Document
10-KfalseSeptember 30, 20192019FYConstruction Partners, Inc.0001718227--09-301200017182272018-10-012019-09-30iso4217:USD00017182272019-03-29xbrli:shares0001718227us-gaap:CommonClassAMember2019-12-110001718227us-gaap:CommonClassBMember2019-12-1100017182272019-09-3000017182272018-09-300001718227us-gaap:CommonClassAMember2018-09-300001718227us-gaap:CommonClassAMember2019-09-30iso4217:USDxbrli:shares0001718227us-gaap:CommonClassBMember2019-09-300001718227us-gaap:CommonClassBMember2018-09-3000017182272017-10-012018-09-300001718227us-gaap:CommonStockMember2017-09-300001718227us-gaap:CommonClassAMember2017-09-300001718227us-gaap:CommonClassBMember2017-09-300001718227us-gaap:AdditionalPaidInCapitalMember2017-09-300001718227us-gaap:TreasuryStockMember2017-09-300001718227us-gaap:RetainedEarningsMember2017-09-3000017182272017-09-300001718227us-gaap:CommonStockMember2017-10-012018-09-300001718227us-gaap:CommonClassBMember2017-10-012018-09-300001718227us-gaap:CommonClassAMember2017-10-012018-09-300001718227us-gaap:AdditionalPaidInCapitalMember2017-10-012018-09-300001718227us-gaap:TreasuryStockMember2017-10-012018-09-300001718227us-gaap:RetainedEarningsMember2017-10-012018-09-300001718227us-gaap:CommonStockMember2018-09-300001718227us-gaap:AdditionalPaidInCapitalMember2018-09-300001718227us-gaap:TreasuryStockMember2018-09-300001718227us-gaap:RetainedEarningsMember2018-09-300001718227us-gaap:CommonClassAMember2018-10-012019-09-300001718227us-gaap:CommonClassBMember2018-10-012019-09-300001718227us-gaap:AdditionalPaidInCapitalMember2018-10-012019-09-300001718227us-gaap:TreasuryStockMember2018-10-012019-09-300001718227us-gaap:RetainedEarningsMember2018-10-012019-09-300001718227us-gaap:CommonStockMember2019-09-300001718227us-gaap:AdditionalPaidInCapitalMember2019-09-300001718227us-gaap:TreasuryStockMember2019-09-300001718227us-gaap:RetainedEarningsMember2019-09-30xbrli:pure0001718227us-gaap:CustomerConcentrationRiskMemberroad:DepartmentOfTransportationMemberus-gaap:SalesRevenueNetMember2018-10-012019-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:DepartmentOfTransportationMemberus-gaap:SalesRevenueNetMember2017-10-012018-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:AlabamaTransportationDepartmentMemberus-gaap:SalesRevenueNetMember2018-10-012019-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:AlabamaTransportationDepartmentMemberus-gaap:SalesRevenueNetMember2017-10-012018-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:NorthCarolinaTransportationDepartmentMemberus-gaap:SalesRevenueNetMember2018-10-012019-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:NorthCarolinaTransportationDepartmentMemberus-gaap:SalesRevenueNetMember2017-10-012018-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:PrivateMemberus-gaap:SalesRevenueNetMember2018-10-012019-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:PrivateMemberus-gaap:SalesRevenueNetMember2017-10-012018-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:PublicMemberus-gaap:SalesRevenueNetMember2018-10-012019-09-300001718227us-gaap:CustomerConcentrationRiskMemberroad:PublicMemberus-gaap:SalesRevenueNetMember2017-10-012018-09-300001718227us-gaap:LandImprovementsMembersrt:MinimumMember2018-10-012019-09-300001718227us-gaap:LandImprovementsMembersrt:MaximumMember2018-10-012019-09-300001718227srt:MinimumMemberus-gaap:BuildingMember2018-10-012019-09-300001718227us-gaap:BuildingMembersrt:MaximumMember2018-10-012019-09-300001718227srt:MinimumMemberus-gaap:ManufacturingFacilityMember2018-10-012019-09-300001718227us-gaap:ManufacturingFacilityMembersrt:MaximumMember2018-10-012019-09-300001718227us-gaap:EquipmentMembersrt:MinimumMember2018-10-012019-09-300001718227us-gaap:EquipmentMembersrt:MaximumMember2018-10-012019-09-300001718227srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2018-10-012019-09-300001718227srt:MaximumMemberus-gaap:FurnitureAndFixturesMember2018-10-012019-09-300001718227us-gaap:LeaseholdImprovementsMember2018-10-012019-09-300001718227srt:MinimumMember2019-09-300001718227srt:MaximumMember2019-09-30road:state0001718227road:AlabamaFloridaGeorgiaNorthCarolinaAndSouthCarolinaMember2019-09-30road:reporting_unit0001718227us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Memberus-gaap:AccountingStandardsUpdate201409Member2019-09-300001718227us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member2019-09-300001718227us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Memberus-gaap:AccountingStandardsUpdate201409Member2018-10-012019-09-300001718227us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member2018-10