CONSTRUCTION PARTNERS, INC. This discussion and analysis of our financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition during the period covered by this report. Historical results may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these forward-looking statements as a result of various factors, including those set forth under the headings "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements." This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in the 2020 Form 10-K. In this discussion, we use certain non-GAAP financial measures. Explanations of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are included in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Investors should not consider non-GAAP financial measures in isolation or as substitutes for financial information presented in compliance with GAAP. Overview We are a civil infrastructure company that specializes in the building and maintenance of transportation networks. Our operations leverage a highly skilled workforce, strategically located HMA plants, substantial construction assets and select material deposits. We provide construction products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites in the southeasternUnited States . Our public projects are funded by federal, state and local governments and include projects for 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 ofthe 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. Federal highway spending uses funds predominantly from theHighway 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. Recent Developments COVID-19 We did not incur significant disruptions from the COVID-19 pandemic during the three or six months endedMarch 31, 2021 . However, we continue to closely monitor the impact of the pandemic on all aspects of our business, including its impact on our customers, employees, suppliers and vendors. Among the primary risks to our business arising from the pandemic are (i) employee absences, which could adversely affect our productivity and our ability to complete projects in accordance with our contractual obligations, and could require us to temporarily close our facilities or project sites, (ii) potential disruptions in our supply chains for raw materials or equipment, whether as a result of facility closures or otherwise, which could increase our labor and materials costs and impair our ability to manufacture HMA or the ability of our subcontractors to complete their required tasks, and (iii) the impact of the COVID-19 pandemic on our customers, which could cause these customers to cancel or delay current or prospective projects or become delinquent in their payments to us for work that we have performed. These risks have materialized in varying degrees since the beginning of the pandemic, but none of these risks, individually or in the aggregate, have significantly impacted our operations to date. In addition, we continue to monitor the impact of the COVID-19 pandemic on fuel and sales tax revenues, which in turn drive funding levels for public projects in our markets. The extent to which our operations may be impacted by the COVID-19 pandemic will depend on future developments, which are highly uncertain, including the duration of the pandemic, the efficacy and adoption rates of vaccines, and actions by government authorities to contain the outbreak or mitigate the impact of the pandemic. Due to the continued uncertainties surrounding the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial position, operating results and cash flows in future periods. North Carolina Acquisitions During the three months endedDecember 31, 2020 , we acquired the operations of four HMA production and paving companies inNorth Carolina . The acquired businesses collectively added thirteen HMA plants inNorth Carolina , providing us with access to additional markets and expanding our footprint in the state. For further discussion regarding these transactions, see Note 4 - Business Acquisitions to the unaudited consolidated financial statements included elsewhere in this report. 21 -------------------------------------------------------------------------------- Table of Contents How We Assess Performance of Our Business Revenues We derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites. Our projects represent a mix of federal, state, municipal and private customers. We also derive revenues from the sale of HMA, aggregates, ready-mix concrete and liquid asphalt cement to customers. Revenues derived from projects are recognized as performance obligations are satisfied over time, measured according to the relationship of total cost incurred as of a given determination date to the total estimated contract costs. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Revenues derived from the sale of HMA, aggregates, ready-mix concrete and liquid asphalt cement are recognized when risks associated with ownership have passed to the customer. Gross Profit Gross profit represents revenues less cost of revenues. Cost of revenues consists of all direct and indirect costs of construction contracts, including raw materials, labor, equipment costs, depreciation, lease expenses, subcontract costs and other expenses at our HMA plants, aggregate mining facilities and liquid asphalt terminal. Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel. From time to time, when appropriate, we limit our exposure to changes in commodity prices by entering into forward purchase commitments. In addition, our public infrastructure contracts often provide for price adjustments based on fluctuations in certain commodity-related product costs. These price adjustment provisions are in place for most of our public infrastructure contracts, and we seek to include similar provisions in our private contracts. Depreciation, Depletion and Amortization We carry property, plant and equipment on our balance sheet at cost, net of accumulated depreciation, depletion and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements and intangible assets. Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. Our intangible assets were recognized as a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful lives of the assets. Quarry reserves are depleted in accordance with the units-of-production method as aggregate is 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 and consist primarily of salaries and personnel costs for our administration, finance and accounting, legal, information systems, human resources and certain managerial employees. Additional expenses include audit, consulting and professional fees, stock-based compensation expense, travel, insurance, office space rental costs, property taxes and other corporate and overhead expenses. Gain on Sale of Equipment, Net In the normal course of business, we sell construction equipment for various reasons, including when the cost of maintaining the asset exceeds the cost of replacing it. The gain or loss on sale of equipment reflects the difference between the carrying value at the date of disposal of the equipment and the net consideration received from the sale of equipment during the period. Interest Expense, Net Interest expense, net primarily represents interest incurred on our long-term debt, such as the Term Loan and the Revolving Credit Facility, as well as the changes in fair values of interest swap agreements and amortization of deferred debt issuance costs. These amounts are partially offset by interest income earned on short-term investments of cash and cash equivalents balances in excess of our current operating needs. Other Income (Expense) Other income primarily represents other miscellaneous income items. Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Net Income (Loss) Adjusted EBITDA represents net income (loss) before, as applicable from time to time, (i) interest expense, net, (ii) provision (benefit) for income taxes, (iii) depreciation, depletion and amortization of long-lived assets, (iv) equity-based compensation expense, (v) loss 22 -------------------------------------------------------------------------------- Table of Contents on extinguishment of debt (vi) certain management fees and expenses and (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. Adjusted net income (loss) represents net income (loss) before nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, net of tax. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income (loss) or any other performance measure derived in accordance with GAAP as an indicator of operating performance. We present Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted net income (loss) 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 these measures may not be comparable to similarly named measures reported by other companies. Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets. The following table presents a reconciliation of net income (loss), the most directly comparable measure calculated in accordance with GAAP, to Adjusted EBITDA, and the calculation of Adjusted EBITDA Margin for the periods presented (in thousands, except percentages): For the Three Months Ended March For the Six Months Ended March 31, 31, 2021 2020 2021 2020 Net income (loss)$ (4,935) $ 1,537 $ 2,936 $ 6,998 Interest expense, net 298 1,834 766 2,115 Provision for income taxes (1,513) 531 1,167 1,850 Depreciation, depletion and amortization of long-lived assets 12,291 9,593 23,385 19,031 Equity-based compensation expense 460 390 855 785 Management fees and expenses (1) 521 357 1,138 671 Settlement of legal claim and associated legal expenses (2) 3,876 97 4,232 97 Adjusted EBITDA$ 10,998 $ 14,339 $ 34,479 $ 31,547 Revenues$ 179,112 $ 168,679 $ 370,041 $ 343,993 Adjusted EBITDA Margin 6.1 % 8.5 % 9.3 % 9.2 % (1)Reflects fees and reimbursement of certain travel expenses under a management services agreement with SunTx (see Note 12 - Related Parties to the unaudited consolidated financial statements included elsewhere in this Quarterly Report). (2)Reflects$3.2 million legal settlement and associated legal expenses (see Note 19 - Legal Proceedings to the unaudited consolidated financial statements included elsewhere in this Quarterly Report). The following table presents a reconciliation of net income (loss), the most directly comparable measure calculated in accordance with GAAP, to adjusted net income (loss) for the periods presented (in thousands): For the Three Months Ended For the Six Months Ended March March 31, 31, 2021 2020 2021 2020 Net income (loss)$ (4,935) $ 1,537 $ 2,936 $ 6,998 Settlement of legal claim (1) 3,200 -$ 3,200 $ - Legal expenses associated with settlement of legal claim 676 97$ 1,032 $ 97 Tax impact due to above reconciling items (977) (24)$ (1,066) $ (24) Adjusted net income (loss)$ (2,036) $ 1,610 $ 6,102 $ 7,071
