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What changed in Construction Partners, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Construction Partners, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+243 added−219 removedSource: 10-K (2023-11-29) vs 10-K (2022-11-22)

Top changes in Construction Partners, Inc.'s 2023 10-K

243 paragraphs added · 219 removed · 180 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

31 edited+7 added−6 removed66 unchanged
Biggest changeSuch 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.
Biggest changeSuch 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.
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.
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.
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.
Item 1. Business Overview We are a civil infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina.
Item 1. Business Overview 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.
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 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 revenue in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.
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. 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.
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.
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.
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.
We may also become subject to 7 Table of Contents 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.
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.
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 6 Table of Contents material to our plant.
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.
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.
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.
Many projects are added to our contract backlog and completed within the same fiscal year and therefore may not be 5 Table of Contents reflected in our beginning or year-end contract backlog. Contract backlog does not include external sales of HMA, aggregates, and liquid asphalt cement.
These laws and regulations impose numerous obligations and limitations on our operations, including: • requirements to obtain a permit or other approval before conducting regulated activities; • restrictions on the types, quantities and concentration of materials that can be released into the environment; • limitation or prohibition of activities on certain lands lying within wilderness, wetlands, and other protected areas; • requirements to comply with specific health and safety criteria addressing worker protection; and • the imposition of substantial liabilities for pollution resulting from our operations.
These laws and regulations impose numerous obligations and limitations on our operations, including: • requirements to obtain a permit or other approval before conducting regulated activities; • restrictions on the types, quantities and concentration of materials that can be released into the environment; • limitation or prohibition of activities on certain lands lying within wilderness, wetlands, and other protected areas; • obligations to restore or reclaim former mining areas; 6 Table of Contents • requirements to comply with specific health and safety criteria addressing worker protection; and • the imposition of substantial liabilities for pollution resulting from our operations.
To ensure the completeness and accuracy of our original bid analysis, the bid preparation for potential projects typically involves three phases. • 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. 4 Table of Contents • Phase Two : We estimate the cost and availability of labor, materials and equipment, subcontractors and the project team required to complete the contract in accordance with the plans, specifications and construction schedule.
To ensure the completeness and accuracy of our original bid analysis, the bid preparation for potential projects typically involves three phases. • 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 aspects or significant risk factors of the project. • Phase Two : We estimate the cost and availability of labor, materials and equipment, subcontractors and the project team required to complete the contract in accordance with the plans, specifications and construction schedule.
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.
These quotations typically include 4 Table of Contents 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.
Employees and Human Capital Resources As of September 30, 2022, we employed 1,035 salaried employees and 2,755 hourly employees. The total number of hourly personnel at a given time is subject to the volume of projects in progress and fluctuates on a seasonal basis.
Employees and Human Capital Resources As of September 30, 2023, we employed 1,146 salaried employees and 2,868 hourly employees. The total number of hourly personnel at a given time is subject to the volume of projects in progress and fluctuates on a seasonal basis.
As used in this report, the terms “Company,” “we,” “our” and “us” refer to Construction Partners, Inc. and its subsidiaries, except when the context requires that those terms mean only the parent company or a particular subsidiary. 2022 Fiscal Year Developments • Inflationary and Supply Chain Trends.
As used in this report, the terms “Company,” “we,” “our” and “us” refer to Construction Partners, Inc. and its subsidiaries, except when the context requires that those terms mean only the parent company or a particular subsidiary. 2023 Fiscal Year Developments • Acquisitions.
Disadvantaged business enterprise regulations require us to use our good faith efforts to subcontract a specified portion of contract work done for governmental agencies to certain types of disadvantaged contractors or suppliers. Contract Backlog At September 30, 2022, our contract backlog was $1,410.8 million, compared to $966.2 million at September 30, 2021.
Disadvantaged business enterprise regulations require us to use our good faith efforts to subcontract a specified portion of contract work done for governmental agencies to certain types of disadvantaged contractors or suppliers. Contract Backlog At September 30, 2023, our contract backlog was $1.6 billion compared to $1.4 billion at September 30, 2022.
Attracting, training and retaining key personnel has been and will remain critical to our success. Through the use of our management information systems, on-the-job training, and educational seminars, employees are trained to understand the importance of project execution. We place additional focus on training related to estimating, project management and project cost control.
Through the use of our management information systems, on-the-job training, and educational seminars, employees are trained to understand the importance of project execution. We place additional focus on training related to estimating, project management and project cost control.
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.
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.
Low bid/no contract backlog was $383.0 million and $240.7 million at September 30, 2022 and 2021, respectively. At September 30, 2022, we expected approximately 76% of our contract backlog to be completed during the next 12 months.
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.
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.
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.
We provide a wide range of large sitework construction, including site development, paving, and utility and drainage systems construction, and supply the HMA required for the projects. 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.
We provide a wide range of large sitework construction, including site development, paving, and utility and drainage systems construction, and supply the HMA required for the projects. Our projects consist of both new construction and maintenance services.
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.
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.
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.
Construction Partners, Inc. 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.
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. 5 Table of Contents 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.
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.
During fiscal year 2022, the number of hourly employees ranged from 2,194 to 2,785 employees and averaged 2,444 employees. We are not subject to any collective bargaining agreements with respect to any of our employees. We believe that we have strong relationships with our employees. Our business depends on a readily available supply of management, supervisory and field personnel.
During fiscal year 2023, the number of hourly employees ranged from 2,656 to 2,892 employees and averaged 2,782 employees. We are not subject to any collective bargaining agreements with respect to any of our employees.
Asphalt paving mix is the most common roadway material used today due to its cost effectiveness, durability and reusability, and minimized traffic disruption during paving, as compared to concrete. Recent growth in our industry has been driven by federal, state and local Department of Transportation (“DOT”) budgets, which annually earmark amounts for transportation and infrastructure spending.
Recent growth in our industry has been driven by federal, state and local Department of Transportation (“DOT”) budgets, which annually earmark amounts for transportation and infrastructure spending.
Our public customers include federal agencies, state DOTs and local municipalities. Our private clients include commercial and residential developers and businesses. 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.
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. Our private clients include commercial and residential developers and businesses. Our largest customers are state DOTs.
Projects and Customers 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.
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. 3 Table of Contents Projects and Customers 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.
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.
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
Our Industry We operate in the large and growing highway and road construction industry and specifically within the asphalt paving materials and services segment. Asphalt paving mix is the most common roadway material used today due to its cost effectiveness, durability and reusability, and minimized traffic disruption during paving, as compared to concrete.
Removed
Among other things, the proceeds of the Term Loan were used to refinance our indebtedness under our prior credit facility.
Added
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.
Removed
For further discussion regarding the Credit Agreement, see Note 11 - Debt to our consolidated financial statements included elsewhere in this report. 3 Table of Contents Our Industry We operate in the large and growing highway and road construction industry and specifically within the asphalt paving materials and services segment.
Added
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.
Added
We believe that we have strong relationships with our employees. 7 Table of Contents Our business depends on a readily available supply of management, supervisory and field personnel. Attracting, training and retaining key personnel has been and will remain critical to our success.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

66 edited+32 added−13 removed170 unchanged
Biggest changeFinancial Risks Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations. Our debt consists primarily of our borrowings under the Credit Agreement, which, as of September 30, 2022, provided for a $250.0 million Term Loan, a $325.0 million Revolving Credit Facility and a $50.0 million Delayed Draw Term Loan.
Biggest changeOur debt consists primarily of our borrowings under our Third Amended and Restated Credit Agreement with PNC Bank, National Association (successor in interest to BBVA USA) and certain other lenders party from time to time thereto (as amended, the “Credit Agreement”), which, as of September 30, 2023, provided for a $250.0 million term loan (the “Term Loan”), a $325.0 million revolving credit facility (the “Revolving Credit Facility”) and a $50.0 million delayed draw term loan (the “Delayed Draw Term Loan”, and together with the Term Loan, the “Term Loans”).
In addition, we rely on engineers, project management personnel, and other employees and qualified subcontractors who possess the necessary and required experience and expertise to perform their respective services at a reasonable and competitive rate.
In addition, we rely on engineers, project management personnel, other employees and qualified subcontractors who possess the necessary and required experience and expertise to perform their respective services at a reasonable and competitive rate.
We do not intend to pay cash dividends on our Class A common stock in the foreseeable future, and therefore only appreciation, if any, of the price of our Class A common stock will provide a return to our stockholders.
We do not intend to pay cash dividends on our Class A common stock in the foreseeable future, and therefore only appreciation, if any, of the price of our Class A common stock will provide a return to our stockholders. We do not intend to pay cash dividends on our Class A common stock in the foreseeable future.
