Construction Partners, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This discussion and analysis of our financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition during the period covered by this report. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth under the headings “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in the 2023 Form 10-K. In this discussion, we use certain non-GAAP financial measures. Explanations of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations". Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP. Overview We are a civil infrastructure company that specializes in the building and maintenance of transportation networks. Our operations leverage a highly-skilled workforce, strategically located HMA plants, substantial construction assets and select material deposits. We provide construction products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites in the southeastern United States. Our public projects are funded by federal, state and local governments and include roads, highways, bridges, airports and other forms of infrastructure. Public transportation infrastructure projects historically have been a relatively stable portion of state and federal budgets and represent a significant share of the U.S. construction market. Federal funds are allocated on a state-by-state basis, and each state is required to match a portion of the federal funds that it receives. Federal highway spending uses funds predominantly from the Highway Trust Fund, which derives its revenues from fuel taxes and other user fees. In addition to public infrastructure projects, we provide a wide range of large site work construction and HMA paving services to private construction customers, including commercial and residential developers and local businesses. Contract Backlog At June 30, 2024, our contract backlog was $1.9 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 $1.5 billion at June 30, 2024. 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 $0.4 billion at June 30, 2024. Recent Developments Business Acquisitions During the three months ended June 30, 2024, we completed two acquisitions, expanding our operations in Georgia and North Carolina. As a result of these acquisitions, we added two asphalt plants, a greenfield asphalt plant site, 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 unaudited consolidated financial statements included elsewhere in this report. Stock Repurchase Plan On April 12, 2024, our Board of Directors authorized a stock repurchase program under which up to $40 million is available to purchase shares of our outstanding Class A common stock through September 30, 2025. We intend to utilize the stock repurchase program to minimize the dilutive impact of awards granted under our equity incentive plans and to repurchase shares opportunistically. Shares of our Class A common stock may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 plans. The stock repurchase program does not obligate us to repurchase any shares of Class A common stock, and the stock repurchase program may be modified, suspended, extended or terminated at any time by our Board of Directors. The actual timing, number and value of shares of 28 Table of Contents Class A common stock repurchased will be determined by a committee of the Board of Directors at its discretion and will depend on a number of factors, including the market price of our Class A common stock, capital allocation alternatives, general market and economic conditions and other corporate considerations. How We Assess Performance of Our Business Revenues 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. We also derive revenues from the sale of HMA, aggregates and liquid asphalt cement to customers. We recognize revenues derived from projects as we satisfy our performance obligations over time, measured by the relationship of total cost incurred compared to total estimated contract costs (cost-to-cost input method). Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Revenues derived from the sale of HMA, aggregates and liquid asphalt cement are recognized when the risks associated with ownership have passed to the customer. Gross Profit Gross profit represents revenues less cost of revenues. Cost of revenues consists of all direct and indirect costs associated with construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregates mining facilities and liquid asphalt cement terminal. Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel. From time to time, when appropriate, we limit our exposure to changes in commodity prices by entering into forward purchase commitments. In addition, our public infrastructure contracts often provide for price adjustments based on fluctuations in certain commodity-related product costs. These price adjustment provisions are in place for most of our public infrastructure contracts, and we seek to include similar provisions in our private contracts. Depreciation, Depletion, Accretion and Amortization Property, plant and equipment are initially recorded at cost or, if acquired as a business combination, at fair value. 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 and intangible assets. 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. 