struction Partners(ROAD) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended December 31, 2022, detailing the company's financial position, performance, and cash flows Consolidated Balance Sheets Total assets increased to $1.129 billion driven by acquisitions, while total liabilities rose to $670.1 million due to increased long-term debt Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2022 (unaudited) | Sep 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $401,115 | $417,189 | | Property, plant and equipment, net | $498,293 | $481,412 | | Goodwill | $159,949 | $129,465 | | Total Assets | $1,129,004 | $1,095,521 | | Total Current Liabilities | $202,892 | $226,138 | | Long-term debt, net | $413,018 | $363,066 | | Total Liabilities | $670,148 | $639,642 | | Total Stockholders' Equity | $458,856 | $455,879 | Consolidated Statements of Comprehensive Income Revenues increased by 19.9% to $341.8 million, but gross profit declined to $30.5 million, leading to a 65.7% decrease in net income to $1.9 million Statement of Comprehensive Income Summary (in thousands, except per share data) | Metric | Q1 FY2023 (ended Dec 31, 2022) | Q1 FY2022 (ended Dec 31, 2021) | | :--- | :--- | :--- | | Revenues | $341,779 | $284,964 | | Gross Profit | $30,496 | $32,964 | | Operating Income | $6,328 | $8,459 | | Net Income | $1,892 | $5,511 | | Diluted EPS | $0.04 | $0.11 | Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $28.9 million, while investing activities used $70.7 million primarily for acquisitions, and financing provided $49.7 million Cash Flow Summary (in thousands) | Activity | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $28,884 | $(577) | | Net cash used in investing activities | $(70,670) | $(80,274) | | Net cash provided by financing activities | $49,736 | $67,461 | | Net change in cash, cash equivalents and restricted cash | $7,950 | $(13,390) | Notes to Consolidated Financial Statements These notes detail significant accounting policies, recent business acquisitions, debt facilities, and an approximate $1.2 billion in performance obligations - The company's primary operations include manufacturing hot mix asphalt (HMA), paving, site development, mining aggregates, and distributing liquid asphalt cement across six southeastern states[18] - On November 18, 2022, the company acquired three HMA plants in Tennessee for $8.4 million and disposed of a quarry in North Carolina, resulting in a $5.4 million gain[60] - On December 1, 2022, the company acquired Ferebee Corporation in North Carolina for $68.8 million, adding three HMA plants[61] - As of December 31, 2022, the company had approximately $1.2 billion in unsatisfied or partially unsatisfied performance obligations under construction contracts[70] - Total long-term debt stood at $426.9 million as of December 31, 2022, consisting of a Term Loan and borrowings under a Revolving Credit Facility[72] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the quarter's financial performance, highlighting revenue growth driven by acquisitions, but noting declines in gross profit and net income due to cost inflation Results of Operations Revenues increased by 19.9% to $341.8 million, but gross profit declined 7.5% to $30.5 million, leading to a 65.7% decrease in net income to $1.9 million Q1 FY2023 vs Q1 FY2022 Results (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $341,779 | $284,964 | $56,815 | 19.9% | | Gross Profit | $30,496 | $32,964 | $(2,468) | (7.5)% | | Operating Income | $6,328 | $8,459 | $(2,131) | (25.2)% | | Net Income | $1,892 | $5,511 | $(3,619) | (65.7)% | - The decrease in gross profit was primarily attributed to rising costs of raw materials, fuel, labor, and trucking, along with supply chain disruptions[137] - General and administrative expenses increased by 19.2% due to costs from acquired businesses, higher equity-based compensation, increased payroll, and professional fees[138] Adjusted EBITDA Adjusted EBITDA increased 4.7% to $27.6 million, but the Adjusted EBITDA Margin decreased to 8.1% due to lower gross profit margins Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net income | $1,892 | $5,511 | | Interest expense, net | $3,960 | $1,264 | | Provision for income taxes | $510 | $1,800 | | Depreciation, depletion, etc. | $18,375 | $15,903 | | Equity-based compensation | $2,480 | $1,504 | | Management fees | $367 | $375 | | Adjusted EBITDA | $27,584 | $26,357 | | Adjusted EBITDA Margin | 8.1% | 9.2% | Liquidity and Capital Resources Liquidity is supported by operating cash flow and credit facilities, with $156.9 million available under the Revolving Credit Facility and $31.7 million in capital expenditures for the quarter - Net cash from operating activities was $28.9 million for the quarter, a significant improvement from a $0.6 million use of cash in the prior-year period[145][146] - At December 31, 2022, the company had $268.8 million outstanding on its Term Loan and $158.1 million on its Revolving Credit Facility, with $156.9 million of availability remaining on the revolver[151] - The company was in compliance with all financial covenants, with a fixed charge coverage ratio of 1.87-to-1.00 (minimum 1.20) and a consolidated leverage ratio of 2.96-to-1.00 (maximum 3.50)[77][152] Contractual Obligations Summary (in thousands) | Obligation Type | Total | Remainder of 2023 | | :--- | :--- | :--- | | Debt obligations | $426,851 | $9,375 | | Operating leases | $21,475 | $2,130 | | Purchase commitments | $5,869 | $3,720 | | Royalty payments | $2,656 | $236 | | Total | $459,223 | $15,461 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices, interest rates, and inflation, mitigating these through contract provisions and derivative instruments like fuel and interest rate swaps - The company uses fuel and natural gas swap contracts to fix the price for a portion of its estimated usage for the remainder of fiscal 2023 and part of 2024[162] - The company has $426.9 million of variable rate debt outstanding. A hypothetical 1% change in borrowing rates would result in a $4.3 million change in annual interest expense, absent hedging[165] - An interest rate swap contract with a notional amount of $300.0 million is in place to hedge against interest rate volatility, maturing on June 30, 2027[167] - The company continues to experience increased costs from inflation but seeks to recover these through higher prices and inclusion in new contract bids, though this is limited for projects already in backlog[169] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[170] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation, but management does not expect any pending claims to materially affect its financial condition or operations - The company is involved in routine litigation, but management does not expect any pending claims to have a material adverse effect on its financial condition[173] Risk Factors This section highlights significant risks from inflation and supply chain disruptions, leading to increased costs and potential harm to profit margins for projects in backlog - A key risk factor is the impact of inflation and supply chain disruptions, which have increased costs for wages, fuel, concrete, and steel[175] - The company's ability to pass on increased costs is limited for projects already in its backlog, which could lead to diminished profit margins[175] Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell unregistered equity securities but repurchased 5,267 Class A common shares to satisfy employee tax withholding obligations for restricted stock awards - The company did not sell any unregistered equity securities during the period[176] - A total of 5,267 shares of Class A common stock were repurchased to satisfy employee tax withholding obligations upon the vesting of restricted stock[178] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and required CEO and CFO certifications