What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 89 added, 102 removed, 172 unchanged (53% of the section changed)

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Contract Backlog

At March 31, 2023, our contract backlog was $1.52 billion.

At June 30, 2023, our contract backlog was $1.59 billion.

Contract backlog is a financial measure that generally reflects the dollar value of work that the Company expects to perform in the future.

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For uncompleted work on contracts in progress, we include (i) executed change orders, (ii) pending change orders for which we expect to receive confirmation in the ordinary course of business and (iii) claims that we have made against our customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider collection to be probable.

Backlog of uncompleted work on contracts under which work was either in progress or had not yet begun was $1.25 billion at March 31, 2023.

Backlog of uncompleted work on contracts under which work was either in progress or had not yet begun was $1.23 billion at June 30, 2023.

Our contract backlog also includes low bid/no contract jobs, which consist of (i) public bid jobs for which we were the low bidder and no contract has been executed and (ii) private work jobs for which we have been notified that we are the low bidder or have been given a notice to proceed, but no contract has been executed.

Low bid/no contract backlog was $0.27 billion at March 31, 2023.

Low bid/no contract backlog was $0.36 billion at June 30, 2023.

Recent Developments

Inflation and Supply Chain Constraints

During the three and six months ended March 31, 2023, 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 certain raw materials used to produce HMA and other items that are critical to our business.

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.

Although these issues have improved, intermittent stresses continued, particularly in regard to our older backlog.

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 on which we bid.

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

Tennessee and North Carolina Acquisitions

On November 18, 2022, we acquired three HMA manufacturing plants and certain related assets located in the Nashville, Tennessee metro area for $9.5 million.

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

On April 3, 2023, we acquired substantially all the assets of Pickens Construction, Inc., an asphalt paving company headquartered in Anderson, South Carolina, for $5.0 million.

The transaction added an HMA plant in the greater Greenville, South Carolina metro area.

On May 1, 2023, we acquired the Huntsville, Alabama operations of Southern Site Contractors, LLC, an excavation, grading and utility contractor, for $1.1 million.

The transaction enhanced our vertical integration of construction services in the greater Huntsville, Alabama metro area.

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

Chief Financial Officer Appointment

Effective following the close of business on March 31, 2023, Gregory A.

Hoffman was appointed as our Chief Financial Officer.

Prior to his appointment, Mr.

Hoffman served as our Senior Vice President of Finance from April 2021 until March 2023 and as Chief Financial Officer of Wiregrass Construction Company, our Alabama subsidiary, from 2009 to 2021.

Before joining our Company, Mr.

Hoffman served in various roles of increasing responsibility at Corporate Express, Inc., a Staples company, including as Division Controller and Vice President, Operations, and also as Division Controller for APAC-Georgia, Inc., a heavy civil infrastructure company.

Prior to APAC, he was a Manager at Ernst & Young LLP, where he directed audit engagement teams serving a variety of industries, including construction.

Hoffman holds a Bachelor of Science in Accounting from the University of Alabama.

How We Assess Performance of Our Business

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Interest Expense, Net

Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, as well as the changes in fair values of interest swap agreements and amortization of deferred debt issuance costs.

Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, and amortization of deferred debt issuance costs.

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

Other Key Performance Indicators - Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income (loss) 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 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 and (vi) certain management fees and expenses.

Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period.

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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 (loss), 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 March 31, For the Six Months Ended March 31,

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,

2023 2022 2023 2022

Net loss $ (5,481) $ (9,418) $ (3,589) $ (3,907)

Net income $ 21,677 $ 12,168 $ 18,088 $ 8,261

Interest expense, net 5,039 2,054 13,801 4,177

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Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following table sets forth selected financial data for the three months ended March 31, 2023 and 2022 (unaudited in thousands, except percentages):

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The following table sets forth selected financial data for the three months ended June 30, 2023 and 2022 (unaudited in thousands, except percentages):

Change From the Three Months Ended

For the Three Months Ended March 31, March 31, 2022

For the Three Months Ended June 30, June 30, 2022

to the Three Months Ended

2023 2022 March 31, 2023

2023 2022 June 30, 2023

Revenues Dollars % of

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Gain on facility exchange — — % — — % — — %

