What changed in this filing

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Item 1. Business

2023-11-29 compared with 2022-11-22 · 35 added, 48 removed, 167 unchanged (33% of the section changed)

We are a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina.

We are a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.

Through our wholly owned subsidiaries, we provide 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.

Consistent with our vertical integration strategy, our 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 (v) distributing liquid asphalt cement for both internal use and sales to third parties in connection with HMA production.

Consistent with our vertical integration strategy, our 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.

Construction Partners, Inc.

was formed as a Delaware corporation in 2007 as a holding company for its wholly owned subsidiary, Construction Partners Holdings, Inc., to facilitate an acquisition growth strategy in the HMA paving and construction industry.

On December 31, 2019, Construction Partners Holdings, Inc.

merged with and into Construction Partners, Inc., with Construction Partners, Inc.

surviving the merger.

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.

As used in this report, the terms “Company,” “we,” “our” and “us” refer to Construction Partners, Inc.

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2023 Fiscal Year Developments

• Acquisitions.

During the 2023 fiscal year, we completed five acquisitions across four states, adding to or expanding our operations in Alabama, North Carolina, South Carolina and Tennessee.

As a result of these acquisitions, we added eight asphalt plants and a diverse fleet of equipment and vehicles, as well as skilled construction professionals.

The total transaction consideration for these acquisitions was approximately $92.0 million.

We also 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.

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

• Inflationary and Supply Chain Trends.

During the fiscal year ended September 30, 2022, we continued to experience an upward trend in several inflation-sensitive inputs necessary for us to provide our products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items that are critical to our business, including fuel, concrete and steel.

In addition, we experienced some disruptions from various participants in our supply chain, including subcontractors, materials suppliers and equipment manufacturers, who provide the raw materials, equipment, vehicles, construction supplies and other services we require in order to manufacture HMA and perform our construction projects.

To date, we have been able to mitigate some of the effects of inflation, supply chain disruptions and labor constraints on our business by increasing prices for our products and including the anticipated cost increases in the construction projects we bid.

During the fiscal year ended September 30, 2023, we continued to experience an upward trend in certain inflation-sensitive inputs for our products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA, such as liquid asphalt and aggregate materials.

We also experienced some disruptions from subcontractors, materials suppliers, equipment manufacturers and others in our supply chain, although to a lesser extent than in recent years.

We have been able to mitigate some of the effects of inflation, supply chain disruptions and labor constraints on our business by increasing prices for our products and including the anticipated cost increases in the construction projects we bid.

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

• South Carolina Acquisitions.

We acquired King Asphalt, Inc., an HMA production and paving company headquartered in Liberty, South Carolina.

This transaction established our first platform company in South Carolina and added three HMA plants in the Greenville, South Carolina metro area.

We also acquired an asphalt paving, grading and site work company headquartered in Conway, South Carolina.

This transaction added two HMA plants and provides access to Horry County and the larger Myrtle Beach metro area.

• Florida Acquisitions.

We acquired a grading and site work company headquartered in Pensacola, Florida.

This transaction enhanced our vertical integration of construction services and supplemented our capabilities in the greater Pensacola, Florida market area.

We also acquired an asphalt paving, grading and site work company headquartered in Panama City, Florida.

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

• North Carolina Acquisition.

We acquired an asphalt paving company headquartered in Burgaw, North Carolina.

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

• Credit Agreement.

On June 30, 2022, we entered into the Credit Agreement.

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

Among other things, the proceeds of the Term Loan were used to refinance our indebtedness under our prior credit facility.

For further discussion regarding the Credit Agreement, see Note 11 - Debt to our consolidated financial statements included elsewhere in this report.

We operate in the large and growing highway and road construction industry and specifically within the asphalt paving materials and services segment.

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The non-discretionary nature of highway and road construction services and materials supports stable and consistent industry funding.