To successfully acquire a significant target, we may need to raise additional equity and/or incur additional indebtedness, which could increase our leverage level. There can be no assurance that we will be able to identify and complete acquisition transactions on favorable terms, or at all.
To successfully acquire a target, we may need to raise additional equity and/or incur additional indebtedness, which could increase our leverage level. There can be no assurance that we will be able to identify and complete acquisition transactions on favorable terms, or at all.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make acquiring control of our Company difficult, including: • a dual class common stock structure, which currently provides SunTx and its affiliates and the other holders of our Class B common stock with the ability to control the outcome of matters requiring stockholder approval, so long as they continue to beneficially own a sufficient number of shares of our Class B common stock, even if they own significantly less than 50% of the total number of shares of our outstanding common stock; • a classified board of directors with three-year staggered terms; • provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; • limitations on the ability of our stockholders to call a special meeting; • the ability of our board of directors to adopt, amend or repeal bylaws, and the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained for stockholders to amend our amended and restated bylaws; • the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to remove directors or amend our amended and restated certificate of incorporation; and • the authority of our board of directors to issue and set the terms of preferred stock without the approval of our stockholders.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make acquiring control of our Company difficult, including: • a dual class common stock structure, which currently provides the SunTx Group and the other holders of our Class B common stock with the ability to control the outcome of matters requiring stockholder approval, so long as they continue to beneficially own a sufficient number of shares of our Class B common stock, even if they own significantly less than 50% of the total number of shares of our outstanding common stock; • a classified board of directors with three-year staggered terms; • provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; • limitations on the ability of our stockholders to call a special meeting; • the ability of our board of directors to adopt, amend or repeal bylaws, and the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained for stockholders to amend our amended and restated bylaws; • the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to remove directors or amend our amended and restated certificate of incorporation; and • the authority of our board of directors to issue and set the terms of preferred stock without the approval of our stockholders.
Risks Related to our Business A significant slowdown or decline in economic conditions, particularly in the southeastern United States, could adversely impact our results of operations. We currently operate in Alabama, Florida, Georgia, North Carolina and South Carolina.
Risks Related to our Business A significant slowdown or decline in economic conditions, particularly in the southeastern United States, could adversely impact our results of operations. We currently operate in Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.
Shares of our Class B common stock may be transferred to an unrelated third party if holders of a majority of the shares of our Class B common stock owned by SunTx and its affiliates consent to such transfer in writing in advance. 20 Table of Contents We may issue preferred stock with terms that could adversely affect the voting power or value of our Class A common stock.
Shares of our Class B common stock may be transferred to an unrelated third party if holders of a majority of the shares of our Class B common stock owned by SunTx and its affiliates consent to such transfer in writing in advance. 21 Table of Contents We may issue preferred stock with terms that could adversely affect the voting power or value of our Class A common stock.
In addition, our amended and restated bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States are, to the fullest extent permitted by law, the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the "Securities Act").
In addition, our amended and restated bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States are, to the fullest extent permitted by law, the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”).
Alternatively, if a court were to 21 Table of Contents find these provisions inapplicable to, or unenforceable in respect of, one or more covered proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Alternatively, if a court were to 22 Table of Contents find these provisions inapplicable to, or unenforceable in respect of, one or more covered proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
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.
If we fail to comply with these laws, our operations may be disrupted, and we may be subject to fines or, in extreme cases, criminal sanctions. In addition, many of our customer contracts specifically require compliance with immigration laws, and, in some cases, our customers audit compliance with these laws.
If we fail to comply with these laws, our operations may be disrupted, and we may be subject to fines or, in extreme cases, criminal sanctions. In addition, many of our customer contracts specifically require compliance with immigration laws, and, in some cases, our customers’ audit compliance with these laws.
The success of our business depends, in part, on our ability to execute on our acquisition strategy, to successfully integrate acquired businesses and to retain key employees of acquired businesses. Since our inception, we have acquired and integrated 34 complementary businesses, which have contributed significantly to our growth.
The success of our business depends, in part, on our ability to execute on our acquisition strategy, to successfully integrate acquired businesses and to retain key employees of acquired businesses. Since our inception, we have acquired and integrated 41 complementary businesses, which have contributed significantly to our growth.
In addition, our results of operations from these acquisitions could, in the future, result in impairment 11 Table of Contents charges for any of our intangible assets, including goodwill or other long-lived assets, particularly if economic conditions worsen unexpectedly. We may lose business to competitors that underbid us and may be unable to compete favorably in our highly competitive industry.
In addition, our results of operations from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill or other long-lived assets, particularly if economic conditions worsen unexpectedly. We may lose business to competitors that underbid us and may be unable to compete favorably in our highly competitive industry.
In this case, we may be responsible for the remaining liability, which could damage our reputation and adversely affect our financial position, results of operations, cash flows and liquidity. 12 Table of Contents From time to time, we enter into joint venture contracts to perform certain projects, and these arrangements expose us to certain risks and uncertainties that are outside of our control.
In this case, we may be responsible for the remaining liability, which could damage our reputation and adversely affect our financial position, results of operations, cash flows and liquidity. From time to time, we enter into joint venture contracts to perform certain projects, and these arrangements expose us to certain risks and uncertainties that are outside of our control.
If an event of default occurs, the lenders under the Credit Agreement will be entitled to accelerate amounts due thereunder and take other actions permitted to be taken by a secured 17 Table of Contents creditor.
If an event of default occurs, the lenders under the Credit Agreement will be entitled to accelerate amounts due thereunder and take other actions permitted to be taken by a secured 18 Table of Contents creditor.
Government contracts typically can be canceled at any time, with us receiving payment only for the work completed. The cancellation of an unfinished contract could result in lost revenues and cause our equipment to be idled for a significant period of time until other comparable work becomes available.
Government contracts typically can be canceled at any time, with us receiving payment only for the work completed. The cancellation of an unfinished contract could result in lost revenues and cause our equipment to be idled for a significant period of time until other 9 Table of Contents comparable work becomes available.
In addition, SunTx and its affiliates may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you. For example, SunTx and its affiliates could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets.
In addition, the SunTx Group may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you. For example, the SunTx Group could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets.
In particular, low tax revenues, credit rating downgrades, budget deficits and financing constraints, including timing and amount of federal funding and competing governmental priorities, could negatively impact the ability of 8 Table of Contents government agencies to fund existing or new public infrastructure projects.
In particular, low tax revenues, credit rating downgrades, budget deficits and financing constraints, including timing and amount of federal funding and competing governmental priorities, could negatively impact the ability of government agencies to fund existing or new public infrastructure projects.
Any one or more of these events could have a material adverse effect on our financial condition, results of operations, cash flow and liquidity. 9 Table of Contents The cancellation of a significant number of contracts, our disqualification from bidding on new contracts and the unpredictable timing of new project opportunities could have a material adverse effect on our business.
Any one or more of these events could have a material adverse effect on our financial condition, results of operations, cash flow and liquidity. The cancellation of a significant number of contracts, our disqualification from bidding on new contracts and the unpredictable timing of new project opportunities could have a material adverse effect on our business.
As a result, affiliates of SunTx have the ability to elect all of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our Class A common stock or other securities, the payment of dividends, if any, on our Class A common stock, our ability to incur or issue debt, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, and our entry into extraordinary transactions.
As a result, the SunTx Group has the ability to elect all of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our Class A common stock or other securities, the payment of dividends, if any, on our Class A common stock, our ability to incur or issue debt, amendments to our amended and restated certificate of incorporation and amended and restated bylaws and our entry into extraordinary transactions.
As a result, we are not required to comply with certain provisions requiring that (i) a majority of our directors be independent, (ii) the compensation of our executives be determined by independent directors or (iii) nominees for election to our board of directors be selected by independent directors.
As a controlled company, we are not required to comply with certain provisions requiring that (i) a majority of our directors be independent, (ii) the compensation of our executives be determined by independent directors or (iii) nominees for election to our board of directors be selected by independent directors.
However, liabilities subject to insurance are difficult to estimate due to unknown factors, including the severity of an injury, the 16 Table of Contents determination of our liability in proportion to other parties, the number of unreported incidents and the effectiveness of our safety programs.
However, liabilities subject to insurance are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of unreported incidents and the effectiveness of our safety programs.
In addition, governmental initiatives to address climate change could, if adopted, restrict our operations, require us to make capital expenditures to comply with these initiatives, increase our costs, impact our ability to compete or negatively impact efforts to obtain permits, licenses and other approvals for existing and new facilities.
In addition, governmental initiatives to address climate change could, if 16 Table of Contents adopted, restrict our operations, require us to make capital or other expenditures to comply with these initiatives, increase our costs, impact our ability to compete or negatively impact efforts to obtain permits, licenses and other approvals for existing and new facilities.