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. General and Administrative Expenses General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate offices. These expenses consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees. General and administrative expenses also include acquisition expenses, audit, consulting and professional fees, share-based compensation expense, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses. Gain on Sale of Property, Plant and Equipment In the normal course of business, we sell assets for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it. The gain or loss on the sale of property, plant and equipment reflects the difference between the carrying value at the date of disposal and the net consideration received from the sale during the period. Gain on Facility Exchange As part of our continued growth strategy, we may exchange or sell other facilities in order to generate capital for use in connection with other strategic initiatives. The gain or loss on the exchange or sale of a facility reflects the difference between the net carrying value of the facility at the date of disposal and the consideration received from the exchange or sale during the period. 29 Table of Contents Interest Expense, Net Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loans 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 before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion, accretion and amortization, (iv) share-based compensation expense, and (v) loss on the extinguishment of debt. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. 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 and Adjusted EBITDA Margin because management uses these measures as key performance indicators, and we believe that securities analysts, investors and others use these measures to evaluate companies in our industry. Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies. Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets. The following table presents a reconciliation of net income, the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA and the calculation of Adjusted EBITDA Margin for the periods presented (unaudited, in thousands, except percentages): For the Three Months Ended June 30, For the Nine Months Ended June 30, 2024 2023 (1) 2024 2023 (1) Net income $ 30,908 $ 21,677 $ 39,627 $ 18,088 Interest expense, net 4,673 5,039 12,987 13,801 Provision for income taxes 10,108 7,117 12,905 6,153 Depreciation, depletion, accretion and amortization 23,507 19,536 67,468 57,769 Share-based compensation expense 4,039 2,737 10,586 7,909 Adjusted EBITDA $ 73,235 $ 56,106 $ 143,573 $ 103,720 Revenues $ 517,794 $ 421,893 $ 1,285,726 $ 1,088,522 Adjusted EBITDA Margin 14.1 % 13.3 % 11.2 % 9.5 % (1) The Company has historically included within the definition of Adjusted EBITDA an adjustment for management fees and expenses related to the Company’s management services agreement with an affiliate of SunTx Capital Partners, a member of the Company’s control group. Effective October 1, 2023, the term of the management services agreement was extended to October 1, 2028. As a result of the term extension, the Company no longer views the management fees and expenses paid under the management services agreement as a non-recurring expense. Accordingly, periods commencing subsequent to September 30, 2023 do not include an adjustment for management fees and expenses, and the Company has recast comparative Adjusted EBITDA and Adjusted EBITDA Margin for the three and nine months ended June 30, 2023 to conform to the current definition. 30 Table of Contents Results of Operations Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 The following table sets forth selected financial data for the three months ended June 30, 2024 and 2023 (unaudited, in thousands, except percentages): Change From the Three Months Ended For the Three Months Ended June 30, June 30, 2023 to the Three Months Ended 2024 2023 June 30, 2024 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 517,794 100.0 % $ 421,893 100.0 % $ 95,901 22.7 % Cost of revenues 434,302 83.9 % 357,821 84.8 % 76,481 21.4 % Gross profit 83,492 16.1 % 64,072 15.2 % 19,420 30.3 % General and administrative expenses (38,928) (7.5) % (32,231) (7.7) % (6,697) 20.8 % Gain on sale of property, plant and equipment 1,093 0.2 % 1,499 0.4 % (406) (27.1) % Operating income 45,657 8.8 % 33,340 7.9 % 12,317 36.9 % Interest expense, net (4,673) (0.9) % (5,039) (1.2) % 366 (7.3) % Other income 32 — % 493 0.1 % (461) (93.5) % Income before provision for income taxes 41,016 7.9 % 28,794 6.8 % 12,222 42.4 % Provision for income taxes 10,108 1.9 % 7,117 1.7 % 2,991 42.0 % Net income $ 30,908 6.0 % $ 21,677 5.1 % $ 9,231 42.6 % Adjusted EBITDA $ 73,235 14.1 % $ 56,106 13.3 % $ 17,129 30.5 % Revenues. Revenues for the three months ended June 30, 2024 increased $95.9 million, or 22.7%, to $517.8 million from $421.9 million for the three months ended June 30, 2023. The increase included $40.9 million of revenues attributable to acquisitions subsequent to June 30, 2023, and an increase of approximately $55.0 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 13.0% increase in revenue in our existing markets was due to strong demand in both public and private work. Gross Profit. Gross profit for the three months ended June 30, 2024 increased $19.4 million, or 30.3%, to $83.5 million from $64.1 million for the three months ended June 30, 2023. The increase in gross profit was primarily the result of a 22.7% increase in revenues for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and a higher gross profit margin. The higher gross profit margin was due to efficient utilization of our plants and equipment fleet and completion of new backlog with more favorable margins. General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2024 increased $6.7 