The Inflation Reduction Act of 2022 provides funding for numerous projects and initiatives relevant to the surface transportation industry, including grants for safety and environmental improvements, incentives for the use of construction materials and products with lower levels of embodied greenhouse gas emissions, and streamlined environmental review processes for proposed projects.

Projects and Customers

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Our projects consist of both new construction and maintenance services.

Publicly and privately funded projects accounted for approximately 60.9% and 39.1%, respectively, of our fiscal 2022 c onstruction contract revenues.

Publicly funded projects and third-party sales accounted for approximately 63%, and privately funded projects and third-party sales accounted for approximately 37%, of our fiscal 2023 revenues.

Our public customers include federal agencies, state DOTs and local municipalities.

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Our largest customers are state DOTs.

F or the fiscal year ended September 30, 2022, the Alabama DOT and North Carolina DOT accounted for 10.0% and 11.2% of our revenues, respectively.

Other than the Alabama DOT and North Carolina DOT, no other customer accounted for more than 10% of our revenues for the fiscal year ended September 30, 2022, and projects performed for all DOTs accounted for 36.8% of our revenues.

Our 25 largest projects acco unted for 16.9% of our revenues for the fiscal year ended September 30 , 2022.

F or the fiscal year ended September 30, 2023, the Florida DOT and North Carolina DOT accounted for 10.7% and 10.5% of our revenues, respectively.

Other than the Florida DOT and North Carolina DOT, no other customer accounted for more than 10% of our revenues for the fiscal year ended September 30, 2023, and projects performed for all DOTs accounted for 36.2% of our revenues.

Our 25 largest projects accounted for 16.5% of our revenues for the fiscal year ended September 30, 2023.

Types of Contracts

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• Phase One :

We review the plans and specifications of the project so that we can identify (i) the various types of work involved and related estimated materials, (ii) the contract duration and schedule, and (iii) any unique or risky aspects of the project.

• Phase Two :

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After concluding this detailed review of the cost estimate, management determines the appropriate profit margin to calculate the total bid amount.

This profit amount varies according to management’s perception of the degree of difficulty of the contract, the existing competitive climate, and the size and makeup of our contract backlog.

This profit margin varies according to management’s perception of the degree of difficulty of the contract, the existing competitive climate and the size and makeup of our contract backlog.

Throughout this process, we work closely with our project managers so that all issues concerning a contract, including any risks, can be better understood and addressed as appropriate.

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Also, to mitigate the risk of material price changes, we obtain “not to exceed” quotations from our suppliers, which, for projects of longer duration, usually contain price escalator provisions.

These quotations typically include quantity guarantees that are tied to our prime contract.

These quotations typically include

quantity guarantees that are tied to our prime contract.

We have no obligation for materials or subcontract services beyond those required to complete the respective contracts that we are awarded for which quotations have been provided.

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Contract Backlog

At September 30, 2022, our contract backlog was $1,410.8 million, compared to $966.2 million at September 30, 2021.

At September 30, 2023, our contract backlog was $1.6 billion compared to $1.4 billion at September 30, 2022.

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 $1,027.8 million and $725.5 million at September 30, 2022 and 2021, respectively.

Our 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 $383.0 million and $240.7 million at September 30, 2022 and 2021, respectively.

Backlog of uncompleted work on contracts under which work was either in progress or had not yet begun was $1.3 billion and $1.0 billion at September 30, 2023 and 2022, respectively.

Our backlog also includes low bid/no contract projects, which consist of (i) public bid projects for which we were the low bidder and no contract has been executed and (ii) private work projects 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 $0.3 billion and $0.4 billion at September 30, 2023 and 2022, respectively.

At September 30, 2023, we expected approximately 73% of our contract backlog to be completed during the next 12 months.

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In addition, some customer contracts also contain task orders that are signed under master contracts pursuant to which we perform work only when the customer awards specific task orders to us.

Awarded contracts that include unexercised contract options and unissued task orders are included in contract backlog to the extent that such options are exercised or the issuance of such task orders is probable.