(1)Reflects
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Results of Operations
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
The following table sets forth selected financial data for the three months
ended March 31, 2021 and 2020 (in thousands, except percentages):
Change From the Three Months Ended
March 31, 2020
For the Three Months Ended March 31, to the Three Months Ended
2021 2020 March 31, 2021
% of % of $ %
Dollars Revenues Dollars Revenues Change Change
Revenues $ 179,112 100.0 % $ 168,679 100.0 % $ 10,433 6.2 %
Cost of revenues 161,040 89.9 % 148,505 88.0 % 12,535 8.4 %
Gross profit 18,072 10.1 % 20,174 12.0 % (2,102) (10.4) %
General and administrative
expenses (24,475) (13.7) % (16,821) (10.1) % (7,654) 45.5 %
Gain on sale of equipment, net 9 - % 435 0.3 % (426) (97.9) % Operating income (loss) (6,394) (3.6) % 3,788 2.2 % (10,182) (268.8) % Interest expense, net (298) (0.2) % (1,834) (1.1) % 1,536 (83.8) % Other income (expense) 244 0.2 % 44 0.1 % 200 454.5 % Income (loss) before provision for income taxes and earnings from investment in joint venture (6,448) (3.6) % 1,998 1.2 % (8,446) (422.7) % Provision for income taxes 1,513 0.8 % (531) (0.3) % 2,044 (384.9) % Earnings from investment in joint venture - - % 70 (0.6) % (70) (100.0) % Net income (loss)$ (4,935) (2.8) %$ 1,537 0.9 %$ (6,472) (421.1) % Adjusted EBITDA$ 10,998 6.1 %$ 14,339 8.5 %$ (3,341) (23.3) % Adjusted net income (loss)$ (2,036) (1.1) %$ 1,610 1.0 % (3,646)
(226.5) %
Revenues. Revenues for the three months endedMarch 31, 2021 increased$10.4 million , or 6.2%, to$179.1 million from$168.7 million for the three months endedMarch 31, 2020 . The increase included$14.9 million of revenues attributable to acquisitions completed subsequent toMarch 31, 2020 . The increase was offset by a$4.5 million decrease in revenue in markets we served onMarch 31, 2020 , primarily due to delays in project completion as a result of adverse weather conditions. Gross Profit. Gross profit for the three months endedMarch 31, 2021 decreased$2.1 million , or 10.4%, to$18.1 million from$20.2 million for the three months endedMarch 31, 2020 . The lower gross profit was primarily due to (i) lower profit margins on the projects we assumed in connection with theNorth Carolina acquisitions we completed during the first quarter of fiscal 2021 and (ii) a$3.1 million loss at our asphalt plants and in our equipment fleet due to under utilization caused by project delays. General and Administrative Expenses. General and administrative expenses for the three months endedMarch 31, 2021 increased$7.7 million , or 45.5%, to$24.5 million from$16.8 million for the three months endedMarch 31, 2020 . The increase in general and administrative expenses for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was primarily the result of (i) a$3.2 million legal settlement as described in Note 19 - Legal Proceedings and an increase of$0.6 million for legal fees associated with this legal settlement, (ii) a$2.4 million increase in management personnel payroll and benefits, and (iii) a$1.0 million increase attributable to acquisitions completed subsequent toMarch 31, 2020 . Interest Expense, Net. Interest expense, net for the three months endedMarch 31, 2021 decreased$1.5 million , to$0.3 million compared to$1.8 million for the three months endedMarch 31, 2020 . The decrease was primarily due to the$0.4 million of unrealized gain on interest rate swaps for the three months endedMarch 31, 2021 compared to the unrealized loss on interest rate swaps of$1.5 million for the three months endedMarch 31, 2020 . 24 -------------------------------------------------------------------------------- Table of Contents Other Income (Expense). Other income (expense) for the three months endedMarch 31, 2021 increased$0.2 million compared to the three months endedMarch 31, 2020 . The increase was primarily attributable to rental income from property acquired in theNorth Carolina acquisitions we completed during the first quarter of fiscal year 2021. Provision for Income Taxes. Our effective tax rate decreased to 23.5% for the three months endedMarch 31, 2021 , from 25.7% for the three months endedMarch 31, 2020 due to differences in state tax rates at our operating subsidiaries. Earnings from Investment in Joint Venture. Earnings from investment in joint venture decreased$0.1 million during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , as the construction project from which these earnings were