million, or 20.8%, to $38.9 million from $32.2 million for the three months ended June 30, 2023. The increase was the result of (i) a $1.3 million increase in share-based compensation expense, (ii) a $2.6 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to June 30, 2023, (iii) a $1.3 million increase in management personnel payroll and benefits, and (iv) a $1.5 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 the three months ended June 30, 2024 decreased $0.4 million, or 27.1%, to $1.1 million from $1.5 million for the three months ended June 30, 2023. The decrease was attributable to lower disposals of equipment and components during the quarter. Interest Expense, Net. Interest expense, net for the three months ended June 30, 2024 decreased $0.3 million, or 7.3%, to $4.7 million compared to $5.0 million for the three months ended June 30, 2023. The decrease in interest expense, net was primarily due to an increase in interest income from an overnight sweep program established in fiscal 2024. This increase in interest income was primarily offset by an increase in interest expense due to an increase in the average principal debt balance outstanding during the three months ended June 30, 2024 compared to the corresponding period in 2023. 31 Table of Contents Provision for Income Taxes. Our effective tax rate decreased to 24.6% for the three months ended June 30, 2024, from 24.7% for the three months ended June 30, 2023. Our lower effective tax rate during the three months ended June 30, 2024 was due to differences in state tax rates at our operating subsidiaries. Net Income. Net income increased $9.2 million to $30.9 million for the three months ended June 30, 2024, compared to $21.7 million for the three months ended June 30, 2023. The increase in net income was primarily a result of higher gross profit, partially offset by an increase in general and administrative expenses and decreased gains on sale of property, plant and equipment, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $73.2 million and 14.1%, respectively, for the three months ended June 30, 2024, compared to $56.1 million and 13.3%, respectively, for the three months ended June 30, 2023. The increase in Adjusted EBITDA and Adjusted EBITDA Margin resulted from an increase in gross profit, partially offset by higher general and administrative expenses and decreased gains on sale of property, plant and equipment, 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, under the heading “How We Assess Performance of Our Business”. Nine Months Ended June 30, 2024 Compared to Nine Months Ended June 30, 2023 The following table sets forth selected financial data for the nine months ended June 30, 2024 and 2023 (unaudited, in thousands, except percentages): Change From the Nine Months Ended For the Nine Months Ended June 30, June 30, 2023 to the Nine Months Ended 2024 2023 June 30, 2024 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 1,285,726 100.0 % $ 1,088,522 100.0 % $ 197,204 18.1 % Cost of revenues 1,111,553 86.5 % 967,674 88.9 % 143,879 14.9 % Gross profit 174,173 13.5 % 120,848 11.1 % 53,325 44.1 % General and administrative expenses (111,661) (8.7) % (93,945) (8.6) % (17,716) 18.9 % Gain on sale of property, plant and equipment 2,960 0.3 % 4,825 0.4 % (1,865) (38.7) % Gain on facility exchange — — % 5,389 0.5 % (5,389) (100.0) % Operating income 65,472 5.1 % 37,117 3.4 % 28,355 76.4 % Interest expense, net (12,987) (1.0) % (13,801) (1.3) % 814 (5.9) % Other income 47 — % 925 0.1 % (878) (94.9) % Income before provision for income taxes 52,532 4.1 % 24,241 2.2 % 28,291 116.7 % Provision for income taxes 12,905 1.0 % 6,153 0.6 % 6,752 109.7 % Net income $ 39,627 3.1 % $ 18,088 1.6 % $ 21,539 119.1 % Adjusted EBITDA $ 143,573 11.2 % $ 103,720 9.5 % $ 39,853 38.4 % Revenues. Revenues for the nine months ended June 30, 2024 increased $197.2 million, or 18.1%, to $1.3 billion from $1.1 billion for the nine months ended June 30, 2023. The increase included $95.6 million of revenues attributable to acquisitions completed subsequent to June 30, 2023 and $101.6 million of revenues in our existing markets from contract work and sales of HMA and aggregates to third parties. The 9.3% 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 nine months ended June 30, 2024 increased $53.4 million, or 44.1%, to $174.2 million from $120.8 million for the nine months ended June 30, 2023. The increase in gross profit was primarily the result of a 18.1% increase in revenues for the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023 and a higher gross profit margin. The higher gross profit margin was due to efficient utilization of our plants and equipment fleet and completion of new backlog with more favorable margins. 