At September 30, 2022 and 2021, we had $129.5 million and $85.4 million, respectively, of goodwill recorded on our Consolidated Balance Sheets. We assess goodwill for impairment annually or more often if required. Our assessments involve a number of estimates and assumptions that are inherently subjective and require significant judgment regarding highly uncertain matters that are subject to change.
At September 30, 2023 and 2022, we had $159.3 million and $129.5 million, respectively, of goodwill recorded on our Consolidated Balance Sheets. We assess goodwill for impairment annually or more often if required. Our assessments involve a number of estimates and assumptions that are inherently subjective and require significant judgment regarding highly uncertain matters that are subject to change.
This concentrated control limits or precludes the ability of holders of Class A common stock to influence corporate matters for the foreseeable future. Future transfers of shares of our Class B common stock generally may result in those shares converting into shares of our Class A common stock.
This concentrated control limits or precludes the ability of holders of Class A common stock to influence corporate matters for the foreseeable future. Future transfers of shares of our Class B common stock generally result in those shares converting into shares of our Class A common stock, with limited exceptions.
Force majeure events, such as terrorist attacks, pandemics or natural disasters, have impacted, and could continue to negatively impact, the United States economy and the markets in which we operate.
Force majeure events, such as terrorist attacks, pandemics or natural disasters, have impacted, and could continue to negatively impact, the U.S. economy and the markets in which we operate.
During the fiscal year ended September 30, 2022, we generated approximately 60.9% of our construction contract revenues from publicly funded construction projects and the sale of construction materials to public customers at the federal, state and local levels.
During the fiscal year ended September 30, 2023, we generated approximately 63% of our construction contract revenues from publicly funded construction projects and the sale of construction materials to public customers at the federal, state and local levels.
Design-build contracts subject us to the risk of design errors and omissions. Design-build contracts are used as a method of project delivery that provides the owner with a single point of responsibility for both design and construction. We generally subcontract design responsibility to architectural and engineering firms.
Design-build contracts are used as a method of project delivery that provides the owner with a single point of responsibility for both design and construction. We generally subcontract design responsibility to architectural and engineering firms.
Any failure to meet the contractual schedule or satisfy the completion requirements set forth in our contracts could subject us to responsibility for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages, liability for our customer’s actual costs arising out of our delay, reduced profits or a loss on that project, and/or damage to our reputation, any of which could have a material adverse impact on our financial position, results of operations, cash flows and liquidity. 14 Table of Contents An inability to secure sufficient aggregates reserves could have a negative impact on our future results of operations.
Any failure to meet the contractual schedule or satisfy the completion requirements set forth in our contracts could subject us to responsibility for costs resulting from the delay, generally in the form of contractually agreed-upon liquidated damages, liability for our customer’s actual costs arising out of our delay, reduced profits or a loss on that project and/or damage to our reputation, any of which could have a material adverse impact on our financial position, results of operations, cash flows and liquidity.
SunTx and its affiliates control a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” under the listing standards of The Nasdaq Stock Market LLC and SEC rules.
The SunTx Group controls a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” under the listing standards of The Nasdaq Stock Market LLC and SEC rules.
Numerous government authorities, such as the U.S. Environmental Protection Agency (the “EPA”) and analogous state agencies, have the power to enforce compliance with these laws and the permits issued under them. Such enforcement actions often involve difficult and costly compliance measures or corrective actions.
Environmental Protection Agency (the “EPA”) and analogous state agencies, have the power to enforce compliance with these laws and the permits issued under them. Such enforcement actions often involve difficult and costly compliance measures or corrective actions.
SunTx and its affiliates also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
The SunTx Group also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
So long as SunTx and its affiliates continue to beneficially own a sufficient number of shares of our Class B common stock, they will continue to be able to effectively control our decisions, even if the number of shares of outstanding Class B common stock is limited in proportion to the total number of shares of common stock outstanding.
So long as the SunTx Group continues to beneficially own a sufficient number of shares of our Class B common stock, it will continue to be able to effectively control our decisions, even if the number of shares of outstanding Class B common stock is limited in proportion to the total number of shares of common stock outstanding.
These force 18 Table of Contents majeure events may affect our operations or those of our customers or suppliers and could impact our revenues, production capability and ability to complete contracts in a timely manner.
These force majeure events and unexpected equipment failures may affect our operations or those of our customers or suppliers and could impact our revenues, production capability and ability to complete contracts in a timely manner.
At September 30, 2022, our contract backlog was $1,410.8 million, compared to $966.2 million at September 30, 2021. Our contract backlog generally consists of construction projects for which we either have an executed contract or commitment with a client or have submitted the currently lowest bid. Contract backlog does not include external sales of HMA, aggregates, and liquid asphalt cement.
At September 30, 2023, our contract backlog was $1.6 billion, compared to $1.4 billion at September 30, 2022. Our contract backlog generally consists of construction projects for which we either have an executed contract or commitment with a client or have submitted the currently lowest bid. Contract backlog does not include external sales of HMA, aggregates and liquid asphalt cement.
During the fiscal year ended September 30, 2022, the Alabama DOT and the North Carolina DOT accounted for 10.0% and 11.2% of our revenues, respectively, and projects performed for all DOTs accounted for 36.8% of our revenues. We believe that we will continue to rely on state DOTs for a substantial portion of our revenues for the foreseeable future.
During the fiscal year ended September 30, 2023, the Florida DOT and the North Carolina DOT accounted for 10.7% and 10.5% of our revenues, respectively, and projects performed for all state DOTs accounted for 36.2% of our revenues. We believe that we will continue to rely on state DOTs for a substantial portion of our revenues for the foreseeable future.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of November 21, 2022, our outstanding Class B common stock represented approximately 73.3% of the total voting power of our outstanding common stock.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of November 27, 2023, our outstanding Class B common stock represented approximately 67.3% of the total voting power of our outstanding common stock.
Factors affecting the successful integration of an acquired business include, but are not limited to, the following: • our responsibility for certain liabilities of an acquired business, whether or not known to us, which could include, among other things, tax liabilities, product and other tort liabilities, breach of contract claims, environmental liabilities, permitting and regulatory compliance issues and liabilities for employment practices; • our ability to retain local managers and key employees who are important to the operations of an acquired business; • the attention required by our senior management and the management of an acquired business for integration efforts, which could decrease the time that they have to service and attract customers; • our ability to effectively utilize new equipment that we acquire; • the implementation of our financial and management information systems, business practices and policies; • our pursuit of multiple acquisition opportunities simultaneously; and • unforeseen expenses, complications and delays, including difficulties in employing sufficient staff and maintaining operational and management oversight.
Factors affecting the successful integration of an acquired business include, but are not limited to, the following: • our responsibility for certain liabilities of an acquired business, whether or not known to us, which could include, among other things, tax liabilities, product and other tort liabilities, breach of contract claims, environmental liabilities, permitting and regulatory compliance issues and liabilities for employment practices; • our ability to retain local managers and key employees who are important to the operations of an acquired business; • the attention required by our senior management and the management of an acquired business for integration efforts, which could decrease the time that they have to service and attract customers; • our ability to effectively utilize new equipment that we acquire; • the implementation of our financial and management information systems, business practices and policies; • our pursuit of multiple acquisition opportunities simultaneously; and • unforeseen expenses, complications and delays, including difficulties in employing sufficient staff and maintaining operational and management oversight. 11 Table of Contents In addition, potential acquisition targets may be in states in which we do not currently operate, which could result in unforeseen operating difficulties and difficulties in coordinating geographically dispersed operations, personnel and facilities and subject us to additional and unfamiliar legal requirements.
In addition, we have engaged, and expect to continue to engage, in related party transactions involving SunTx and certain companies they control. As a result, the interests of affiliates of SunTx may not in all cases be aligned with your interests.
In addition, we have engaged, and expect to continue to engage, in related party transactions involving the SunTx Group and certain companies controlled by its members. As a result, the interests of the SunTx Group may not in all cases be aligned with your interests.
Our ongoing ability to generate cash is important for funding our continuing operations, making acquisitions and servicing our indebtedness. To the extent that existing cash balances and cash flow from operations, together with borrowing capacity under our Revolving Credit Facility, are insufficient to make investments or acquisitions or provide needed working capital, we may require additional financing from other sources.
To the extent that existing cash balances and cash flow from operations, together with borrowing capacity under our Revolving Credit Facility, are insufficient to make investments or acquisitions or provide needed working capital, we may require additional financing from other sources.
Many states have experienced state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. To address these pressures, some states have adopted measures to promote stable funding for infrastructure investment, including special-purpose taxes and increased fuel taxes.
