What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-29 compared with 2022-11-22 · 88 added, 91 removed, 260 unchanged (41% of the section changed)

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Fiscal 2023 Developments

Contract Backlog

At September 30, 2023, our contract backlog was $1.6 billion.

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

We include a construction project in our contract backlog at the time it is awarded and to the extent we believe funding is probable.

Our backlog consists of uncompleted work on contracts in progress and contracts for which we have executed a contract but have not commenced the work.

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 $1.3 billion at September 30, 2023.

Our contract 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 at September 30, 2023.

Business 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.

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.

Business Acquisitions

We completed five acquisitions during the fiscal year, through which we added six HMA plants and a permitted plant site located in South Carolina and Florida.

As a result of these acquisitions, we entered into several new markets, while also establishing our first platform company in South Carolina and adding a diverse fleet of trucks and construction equipment to support our operations.

For more information about our acquisitions during fiscal 2022, see Note 4 - Business Acquisitions to our consolidated financial statements included elsewhere in this report.

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.

Captive Insurance Company

On October 1, 2021, Construction Partners Risk Management, Inc.

(the "Captive"), a captive insurance company and wholly-owned subsidiary of the Company, commenced operations.

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

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.

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

Warmer and drier weather during our third and fourth fiscal quarters typically result in higher activity and revenues during the second half of our fiscal year.

Our first and second fiscal quarters typically have lower levels of activity due to adverse weather conditions.

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.

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 revenues in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.

How We Assess Performance of Our Business

We derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites.

Our projects represent a mix of federal, state, municipal and private customers.

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Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset.

Amortization expense is the periodic expense related to leasehold improvements, intangible assets and unfavorable contract liabilities.

Amortization expense is the periodic expense related to leasehold improvements, intangible assets and liabilities.

Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.

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

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

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

Mineral reserves are depleted in accordance with the units-of-production method as aggregates are extracted, using the initial allocation of cost based on proven and probable reserves.

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General and administrative expenses also include acquisition expenses, audit, consulting and professional fees, stock-based compensation expense, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses.

Gain on Sale of Equipment, Net

Gain on Sale of Property, Plant and Equipment

In the normal course of business, we sell construction equipment for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it.

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

The gain or loss on the sale of property, plant and equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale of equipment during the period.

Gain on Facility Exchange

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

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

Interest Expense, Net

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

Other Key Performance Indicators — Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income

Adjusted EBITDA represents net income before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion, accretion and amortization, (iv) equity-based compensation expense, (v) loss on the extinguishment of debt, (vi) certain management fees and expenses and (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company’s core operations.

Other Key Performance Indicators — Adjusted EBITDA and Adjusted EBITDA Margin

Periods commencing subsequent to September 30, 2023 will not include an adjustment for management fees and expenses, which have historically related to our management services agreement with an affiliate of SunTx.

Effective October 1, 2023, the term of the management services agreement was extended to October 1, 2028.

As a result of the term extension, we no longer view the management fees and expenses paid under the management services agreement as a non-recurring expense.

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

Adjusted net income represents net income before nonrecurring legal settlement costs and associated legal expenses unrelated to the Company’s core operations.

These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP.

These measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income or any other performance measure derived in accordance with GAAP as an indicator of our operating performance.

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

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

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

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

Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets.

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Management fees and expenses (1)

Settlement of legal claim and associated legal expenses (2)

Adjusted EBITDA $ 174,095 $ 111,173

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Adjusted EBITDA Margin 11.1 % 8.5 %

(1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with SunTx Capital Partners (see Note 17 - Related Parties to the consolidated financial statements included elsewhere in this report).

(2) Reflects $3.2 million legal settlement and associated legal expenses in April 2021 unrelated to the Company's core operations.