32 Table of Contents General and Administrative Expenses. General and administrative expenses for the nine months ended June 30, 2024 increased $17.7 million, or 18.9%, to $111.6 million from $93.9 million for the nine months ended June 30, 2023. The increase was primarily the result of (i) a $2.7 million increase in share-based compensation expense, (ii) a $6.2 million increase attributable to general and administrative expenses associated with the operations of businesses acquired subsequent to June 30, 2023, (iii) a $5.1 million increase in management personnel payroll and benefits, and (iv) a $3.7 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 the nine months ended June 30, 2024 decreased $1.8 million, or 38.7%, to $3.0 million from $4.8 million for the nine months ended June 30, 2023. The decrease was attributable to lower disposals of equipment and components during the period. Gain on Facility Exchange . There was no gain on facility exchange for the nine months ended June 30, 2024 compared to a gain of $5.4 million for the nine months ended June 30, 2023. The gain was the result of the disposition of a quarry located near Goldston, North Carolina. In connection with this transaction, the Company acquired three HMA manufacturing plants and certain related assets located in the Nashville, Tennessee metro area. Interest Expense, Net. Interest expense, net for the nine months ended June 30, 2024 decreased $0.8 million, or 5.9%, to $13.0 million compared to $13.8 million for the nine months ended June 30, 2023. The decrease in interest expense, net was primarily due to an increase in interest income from an overnight sweep program established in fiscal 2024. This increase in interest income was primarily offset by an increase in interest expense due to an increase in the average principal debt balance outstanding during the nine months ended June 30, 2024 compared to the corresponding period in 2023. Provision for Income Taxes. Our effective tax rate decreased to 24.6% for the nine months ended June 30, 2024, from 25.4% for the nine months ended June 30, 2023. Our higher 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. Net income increased $21.5 million to $39.6 million for the nine months ended June 30, 2024, compared to $18.1 million for the nine months ended June 30, 2023. The increase in net income was primarily a result of higher gross profit, partially offset by an increase in general and administrative expenses and decreased gain on the facility exchange and gains on sale of property, plant and equipment, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $143.6 million and 11.2%, respectively, for the nine months ended June 30, 2024, compared to $103.7 million and 9.5%, respectively, for the nine months ended June 30, 2023. The increase in Adjusted EBITDA and Adjusted EBITDA Margin resulted from an increase in gross profit, partially offset by higher general and administrative expenses and decreased gain on the facility exchange and gains on sale of property, plant and equipment, 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, under the heading “How We Assess Performance of Our Business”. Liquidity and Capital Resources Cash Flows Analysis The following table sets forth our cash flows for the periods indicated (unaudited, in thousands): For the Nine Months Ended June 30, 2024 2023 Net cash provided by operating activities, net of acquisitions $ 113,181 $ 94,542 Net cash used in investing activities (199,098) (118,638) Net cash provided by financing activities 95,280 43,486 Net change in cash and cash equivalents $ 9,363 $ 19,390 Operating Activities During the nine months ended June 30, 2024, cash provided by operating activities, net of business acquisitions, was $113.2 million, primarily as a result of: • net income of $39.6 million, including $67.5 million of depreciation, depletion, accretion and amortization, $10.2 million of share-based compensation expense and $3.0 million of gain on sale of property, plant and equipment; • an increase in contracts receivable including retainage, net of $11.3 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle; 33 Table of Contents • an increase in inventories of $17.0 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 $6.0 million due to the timing of processing transactions in our accounts payable cycle; and • 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 $22.8 million due to the timing of performing and closing projects. During the nine months ended June 30, 2023, cash provided by operating activities, net of business 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 facility exchange of $5.4 million and share-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 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; and • 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. Investing Activities During the nine months ended June 30, 2024, cash used in investing activities was $199.1 million, of which $135.2 million related to acquisitions completed in the period, $70.4 million was invested in property, plant and equipment and $4.4 million was invested in restricted investments by the Captive, partially offset by $8.0 million of proceeds from the sale of property, plant and equipment and $2.9 million of proceeds from sales, calls and maturities of restricted investments. 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 sales, calls and maturities of restricted investments. Financing Activities During the nine months ended June 30, 2024, cash provided by financing activities was $95.3 million. We received $149.4 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 $47.5 million of principal payments on long-term debt and purchase of treasury stock of $6.6 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. 