Operating loss (2,551) (0.8) % (11,489) (4.7) % 8,938 (77.8) %

Operating income 33,340 7.9 % 17,999 4.7 % 15,341 85.2 %

Interest expense, net (5,039) (1.2) % (2,054) (0.5) % (2,985) 145.3 %

Other income 493 0.1 % 178 — % 315 177.0 %

Loss before provision for income taxes (6,955) (2.2) % (12,305) (5.1) % 5,350 (43.5) %

Income before provision for income taxes 28,794 6.8 % 16,123 4.2 % 12,671 78.6 %

Provision for income taxes 7,117 1.7 % 3,955 1.0 % 3,162 79.9 %

Net loss $ (5,481) (1.7) % $ (9,418) (3.9) % $ 3,937 (41.8) %

Net income $ 21,677 5.1 % $ 12,168 3.2 % $ 9,509 78.1 %

Adjusted EBITDA $ 56,489 13.4 % $ 37,639 9.9 % $ 18,850 50.1 %

Revenues for the three months ended March 31, 2023 increased $81.5 million, or 33.5%, to $324.9 million from $243.4 million for the three months ended March 31, 2022.

The increase included $40.0 million of revenues attributable to acquisitions completed subsequent to March 31, 2022 and $41.5 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

The 17.1% increase in revenues in our existing markets compared to the prior year period was due to strong demand in both public and private work.

Revenues for the three months ended June 30, 2023 increased $41.6 million, or 10.9%, to $421.9 million from $380.3 million for the three months ended June 30, 2022.

The increase included $41.4 million of revenues attributable to acquisitions completed subsequent to June 30, 2022.

Gross Profit.

Gross profit for the three months ended March 31, 2023 increased $13.8 million, or 110.3%, to $26.3 million from $12.5 million for the three months ended March 31, 2022.

The increase in gross profit was primarily the result of a 33.5% increase in revenues for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The higher gross profit margin was due to (i) efficient utilization of our plants and equipment fleet, (ii) lower energy costs for diesel fuel, liquid asphalt and other petroleum-based resources and (iii) completion of new backlog with more favorable margins.

Gross profit for the three months ended June 30, 2023 increased $19.8 million, or 44.8%, to $64.1 million from $44.3 million for the three months ended June 30, 2022.

The increase in gross profit was the result of a 10.9% increase in revenues for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and a higher gross profit margin.

The higher gross profit margin was due to (i) efficient utilization of our plants and equipment fleet and (ii) completion of new backlog with more favorable margins.

General and Administrative Expenses.

General and administrative expenses for the three months ended March 31, 2023 increased $7.0 million, or 28.0%, to $32.0 million from $25.0 million for the three months ended March 31, 2022.

The increase was primarily the result of (i) a $1.0 million increase in equity-based compensation expense, (ii) a $1.7 million increase attributable to general and administrative expenses associated with the businesses acquired subsequent to March 31, 2022, and (iii) a $5.2 million increase in management personnel payroll and benefits.

General and administrative expenses for the three months ended June 30, 2023 increased $5.6 million, or 21.2%, to $32.2 million from $26.6 million for the three months ended June 30, 2022.

The increase was the result of (i) a $0.9 million increase in equity-based compensation expense, (ii) a $2.2 million increase attributable to general and administrative expenses associated with the businesses acquired subsequent to June 30, 2022, and (iii) a $3.3 million increase in management personnel payroll and benefits, partially offset by a $0.8 million decrease in other general and adminstrative expenses.

Gain on Sale of Property, Plant and Equipment .

Gain on sale of property, plant and equipment for the three months ended March 31, 2023 increased $2.1 million, or 211.4%, to $3.2 million from $1.0 million for the three months ended March 31, 2022.

The increase was primarily the result of $1.3 million gain on the sale of an excess office building in North Carolina that was no longer needed in our operations and additional sales of equipment and components during the three months ended March 31, 2023.

Gain on sale of property, plant and equipment for the three months ended June 30, 2023 increased $1.2 million, or 350.2%, to $1.5 million from $0.3 million for the three months ended June 30, 2022.

The increase was primarily the result of higher levels of sales of equipment and components during the three months ended June 30, 2023.

Interest Expense, Net.

