fair Value Measurements The Company measures and discloses certain financial assets and liabilities at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are classified using the following hierarchy: Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Level 3. Inputs are unobservable for the asset or liability and include situations in which there is little, if any, market activity for the asset or liability. The inputs used in the determination of fair value are based on the best information available under the circumstances and may require significant management judgment or estimation. 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 March 31, 2023 and September 30, 2022. 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 March 31, 2023 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 each are 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 deferred debt issuance cost and current maturities of long-term debt on the Company’s Consolidated Balance Sheets at March 31, 2023 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. 10 Table of Contents The Company also has derivative instruments. The fair value of commodity and interest rate swaps are based on forward and spot prices, as described in Note 16 - Fair Value Measurements. Level 3 fair values are used to value acquired mineral reserves and leased mineral interests. The fair values of mineral reserves and leased mineral interests are determined using an excess earnings approach, which requires management to estimate future cash flows. The estimate of future cash flows is based on available historical information and forecasts determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, volumes and expected profit margins, net of capital requirements. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would assume if purchasing the acquired business. Management applies fair value measurement guidance to its impairment analysis for tangible and intangible assets, including goodwill. Comprehensive Income The Company reports comprehensive income in its Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Stockholders’ Equity. Comprehensive income (loss) comprises two subsets: net income and other comprehensive income (loss) (“OCI”). 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 (Loss). Note 3 - Accounting Standards The Company did not adopt any new accounting standards or updates during the six months ended March 31, 2023. Note 4 - Business Acquisitions 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 $ 9.5 million. In connection with this transaction, the Company disposed of a quarry in North Carolina, resulting in total cash proceeds of $ 37.0 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 $ 68.3 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 Six Months Ended March 31, 2023 The foregoing acquisitions were accounted for as business combinations in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”). As of March 31, 2023, 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 $ 32.2 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 $ 77.8 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 - Debt). The total consideration has been provisionally allocated as follows: $ 9.3 million of net working capital, $ 35.3 million of property, plant and equipment, $ 32.2 million of goodwill and a $ 1.0 million working capital receivable. 11 Table of Contents The Consolidated Statements of Comprehensive Income (Loss) includes $ 17.8 million of revenue and $ 0.6 million of net loss attributable to the operations of these acquisitions for the three months ended March 31, 2023 and $ 22.0 million of revenue and $ 0.9 million of net loss attributable to the operations of these acquisitions for the six months ended March 31, 2023 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 (Loss) in the amount of $ 0.0 million for the three months ended March 31, 2023 and $ 0.2 million for the six months ended March 31, 2023. The following 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 March 31, 2023 2022 Pro forma revenues $ 324,850 $ 261,160 Pro forma net loss $ ( 5,481 ) $ ( 10,053 ) For the Six Months Ended March 31, 2023 2022 Pro forma revenues $ 678,011 $ 561,864 Pro forma net loss $ ( 2,684 ) $ ( 4,001 ) 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 and six months ended March 31, 2023 and 2022; (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 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 March 31, 2023, 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 March 31, 2023); and (d) exclude $ 0.2 million of acquisition-related expenses from the three and six months ended March 31, 2023, 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 loss that would have been recorded if these acquisitions had occurred on October 1, 2022. Measurement Period Adjustments During the six months ended March 31, 2023, the Company made measurement period adjustments to previous year acquisitions, which resulted in a corresponding net increase to goodwill of $ 4.0 million. 