derived had a lower level of activity during the three months endedMarch 31, 2021 . Net Income (Loss). Net income (loss) decreased$6.4 million to a net loss of$4.9 million for the three months endedMarch 31, 2021 , compared to net income of$1.5 million for the three months endedMarch 31, 2020 . The decrease in net income was primarily a result of lower gross profit and higher general and administrative expenses, partially offset by a decrease in interest expense, net and a decrease in provision for income taxes, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were$11.0 million and 6.1%, respectively, for the three months endedMarch 31, 2021 , compared to$14.3 million and 8.5%, respectively, for the three months endedMarch 31, 2020 . The decrease in Adjusted EBITDA was the result of lower gross profit and an increase in general and administrative expenses, partially offset by an increase in depreciation, depletion and amortization of long-lived assets and reduction in the provision for income taxes. The lower Adjusted EBITDA Margin was primarily a result of a decrease in Adjusted EBITDA and an increase in revenues, all as described above. See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading "How We Assess Performance of Our Business". Adjusted Net Income (Loss). Adjusted net income (loss) decreased$3.6 million to an adjusted net loss of$2.0 million for the three months endedMarch 31, 2021 , compared to adjusted net income of$1.6 million for the three months endedMarch 31, 2020 . The decrease in adjusted net income was primarily a result of lower gross profit and higher general and administrative expenses, partially offset by a decrease in interest expense, net and a decrease in provision for income taxes, all as described above. 25 -------------------------------------------------------------------------------- Table of Contents Six Months EndedMarch 31, 2021 Compared to Six Months EndedMarch 31, 2020 The following table sets forth selected financial data for the six months endedMarch 31, 2021 and 2020 (in thousands, except percentages): Change From the Six Months Ended March 31, 2020 For the Six Months Ended March 31, to the Six Months Ended 2021 2020 March 31, 2021 % of % of $ % Dollars Revenues Dollars Revenues Change Change Revenues$ 370,041 100.0 %$ 343,993 100.0 %$ 26,048 7.6 % Cost of revenues 321,375 86.8 % 300,062 87.2 % 21,313 7.1 % Gross profit 48,666 13.2 % 43,931 12.8 % 4,735 10.8 % General and administrative expenses (44,559) (12.1) % (33,934) (9.9) % (10,625) 31.3
%
Gain on sale of equipment, net 342 0.1 % 744 0.2 % (402) (54.0) % Operating income 4,449 1.2 % 10,741 3.1 % (6,292) (58.6) % Interest expense, net (766) (0.2) % (2,115) (0.6) % 1,349 (63.8) % Other income (expense) 409 0.1 % 109 - % 300 275.2 % Income before provision for income taxes and earnings from investment in joint venture 4,092 1.1 % 8,735 2.5 % (4,643) (53.2) % Provision for income taxes (1,167) (0.3) % (1,850) (0.5) % 683 (36.9) % Earnings from investment in joint venture 11 - % 113 - % (102) (90.3) % Net income$ 2,936 0.8 %$ 6,998 2.0 %$ (4,062) (58.0) % Adjusted EBITDA$ 34,479 9.3 %$ 31,547 9.2 %$ 2,932 9.3 % Adjusted net income$ 6,102 1.6 %$ 7,071 2.1 % (969) (13.7) % Revenues. Revenues for the six months endedMarch 31, 2021 increased$26.0 million , or 7.6%, to$370.0 million from$344.0 million for the six months endedMarch 31, 2020 . The increase included$27.1 million of revenues attributable to acquisitions completed subsequent toMarch 31, 2020 , offset by a$1.1 million decrease in revenues in markets we served onMarch 31, 2020 . Gross Profit. Gross profit for the six months endedMarch 31, 2021 increased$4.7 million , or 10.8%, to$48.7 million from$43.9 million for the six months endedMarch 31, 2020 . The increase in gross profit was primarily the result of the increase in revenue for the six months endedMarch 31, 2021 compared to the six months endedMarch 31, 2020 . Additionally, the higher gross profit was the result of an increase in gross profit margin due to (i) efficient utilization of our plants and equipment, specifically in the three months endedDecember 31, 2020 , (ii) a$1.6 million increase in gross profit attributable to our liquid asphalt terminal, at which we purchase liquid asphalt at wholesale prices, thereby reducing our cost of revenues, and (iii) an increase of$2.6 million in unrealized gains on commodity derivative instruments that are included in cost of revenues. General and Administrative Expenses. General and administrative expenses for the six months endedMarch 31, 2021 increased$10.6 million , or 31.3%, to$44.6 million from$33.9 million for the six months endedMarch 31, 2020 . The increase in general and administrative expenses for the six months endedMarch 31, 2021 compared to the six months endedMarch 31, 2020 was primarily the result of (i) a$3.2 million legal settlement agreement as described in Note 19 - Legal Proceedings and and an increase of$0.9 million for legal fees associated with this legal settlement, (ii) a$4.0 million increase in management personnel payroll and benefits, and (iii) a$1.8 million increase attributable to acquisitions completed subsequent toMarch 31, 2020 . Interest Expense, Net. Interest expense, net for the six months endedMarch 31, 2021 decreased$1.3 million , to$0.8 million compared to$2.1 million for the six months endedMarch 31, 2020 . The decrease was primarily due to$0.6 million of unrealized gains on interest rate swaps for the six months endedMarch 31, 2021 , compared to the unrealized loss on interest rate swaps in the amount of$1.5 million for the six months endedMarch 31, 2020 . 