Awarded contracts that include unexercised contract options and unissued task orders are included in contract backlog to the extent that the exercise of such options or the issuance of such task orders is probable.

Substantially all of the contracts in our contract backlog, as well as unexercised contract options and unissued task orders, may be canceled or modified at the election of the customer.

Historically, we have not experienced material amounts of contract cancellations or modifications.

Many projects are added to our contract backlog and completed within the same fiscal year and therefore may not be reflected in our beginning or year-end contract backlog.

Many projects are added to our contract backlog and completed within the same fiscal year and therefore may not be

reflected in our beginning or year-end contract backlog.

Contract backlog does not include external sales of HMA, aggregates, and liquid asphalt cement.

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The activity of our business fluctuates due to seasonality because our business is primarily conducted 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 our business and operations through a decline in both the use of our products and the demand for our services.

Therefore, seasonal changes and other weather-related conditions, in particular extended snowy, rainy or cold weather and major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, can adversely affect our business and operations through a decline in both the use of our products and the demand for our services.

In addition, construction materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer and fall.

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Our third fiscal quarter varies greatly with spring rains and wide temperature variations.

A cool, wet spring increases drying time on projects, which can delay sales in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.

A cool, wet spring increases drying time on projects, which can delay revenue in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.

Sources and Availability of Raw Materials

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We are able to internally supply RAP, a byproduct of asphalt resurfacing projects, to all of our HMA plants, and virgin aggregates in some of our market areas.

The majority of our HMA plants sit in or near suppliers’ aggregates facilities, thereby reducing the hauling cost of

material to our plant.

The majority of our HMA plants sit in or near suppliers’ aggregates facilities, thereby reducing the hauling cost of material to our plant.

The price and availability of raw materials may vary from year to year due to market conditions and production capacities.

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• limitation or prohibition of activities on certain lands lying within wilderness, wetlands, and other protected areas;

• obligations to restore or reclaim former mining areas;

• requirements to comply with specific health and safety criteria addressing worker protection;

• the imposition of substantial liabilities for pollution resulting from our operations.

Such federal laws include (i) the Resource Conservation and Recovery Act, the Pollution Prevention Act and the Comprehensive Environmental Response, Compensation and Liability Act, governing solid and hazardous waste management, (ii) the Clean Air Act and the Clean Water Act, protecting air and water resources, and (iii) the Emergency Planning and Community Right-to-Know Act and Toxic Substances Control Act, governing the management of hazardous materials, in addition to analogous state laws.

Such federal laws include (i) the Federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, the Pollution Prevention Act and the Comprehensive Environmental Response, Compensation and Liability Act, governing solid and hazardous waste management, (ii) the Clean Air Act, the Clean Water Act and the Safe Drinking Water Act, protecting air and water resources, and (iii) the Emergency Planning and Community Right-to-Know Act and Toxic Substances Control Act, governing the management of hazardous materials, (iv) the federal Mine Safety and Health Act of 1977, requiring certain disclosures of mining-related health and safety violations, orders, citations, assessments, legal actions, and mining-related fatalities, and (v) the Occupational Safety and Health Act, governing working conditions for workers, in addition to analogous state laws.

Numerous governmental authorities, such as the Environmental Protection Agency and corresponding state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them.

Such enforcement actions often involve difficult and costly compliance measures or corrective actions.

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, compensatory damages, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our operations.

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, compensatory damages, injunctive relief, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our operations.

In addition, we may experience delays in obtaining, or be unable to obtain, required permits, which may delay or interrupt our operations and limit our growth and revenue.

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We have incurred costs in connection with the investigation and remediation of hazardous substances and petroleum products identified at several facilities, and investigation and remediation activities are ongoing at others.

We may also become subject to

similar liabilities in connection with prior and future acquisitions.

We may also become subject to similar liabilities in connection with prior and future acquisitions.

We do not believe that liabilities associated with known or potential contamination at any of our facilities will have a material adverse effect on our operations or financial condition.

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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-K

Item 1. Business