12 Table of Contents Note 5 - Contracts Receivable Including Retainage, Net Contracts receivable including retainage, net consisted of the following at March 31, 2023 and September 30, 2022 (in thousands): March 31, 2023 September 30, 2022 (unaudited) Contracts receivable $ 198,876 $ 221,566 Retainage 44,923 44,253 243,799 265,819 Allowance for doubtful accounts ( 538 ) ( 612 ) Contracts receivable including retainage, net $ 243,261 $ 265,207 Retainage receivables have been billed, but are not due until contract completion and acceptance by the customer. Note 6 - Contract Assets and Liabilities Costs and estimated earnings compared to billings on uncompleted contracts at March 31, 2023 and September 30, 2022 consisted of the following (in thousands): March 31, 2023 September 30, 2022 (unaudited) Costs on uncompleted contracts $ 1,436,139 $ 1,520,510 Estimated earnings to date on uncompleted contracts 132,997 146,459 1,569,136 1,666,969 Billings to date on uncompleted contracts ( 1,602,014 ) ( 1,690,175 ) Net billings in excess of costs and estimated earnings on uncompleted contracts $ ( 32,878 ) $ ( 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, 2022 to March 31, 2023 are presented below (in thousands): Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts Net Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts September 30, 2022 $ 29,271 $ ( 52,477 ) $ ( 23,206 ) Changes in revenue billed, contract price or cost estimates ( 145 ) ( 9,527 ) ( 9,672 ) March 31, 2023 (unaudited) $ 29,126 $ ( 62,004 ) $ ( 32,878 ) 13 Table of Contents Note 7 - Property, Plant and Equipment Property, plant and equipment at March 31, 2023 and September 30, 2022 consisted of the following (in thousands): March 31, 2023 September 30, 2022 (unaudited) Construction equipment $ 444,027 $ 402,581 Plants 182,917 167,625 Mineral reserves 69,466 91,992 Land and improvements 70,038 59,454 Buildings 33,656 32,566 Furniture and fixtures 7,476 7,110 Leasehold improvements 1,257 1,230 Total property, plant and equipment, gross 808,837 762,558 Accumulated depreciation, depletion and amortization ( 336,220 ) ( 304,935 ) Construction in progress 30,368 23,789 Total property, plant and equipment, net $ 502,985 $ 481,412 Depreciation, depletion and amortization expense related to property, plant and equipment was $ 20.4 million and $ 17.0 million for the three months ended March 31, 2023 and 2022, respectively, and $ 39.7 million and $ 32.8 million for the six months ended March 31, 2023 and 2022, 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 March 31, 2023 and September 30, 2022 consisted of the following (in thousands): March 31, 2023 September 30, 2022 (unaudited) Long-term debt: Term Loan $ 280,625 $ 271,875 Revolving Credit Facility 143,100 105,100 Total long-term debt 423,725 376,975 Deferred debt issuance costs ( 1,258 ) ( 1,409 ) Current maturities of long-term debt ( 13,500 ) ( 12,500 ) Long-term debt, net of current maturities $ 408,967 $ 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 “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. 14 Table of Contents 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 on 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. Subject to various requirements, the Company generally may (and, under certain circumstances, must) prepay all or a portion of the outstanding balance of the advances, together with accrued interest thereon, prior to their contractual maturity. 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 March 31, 2023 and September 30, 2022, there was $ 280.6 million and $ 271.9 million, respectively, of principal outstanding under the Term Loan, $ 143.1 million and $ 105.1 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $ 171.9 million and $ 208.6 million, respectively, under the Revolving Credit Facility, including a reduction for outstanding letters of credit. The Company also had $ 10.0 million and $ 25.0 million available under the Delayed Draw Term Loan at March 31, 2023 and September 30, 2022, respectively. 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. The Credit 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 March 31, 2023 and September 30, 2022, the Company’s fixed charge coverage ratio was 1.47 -to-1.00 and 2.56 -to-1.00, respectively, and the Company’s consolidated leverage ratio was 2.92 -to-1.00 and 2.79 -to-1.00, respectively. At both March 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. At March 31, 2023 and September 30, 2022, the aggregate notional value of these interest rate swap agreements was $ 300.0 million, and the fair value was $ 18.9 million and $ 24.7 million, respectively, which is included within other assets on the Company’s Consolidated Balance Sheets. Note 9 - Equity Shares of Class A common stock and Class B common stock are identical, except with respect to voting rights, conversion rights and transfer restrictions applicable to shares of Class B common stock. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share. The holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, including the election of directors, unless otherwise required by applicable law or the Company’s certificate of incorporation or bylaws. Shares of Class B common stock are convertible into shares of Class A common stock at any time at the option of the holder or upon any transfer, subject to certain limited exceptions. In addition, upon the election of the holders of a majority of the then-outstanding shares of Class B common stock, all outstanding shares of Class B common stock will be converted into shares of Class A common stock. Once converted into shares of Class A common stock, shares of Class B common stock will not be reissued. Class A common stock is not convertible into any other class of the Company’s capital stock. Treasury Stock During the six months ended March 31, 2023, 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 1,864 shares of Class A common stock through forfeitures of restricted stock awards by terminated employees. Restricted Stock Awards During the six months ended March 31, 2023, 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”). Additional information about these transactions is set forth in Note 13 - Equity-Based Compensation. 15 Table of Contents Note 10 - Earnings Per Share As discussed in Note 9 - Equity, the Company has Class A common stock and Class B common stock. Because the only differences between the two classes of common stock are related to voting rights, conversion rights and transfer restrictions applicable to shares of Class B common stock, the Company has not presented earnings per share under the two-class method, as the earnings per share are the same for both Class A common stock and Class B common stock. 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 March 31, For the Six Months Ended March 31, 2023 2022 2023 2022 Numerator Net loss attributable to common stockholders $ ( 5,481 ) $ ( 9,418 ) $ ( 3,589 ) $ ( 3,907 ) Denominator Weighted average number of common shares outstanding, basic 51,827,365 51,793,443 51,826,143 51,744,052 Net loss per common share attributable to common stockholders, basic $ ( 0.11 ) $ ( 0.18 ) $ ( 0.07 ) $ ( 0.08 ) 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 March 31, For the Six Months Ended March 31, 2023 2022 2023 2022 Numerator Net loss attributable to common stockholders $ ( 5,481 ) $ ( 9,418 ) $ ( 3,589 ) $ ( 3,907 ) Denominator Weighted average number of basic common shares outstanding, basic 51,827,365 51,793,443 51,826,143 51,744,052 Effect of dilutive securities: Restricted stock grants — — — — Weighted average number of diluted common shares outstanding 51,827,365 51,793,443 51,826,143 51,744,052 Net loss per diluted common share attributable to common stockholders $ ( 0.11 ) $ ( 0.18 ) $ ( 0.07 ) $ ( 0.08 ) Note 11 - Provision for Income Taxes The Company files a consolidated United States federal income tax return and income tax returns in various states. 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 March 31, 2023 and 2022 was 21.1 % and 23.5 %, respectively. The Company’s effective tax rate for the six months ended March 31, 2023 and 2022 was 21.1 % and 21.8 %, respectively. The changes in the Company’s effective rates are due to differences in state tax rates at its operating subsidiaries. 16 Table of Contents 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 March 31, 2023, $ 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 March 31, 2023, $ 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 repayments are scheduled to be made in periodic installments during fiscal year 2023 through fiscal year 2026. Prior to its acquisition by the Company, a current subsidiary of the Company advanced funds to an entity owned by an immediate family member of an officer of the Company in connection with a land development project. The obligations of the borrower entity to repay the advances were guaranteed by a separate entity owned by the same family member of the officer. Amounts outstanding under the advances did not bear interest and matured in full in March 2021. In March 2021, the subsidiary of the Company amended and restated the terms of the repayment obligation, as a result of which the officer personally assumed the remaining balance of the obligation. No new amounts were advanced to the officer by the Company or any subsidiary or affiliate thereof in connection with the transaction. Under the amended and restated terms, the officer executed a promissory note in favor of the Company’s subsidiary in the principal amount of $ 0.8 million. The note bears simple