Interest expense, net for the three months ended March 31, 2023 increased $3.9 million, or 459.0%, to $4.8 million compared to $0.9 million for the three months ended March 31, 2022.

The increase in interest expense was due to a $118.5 million increase in the average principal debt balance outstanding and higher interest rates during the three months ended March 31, 2023 compared to the corresponding period in 2022.

Interest expense, net for the three months ended June 30, 2023 increased $2.9 million, or 145.3%, to $5.0 million compared to $2.1 million for the three months ended June 30, 2022.

The increase in interest expense was due to a $80.4 million increase in the average principal debt balance outstanding and higher interest rates during the three months ended June 30, 2023 compared to the corresponding period in 2022.

Provision for Income Taxes.

Our effective tax rate decreased to 21.1% for the three months ended March 31, 2023, from 23.5% for the three months ended March 31, 2022.

Our lower effective tax rate during the three months ended March 31, 2023 was due to differences in state tax rates at our operating subsidiaries.

Net loss decreased $3.9 million to a net loss of $5.5 million for the three months ended March 31, 2023, compared to net loss of $9.4 million for the three months ended March 31, 2022.

The decrease in net loss was primarily a result of higher gross profit and gain on sale of property, plant and equipment, partially offset by an increase in general and administrative expenses and interest expense, net, all as described above.

Our effective tax rate increased to 24.7% for the three months ended June 30, 2023, from 24.5% for the three months ended June 30, 2022.

Our higher effective tax rate during the three months ended June 30, 2023 was due to differences in state tax rates at our operating subsidiaries.

Net income increased $9.5 million to $21.7 million for the three months ended June 30, 2023, compared to $12.2 million for the three months ended June 30, 2022.

The increase in net income was primarily a result of higher 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 $20.8 million and 6.4%, respectively, for the three months ended March 31, 2023, compared to $7.8 million and 3.2%, respectively, for the three months ended March 31, 2022.

The increase in Adjusted EBITDA and Adjusted EBITDA Margin primarily resulted from an increase in gross profit and depreciation, depletion, accretion and amortization, partially offset by higher general and administrative expenses and interest expense, net, all as described above.

See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net loss and the calculation of Adjusted EBITDA Margin, under the heading “How We Assess Performance of Our Business” above.

Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022

The following table sets forth selected financial data for the six months ended March 31, 2023 and 2022 (unaudited in thousands, except percentages):

Change From the Six Months Ended

For the Six Months Ended March 31, March 31, 2022

to the Six Months Ended

2023 2022 March 31, 2023

Adjusted EBITDA and Adjusted EBITDA Margin were $56.5 million and 13.4%, respectively, for the three months ended June 30, 2023, compared to $37.6 million and 9.9%, respectively, for the three months ended June 30, 2022.

The increase in Adjusted EBITDA and Adjusted EBITDA Margin resulted from an increase in gross profit, gain on sale of property, plant and equipment, and depreciation, depletion, accretion and amortization, partially offset by higher general and administrative expenses, all as described above.

See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income and the calculation of Adjusted EBITDA Margin, under the heading “How We Assess Performance of Our Business” above.

Nine Months Ended June 30, 2023 Compared to Nine Months Ended June 30, 2022

The following table sets forth selected financial data for the nine months ended June 30, 2023 and 2022 (unaudited in thousands, except percentages):

Change From the Nine Months Ended

For the Nine Months Ended June 30, June 30, 2022

to the Nine Months Ended

2023 2022 June 30, 2023

Revenues Dollars % of

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Gain on facility exchange 5,389 0.5 % — — % 5,389 — %

Operating income (loss) 3,777 0.6 % (3,030) (0.6) % 6,807 (224.7) %

Operating income 37,117 3.4 % 14,969 1.6 % 22,148 148.0 %

Interest expense, net (13,801) (1.3) % (4,177) (0.5) % (9,624) 230.4 %

Other income 925 0.1 % 337 0.1 % 588 174.5 %

Loss before provision for income taxes (4,553) (0.7) % (4,994) (0.9) % 441 (8.8) %

Income before provision for income taxes 24,241 2.2 % 11,129 1.2 % 13,112 117.8 %

Provision for income taxes 6,153 0.6 % 2,868 0.3 % 3,285 114.5 %

Net loss $ (3,589) (0.6) % $ (3,907) (0.7) % $ 318 (8.1) %

Net income $ 18,088 1.6 % $ 8,261 0.9 % $ 9,827 119.0 %

Adjusted EBITDA $ 104,829 9.6 % $ 71,820 7.9 % $ 33,009 46.0 %

Revenues for the six months ended March 31, 2023 increased $138.3 million, or 26.2%, to $666.6 million from $528.3 million for the six months ended March 31, 2022.