Shortages in state tax revenues can reduce the amount spent or delay expenditures on state infrastructure projects. Many states have experienced state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. To address these pressures, some states have adopted measures to promote stable funding for infrastructure investment, including special-purpose taxes and increased fuel taxes.
The outcomes of these inquiries and legal proceedings are not expected to have a material effect on our financial position or results of operations on an individual basis, although adverse outcomes in a significant number of such ordinary course inquiries and legal proceedings could, in the aggregate, have a material adverse effect on our financial condition and results of operations. 15 Table of Contents Environmental laws and regulations and any changes to, or liabilities arising under, such laws and regulations could have a material adverse effect on our financial condition, results of operations and liquidity.
The outcomes of these inquiries and legal proceedings are not expected to have a material effect on our financial position or results of operations on an individual basis, although adverse outcomes in a significant number of such ordinary course inquiries and legal proceedings could, in the aggregate, have a material adverse effect on our financial condition and results of operations.
Strict governmental regulations and the limited number of properties containing useful aggregates reserves have made it increasingly challenging and costly to obtain sufficient aggregates to support our business, both with respect to internal use and third-party sales.
An inability to secure sufficient aggregates reserves could have a negative impact on our future results of operations. Strict governmental regulations and the limited number of properties containing useful aggregates reserves have made it increasingly challenging and costly to obtain sufficient aggregates to support our business, both with respect to internal use and third-party sales.
In addition, any instability in the financial and credit markets could negatively impact our customers’ ability to pay us on a timely basis, or at all, for work on projects already in progress, could cause our customers to delay or cancel construction projects in our contract backlog, and could create difficulties for customers to obtain adequate financing to fund new construction projects, including through the issuance of municipal bonds.
In addition, any instability in the financial and credit markets could negatively impact our customers’ ability to pay us on a timely basis, or at all, for work on projects already in progress, could cause our customers to delay or cancel construction projects in our contract backlog and could create difficulties for customers to obtain adequate financing to fund new construction projects, including through the issuance of municipal bonds. 8 Table of Contents Our business depends on federal, state and local government spending for public infrastructure construction, and reductions in government funding could adversely affect our results of operations.
In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing, subject us to investigations by the SEC or other regulatory authorities and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.
In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing, subject us to investigations by the SEC or other regulatory authorities and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition. 20 Table of Contents Risks Relating to Ownership of Our Class A Common Stock The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, which limits the ability of holders of our Class A common stock to influence corporate matters.
If our products do not satisfy these requirements and specifications, material claims may arise against us, our reputation could be damaged and, if any such claims are for an uninsured, non-indemnified or product-related matter, then resolution of such claim against us could have a material adverse effect on our financial condition, results of operations or liquidity.
If our products do not satisfy these requirements and specifications, material claims may arise against us, our reputation could be damaged and, if any such claims are for an uninsured, non-indemnified or product-related matter, then resolution of such claims against us could have a material adverse effect on our financial condition, results of operations or liquidity. 15 Table of Contents We are, and may continue to be, involved in routine litigation and government inquiries in the ordinary course of business.
We may need to raise additional capital in the future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which could impair our ability to operate our business or achieve our growth objectives.
We may need to raise additional capital in the future, and we may not be able to do so on favorable terms or at all, which could impair our ability to operate our business or achieve our growth objectives. Our ongoing ability to generate cash is important for funding our continuing operations, making acquisitions and servicing our indebtedness.
We depend on third parties for equipment and supplies essential to operate our business. We rely on third parties to sell or lease real property, plants and equipment to us and to provide us with supplies, including liquid asphalt cement, aggregates and other construction materials necessary for our operations.
We rely on third parties to sell or lease real property, plants and equipment to us and to provide us with supplies, including liquid asphalt cement, aggregates and other construction materials necessary for our operations. The inability to purchase or lease the properties, plants or equipment that are necessary for our operations could severely impact our business.
If we lose our supply contracts and receive insufficient supplies from third parties to meet our customers’ needs, or if our suppliers experience price increases or disruptions to their business, such as labor disputes, supply shortages, financial or regulatory difficulties or distribution problems, our ability to bid for or complete contracts could be impaired, in which case our business, financial condition, results of operations, liquidity and cash flows would be materially and adversely affected. 13 Table of Contents Supply chain issues, including shortages of raw materials needed for HMA production, equipment, vehicles and construction supplies, could increase our costs or cause delays in our ability to complete our projects, which could have an adverse impact on our business and our relationships with customers.
If we lose our supply contracts and receive insufficient supplies from third parties to meet our customers’ needs, or if our suppliers experience price increases or disruptions to their business, such as labor disputes, supply shortages, financial or regulatory difficulties or distribution problems, our ability to bid for or complete contracts could be impaired, in which case our business, financial condition, results of operations, liquidity and cash flows would be materially and adversely affected.
In situations where we are unable to obtain a bond or guarantee, we may be responsible for the failures on the part of our subcontractors to perform as anticipated. In addition, if the total costs of a project exceed our original estimates, we could experience reduced profits or a loss for that project.
In situations where we are unable to obtain a bond or guarantee, we may be responsible for the failures on the part of our subcontractors to perform as anticipated.
Although these laws provide for funding at historically high levels, the timing, nature and scale of the projects for which these funds under these programs or otherwise will be used remains uncertain. As a result, we cannot be assured of the existence, timing or amount of future federal highway funding.
Although these laws provide for funding at historically high levels, the timing, nature and scale of the projects for which these funds under these programs or otherwise will be used remains uncertain given variations in the appropriation processes at the federal and state levels.
As of November 21, 2022, we had outstanding a total of 41,338,192 shares of our Class A common stock and 11,352,915 shares of our Class B common stock that are convertible at any time into an equal number of shares of our Class A common stock.
As of November 27, 2023, we had outstanding a total of 43,711,058 shares of our Class A common stock and 8,998,511 shares of our Class B common stock that are convertible at any time into an equal number of shares of our Class A common stock.
Similarly, our suppliers rely extensively on computer systems to process transactions and manage their businesses and, thus, are also at risk of, and may be impacted by, cybersecurity attacks. An interruption in the business operations of our suppliers and other third parties with which we do business resulting from a cybersecurity attack could indirectly impact our business operations.
Similarly, our suppliers rely extensively on computer systems to process transactions and manage their businesses and, thus, are also at risk of, and may be impacted by, cybersecurity attacks.
The conversion of shares of our Class B common stock into our Class A common stock will have the effect, over time, of increasing the relative voting power of each remaining share of Class B common stock. 19 Table of Contents Future sales, or the perception of future sales, of Class A common stock by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.
Future sales, or the perception of future sales, of Class A common stock by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.
Reduced availability of trucking capacity due to shortages of drivers and increased fuel costs has caused an increase in the cost of transportation for us and our suppliers. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
Reduced availability of trucking capacity due to shortages of drivers and increased fuel costs has caused an increase in the cost of transportation for us and our suppliers.
Affiliates of SunTx control us, and their interests may conflict with ours or yours in the future.
SunTx, together with its principals and their respective affiliates and family members (collectively, the “SunTx Group”), controls us, and their interests may conflict with ours or yours in the future.
Our inability to timely respond to the risks posed by climate change and the costs of compliance with climate change laws and regulations could have a material adverse impact on us. Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses that may not be covered by insurance.
Our inability to timely respond to the risks posed by climate change and the costs of compliance with climate change laws and regulations could have a material adverse impact on us.
The Credit Agreement restricts our ability to engage in some business and financial transactions.
This could reduce our ability to satisfy our current obligations and further exacerbate the risks to our financial condition described above. The Credit Agreement restricts our ability to engage in some business and financial transactions.
Although the Credit Agreement restricts our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness in compliance with these restrictions. This could reduce our ability to satisfy our current obligations and further exacerbate the risks to our financial condition described above.
As a result, the amount of interest we may pay on our variable rate indebtedness is difficult to predict. Although the Credit Agreement restricts our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness in compliance with these restrictions.
The construction services industry is highly schedule-driven, and our failure to meet the schedule requirements of our contracts could adversely affect our reputation and/or expose us to financial liability. In some instances, including in the case of many of our fixed unit price contracts, we guarantee that we will complete a project by a certain date.
In some instances, including in the case of many of our fixed unit price contracts, we guarantee that we will complete a project by a certain date.
These and other factors may cause us to incur losses, which could have a material adverse effect on our financial condition, results of operations or liquidity. 10 Table of Contents Because our industry is capital-intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes in volume.
These and other factors may cause us to incur losses, which could have a material adverse effect on our financial condition, results of operations or liquidity. Inflation and supply chain disruptions have resulted, and may continue to result, in increased costs, some of which we may not be able to recoup.