interest at a rate of 4.0 % and requires annual minimum payments of $ 0.1 million inclusive of principal and accrued interest, with any remaining principal and accrued interest due and payable in full on December 31, 2027. As security for his payment obligations, the officer pledged as collateral 30,000 shares of the 140,389 shares of Class B common stock that had previously been pledged as collateral and 7,500 shares of Class A common stock owned by the officer personally. Amounts outstanding under the note are reflected on the Company’s Consolidated Balance Sheets within other current assets and other assets (“Land Development Project”). From time to time, the Company conducts or has conducted business with the following related parties: • 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”). • 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 Capital Management Corp. (“SunTx”) $ 0.31 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 six months ended March 31, 2023 and 2022, and accounts receivable and payable balances at March 31, 2023 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 March 31, For the Six Months Ended March 31, March 31, September 30, 2023 2022 2023 2022 2023 2022 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Purchaser of Subsidiary $ — $ — $ — $ — $ 414 $ 414 Disposed Entity — — — — 264 264 Land Development Project — — — — 622 712 Subcontracting Services ( 1,173 ) (1) ( 853 ) (1) ( 2,992 ) (1) ( 3,092 ) (1) ( 120 ) ( 695 ) Island Pond ( 80 ) (2) ( 80 ) (2) ( 160 ) (2) ( 160 ) (2) — — SunTx ( 359 ) (2) ( 384 ) (2) ( 726 ) (2) ( 759 ) (2) — — (1) Cost is reflected as cost of revenues on the Company’s Consolidated Statements of Comprehensive Income. (2) Cost is reflected as general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income. 17 Table of Contents Note 13 - Equity-Based Compensation 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 three months ended March 31, 2023 and 2022, the Company recorded $ 2.2 million and $ 1.8 million, respectively, of compensation expense in connection with restricted stock awards. During the six months ended March 31, 2023 and 2022, the Company recorded $ 4.2 million and $ 3.2 million, respectively, of compensation expense in connection with restricted stock awards. At March 31, 2023, there was approximately $ 14.1 million of unrecognized compensation expense related to restricted stock awards. 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 three months ended March 31, 2023 and 2022, the Company recorded $ 0.5 million and $ 0.0 million , respectively, of compensation expense in connection with PSUs. During the six months ended March 31, 2023 and 2022, the Company recorded $ 1.0 million and $ 0.0 million , respectively, of compensation expense in connection with PSUs. At March 31, 2023, there was approximately $ 3.1 million of unrecognized compensation expense related to PSUs. Note 14 - Leases The Company leases certain facilities, office space, vehicles and equipment. As of March 31, 2023, 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 $ 16.8 million, $ 2.2 million and $ 15.0 million, respectively. As of March 31, 2023, 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 March 31, 2023 2022 Operating lease cost $ 788 $ 637 Short-term lease cost 4,733 4,114 Total lease expense $ 5,521 $ 4,751 For the Six Months Ended March 31, 2023 2022 Operating lease cost $ 1,514 $ 1,234 Short-term lease cost 10,768 8,207 Total lease expense $ 12,282 $ 9,441 Short-term leases (those with terms of 12 months or less) are not capitalized but are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used on construction projects. These leases are entered into at periodic rental rates for an unspecified duration and typically have a termination for convenience provision. 18 Table of Contents As of March 31, 2023, the weighted-average remaining term of the Company’s leases was 10.8 years, and the weighted-average discount rate was 3.42 %. As of March 31, 2023, 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 March 31, 2023 (unaudited, in thousands): Fiscal Year Amount Remainder of 2023 $ 1,430 2024 2,560 2025 2,197 2026 2,143 2027 2,015 2028 and thereafter 10,611 Total future minimum lease payments $ 20,956 Less: imputed interest 3,731 Total $ 17,225 Note 15 - Investment in Derivative Instruments Interest Rate Swap Contracts 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. On the date the derivative contract is entered into, the Company may designate the derivative as one of the following: (i) a hedge of a forecasted transaction or the variability of cash flows to be paid (“cash flow hedge”) or (ii) a hedge of the fair value of a recognized asset or liability (“fair value hedge”). Changes in the fair value of a derivative that is qualified and designated as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss) until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. 