The following table presents a reconciliation of net income, the most directly comparable measure calculated in accordance with GAAP, to adjusted net income for the periods presented (in thousands):

For the Fiscal Year

Ended September 30,

Net income $ 21,376 $ 20,177

Settlement of legal claim and associated legal expenses (1)

Tax impact due to above reconciling items $ — $ (570)

Adjusted net income $ 21,376 $ 23,969

(1) Reflects $3.2 million legal settlement and associated legal expenses in April 2021 unrelated to the Company's core operations.

(1) Reflects fees and reimbursement of certain out-of-pocket expenses under a management services agreement with SunTx (see Note 17 - Related Parties to the consolidated financial statements included elsewhere in this report).

Results of Operations — Fiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 30, 2022

The following table sets forth selected financial data for the fiscal years ended September 30, 2023 (“fiscal 2023”) and September 30, 2022 (“fiscal 2022”) (in thousands, except percentages).

Refer to the Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on November 29, 2021, for a discussion of results for the fiscal year ended September 30, 2020 ("fiscal 2020") and a comparison of our financial results in fiscal 2021 to those of fiscal 2020.

Refer to the Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 22, 2022, for a discussion of results for the fiscal year ended September 30, 2021 (“fiscal 2021”) and a comparison of our financial results for fiscal 2022 to those for fiscal 2021.

For the Fiscal Year Ended September 30, Change from Fiscal

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General and administrative expenses (126,947) (8.1) % (107,562) (8.3) % (19,385) 18.0 %

Gain on sale of equipment, net 3,673 0.3 % 2,043 0.2 % 1,630 79.8 %

Gain on sale of property, plant and equipment 7,048 0.5 % 3,673 0.3 % 3,375 91.9 %

Gain on facility exchange 5,389 0.3 % — — % 5,389 — %

Operating income 81,875 5.3 % 35,413 2.7 % 46,462 131.2 %

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Provision for income taxes 16,403 1.1 % 6,915 0.5 % 9,488 137.2 %

Earnings from investment in

Earnings (loss) from investment in

joint venture — — % (21) (0.1) % 21 (100.0) %

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Adjusted EBITDA $ 174,095 11.1 % $ 111,173 8.5 % $ 62,922 56.6 %

Adjusted net income $ 21,376 1.6 % $ 23,969 2.6 % $ (2,593) (10.8) %

Revenues for fiscal 2022 increased $391.0 million, or 42.9%, to $1,301.7 million from $910.7 million for fiscal 2021.

Revenues for fiscal 2023 increased $261.9 million, or 20.1%, to $1.6 billion from $1.3 billion for fiscal 2022.

The increase included $148.5 million of revenues attributable to acquisitions completed during or subsequent to fiscal 2022 and an increase of approximately $113.4 million of revenues in our remaining markets from contract work and sales of HMA and aggregates to third parties.

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Gross profit for fiscal 2023 increased $57.1 million, or 41.0%, to $196.4 million from $139.3 million for fiscal 2022.

The increase in gross profit was primarily the result of the 42.9% increase in revenues for fiscal 2022 compared to fiscal 2021.

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

The increase in gross profit was primarily the result of the 20.1% increase in revenues for fiscal 2023 compared to fiscal 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 fiscal 2023 increased $19.4 million, or 18.0%, to $126.9 million from $107.6 million for fiscal 2022.

The increase in general and administrative expenses for fiscal 2022 compared to fiscal 2021 was primarily the result of (i) a $4.5 million increase in equity-based compensation expense, (ii) an $11.1 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to September 30, 2021, and (iii) a $5.1 million increase in various other expenses, primarily driven by professional fees related to business acquisitions, information technology expenses and increased accounting and consulting fees.

These increases were partially offset by a $4.4 million decrease in legal expenses associated with a legal settlement and associated legal fees in April 2021 unrelated to the Company's core operations.

The increase in general and administrative expenses for fiscal 2023 compared to fiscal 2022 was the result of (i) a $7.7 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to September 30, 2022, (ii) a $6.4 million increase in management personnel payroll and benefits, (iii) a $2.8 million increase in equity-based compensation expense, and (iv) a $2.5 million increase in other general and administrative expenses.