Federal highway funding is also subject to uncertainties associated with congressional spending as a whole, including the potential impacts of budget deficits, government shutdowns and federal sequestration. Any reduction in federal highway funding, particularly in the amounts allocated to states in which we operate, could have a material adverse effect on our results of operations.
As a result, we cannot be assured of the existence, timing or amount of future federal highway funding. Federal highway funding is also subject to uncertainties associated with congressional spending as a whole, including the potential impacts of budget deficits, government shutdowns and federal sequestration.
As of November 21, 2022, the SunTx funds, together with their principals and their principals’ affiliated entities, beneficially owned approximately 2.2% of our outstanding Class A common stock and approximately 79.5% of our outstanding Class B common stock, representing 58.9% of the combined voting power of our common stock.
As of November 27, 2023, the SunTx Group beneficially owned approximately 2.0% of our outstanding Class A common stock and approximately 76.3% of our outstanding Class B common stock, representing approximately 52.0% of the combined voting power of our common stock.
Each state funds its infrastructure spending from specially allocated amounts collected from various state taxes, typically fuel taxes and vehicle fees, as well as from voter-approved bond programs. Shortages in state tax revenues can reduce the amount spent or delay expenditures on state infrastructure projects.
Any reduction in federal highway funding, particularly in the amounts allocated to states in which we operate, could have a material adverse effect on our results of operations. Each state funds its infrastructure spending from specially allocated amounts collected from various state taxes, typically fuel taxes and vehicle fees, as well as from voter-approved bond programs.
For more information about our critical accounting policies and use of estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” General Risks Force majeure events, such as natural disasters, pandemics and terrorist attacks, and unexpected equipment failures could negatively impact our business, which may affect our financial condition, results of operations or cash flows.
For more information about our critical accounting policies and use of estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates.” Unfavorable developments affecting the banking and financial services industry could adversely affect our business, liquidity and financial condition and overall results of operations.
The shares of Class B common stock are beneficially owned primarily by SunTx, its affiliates and certain members of management.
The shares of Class B common stock are beneficially owned primarily by (i) SunTx Capital Partners, a private equity firm based in Dallas, Texas (“SunTx”), and funds that it manages, (ii) SunTx principals and their respective affiliates and family members, and (iii) certain members of management and our board of directors.
Removed
Our business depends on federal, state and local government spending for public infrastructure construction, and reductions in government funding could adversely affect our results of operations.
Added
Inflation and supply chain disruptions have the potential to adversely affect our business, financial condition and results of operations, particularly if we are unable to pass through increased costs to our customers.
Removed
In addition, potential acquisition targets may be in states in which we do not currently operate, which could result in unforeseen operating difficulties and difficulties in coordinating geographically dispersed operations, personnel and facilities and subject us to additional and unfamiliar legal requirements. We cannot guarantee that we will achieve synergies and cost savings in connection with future acquisitions.
Added
During the fiscal year ended September 30, 2023, we continued to experience an upward trend in several inflation-sensitive inputs that we use to provide our products and services, 10 Table of Contents including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items critical to our business, including fuel, concrete and steel.
Removed
The inability to purchase or lease the properties, plants or equipment that are necessary for our operations could severely impact our business.
Added
In addition, we continued to experience disruptions from various participants in our supply chains, 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.
Removed
We are, and may continue to be, involved in routine litigation and government inquiries in the ordinary course of business.
Added
While we have been able to mitigate some of the effects of inflation, supply chain disruptions and upward wage pressures on our business by increasing prices for our products and including the anticipated cost increases in the construction projects for which we bid, we may not be able to do so in the future.
Removed
Risks Relating to Ownership of Our Class A Common Stock The dual class structure of our common stock has the effect of concentrating voting control with SunTx Capital Partners (“SunTx”) and its affiliates, which limits your ability to influence corporate matters.
Added
In addition, we are limited in our ability to pass through increased costs for projects already in our backlog, and if we are unable to do so, we may not recoup our losses or diminished profit margins.
Removed
Pursuant to a registration rights agreement, SunTx and certain other stockholders will continue to have the right, subject to certain conditions, to require us to register the sale of their shares of common stock under the Securities Act.
Added
If inflation and supply chain disruptions continue to rise, we may be required to implement further price adjustments to maintain our profit margin, and any price increases may have a negative effect on demand. Because our industry is capital-intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes in volume.
Removed
By exercising their registration rights and selling a large number of shares, these stockholders could cause the prevailing market price of our Class A common stock to decline. As of November 21, 2022, a total of 3,759,422 shares of our outstanding common stock were subject to potential future registration under the registration rights agreement.
Added
We cannot guarantee that we will achieve synergies and cost savings in connection with future acquisitions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeHMA Plants Aggregates Facilities Location Owned Leased Owned Leased Alabama 10 8 6 3 Florida 10 1 1 — Georgia 5 1 1 2 North Carolina 10 10 1 — South Carolina 3 2 — —
Biggest changeHMA Plants Aggregates Facilities Liquid Asphalt Terminals Location Owned Leased Owned Leased Owned Leased Alabama 10 7 6 3 1 — Florida 10 1 1 — 1 — Georgia 6 1 1 2 — — North Carolina 12 10 — — — — South Carolina 4 3 — — — — Tennessee — 3 — — — — 23 Table of Contents
However, we routinely evaluate the purchase or lease of additional properties or the consolidation of our properties as our business needs change. The table below summarizes the locations and the nature of our ownership or leasehold interest in each of our HMA plants and aggregates facilities as of September 30, 2022. We own our liquid asphalt terminal.
However, we routinely evaluate the purchase or lease of additional properties or the consolidation of our properties as our business needs change. The table below summarizes the locations and the nature of our ownership or leasehold interest in each of our HMA plants, aggregates facilities and liquid asphalt terminals as of September 30, 2023.
Item 2. Properties . Our principal executive office is located in Dothan, Alabama, in a building that we own. As of September 30, 2022, we operated (i) 60 HMA plants in Alabama, Florida, Georgia, North Carolina and South Carolina, (ii) 14 aggregates facilities in Alabama, Georgia, Florida and North Carolina, and (iii) one liquid asphalt terminal in Florida.
Item 2. Properties . Our principal executive office is located in Dothan, Alabama, in a building that we own. As of September 30, 2023, we operated (i) 67 HMA plants in Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee, (ii) 13 aggregates facilities in Alabama, Georgia, and Florida, and (iii) two liquid asphalt terminals in Alabama and Florida.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcome of which cannot be predicted with certainty. 22 Table of Contents In the opinion of our management, after consultation with legal counsel, none of the pending inquiries, litigation, disputes or claims against us, if decided adversely to us, would have a material adverse effect on our financial condition, cash flows or results of operations.
Biggest changeIn the opinion of our management, after consultation with legal counsel, none of the pending inquiries, litigation, disputes or claims against us, if decided adversely to us, would have a material adverse effect on our financial condition, cash flows or results of operations.
Added
We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcome of which cannot be predicted with certainty.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures. The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 C.F.R. Part 229.104) is included in Exhibit 95.1 to this report. 23 Table of Contents PART II
Biggest changeItem 4. Mine Safety Disclosures. The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 C.F.R. Part 229.104) is included in Exhibit 95.1 to this report. 24 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends Holders of our Class A and Class B common stock receive dividends if and when declared by our board of directors out of legally available funds.
Biggest changeDividends Holders of our Class A and Class B common stock receive dividends if and when declared by our board of directors out of legally available funds. We do not anticipate declaring or paying any cash dividends in the foreseeable future.
Heavy Construction index. The graph tracks the performance of a $100 investment in our Class A common stock and in each index (with the reinvestment of all dividends) from September 30, 2018 through September 30, 2022.
Heavy Construction index. The graph tracks the performance of a $100 investment in our Class A common stock and in each index (with the reinvestment of all dividends) from September 30, 2018 through September 30, 2023.
Issuer Purchases of Equity Securities During the quarter ended September 30, 2022, we did not purchase any of our equity securities that are registered under Section 12(b) of the Exchange Act. 24 Table of Contents Stock Performance Graph The following graph compares the cumulative four-year total return provided to the Company’s Class A common stock holders relative to the cumulative total returns of the NASDAQ Composite index and the Dow Jones U.S.
Issuer Purchases of Equity Securities During the quarter ended September 30, 2023, we did not purchase any of our equity securities that are registered under Section 12(b) of the Exchange Act. 25 Table of Contents Stock Performance Graph The following graph compares the cumulative five-year total return provided to the Company’s Class A common stock holders relative to the cumulative total returns of the NASDAQ Composite index and the Dow Jones U.S.