26 -------------------------------------------------------------------------------- Table of Contents Other Income (Expense). Other income (expense) for the six months endedMarch 31, 2021 increased$0.3 million , to$0.4 million compared to$0.1 million for the six months endedMarch 31, 2020 . The increase was primarily attributable to rental income from property acquired in theNorth Carolina acquisitions completed during the first quarter of fiscal 2021. Provision for Income Taxes. Our effective tax rate increased to 28.4% for the six months endedMarch 31, 2021 , from 20.9% for the six months endedMarch 31, 2020 . Our lower effective tax rate for the six months endedMarch 31, 2020 was the result of a benefit of$0.4 million related to the utilization of net operating loss carryforwards, as reflected in an amended consolidated state return filed during the period and due to differences in state tax rates at our operating subsidiaries. Earnings from Investment in Joint Venture. Earnings from investment in joint venture decreased$0.1 million during the six months endedMarch 31, 2021 compared to the six months endedMarch 31, 2020 , as the construction project from which these earnings were derived had a lower level of activity during the six months endedMarch 31, 2021 . Net Income. Net income decreased$4.1 million , or 58.0%, to$2.9 million for the six months endedMarch 31, 2021 , compared to$7.0 million for the six months endedMarch 31, 2020 . The decrease in net income was primarily a result of higher general and administrative expenses, partially offset by an increase in gross profit and a decrease in interest expense, net and provision for income tax, all as described above. Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were$34.5 million and 9.3%, respectively, for the six months endedMarch 31, 2021 , compared to$31.5 million and 9.2%, respectively, for the six months endedMarch 31, 2020 . The increase in Adjusted EBITDA was the result of higher gross profit and depreciation, depletion, and amortization of long-lived assets, partially offset by an increase in general and administrative expenses. The higher Adjusted EBITDA Margin was a result of the increase in Adjusted EBITDA during the period. See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading "How We Assess Performance of Our Business". Adjusted Net Income. Adjusted net income decreased$1.0 million to adjusted net income of$6.1 million for the three months endedMarch 31, 2021 , compared to adjusted net income of$7.1 million for the three months endedMarch 31, 2020 . The decrease in net income was primarily a result of higher general and administrative expenses, partially offset by an increase in gross profit and decrease in interest expense, net and provision for income tax, all as described above. Inflation and Price Changes Inflation had an immaterial impact on our results of operations for the three and six months endedMarch 31, 2021 and 2020 due to relatively low inflation inthe United States in recent years and our ability to recover increasing costs by obtaining higher prices for our products, including sale price escalator clauses in most of our public infrastructure sector contracts. Inflation risk varies with the level of activity in our industry, the number, size and strength of competitors and the availability of products to supply a local market. Liquidity and Capital Resources Cash Flows Analysis The following table sets forth our cash flows for the periods indicated (in thousands): For the Six Months Ended March 31, 2021 2020
Net cash provided by operating activities, net of acquisition
(110,465) (62,923)
Net cash provided by (used in) financing activities (6,500) 15,483
Net change in cash and cash equivalents $
(114,567)
Operating Activities During the six months endedMarch 31, 2021 , cash provided by operating activities, net of acquisitions, was$2.4 million , primarily as a result of: •net income of$2.9 million , including$23.4 million of depreciation, depletion and amortization of long-lived assets and unrealized gains on derivative instruments of$2.4 million ; •a decrease in contracts receivable including retainage, net, of$6.3 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle; 27
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•an increase in prepaid expenses and other current assets of
•an increase in inventories of
•a decrease in accounts payable and accrued expenses and other current
liabilities of
•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$17.1 million due to the timing of performing and closing projects.