Gain on Sale of Property, Plant and Equipment .

Gain on sale of property, plant and equipment for fiscal 2023 increased $3.4 million, or 91.9%, to $7.0 million from $3.7 million for fiscal 2022.

The increase was primarily the result of a $1.3 million gain on the sale of an excess office building and higher disposals of equipment and components during fiscal 2023.

Gain on Facility Exchange .

Gain on facility exchange for fiscal 2023 was $5.4 million compared to $0.0 million for fiscal 2022.

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

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

Interest Expense, Net.

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Provision for Income Taxes.

Our effective tax rate decreased to 24.4% for fiscal 2022, from 29.3% for fiscal 2021.

Our higher effective tax rate for fiscal 2021 was primarily due to the unfavorable impact of a non-deductible legal settlement.

Our effective tax rate increased to 25.1% for fiscal 2023, from 24.4% for fiscal 2022.

Our higher effective tax rate for fiscal 2023 was due to differences in state tax rates at our operating subsidiaries.

Net income increased $27.6 million, or 129.2%, to $49.0 million for fiscal 2023 compared to $21.4 million for fiscal 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.

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 $174.1 million and 11.1%, respectively, for fiscal 2023, compared to $111.2 million and 8.5%, respectively, for fiscal 2022.

The increase in Adjusted EBITDA 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.

The lower Adjusted EBITDA Margin was primarily the result of lower gross profit margins, as described above.

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 gain on facility exchange, partially offset by higher general and administrative expenses, all as described above.

For a description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, see “How We Assess Performance of Our Business.”

Adjusted Net Income .

Adjusted net income decreased $2.6 million to $21.4 million for fiscal 2022, compared to adjusted net income of $24.0 million for fiscal 2021.

The decrease in adjusted net income was primarily a result of higher general and administrative expenses and interest expense, net, substantially offset by higher gross profit, all as described above.

Inflation and Price Changes

As described above under the heading “2022 Fiscal Year Developments — Inflationary and Supply Chain Trends,” we continue to experience an upward trend in several inflation-sensitive inputs necessary for us to provide our products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items that are critical to our business.

Inflation had an immaterial impact on our results of operations for fiscal 2021 due to relatively low inflation in the United States during that period and our ability to recover increasing costs by obtaining higher prices for our products, including sale price escalator clauses in most of our public infrastructure sector contracts.

For more information, see the discussion under the heading “Inflation Risk” included in Item 7A of this report.

Liquidity and Capital Resources

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Net cash used in investing activities (143,372) (197,326)

Net cash provided by financing activities 159,136 123,847

Net change in cash and cash equivalents $ (21,692) $ (91,065)

Net cash (used in) provided by financing activities (264) 159,136

Net change in cash, cash equivalents and restricted cash $ 13,521 $ (21,692)

Operating Activities

During fiscal 2023, cash provided by operating activities, net of acquisitions, was $157.2 million, primarily as a result of:

• net income of $21.4 million, reflecting $65.7 million of depreciation, depletion, accretion and amortization, unrealized gains on derivative instruments of $0.4 million and equity-based compensation expense of $8.0 million;

• an increase in contracts receivable including retainage, net of $97.1 million as a result of higher overall revenues due to acquisitions and growth in existing markets;

• net income of $49.0 million, reflecting $79.1 million of depreciation, depletion, accretion and amortization, deferred income taxes of $11.2 million, equity-based compensation expense of $10.8 million, gain on sale of property, plant and equipment of $7.0 million, gain on facility exchange of $5.4 million;

• an increase in contracts receivable including retainage of $26.0 million as a result of higher overall revenues due to acquisitions and growth in existing markets;

• an increase in inventories of $7.3 million due to increased inventories from acquisitions, growth in existing markets, higher inventory costs and normal fluctuations in our inventory cycle;

• an increase in prepaid expenses and other current assets of $4.9 million primarily due to the timing of deposits for federal and state income taxes and timing of payments under our insurance policies and other expenses;

• a decrease in prepaid expenses and other current assets of $3.7 million, primarily due to the timing of payments under our insurance policies and other expenses;

• an increase in accounts payable and accrued expenses and other current liabilities of $19.6 million due to an increase in construction activity;

• a net increase in the difference between costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts of $9.5 million due to the timing of performing and closing projects.