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 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. If the Company determines that it qualifies for and will designate a derivative as a hedging instrument, the Company formally documents all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions and linking all derivatives designated as fair value hedges to specific assets and liabilities in the Consolidated Balance Sheets. The Company performs an initial prospective assessment of hedge effectiveness on a quantitative basis between the inception date and the earlier of the first quarterly hedge effectiveness date or the issuance of the financial statements that include the hedged transaction. On a quarterly basis, the Company assesses the effectiveness of its designated hedges in offsetting the variability in the cash flows or fair values of the hedged assets or obligations using the Hypothetical Derivative Method. The Hypothetical Derivative Method compares the change in fair value or cash flows of the hedging instrument with the change in fair value or cash flows of a hypothetical derivative that represents the hedged risk. The Company would discontinue hedge accounting prospectively when the derivative is no longer highly effective as a hedge, the underlying hedged transaction is no longer probable or the hedging instrument expires, is sold, terminated or exercised. 19 Table of Contents Commodity Swap Contracts 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 has entered into commodity swap transactions through regulated commodity exchanges. The Company does not enter into derivative financial instruments for speculative purposes. 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 interest and commodity derivative contracts for the three and six months ended March 31, 2023 and 2022 and the fair value of these derivatives as of March 31, 2023 and September 30, 2022 (in thousands): For the Three Months Ended March 31, 2023 2022 (unaudited) (unaudited) 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 $ 456 $ ( 1,279 ) $ ( 823 ) $ 364 $ 1,055 $ 1,419 Interest expense, net 2,007 — 2,007 ( 431 ) 939 508 Total $ 2,463 $ ( 1,279 ) $ 1,184 $ ( 67 ) $ 1,994 $ 1,927 For the Six Months Ended March 31, 2023 2022 (unaudited) (unaudited) 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 $ 1,057 $ ( 2,286 ) $ ( 1,229 ) $ 857 $ 778 $ 1,635 Interest expense, net 3,342 — 3,342 ( 909 ) 1,352 443 Total $ 4,399 $ ( 2,286 ) $ 2,113 $ ( 52 ) $ 2,130 $ 2,078 March 31, 2023 September 30, 2022 Balance Sheet Classification (unaudited) Prepaid expenses and other current assets - commodity swaps $ — $ 1,032 Other assets - commodity swaps — 155 Other assets - interest rate swaps (1) 18,882 24,719 Accrued expense and other current liabilities - commodity swaps ( 1,760 ) ( 601 ) Other long-term liabilities - commodity swaps — ( 60 ) Net unrealized gain position $ 17,122 $ 25,245 (1) Includes designated cash flow hedge of $ 18,882 and $ 24,719 as of March 31, 2023 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 March 31, 2023 and September 30, 2022 under ASC 820, Fair Value Measurements (in thousands): 20 Table of Contents March 31, 2023 September 30, 2022 (unaudited) Level 2 Level 2 Assets: Commodity swap contracts $ — $ 1,187 Interest rate swaps 18,882 24,719 Corporate debt securities 3,716 2,537 U.S. government securities 5,626 2,481 Municipal government securities 1,072 1,055 Agency backed securities 889 793 Total assets 30,185 32,772 Liabilities: Commodity swap contracts $ 1,760 $ 661 Total liabilities $ 1,760 $ 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 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, 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. Derivative liabilities are included within “Accrued expense and other current liabilities” and “Other long-term liabilities” on the Company’s Consolidated Balance Sheets. Note 17 - Commitments Letters of Credit 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 March 31, 2023, 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 March 31, 2023, the Company had unconditional purchase commitments for diesel fuel and natural gas in the normal course of business in the aggregate amount of $ 4.7 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 March 31, 2023, the Company’s purchase commitments annually thereafter were as follows (unaudited, in thousands): Fiscal Year Amount Remainder of 2023 $ 2,509 2024 1,893 2025 256 Total $ 4,658 Minimum Royalties The Company has lease agreements associated with aggregates facilities under which the Company makes royalty payments. These agreements are outside the scope of Topic 842. The payments are generally based on tons sold in a particular period; however, certain agreements have minimum annual payments. The Company had commitments in the form of minimum