The increase included $72.2 million of revenues attributable to acquisitions completed subsequent to March 31, 2022 and $66.1 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

Revenues for the nine months ended June 30, 2023 increased $179.9 million, or 19.8%, to $1.1 billion from $908.6 million for the nine months ended June 30, 2022.

The increase included $91.0 million of revenues attributable to acquisitions completed subsequent to June 30, 2022 and $88.9 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties.

The 9.8% increase in revenues in our existing markets compared to the prior year period was due to strong demand in both public and private work.

Gross Profit.

Gross profit for the six months ended March 31, 2023 increased $11.3 million, or 24.9%, to $56.8 million from $45.5 million for the six months ended March 31, 2022.

The increase in gross profit was primarily the result of a 26.2% increase in revenues for the six months ended March 31, 2023 compared to the six months ended March 31, 2022.

The lower gross profit margin was due to headwinds from inflation and supply chain constraints on our older backlog primarily completed in the three months ended December 31, 2022, partially offset by more favorable conditions for the three months ended March 31, 2023, as noted above.

Gross profit for the nine months ended June 30, 2023 increased $31.1 million, or 34.7%, to $120.8 million from $89.7 million for the nine months ended June 30, 2022.

The increase in gross profit was the result of a 19.8% increase in revenues for the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 and a higher gross profit margin.

The higher gross profit margin was due to (i) efficient utilization of our plants and equipment fleet and (ii) completion of new backlog with more favorable margins.

General and Administrative Expenses.

General and administrative expenses for the six months ended March 31, 2023 increased $11.8 million, or 23.6%, to $61.7 million from $49.9 million for the six months ended March 31, 2022.

The increase was primarily the result of (i) a $2.0 million increase in equity-based compensation expense, (ii) a $2.7 million increase attributable to general and administrative expenses associated with the businesses acquired subsequent to March 31, 2022, and (iii) a $7.7 million increase in management personnel payroll and benefits.

General and administrative expenses for the nine months ended June 30, 2023 increased $17.4 million, or 22.8%, to $93.9 million from $76.5 million for the nine months ended June 30, 2022.

The increase was the result of (i) a $2.8 million increase in equity-based compensation expense, (ii) a $4.9 million increase attributable to general and administrative expenses associated with the businesses acquired subsequent to June 30, 2022, and (iii) a $10.8 million increase in management personnel payroll and benefits, partially offset by a $1.1 million decrease in other general and administrative expenses.

Gain on Sale of Property, Plant and Equipment .

Gain on sale of property, plant and equipment for the six months ended March 31, 2023 increased $1.9 million, or 128.6%, to $3.3 million from $1.5 million for the six months ended March 31, 2022.

Gain on sale of property, plant and equipment for the nine months ended June 30, 2023 increased $3.0 million, or 169.9%, to $4.8 million from $1.8 million for the nine months ended June 30, 2022.

The increase was primarily the result of $1.3 million gain on the sale of an excess office building in North Carolina that was no longer needed in our operations and higher levels of equipment and components during the nine months ended June 30, 2023.

Gain on Facility Exchange .

Gain on facility exchange for the six months ended March 31, 2023 was $5.4 million compared to $0.0 million for the six months ended March 31, 2022.

Gain on facility exchange for the nine months ended June 30, 2023 was $5.4 million compared to $0.0 million for the nine months ended June 30, 2022.

The gain was the result of the disposition of a quarry in North Carolina.

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Interest Expense, Net.

Interest expense, net for the six months ended March 31, 2023 increased $6.6 million, or 312.7%, to $8.8 million compared to $2.1 million for the six months ended March 31, 2022.

The increase in interest expense was due to a $127.4 million increase in the average principal debt balance outstanding and higher interest rates during the six months ended March 31, 2023 compared to the corresponding period in 2022.