• a net increase 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 of $26.7 million due to the timing of performing and closing projects.

During fiscal 2022, cash provided by operating activities, net of acquisitions, was $16.5 million, primarily as a result of:

• net income of $20.2 million, reflecting $49.8 million of depreciation, depletion, accretion and amortization of long-lived assets, unrealized gains on derivative instruments of $3.2 million and equity-based compensation expense of $3.5 million;

• net income of $21.4 million, reflecting $65.7 million of depreciation, depletion, accretion and amortization, equity-based compensation expense of $8.0 million and unrealized gains on derivative instruments of $0.4 million;

• an increase in contracts receivable including retainage, net of $97.1 million as a result of higher overall revenues due to acquisitions and growth in existing markets;

• an increase in other assets of $2.9 million primarily due to capitalized costs related to the as then in effect revolving credit facility and deposits on property, plant and equipment assets;

• an increase in inventories of $3.9 million due to increased inventories from acquisitions and normal fluctuations in our inventory cycle;

• an increase in inventories of $17.5 million due to increased inventories from acquisitions, growth in existing markets, higher inventory costs and normal fluctuations in our inventory cycle;

• an increase in accounts payable and accrued expenses and other current liabilities of $29.8 million due to an increase in construction activity;

• a net decrease in the difference between costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts of $15.1 million due to the timing of performing and closing projects.

• a net increase 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 of $9.5 million due to the timing of performing and closing projects.

Investing Activitie s

During fiscal 2022, cash used in investing activities was $197.3 million, of which $128.6 million related to acquisitions completed in the period and $68.9 million was invested in property, plant and equipment.

These amounts were partially offset by $7.5 million of proceeds from the sale of equipment.

During fiscal 2023, cash used in investing activities was $143.4 million, of which $91.8 million related to acquisitions completed in the period, $97.8 million was invested in property, plant and equipment and $11.4 million was invested in restricted investments.

These amounts were partially offset by $17.7 million of proceeds from the sale of equipment, $37.0 million of proceeds from the facility exchange and $2.9 million of proceeds from the sale of restricted investments.

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Financing Activities

During fiscal 2022, cash provided by financing activities was $159.1 million.

We received $167.3 million in proceeds on long-term debt, net of debt issuance costs and discounts, which was offset by $8.1 million of principal payments on long-term debt.

During fiscal 2023, cash used in financing activities was $0.3 million.

We received $103.0 million in proceeds from the issuance of long-term debt, net of debt issuance costs and discounts, which was offset by $103.1 million of principal payments on long-term debt and purchase of treasury stock of $0.2 million.

During fiscal 2022, cash provided by financing activities was $159.1 million.

We received $219.2 million in proceeds on long-term debt, net of debt issuance costs and discounts, which was offset by $95.4 million of principal payments on long-term debt.

We received $167.3 million in proceeds on long-term debt, net of debt issuance costs and discounts, which was partially offset by $8.1 million of principal payments on long-term debt.

Credit Agreement

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

At September 30, 2022 and 2021, the aggregate notional value of these interest rate swap agreements was $300.0 million and $198.3 million, respectively, and the fair value was $24.7 million and $(0.8) million, respectively, which is included within other assets or other long-term liabilities on our Consolidated Balance Sheets.

For more information about the Credit Amendment, see Note 11 - Debt to the consolidated financial statements included elsewhere in this report.

At September 30, 2023 and 2022, the aggregate notional value of these interest rate swap agreements was $300.0 million, and the fair value was $26.9 million and $24.7 million, respectively, which is included within other assets on our Consolidated Balance Sheets.