Value as of September 30, 2018 2019 2020 2021 2022 Construction Partners, Inc. $100.00 $128.76 $150.41 $275.79 $216.78 NASDAQ Composite Index $100.00 $99.42 $138.79 $179.57 $131.43 Dow Jones US Heavy Construction Index $100.00 $97.52 $94.70 $162.83 $175.64 The information under the heading "Stock Performance Graph" shall not be deemed "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference to such filing.
Value as of September 30, 2018 2019 2020 2021 2022 2023 Construction Partners, Inc. $100.00 $128.76 $150.41 $275.79 $216.78 $302.15 NASDAQ Composite Index $100.00 $99.42 $138.79 $179.57 $131.43 $164.29 Dow Jones US Heavy Construction Index $100.00 $97.52 $94.70 $162.83 $175.64 $226.32 The information under the heading “Stock Performance Graph” shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
There is no established public trading market for our Class B common stock. Holders As of November 21, 2022, there were 41,338,192 shares of our Class A common stock outstanding, held by 143 stockholders of record.
There is no established public trading market for our Class B common stock. Holders As of November 27, 2023, there were 43,711,058 shares of our Class A common stock outstanding, held by 99 stockholders of record.
The last sale price for a share of our Class A common stock as reported on the Nasdaq Global Select Market on November 21, 2022 was $32.52. As of November 21, 2022, there were 11,352,915 shares of our Class B common stock outstanding held by 26 stockholders of record.
The last sale price for a share of our Class A common stock as reported on the Nasdaq Global Select Market on November 27, 2023 was $43.30. As of November 27, 2023, there were 8,998,511 shares of our Class B common stock outstanding, held by 36 stockholders of record.
Removed
We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

61 edited+22 added−19 removed61 unchanged
Biggest changeDuring fiscal 2021, cash provided by operating activities, net of acquisitions, was $48.5 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; • an increase in contracts receivable including retainage, net of $27.1 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 accounts payable and accrued expenses and other current liabilities of $24.0 million due to an increase in construction activity; and • 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.
Biggest changeFor 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.” Liquidity and Capital Resources Cash Flows Analysis The following table sets forth our cash flows for the periods indicated (in thousands): For the Fiscal Year Ended September 30, 2023 2022 Net cash provided by operating activities, net of acquisitions $ 157,157 $ 16,498 Net cash used in investing activities (143,372) (197,326) 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 $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; • 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; and • 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.
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 are generally based on amounts billed to the customer and currently due in accordance with our contracts.
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, Net Contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts.
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.
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.
On the basis of our evaluations, at September 30, 2022 and 2021, no valuation allowance was recorded on our net deferred tax assets, and we had no material uncertain tax positions. If our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified, these changes could have potentially material impacts on our earnings.
On the basis of our evaluations, at September 30, 2023 and 2022, no valuation allowance was recorded on our net deferred tax assets, and we had no material uncertain tax positions. If our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified, these changes could have potentially material impacts on our earnings.
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. However, large changes in revenues or cost estimates can have a significant effect on 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.
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. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.
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 liabilities. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term.
See Note 18 - Commitments and Contingencies to our consolidated financial statements included elsewhere in this report for additional information. Contractual Obligations The following table summarizes our significant obligations outstanding as of September 30, 2022 (in thousands).
See Note 18 - Commitments and Contingencies to our consolidated financial statements included elsewhere in this report for additional information. Contractual Obligations The following table summarizes our significant obligations outstanding as of September 30, 2023 (in thousands).
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.
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.
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. 28 Table of Contents 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.
We account for awards issued under our equity incentive plan using a fair value-based method of accounting, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is typically the vesting period. 35 Table of Contents
We account for awards issued under our equity incentive plan using a fair value-based method of accounting, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is typically the vesting period.
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.
We cannot guarantee that additional capital will 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.
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.
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.
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 35 Table of Contents point.
The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues 33 Table of Contents and costs to finish uncompleted contracts. Our estimates for all of our significant contracts use a highly detailed “bottom up” approach.
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.
At September 30, 2022 and 2021, contracts receivable included $44.3 million and $27.6 million, respectively, of retainage, which was being contractually withheld by customers until satisfactory completion of the associated contracts. Because the majority of our construction contracts are entered into with federal, state or municipal government customers, credit risk is minimal.
At September 30, 2023 and 2022, contracts receivable included $53.3 million and $44.3 million, respectively, of retainage, which was being contractually withheld by customers until satisfactory completion of the associated contracts. Because the majority of our construction contracts are entered into with federal, state or municipal government customers, credit risk is minimal.
For fiscal 2022 and fiscal 2021, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets. 34 Table of Contents Goodwill and indefinite-lived intangible assets must be tested for impairment at least annually. We performed our most recent annual impairment test on July 1, 2022.
For fiscal 2023 and fiscal 2022, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets. Goodwill and indefinite-lived intangible assets must be tested for impairment at least annually. We performed our most recent annual impairment test on July 1, 2023.
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.
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 in the southeastern United States. Our projects represent a mix of federal, state, municipal and private customers.
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 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. Financing Activities During fiscal 2023, cash used in financing activities was $0.3 million.
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.
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. We utilize various 37 Table of Contents primary and excess insurance companies to cover the liability for claims in excess of the retained amounts.
At September 30, 2022 and 2021, our fixed charge coverage ratio was 2.56-to-1.00 and 3.29-to-1.00, respectively, and our consolidated leverage ratio was 2.79-to-1.00 and 1.99-to-1.00, respectively. 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, 2023 and 2022, our fixed charge coverage ratio was 2.56-to-1.00 and 2.56-to-1.00, respectively, and our consolidated leverage ratio was 1.72-to-1.00 and 2.79-to-1.00, respectively. From time to time, we have entered into interest rate swap agreements to hedge against the risk of changes in interest rates.
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.
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 the second half of our fiscal year.
Gain on Sale of Equipment, Net 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.
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.
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. At September 30, 2022 and 2021, we had goodwill with a carrying amount of $129.5 million and $85.4 million, respectively.
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.
Historically, we have required significant amounts of cash in order to make capital expenditures, purchase materials 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.
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 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.
Off-Balance Sheet Arrangements As of September 30, 2022, the Company had aggregate letters of credit outstanding in the amount of $11.3 million, future purchase commitments for diesel fuel and natural gas of $5.2 million and $1.2 million, respectively, and $2.7 million of minimum royalty payments related to mineral leases at aggregates facilities.
Off-Balance Sheet Arrangements As of September 30, 2023, the Company had aggregate letters of credit outstanding in the amount of $9.8 million, future purchase commitments for diesel fuel and natural gas of $3.1 million and $0.6 million, respectively, and $2.5 million of minimum royalty payments related to mineral leases at aggregates facilities.
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.
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.
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. 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.
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 We and each of our subsidiaries are parties to the Credit Agreement, which provides for the Term Loans and the Revolving Credit Facility.
The increase in net income was primarily a result of higher gross profit, partially offset by an increase in general and administrative expenses and interest expense, net, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin.
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.
Liquidity and Capital Resources Cash Flows Analysis The following table sets forth our cash flows for the periods indicated (in thousands): For the Fiscal Year Ended September 30, 2022 2021 Net cash provided by operating activities, net of acquisitions $ 16,498 $ 48,500 Net cash used in investing activities (197,326) (263,412) Net cash provided by financing activities 159,136 123,847 Net change in cash and cash equivalents $ (21,692) $ (91,065) Operating Activities During fiscal 2022, cash provided by operating activities, net of acquisitions, was $16.5 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; • 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 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; • an increase in accounts payable and accrued expenses and other current liabilities of $29.8 million due to an increase in construction activity; and 30 Table of Contents • 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.
During fiscal 2022, cash provided by operating activities, net of acquisitions, was $16.5 million, primarily as a result of: • 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; 32 Table of Contents • 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 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 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; • an increase in accounts payable and accrued expenses and other current liabilities of $29.8 million due to an increase in construction activity; and • 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.
An explanation of these non-GAAP financial measures and a reconciliation 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. 25 Table of Contents Overview We are a civil infrastructure company that specializes in the building and maintenance of transportation networks.
An explanation of these non-GAAP financial measures and a reconciliation 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.
Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on our operating results and financial position.
Impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on our operating results and financial position.
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.
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. Seasonality The activity of our business fluctuates due to seasonality because our business is primarily conducted outdoors.
At September 30, 2022 and 2021, we had $271.9 million and $197.5 million, respectively, of principal outstanding under the Term Loans, $105.1 million and $20.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $208.6 million and $193.7 million, respectively, under the Revolving Credit Facility, including reduction for outstanding letters of credit.