During the six months ended
•net income of
•a decrease in contracts receivable including retainage, net, of$16.7 million due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle;
•a decrease in accounts payable and accrued expenses and other current
liabilities of
•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$5.6 million due the timing of performing and closing projects. Investing Activities During the six months endedMarch 31, 2021 , cash used in investing activities was$110.5 million ,$84.5 million of which related to acquisitions completed in the period and$26.9 million of which was invested in property, plant and equipment, partially offset by$0.9 million of proceeds from the sale of equipment. During the six months endedMarch 31, 2020 , cash used in investing activities was$62.9 million ,$30.2 million of which related to acquisitions completed in the period and$34.5 million of which was invested in property, plant and equipment, partially offset by$1.4 million of proceeds from the sale of equipment and a$0.4 million distribution from our investment in a joint venture. Financing Activities During the six months endedMarch 31, 2021 , cash used in financing activities was$6.5 million , representing the repayment of principal on long-term debt during such period. During the six months endedMarch 31, 2020 , cash provided by financing activities was$15.5 million . We received$24.8 million from proceeds on long-term debt, net of debt issuance costs and discounts, reflecting a$9.8 million Term Loan advance, net of issuance cost, related to our buyout of certain lease obligations inOctober 2019 and a$15.0 million advance under our Revolving Credit Facility primarily used to fund theMarch 2020 acquisition and for liquidity purposes. These proceeds were offset by$9.3 million of repayments of principal on long-term debt. Credit Agreement We and each of our subsidiaries are parties to the Credit Agreement, which provides for the Term Loan and the Revolving Credit Facility. AtMarch 31, 2021 andSeptember 30, 2020 , we had$86.4 million and$92.9 million , respectively, of principal outstanding under the Term Loan,$0.0 million and$0.0 million , respectively, of principal outstanding under the Revolving Credit Facility, and availability of$38.6 million and$39.3 million , respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit. AtMarch 31, 2021 , the interest rate on outstanding borrowings under the Term Loan ranged from 1.64% to 2.50%. The Credit Agreement requires us to satisfy certain financial covenants, including a minimum fixed charge coverage ratio of 1.20-to-1.00 and a maximum consolidated leverage ratio of 2.75-to-1.00, subject to certain adjustments. AtMarch 31, 2021 andSeptember 28 -------------------------------------------------------------------------------- Table of Contents 30, 2020, our fixed charge coverage ratio was 2.93-to-1.00 and 2.85-to-1.00, respectively, and our consolidated leverage ratio was 1.00-to-1.00 and 1.08-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. These interest rate swap agreements do not meet the criteria for hedge accounting treatment in accordance with GAAP. AtMarch 31, 2021 andSeptember 30, 2020 , the aggregate notional value of these interest rate swap agreements was$42.4 million and$46.5 million , respectively, and the fair value was$(1.1) million and$(1.7) million , respectively, which is included within other long-term liabilities on our Consolidated Balance Sheets. Capital Requirements and Sources of Liquidity Our cash requirements include costs related to capital expenditures, purchase of materials, production of materials and organic expansion into new markets. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements increasing in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancements to our information systems, expenditures related to our compliance with laws and rules applicable to public companies and our integration of any acquired businesses. During the six months endedMarch 31, 2021 and 2020, our capital expenditures were$26.9 million and$34.5 million , respectively. Our capital expenditures are typically made during the same fiscal year in which they are approved. AtMarch 31, 2021 , our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2021, we expect total capital expenditures to be$47.0 million to$52.0 million . Our capital expenditure budget is an estimate and is subject to change. We have historically relied upon cash available through credit facilities, in addition to cash from operations, to finance our working capital requirements and to support our growth. We regularly monitor potential capital sources, including the equity and debt markets, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will depend on our ability to access outside sources of capital. We believe that our operating cash flow, together with cash on hand and available borrowings under our credit facilities, will be sufficient to fund our operations and planned capital expenditures for at least the next 12 months. However, future cash flows are subject to a number of variables, including the potential impacts of the COVID-19 pandemic, and significant additional capital expenditures will be required to conduct our operations. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures. In the event that we make one or more acquisitions and the amount of capital required is greater than the amount of cash on hand we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under our credit facilities, joint ventures, asset sales, offerings of debt or equity securities or other means. Our ability to engage in any such transactions may be constrained by economic conditions and other factors outside of our control. We cannot guarantee that this 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.