For more information about the Credit Agreement, see Note 11 - Debt to the consolidated financial statements included elsewhere in this report.

Capital Requirements and Sources of Liquidity

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However, our ability to engage in any such transactions may be constrained by economic conditions and other factors outside of our control.

We cannot guarantee that additional capital will be available on acceptable terms or at all.

Additional capital may not be available on acceptable terms or at all.

If we are unable to obtain the funds we need, we may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to conduct our operations.

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These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.

Those critical accounting policies and estimates that require the most significant judgment are discussed further below.

Estimates made in accordance with U.S.

GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition are discussed further below.

Revenue Recognition

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Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred.

For the majority of our contracts, upon completion and final acceptance of the services that we were contracted to perform, we receive our final payment upon completion of the necessary contract closing documents, and our obligations to the owner are complete at that point.

The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues

and costs to finish uncompleted contracts.

The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts.

Our estimates for all of our significant contracts use a highly detailed “bottom up” approach.

However, our projects can be highly complex and, in almost every case, the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid.

Because we have a large number of projects of varying levels of size and complexity in process at any given time, these changes in estimates can sometimes offset each other without materially impacting our overall profitability.

Because we have a large number of projects of varying sizes and levels of complexity in process at any given time, these changes in estimates can sometimes offset each other without materially impacting our overall profitability.

However, large changes in revenues or cost estimates can have a significant effect on profitability.

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The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins, may cause fluctuations in gross profit between periods, and these fluctuations may be significant.

Contracts Receivable, Including Retainage

Contracts Receivable, Including Retainage, Net

Contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts.

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Valuation of Long-Lived Assets and Goodwill

Long-lived assets, which include property, equipment and acquired intangible assets, such as goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Long-lived assets, which include property, plant and equipment and acquired intangible assets, such as goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or an asset group, may not be recoverable.

Impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows.

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There are a number of other uncertainties with respect to our future financial performance that could impact estimated future cash flows, including those discussed under the heading “Risk Factors” elsewhere in this report.

Based on our valuation approaches, we determined that our one reporting unit substantially exceeded its carrying value, and thus concluded that the carrying value of goodwill was not impaired at July 1, 2022 or 2021.

Based on our valuation approaches, we determined that our one reporting unit exceeded its carrying value, and thus concluded that the carrying value of goodwill was not impaired at July 1, 2023 or 2022.

At September 30, 2023 and 2022, we had goodwill with a carrying amount of $159.3 million and $129.5 million, respectively.

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Accordingly, no further analysis was required or performed.

The Company’s inventories are stated at the lower of cost or net realizable value and are accounted for on an average cost basis or a first-in, first-out cost basis.

The cost of inventory includes the cost of material, labor, trucking and other equipment costs associated with procuring and transporting materials to HMA plants for production and delivery to customers.

Inventories consist primarily of construction stone that has been removed from aggregates facilities and processed for future sale or internal use, raw materials including asphalt cement, and aggregates and millings that the Company expects to utilize on construction projects within one year.

Inventories valued on the average cost basis totaled $75.5 million and $64.8 million at September 30, 2023 and 2022, respectively.

Inventories valued on the first-in, first-out cost basis totaled $8.5 million and $9.4 million at September 30, 2023 and 2022, respectively.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

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Also effective October 1, 2021, we became a member of a group captive insurance company that retains the next $550,000 per claim liability for each claim paid.

The Company utilizes various primary and excess insurance companies to cover the liability for claims in excess of the retained amounts.

We utilize various

primary and excess insurance companies to cover the liability for claims in excess of the retained amounts.

Changes in loss assumptions caused by changes in actual experience would affect the assessment of the ultimate liability and could have an effect on our operating results and financial position up to $1,000,000 per occurrence for general liability, automobile liability and workers’ compensation claims.

8 unchanged sentences

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 7. Management’s Discussion and Analysis