At September 30, 2023 and 2022, we had $283.8 million and $271.9 million, respectively, of principal outstanding under the Term Loans, $93.1 million and $105.1 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $221.1 million and $208.6 million, respectively, under the Revolving Credit Facility, including reduction for outstanding letters of credit.
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.
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.
The 24.2% increase in revenue in our existing markets was due to strong demand in both public and private work. Gross Profit. Gross profit for fiscal 2022 increased $19.4 million, or 16.1%, to $139.3 million from $119.9 million for fiscal 2021.
The 8.7% increase in revenue in our existing markets was due to strong demand in both public and private work. Gross Profit. Gross profit for fiscal 2023 increased $57.1 million, or 41.0%, to $196.4 million from $139.3 million for fiscal 2022.
Revenues for fiscal 2022 increased $391.0 million, or 42.9%, to $1,301.7 million from $910.7 million for fiscal 2021. The increase included $170.4 million of revenues attributable to acquisitions completed during or subsequent to fiscal 2021 and an increase of approximately $220.6 million of revenues in our remaining markets from contract work and sales of HMA and aggregates to third parties.
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.
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 2021, cash provided by financing activities was $123.8 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.
These amounts are partially offset by interest income earned on short-term investments of cash balances in excess of our current operating needs. 27 Table of Contents 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 Adjusted EBITDA represents net income before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion, accretion and amortization, (iv) equity-based compensation expense, (v) loss on the extinguishment of debt, and (vi) certain management fees and expenses.
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.
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.
Credit risk with private owners is minimized because of statutory mechanic’s liens, which give us high priority in the event of lien foreclosures following financial difficulties of private owners. We maintain an allowance for doubtful accounts, which has historically been sufficient to cover accounts that are not collected.
Credit risk with private owners is minimized because of statutory mechanic’s liens, which give us high priority in the event of lien foreclosures following financial difficulties of private owners.
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 (in thousands, except percentages): For the Fiscal Year Ended September 30, 2022 2021 Net income $ 21,376 $ 20,177 Interest expense, net 7,701 2,404 Provision for income taxes 6,915 8,349 Depreciation, depletion, accretion and amortization 65,730 49,806 Equity-based compensation expense 8,000 3,549 Management fees and expenses (1) 1,451 1,935 Settlement of legal claim and associated legal expenses (2) — 4,362 Adjusted EBITDA $ 111,173 $ 90,582 Revenues $ 1,301,674 $ 910,739 Adjusted EBITDA Margin 8.5 % 9.9 % (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).
Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets. 29 Table of Contents 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 (in thousands, except percentages): For the Fiscal Year Ended September 30, 2023 2022 Net income $ 49,001 $ 21,376 Interest expense, net 17,346 7,701 Provision for income taxes 16,403 6,915 Depreciation, depletion, accretion and amortization 79,100 65,730 Equity-based compensation expense 10,759 8,000 Management fees and expenses (1) 1,486 1,451 Adjusted EBITDA $ 174,095 $ 111,173 Revenues $ 1,563,548 $ 1,301,674 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 (see Note 17 - Related Parties to the consolidated financial statements included elsewhere in this report). 30 Table of Contents 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).
Our private customer contracts are primarily fixed total price contracts, also known as lump sum contracts, which require that the total amount of work be performed for a single price.
Under fixed unit price contracts, we are committed to providing materials or services required by a contract at fixed unit prices (for example, dollars per ton of asphalt placed). Our private customer contracts are primarily fixed total price contracts, also known as lump sum contracts, which require that the total amount of work be performed for a single price.
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.
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.
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. Impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows.
We maintain an allowance for doubtful accounts, which has historically been sufficient to cover accounts that are not collected. 36 Table of Contents Valuation of Long-Lived Assets and Goodwill 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.
General and Administrative Expenses. General and administrative expenses for fiscal 2022 increased $15.7 million, or 17.1%, to $107.6 million from $91.9 million for fiscal 2021.
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 interest expense, net was primarily due to an increase in the average principal debt balance outstanding and higher interest rates during fiscal 2022 compared to fiscal 2021. 29 Table of Contents Provision for Income Taxes. Our effective tax rate decreased to 24.4% for fiscal 2022, from 29.3% for fiscal 2021.
Interest expense, net for fiscal 2023 increased $9.6 million, or 125.2%, to $17.3 million compared to $7.7 million for fiscal 2022. The increase in interest expense, net was primarily due to an increase in the average principal debt balance outstanding and higher interest rates during fiscal 2023 compared to fiscal 2022. Provision for Income Taxes.
At September 30, 2022, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2023, we expect total capital expenditures to be $75.0 million to $80.0 million. Our capital expenditure budget is an estimate and is subject to change.
Our capital expenditures are typically made during the same fiscal year in which they are approved. At September 30, 2023, 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.
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.
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. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP.
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 United States construction market.
Public transportation infrastructure projects historically have been a relatively stable portion of state and federal budgets and represent a significant share of the United States 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.
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.
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.
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. 31 Table of Contents 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.
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 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 revenues in the third fiscal quarter, while a warm, dry spring may facilitate earlier project commencement dates.
Fiscal 2022 Developments 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.
For further discussion regarding these transactions, see Note 4 - Business Acquisitions to the consolidated financial statements included elsewhere in this report. 27 Table of Contents Inflationary and Supply Chain Trends 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.
For the Fiscal Year Ended September 30, Change from Fiscal 2021 to Fiscal 2022 2022 2021 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 1,301,674 100.0 % $ 910,739 100.0 % $ 390,935 42.9 % Cost of revenues 1,162,372 89.3 % 790,803 86.8 % 371,569 47.0 % Gross profit 139,302 10.7 % 119,936 13.2 % 19,366 16.1 % General and administrative expenses (107,562) (8.3) % (91,878) (10.1) % (15,684) 17.1 % Gain on sale of equipment, net 3,673 0.3 % 2,043 0.2 % 1,630 79.8 % Operating income 35,413 2.7 % 30,101 3.3 % 5,312 17.6 % Interest expense, net (7,701) (0.6) % (2,404) (0.3) % (5,297) 220.3 % Other income 600 0.1 % 819 0.1 % (219) (26.7) % Income before provision for income taxes and earnings from investment in joint venture 28,312 2.2 % 28,516 3.1 % (204) (0.7) % Provision for income taxes 6,915 0.5 % 8,349 0.9 % (1,434) (17.2) % Earnings from investment in joint venture (21) (0.1) % 10 — % (31) (310.0) Net income $ 21,376 1.6 % $ 20,177 2.2 % $ 1,199 5.9 % Adjusted EBITDA $ 111,173 8.5 % $ 90,582 9.9 % $ 20,591 22.7 % Adjusted net income $ 21,376 1.6 % $ 23,969 2.6 % $ (2,593) (10.8) % Revenues.
For the Fiscal Year Ended September 30, Change from Fiscal 2022 to Fiscal 2023 2023 2022 Dollars % of Revenues Dollars % of Revenues $ Change % Change Revenues $ 1,563,548 100.0 % $ 1,301,674 100.0 % $ 261,874 20.1 % Cost of revenues 1,367,163 87.4 % 1,162,372 89.3 % 204,791 17.6 % Gross profit 196,385 12.6 % 139,302 10.7 % 57,083 41.0 % General and administrative expenses (126,947) (8.1) % (107,562) (8.3) % (19,385) 18.0 % 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 % Interest expense, net (17,346) (1.1) % (7,701) (0.6) % (9,645) 125.2 % Other income 875 — % 600 0.1 % 275 45.8 % Income before provision for income taxes and earnings from investment in joint venture 65,404 4.2 % 28,312 2.2 % 37,092 131.0 % Provision for income taxes 16,403 1.1 % 6,915 0.5 % 9,488 137.2 % Earnings (loss) from investment in joint venture — — % (21) (0.1) % 21 (100.0) % Net income $ 49,001 3.1 % $ 21,376 1.6 % $ 27,625 129.2 % Adjusted EBITDA $ 174,095 11.1 % $ 111,173 8.5 % $ 62,922 56.6 % Revenues.
Payments Due by Fiscal Year Total 2023 2024 2025 2026 2027 2028 and Thereafter Debt obligations $ 376,975 $ 12,500 $ 13,750 $ 17,188 $ 20,625 $ 312,912 $ — Operating leases 16,496 2,621 2,213 1,833 1,816 1,709 6,304 Purchase commitments 6,412 5,436 976 — — — — Royalty payments 2,675 255 246 207 182 170 1,615 Asset retirement obligations 2,858 — — — — — 2,858 Total $ 405,416 $ 20,812 $ 17,185 $ 19,228 $ 22,623 $ 314,791 $ 10,777 32 Table of Contents Critical Accounting Policies and Estimates The discussion of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.