Interest expense, net for the nine months ended June 30, 2023 increased $9.6 million, or 230.4%, to $13.8 million compared to $4.2 million for the nine months ended June 30, 2022.

The increase in interest expense was due to a $112.5 million increase in the average principal debt balance outstanding and higher interest rates during the nine months ended June 30, 2023 compared to the corresponding period in 2022.

Provision for Income Taxes.

Our effective tax rate decreased to 21.1% for the six months ended March 31, 2023, from 21.8% for the six months ended March 31, 2022.

Our lower effective tax rate during the six months ended March 31, 2023 was due to differences in state tax rates at our operating subsidiaries.

Net loss decreased $0.3 million to a net loss of $3.6 million for the six months ended March 31, 2023, compared to net loss of $3.9 million for the six months ended March 31, 2022.

The decrease in net loss was primarily a result of higher gross profit, gain on sale of property, plant and equipment and gain on facility exchange, partially offset by an increase in general and administrative expenses and interest expense, net, all as described above.

Our effective tax rate decreased to 25.4% for the nine months ended June 30, 2023, from 25.8% for the nine months ended June 30, 2022.

Our lower effective tax rate during the nine months ended June 30, 2023 was due to differences in state tax rates at our operating subsidiaries.

Net income increased $9.8 million to $18.1 million for the nine months ended June 30, 2023, compared to $8.3 million for the nine months ended June 30, 2022.

The increase in net income was primarily a result of higher gross profit, gain on sale of property, plant and equipment and gain on facility exchange, 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 $48.3 million and 7.3%, respectively, for the six months ended March 31, 2023, compared to $34.2 million and 6.5%, respectively, for the six months ended March 31, 2022.

The increase in Adjusted EBITDA and Adjusted EBITDA Margin primarily resulted from an increase in gross profit, gain on facility exchange and depreciation, depletion, accretion and amortization, partially offset by higher general and administrative expenses and interest expense, net, all as described above.

Adjusted EBITDA and Adjusted EBITDA Margin were $104.8 million and 9.6%, respectively, for the nine months ended June 30, 2023, compared to $71.8 million and 7.9%, respectively, for the nine months ended June 30, 2022.

The increase in Adjusted EBITDA and Adjusted EBITDA Margin resulted from an increase in gross profit, gains on sale of property, plant and equipment, gain on facility exchange and depreciation, depletion, accretion and amortization, partially offset by higher general and administrative expenses, all as described above.

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

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

Net cash provided by operating activities, net of acquisition $ 94,542 $ (9,721)

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Operating Activities

During the six months ended March 31, 2023, cash provided by operating activities, net of acquisitions, was $45.7 million, primarily as a result of:

• net loss of $3.6 million, including $38.2 million of depreciation, depletion, accretion and amortization of long-lived assets, unrealized losses on derivative instruments of $2.3 million, gain on sale of facility exchange of $5.4 million and equity-based compensation expense of $5.2 million;

During the nine months ended June 30, 2023, cash provided by operating activities, net of acquisitions, was $94.5 million, primarily as a result of:

• net income of $18.1 million, including $57.8 million of depreciation, depletion, accretion and amortization of long-lived assets, unrealized losses on derivative instruments of $1.4 million, gain on sale of property, plant and equipment of $4.8 million, gain on sale of facility exchange of $5.4 million and equity-based compensation expense of $7.9 million;

• a decrease in contracts receivable including retainage, net of $22.8 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle;

• an increase in prepaid expenses and other current assets of $3.2 million primarily due to overpayment of federal and state income taxes and the timing of payments under our insurance policies;

• an increase in prepaid expenses and other current assets of $3.2 million primarily due to the timing of payments under our insurance policies and other expenses;

• an increase in inventories of $12.0 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 $9.2 million due to the timing of processing transactions in our accounts payable cycle;

• a net increase of $8.2 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 six months ended March 31, 2022, cash provided by operating activities, net of acquisitions, was $3.3 million, primarily as a result of:

• net loss of $3.9 million, including $33.0 million of depreciation, depletion, accretion and amortization of long-lived assets, unrealized gains on derivative instruments of $2.1 million and equity-based compensation expense of $3.2 million;

• a net increase of $10.6 million in the difference between billings in excess of costs and estimated earnings on uncompleted contracts and costs and estimated earnings in excess of billings on uncompleted contracts and due to the timing of performing and closing projects.