34 Table of Contents Credit Agreement We and each of our subsidiaries are parties to the Credit Agreement, which provides for the Term Loans and the Revolving Credit Facility. At June 30, 2024 and September 30, 2023, there was $397.5 million and $283.8 million, respectively, of principal outstanding under the Term Loans, $81.9 million and $93.1 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $309.7 million and $222.1 million, respectively, under the Revolving Credit Facility, including a reduction for outstanding letters of credit. The Credit Agreement requires us to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.20-to-1.00 and a maximum consolidated leverage ratio of 3.50-to-1.00, subject to certain adjustments. At June 30, 2024 and September 30, 2023, our fixed charge coverage ratio was 3.15-to-1.00 and 2.56-to-1.00, respectively, and our consolidated leverage ratio was 1.81-to-1.00 and 1.72-to-1.00, respectively. We have entered into an interest rate swap agreement to hedge against the risk of changes in interest rates. At June 30, 2024 and September 30, 2023, the notional value of the interest rate swap agreement was $300.0 million, and the fair value was $20.5 million and $26.9 million, respectively, which amounts are included within other assets on our Consolidated Balance Sheets. For more information about the Credit Agreement, see Note 8 - Debt to the unaudited consolidated financial statements included elsewhere in this report. Capital Requirements and Sources of Liquidity During the nine months ended June 30, 2024 and 2023, our capital expenditures were approximately $70.4 million and $79.0 million, respectively. Our capital expenditures are typically made during the fiscal year in which they are approved. At June 30, 2024, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2024, we expect total capital expenditures to be $90.0 million to $95.0 million. Our capital expenditure budget is an estimate and is subject to change. Historically, we have required significant amounts of cash in order to make capital expenditures, purchase materials, execute our growth strategy through acquisitions and fund our organic expansion into new markets. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements increasing in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancements to our information systems, integration costs related to any acquisitions and our compliance with laws and rules applicable to public companies. Furthermore, on April 12, 2024, we announced that our Board of Directors authorized a stock repurchase program under which up to $40 million is available to purchase shares of our outstanding Class A common stock through September 30, 2025. We intend to utilize the stock repurchase program to minimize the dilutive impact of awards granted under our equity incentive plans and to repurchase shares opportunistically. Shares of Class A common stock may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 plans. The stock repurchase program does not obligate the Company to repurchase any shares of Class A common stock, and the stock repurchase program may be modified, suspended, extended or terminated at any time by our Board of Directors. The actual timing, number and value of shares of Class A common stock repurchased will be determined by a committee of the Board of Directors at its discretion and will depend on a number of factors, including the market price of the Class A common stock, capital allocation alternatives, general market and economic conditions and other corporate considerations. During the nine months ended June 30, 2024, the Company purchased 93,408 shares of Class A common stock for aggregate consideration of approximately $5.3 million through open market transactions. We have historically relied on cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. We regularly monitor potential capital sources, including equity and debt markets, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will depend on our ability to access outside sources of capital. We believe that our operating cash flow and available borrowings under the Credit Agreement will be sufficient to fund our operations, make planned capital expenditures and opportunistically repurchase shares of Class A common stock for at least the next 12 months. However, future cash flows are subject to a number of variables, including the potential impacts of inflation and supply chain constraints, and significant additional capital expenditures will be required to conduct our operations. There can be no assurance that operations and other capital resources will provide sufficient cash to maintain planned or future levels of capital expenditures. In the event that we make one or more acquisitions and the amount of capital required is greater than the amount of cash on hand we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under the Credit Agreement or other credit facilities, joint ventures, asset sales, offerings of debt or equity securities or other means. 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 35 Table of Contents 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. Contractual Obligations The following table summarizes our significant contractual obligations outstanding as of June 30, 2024 (unaudited, in thousands): Payments Due by Fiscal Year Total 2024 2025 2026 2027 2028 2029 and Thereafter Debt obligations $ 479,350 $ 5,312 $ 26,563 $ 31,875 $ 415,600 $ — $ — Lease obligations 39,016 2,311 8,976 8,609 7,861 4,717 6,542 Purchase commitments 2,896 1,032 1,632 232 — — — Royalty payments 2,379 136 256 192 180 145 1,470 Asset retirement obligations 2,461 — — — — — 2,461 Total $ 526,102 $ 8,791 $ 37,427 $ 40,908 $ 423,641 $ 4,862 $ 10,473 Off-Balance Sheet Arrangements As of June 30, 2024, we had aggregate letters of credit outstanding in the amount of $8.5 million, future purchase commitments of diesel fuel and natural gas of $2.7 million and $0.2 million, respectively, and $2.4 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. See Note 17 - Commitments to our unaudited consolidated financial statements included elsewhere in this report for additional information.