royalties as of March 31, 2023 in the amount of $ 2.5 million, due as follows (unaudited, in thousands): 21 Table of Contents Fiscal Year Amount Remainder of 2023 $ 65 2024 246 2025 207 2026 182 2027 170 Thereafter 1,615 Total $ 2,485 Royalty expense recorded in cost of revenue was $ 0.4 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively, and $ 0.8 million for each of the six months ended March 31, 2023 and 2022. Note 18 - Restricted Investments The following is a summary of the Company’s debt securities as of March 31, 2023 and September 30, 2022 (in thousands): March 31, 2023 (unaudited) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Corporate debt securities $ 3,904 $ — $ 188 $ 3,716 U.S. government securities 5,724 — 98 5,626 Municipal government securities 1,148 — 76 1,072 Agency backed securities 944 — 55 889 Total $ 11,720 $ — $ 417 $ 11,303 September 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Corporate debt securities $ 2,797 $ — $ 260 $ 2,537 U.S. 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 March 31, 2023, were as follows (unaudited, in thousands): Amortized Cost Fair Value Due within one year $ 3,082 $ 3,070 Due after one year through three years 2,820 2,721 Due after three years 5,818 5,512 Total $ 11,720 $ 11,303 Note 19 - Other Comprehensive Income (Loss) Comprehensive income (loss) comprises two subsets: net income and OCI. The components of OCI are presented in the accompanying Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Stockholders’ Equity, net of applicable 22 Table of Contents taxes. The Company’s interest rate swap contract hedge included in other comprehensive income (loss) 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. 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 March 31, 2023 and September 30, 2022, were as follows (in thousands): AOCI March 31, 2023 (unaudited) September 30, 2022 Interest rate swap contract, net of blend and extend arrangement $ 17,715 $ 23,761 Unrealized loss on available-for-sale securities ( 417 ) ( 566 ) Less net tax effect of other comprehensive income items ( 4,313 ) ( 5,575 ) Total $ 12,985 $ 17,620 Changes in AOCI, net of tax, are as follows (in thousands): AOCI Balance at September 30, 2022 $ 17,620 Net OCI changes ( 4,635 ) Balance at March 31, 2023 (unaudited) $ 12,985 AOCI Balance at September 30, 2021 $ ( 23 ) Net OCI changes 6,903 Balance at March 31, 2022 (unaudited) $ 6,880 Amounts reclassified from AOCI to earnings are as follows (unaudited, in thousands): For the Three Months Ended March 31, 2023 2022 Interest (benefit) expense $ ( 2,007 ) $ 304 Realized loss on restricted investments ( 4 ) — Expense (benefit) from income taxes 517 ( 78 ) Total reclassifications from AOCI to earnings $ ( 1,494 ) $ 226 For the Six Months Ended March 31, 2023 2022 Interest (benefit) expense $ ( 3,342 ) $ 636 Realized loss on restricted investments ( 4 ) — Expense (benefit) from income taxes 861 ( 164 ) Total reclassifications from AOCI to earnings $ ( 2,485 ) $ 472 23 Table of Contents Note 20 - Subsequent Events South Carolina Acquisition On April 3, 2023, a subsidiary of the Company acquired substantially all of the assets of Pickens Construction, Inc., an asphalt paving company headquartered in Anderson, South Carolina, for $ 4.8 million. The transaction added an HMA plant and expanded the Company’s service market in the greater Greenville, South Carolina metro area. Alabama Acquisition On May 1, 2023, a subsidiary of the Company acquired certain assets comprising the Huntsville, Alabama operations of Southern Site Contractors, a Tennessee-based excavation, grading and utilities contractor, for $ 1.1 million. The transaction added skilled employees and construction equipment to drive growth in northeast Alabama. Restricted Stock Award On May 4, 2023, the Company awarded a total of 29,614 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. Award of PSUs On May 4, 2023, the Company awarded PSUs that, if the target metrics for such PSUs are met, would result in the issuance of 8,052 shares of Class A common stock to certain members of Company management. The grants are classified as equity awards. Amendment to Management Services Agreement On May 4, 2023, the Company and entered into an amendment (the “Amendment”) to the Management Services Agreement between the Company and SunTx that extends the end of the term thereof from October 1, 2023 to October 1, 2028. For more information about the Amendment, see the discussion under Part II, Item 5 included elsewhere in this report. Chief Financial Officer Employment Agreement On May 4, 2023, the Company entered into an employment agreement with Gregory A. Hoffman, the Company’s Senior Vice President and Chief Financial Officer. For more information about the Employment Agreement, see the discussion under Part II, Item 5 included elsewhere in this report. 24 Table of Contents