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 $8.2 million primarily due to overpayment of federal and state income taxes and the timing of payments under our insurance policies;

• an increase in inventories of $13.7 million due to increased inventories from acquisitions, higher inventory costs and normal fluctuations in our inventory cycle;

• a decrease in accounts payable and accrued expenses and other current liabilities of $14.4 million due to the timing of processing transactions in our accounts payable cycle;

• a net increase of $11.0 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.

• 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.

Investing Activities

During the six months ended March 31, 2023, cash used in investing activities was $97.2 million, of which $77.8 million related to acquisitions completed in the period, $60.4 million was invested in property, plant and equipment and $5.1 million was invested in restricted investments by the Captive, partially offset by $8.3 million of proceeds from the sale of property, plant and equipment and $37.0 million of proceeds from the facility exchange.

During the six months ended March 31, 2022, cash used in investing activities was $140.2 million, of which $102.9 million related to acquisitions completed in the period, $34.7 million was invested in property, plant and equipment and $6.4 million was invested in restricted investments by the Captive, partially offset by $3.8 million of proceeds from the sale of property, plant and equipment.

During the nine months ended June 30, 2023, cash used in investing activities was $118.6 million, of which $82.7 million related to acquisitions completed in the period, $79.0 million was invested in property, plant and equipment and $7.9 million was invested in restricted investments by the Captive, partially offset by $12.6 million of proceeds from the sale of property, plant and equipment, $37.0 million of proceeds from the facility exchange and $1.4 million of proceeds from the sale of restricted investments.

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.

Financing Activities

During the six months ended March 31, 2023, cash provided by financing activities was $46.6 million.

During the nine months ended June 30, 2023, cash provided by financing activities was $43.5 million.

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

This cash flow was partially offset by $9.4 million of principal payments on long-term debt.

During the six months ended March 31, 2022, cash provided by financing activities was $111.0 million.

We received $116.0 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 $5.0 million of principal payments on long-term debt.

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.

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 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 available under the Delayed Draw Term Loan at March 31, 2023 and September 30, 2022.

At June 30, 2023 and September 30, 2022, there was $277.5 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 available under the Delayed Draw Term Loan at June 30, 2023 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 March 31, 2023 and September 30, 2022, our fixed charge coverage ratio was 1.47-to-1.00 and 2.56-to-1.00, respectively, and our consolidated leverage ratio was 2.92-to-1.00 and 2.79-to-1.00, respectively.

At June 30, 2023 and September 30, 2022, our fixed charge coverage ratio was 2.00-to-1.00 and 2.56-to-1.00, respectively, and our consolidated leverage ratio was 2.27-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 March 31, 2023 and September 30, 2022, the aggregate notional value of the interest rate swap agreement was $300.0 million, and the fair value was $18.9 million and $24.7 million, respectively, which amounts are included within other assets on the Company’s Consolidated Balance Sheets.

At June 30, 2023 and September 30, 2022, the aggregate notional value of the interest rate swap agreement was $300.0 million, and the fair value was $24.5 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 six months ended March 31, 2023 and 2022, our capital expenditures were approximately $60.4 million and $34.7 million, respectively.

During the nine months ended June 30, 2023 and 2022, our capital expenditures were approximately $79.0 million and $52.2 million, respectively.

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

At March 31, 2023, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis.

At June 30, 2023, 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 March 31, 2023 (unaudited, in thousands):

The following table summarizes our significant obligations outstanding as of June 30, 2023 (unaudited, in thousands):

Payments Due by Fiscal Year

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Off-Balance Sheet Arrangements

As of March 31, 2023, we had aggregate letters of credit outstanding in the amount of $10.0 million, future purchase commitments of diesel fuel and natural gas of $4.4 million and $0.3 million, respectively, and $2.5 million of minimum royalty payments related to aggregates facilities.

As of June 30, 2023, we had aggregate letters of credit outstanding in the amount of $10.0 million, future purchase commitments of diesel fuel and natural gas of $4.3 million and $0.1 million, respectively, and $2.6 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