Commodity Price Risk
We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, including fossil fuels and electricity for aggregates and asphalt paving mix production, natural gas for HMA production and diesel fuel for distribution vehicles and production-related mobile equipment. In order to manage or reduce commodity price risk, we monitor the costs of these commodities at the time of bid and price them into our contracts accordingly. Furthermore, liquid asphalt escalator provisions in most of our public contracts, and in some of our private and commercial contracts, limit our exposure to price fluctuations in this commodity. In addition, we enter into various firm purchase commitments, with terms generally less than one year, for certain raw materials. We have entered into fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices. As ofMarch 31, 2021 , we had fuel swap contracts to pay fixed prices for fuel with an aggregate notional amount of 3.3 million gallons, maturing incrementally through fiscal year 2023. The fair value of these derivative contracts was$1.3 million atMarch 31, 2021 . These fuel swap contracts provide a fixed price for less than 50% of our estimated fuel usage for the remainder of fiscal years 2021 through 2023. Interest Rate Risk We are exposed to interest rate risk on certain of our short-term and long-term debt obligations used to finance our operations and acquisitions. We have LIBOR-based floating rate borrowings under our credit facilities, which expose us to variability in interest payments due to changes in the reference interest rates. From time to time, we use derivative instruments to hedge against the impact of interest rate changes on future earnings and cash flows. In order to hedge against changes in interest rates and to manage fluctuations in 29 -------------------------------------------------------------------------------- Table of Contents cash flows resulting from interest rate risk, we entered into amortizing interest rate swap agreements (i) onJune 30, 2017 , with respect to$25.0 million of outstanding debt under the Term Loan, for which we pay a fixed rate of 2.015%, (ii) onMay 15 , 2018,with respect to$11.0 million of the$22.0 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed percentage rate of 3.01%, (iii) onOctober 1, 2019 , with respect to$5.9 million of the$10.0 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed interest rate of 1.58% and (iv) onFebruary 27, 2020 , with respect to$26.3 million of additional debt that we borrowed under the Term Loan on that date, for which we pay a fixed percentage rate of 1.24% and, in each case, under which receive a credit based on the applicable LIBOR rate. AtMarch 31, 2021 , we had a total of$43.9 million of non-hedged variable rate borrowings outstanding. Contractual Obligations
The following table sets forth certain information about our contractual
obligations as of
Payments Due by Fiscal Year
Remainder of 2026 and
Total 2021 2022 2023 2024 2025 Thereafter
Debt obligations $ 86,350 $ 6,500 $ 13,000 $ 13,000 $ 53,850 $ - $ -
Operating leases 8,494 1,008 1,368 930 827 663 3,698
Purchase commitments 580 530 50 - - - -
Total $ 95,424 $ 8,038 $ 14,418 $ 13,930 $ 54,677 $ 663 $ 3,698
Off-Balance Sheet Arrangements
As of March 31, 2021 , we had no material off-balance sheet arrangements, except
for letters of credit of $11.7 million and purchase commitments for diesel fuel
of $0.6 million entered into in the normal course of business.
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