struction Partners(ROAD) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements reflect significant growth in assets and liabilities driven by acquisitions Consolidated Balance Sheets Total assets grew to $1.02 billion, driven by acquisitions that also increased total liabilities to $589.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (unaudited) | September 30, 2021 | | :--- | :--- | :--- | | Total Assets | $1,020,339 | $806,620 | | Cash and cash equivalents | $26,079 | $57,251 | | Property, plant and equipment, net | $453,973 | $404,832 | | Goodwill | $124,987 | $85,422 | | Total Liabilities | $589,646 | $397,721 | | Long-term debt, net | $341,173 | $206,175 | | Total Stockholders' Equity | $430,693 | $408,899 | Consolidated Statements of Comprehensive Income Quarterly and nine-month revenues grew significantly, though nine-month net income declined due to rising costs Financial Performance Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $380,272 | $261,656 | $908,621 | $631,697 | | Gross Profit | $44,250 | $36,617 | $89,711 | $85,283 | | Operating Income | $17,999 | $14,257 | $14,969 | $18,706 | | Net Income | $12,168 | $9,340 | $8,261 | $12,276 | | Diluted EPS | $0.23 | $0.18 | $0.16 | $0.24 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $430.7 million, influenced by net income and Class B stock conversions - Total stockholders' equity grew to $430.7 million at June 30, 2022, up from $408.9 million at the fiscal year-end 2021[15] - During the nine months ended June 30, 2022, 4,338,924 shares of Class B common stock were converted into Class A common stock on a one-for-one basis[15][76] Consolidated Statements of Cash Flows Operating cash flow turned negative while investing and financing activities increased due to acquisitions Cash Flow Summary (in thousands) | Activity | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used by) provided by operating activities | $(9,721) | $9,334 | | Net cash used in investing activities | $(158,607) | $(129,530) | | Net cash provided by financing activities | $137,261 | $106,348 | | Net change in cash and cash equivalents | $(31,067) | $(13,848) | Notes to Consolidated Financial Statements Notes detail seasonality, acquisition impacts, a new credit agreement, and the use of derivative instruments - The company's business is seasonal, with warmer and drier weather in the third and fourth fiscal quarters typically resulting in higher activity and revenues[22] - During the nine months ended June 30, 2022, the company completed four acquisitions for a total consideration of $104.7 million, funded by its Revolving Credit Facility[62][63][65] - On June 30, 2022, the company entered into a new Credit Agreement, providing a $250.0 million Term Loan, a $325.0 million Revolving Credit Facility, and a $50.0 million delayed draw term loan facility[73] - Subsequent to the quarter end, on August 1, 2022, the company acquired Southern Asphalt, Inc in South Carolina for $25.2 million, funded by the delayed draw term loan[116] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth from acquisitions was offset by margin compression from inflation and supply chain issues Recent Developments and Inflationary Trends The company faces significant cost inflation and supply chain disruptions while securing a new credit facility - The company is experiencing upward trends in inflation-sensitive costs, including wages, raw materials, fuel, concrete, and steel, along with supply chain disruptions[122] - On June 30, 2022, the company entered into a new credit agreement providing a $250M Term Loan, a $325M Revolving Credit Facility, and a $50M delayed draw term loan[123] Results of Operations Strong revenue growth was tempered by declining gross margins due to cost inflation and acquisition mix Q3 2022 vs Q3 2021 Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $380,272 | $261,656 | 45.3% | | Gross Profit | $44,250 | $36,617 | 20.8% | | Gross Margin | 11.6% | 14.0% | -2.4 p.p. | | Net Income | $12,168 | $9,340 | 30.3% | | Adjusted EBITDA | $37,639 | $29,027 | 29.7% | Nine Months 2022 vs 2021 Performance (in thousands) | Metric | Nine Months 2022 | Nine Months 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $908,621 | $631,697 | 43.8% | | Gross Profit | $89,711 | $85,283 | 5.2% | | Gross Margin | 9.9% | 13.5% | -3.6 p.p. | | Net Income | $8,261 | $12,276 | (32.7)% | | Adjusted EBITDA | $71,820 | $63,506 | 13.1% | - The decrease in gross profit margin was attributed to lower margins on projects from recent acquisitions, increased costs of raw materials, fuel, labor, and trucking, and supply chain issues[135][144] Liquidity and Capital Resources Operating cash flow decreased due to working capital needs, while a new credit facility supports liquidity - Net cash used by operating activities was $9.7 million for the nine months ended June 30, 2022, compared to $9.3 million provided by operating activities in the prior-year period[153][154] - As of June 30, 2022, the company had $208.6 million available under its Revolving Credit Facility and $50.0 million under its delayed draw term loan facility[160] - Fiscal 2022 capital expenditures are projected to be between $60.0 million and $65.0 million[164] Contractual Obligations as of June 30, 2022 (in thousands) | Obligation Type | Total | Remainder of 2022 | 2023 | 2024-Thereafter | | :--- | :--- | :--- | :--- | :--- | | Debt obligations | $355,100 | $3,125 | $12,500 | $339,475 | | Operating leases | $13,154 | $627 | $2,395 | $10,132 | | Purchase commitments | $8,402 | $2,795 | $4,827 | $780 | | Royalty payments | $2,688 | $12 | $255 | $2,421 | Quantitative and Qualitative Disclosures About Market Risk The company manages commodity, interest rate, and inflation risks through contracts and derivative instruments - The company uses commodity swaps for diesel fuel and natural gas to fix prices for a portion of its estimated usage through fiscal 2024[171] - The company is exposed to interest rate risk on $355.1 million of variable rate debt as of June 30, 2022, with a hypothetical 1% rate change impacting annual interest expense by $3.6 million, before considering hedges[176] - Subsequent to the quarter, on July 1, 2022, the company entered into a new $300.0 million notional interest rate swap agreement with a fixed rate of 1.85% through June 2027[115][175] - Inflation risk is managed by adjusting prices on new bids, but the company has limited ability to pass through increased costs for projects already in its backlog[179][180] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[181] - No material changes were made to the internal control over financial reporting during the quarter ended June 30, 2022[181] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation that is not expected to have a material adverse effect - The company is involved in routine litigation and disputes related to workers' compensation, employment, and contract performance, which management does not consider to be materially adverse[184] Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of the 2021 Form 10-K[185] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales or repurchases of its equity securities during the period - The company did not sell any unregistered equity securities during the quarter[186] - The company did not purchase any of its equity securities during the quarter[187] Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the reporting period - None[188] Mine Safety Disclosures Mine safety violation information is provided as an exhibit to this quarterly report - Mine safety disclosures are provided in Exhibit 95.1[189] Other Information The company did not report any other material information for the period - None[190] Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements and certifications