Payments Due by Fiscal Year Total 2024 2025 2026 2027 2028 2029 and Thereafter Debt obligations $ 376,850 $ 15,000 $ 18,750 $ 22,500 $ 320,600 $ — $ — Operating leases 17,269 2,793 2,389 2,240 2,018 1,712 6,117 Purchase commitments 3,675 3,139 536 — — — — Royalty payments 2,538 295 256 192 180 145 1,470 Asset retirement obligations 2,417 — — — — — 2,417 Total $ 402,749 $ 21,227 $ 21,931 $ 24,932 $ 322,798 $ 1,857 $ 10,004 34 Table of Contents Critical Accounting Policies and Estimates The discussion of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.
During fiscal 2021, cash used in investing activities was $263.4 million, of which $210.7 million related to acquisitions completed in the period and $56.3 million was invested in property, plant and equipment. These amounts were partially offset by $3.7 million of proceeds from the sale of equipment. Financing Activities During fiscal 2022, cash provided by financing activities was $159.1 million.
Investing Activitie s 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.
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.
For more information about the Credit Agreement, see Note 11 - Debt to the consolidated financial statements included elsewhere in this report. 33 Table of Contents Capital Requirements and Sources of Liquidity During fiscal 2023 and fiscal 2022, our capital expenditures were approximately $97.8 million and $68.9 million, respectively.
Our higher effective tax rate for fiscal 2021 was primarily due to the unfavorable impact of a non-deductible legal settlement. Net Income. Net income increased $1.2 million, or 5.9%, to $21.4 million for fiscal 2022 compared to $20.2 million for fiscal 2021.
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. Net income increased $27.6 million, or 129.2%, to $49.0 million for fiscal 2023 compared to $21.4 million for fiscal 2022.
Adjusted EBITDA and Adjusted EBITDA Margin were $111.2 million and 8.5%, respectively, for fiscal 2022, compared to $90.6 million and 9.9%, respectively, for fiscal 2021. 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 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.
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.
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
(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. Seasonality The activity of our business fluctuates due to seasonality because our business is primarily conducted outdoors.
Added
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.
Removed
Our first and second fiscal quarters typically have lower levels of activity due to adverse weather conditions. Our third fiscal quarter varies greatly 26 Table of Contents with spring rains and wide temperature variations.
Added
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.
Removed
Our calculation of Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted net income 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.
Added
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.
Removed
(2) Reflects $3.2 million legal settlement and associated legal expenses in April 2021 unrelated to the Company's core operations.
Added
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.
Removed
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, 2022 2021 Net income $ 21,376 $ 20,177 Settlement of legal claim and associated legal expenses (1) — 4,362 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. 28 Table of Contents Results of Operations — Fiscal Year Ended September 30, 2022 Compared to Fiscal Year Ended September 30, 2021 The following table sets forth selected financial data for the fiscal years ended September 30, 2022 (“fiscal 2022”) and September 30, 2021 (“fiscal 2021”) (in thousands, except percentages).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFor the Fiscal Year Ending September 30, Fair 2023 2024 2025 2026 2027 Thereafter Total Value Debt obligations Term loan $ 12,500 $ 13,750 $ 17,188 $ 20,625 $ 207,812 $ — $ 271,875 $ 271,875 Revolving credit facility — — — — 105,100 — 105,100 105,100 Interest payments (1) 16,046 15,487 14,875 14,042 9,948 — (1) Represents projected interest payments using the Company’s September 2022 SOFR-based floating rate of 4.31%.
Biggest changeFor the Fiscal Year Ending September 30, Fair 2024 2025 2026 2027 Thereafter Total Value Debt obligations Term loan $ 15,000 $ 18,750 $ 22,500 $ 227,500 $ — $ 283,750 $ 283,750 Revolving credit facility — — — 93,100 — 93,100 93,100 Interest payments (1) 25,726 24,654 23,192 16,371 — (1) Represents projected interest payments using the Company’s September 2023 SOFR-based floating rate of 6.93%.
See also Note 21 - Fair Value Measurements and Note 22 - Investments in Derivative Instruments to the consolidated financial statements included in this report. Inflation Risk We are subject to the effects of inflation through wage pressures, increases in the cost of raw materials used to produce HMA, and increases in other items, such as fuel, concrete and steel.
See also Note 20 - Fair Value Measurements and Note 21 - Investments in Derivative Instruments to the consolidated financial statements included in this report. Inflation Risk We are subject to the effects of inflation through wage pressures, increases in the cost of raw materials used to produce HMA, and increases in other items, such as fuel, concrete and steel.
Holding other factors constant and absent the interest rate swap agreements described above, a hypothetical 1% change in our borrowing rates would result in a $3.8 million change in our annual interest expense based on our variable rate debt outstanding at September 30, 2022.
Holding other factors constant and absent the interest rate swap agreements described above, a hypothetical 1% change in our borrowing rates would result in a $3.8 million change in our annual interest expense based on our variable rate debt outstanding at September 30, 2023.
We do not enter into commodity swap contracts for speculative or trading purposes. These fuel and natural gas swap contracts provide a fixed price for less than 50% of our estimated fuel and natural gas usage for fiscal years 2023 and 2024.
We do not enter into commodity swap contracts for speculative or trading purposes. These fuel swap and natural gas swap contracts provide a fixed price for less than 50% of our estimated fuel and natural gas usage for fiscal years 2024 and 2025.
The following table presents the future principal payment obligations, interest payments, and fair values associated with the Company’s debt instruments assuming the Company’s actual level of variable rate debt as of September 30, 2022 (in thousands).
The following table presents the future principal payment obligations, interest payments, and fair values associated with the Company’s debt instruments assuming the Company’s actual level of variable rate debt as of September 30, 2023 (in thousands).
Going forward, continued cost inflation in these areas may require further price adjustments to maintain profit margin, and any price increases may have a negative effect on demand. 37 Table of Contents
Going forward, continued cost inflation in these areas may require further price adjustments to maintain profit margin, and any price increases may have a negative effect on demand. 39 Table of Contents
From time to time, we use derivative instruments as hedges against the impact of interest rate changes on future earnings and cash flows. We do not enter into such derivative instruments for speculative or trading purposes. At September 30, 2022, we had a total of $377.0 million of variable rate borrowings outstanding.
From time to time, we use derivative instruments as hedges against the impact 38 Table of Contents of interest rate changes on future earnings and cash flows. We do not enter into such derivative instruments for speculative or trading purposes. At September 30, 2023, we had a total of $376.9 million of variable rate borrowings outstanding.
The table below provides information about the Company’s fuel swap contracts that are sensitive to changes in commodity prices as of September 30, 2022.
The table below provides information about the Company’s fuel swap and natural gas swap contracts that are sensitive to changes in commodity prices as of September 30, 2023.
The notional amount of the Company’s outstanding interest rate swap contract at September 30, 2022 was $300.0 million. The maturity date of this swap is June 30, 2027, and the fair value of the outstanding swap contract was $24.7 million as of September 30, 36 Table of Contents 2022.
The notional amount of the Company’s outstanding interest rate swap contract at September 30, 2023 was $300.0 million. The maturity date of this swap is June 30, 2027, and the fair value of the outstanding swap contract was $26.9 million as of September 30, 2023.
Carrying Amount Fair Value Fuel swap contracts (1) Contract volumes (1,000 gallons) 3,024 Weighted average price (per gallon) 2.70 Contract amount (in thousands) $ 694 $ 694 Natural gas swap contracts (1) Contract volumes (1,000 MMBTU) 610 Weighted average price (per MMBTU) 5.93 Contract amount (in thousands) $ (168) $ (168) (1) See also Note 21 - Fair Value Measurements and Note 22 - Investments in Derivative Instruments to the consolidated financial statements included in this report.
Carrying Amount Fair Value Fuel swap contracts (1) Contract volumes (1,000 gallons) 378 Weighted average price (per gallon) 2.71 Contract amount (in thousands) $ 204 $ 204 Natural gas swap contracts (1) Contract volumes (1,000 MMBTU) 10 Weighted average price (per MMBTU) 4.74 Contract amount (in thousands) $ (20) $ (20) (1) See also Note 20 - Fair Value Measurements and Note 21 - Investments in Derivative Instruments to the consolidated financial statements included in this report.
During the fiscal year ended September 30, 2022, we continued to experience increased costs in several of these inflation-sensitive items. We seek to recover increasing costs by obtaining higher prices for our products or by including the anticipated price increases in our bids.
While it is impossible to fully eliminate the impact of these factors, we seek to recover increasing costs by obtaining higher prices for our products or by including the anticipated price increases in our bids.
Added
In recent years, inflation, supply chain and upward wage pressures have had a significant impact on the global economy, including the construction industry in the United States.

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