-012019-09-300001718227us-gaap:AccountingStandardsUpdate201602Membersrt:MinimumMembersrt:ScenarioForecastMember2019-12-310001718227us-gaap:AccountingStandardsUpdate201602Membersrt:MaximumMembersrt:ScenarioForecastMember2019-12-310001718227road:ScruggsCompanyMember2018-05-150001718227us-gaap:EquipmentMemberroad:ScruggsCompanyMember2018-05-150001718227road:ScruggsCompanyMemberus-gaap:MiningPropertiesAndMineralRightsMember2018-05-150001718227us-gaap:LandImprovementsMemberroad:ScruggsCompanyMember2018-05-150001718227road:AsphaltPlantsMemberroad:ScruggsCompanyMember2018-05-150001718227road:ScruggsCompanyMemberus-gaap:BuildingMember2018-05-150001718227road:ScruggsCompanyMemberus-gaap:OrderOrProductionBacklogMember2018-05-150001718227road:ScruggsCompanyMemberus-gaap:CustomerRelationshipsMember2018-05-150001718227us-gaap:OrderOrProductionBacklogMember2018-10-012019-09-300001718227road:ScruggsCompanyMemberus-gaap:OrderOrProductionBacklogMember2018-05-152018-05-150001718227us-gaap:CustomerRelationshipsMember2018-10-012019-09-300001718227road:ScruggsCompanyMemberus-gaap:CustomerRelationshipsMember2018-05-152018-05-150001718227road:ScruggsCompanyMember2017-10-012018-09-300001718227road:ScruggsCompanyMemberus-gaap:SeniorNotesMember2018-05-150001718227road:AlabamaAcquisitionMember2019-07-122019-07-120001718227road:AlabamaAcquisitionMember2019-07-120001718227road:FloridaAcquisitionMember2019-02-282019-02-280001718227road:FloridaAcquisitionMember2019-02-2800017182272019-10-012019-09-3000017182272020-10-012019-09-300001718227us-gaap:EquipmentMember2019-09-300001718227us-gaap:EquipmentMember2018-09-300001718227us-gaap:ManufacturingFacilityMember2019-09-300001718227us-gaap:ManufacturingFacilityMember2018-09-300001718227us-gaap:LandAndLandImprovementsMember2019-09-300001718227us-gaap:LandAndLandImprovementsMember2018-09-300001718227road:QuarryReservesMember2019-09-300001718227road:QuarryReservesMember2018-09-300001718227us-gaap:BuildingMember2019-09-300001718227us-gaap:BuildingMember2018-09-300001718227us-gaap:FurnitureAndFixturesMember2019-09-300001718227us-gaap:FurnitureAndFixturesMember2018-09-300001718227us-gaap:LeaseholdImprovementsMember2019-09-300001718227us-gaap:LeaseholdImprovementsMember2018-09-300001718227road:AsphaltTerminalMember2019-02-282019-02-280001718227us-gaap:CustomerRelationshipsMember2019-09-300001718227us-gaap:CustomerRelationshipsMember2018-09-300001718227srt:MinimumMemberus-gaap:OrderOrProductionBacklogMember2018-10-012019-09-300001718227srt:MaximumMemberus-gaap:OrderOrProductionBacklogMember2018-10-012019-09-300001718227us-gaap:OrderOrProductionBacklogMember2019-09-300001718227us-gaap:OrderOrProductionBacklogMember2018-09-300001718227us-gaap:NoncompeteAgreementsMember2018-10-012019-09-300001718227us-gaap:NoncompeteAgreementsMember2019-09-300001718227us-gaap:NoncompeteAgreementsMember2018-09-300001718227us-gaap:SeniorNotesMemberroad:BBVACreditAgreementMember2019-09-300001718227us-gaap:SeniorNotesMemberroad:BBVACreditAgreementMember2018-09-300001718227us-gaap:LineOfCreditMemberroad:BBVACreditAgreementMember2019-09-300001718227us-gaap:LineOfCreditMemberroad:BBVACreditAgreementMember2018-09-300001718227us-gaap:OtherDebtSecuritiesMember2019-09-300001718227us-gaap:OtherDebtSecuritiesMember2018-09-300001718227us-gaap:LondonInterbankOfferedRateLIBORMemberroad:BBVACreditAgreementMember2019-08-012019-08-310001718227srt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMemberroad:BBVACreditAgreementMember2019-08-012019-08-310001718227road:BBVACreditAgreementMember2019-08-310001718227srt:MinimumMemberroad:BBVACreditAgreementMember2019-07-310001718227srt:MaximumMemberroad:BBVACreditAgreementMember2019-07-310001718227srt:MinimumMemberroad:BBVACreditAgreementMember2019-09-300001718227srt:MaximumMemberroad:BBVACreditAgreementMember2018-09-300001718227road:BBVACreditAgreementMember2019-07-310001718227road:BBVACreditAgreementMember2019-08-012019-08-310001718227road:BBVACreditAgreementMember2019-01-012019-07-310001718227road:BBVACreditAgreementMember2019-09-300001718227road:BBVACreditAgreementMember2018-09-300001718227us-gaap:InterestRateSwapMember2017-06-300001718227us-gaap:InterestRateSwapMember2018-05-150001718227us-gaap:SeniorNotesMemberroad:BBVACreditAgreementMember2018-05-150001718227us-gaap:SeniorNotesMemberus-gaap:InterestRateSwapMember2019-09-300001718227us-gaap:SeniorNotesMemberus-gaap:InterestRateSwapMember2018-09-30road:note0001718227road:ScruggsCompanyMember2018-05-152018-05-150001718227road:ScruggsCompanyMembersrt:MinimumMember2018-05-150001718227road:ScruggsCompanyMembersrt:MaximumMember2018-05-150001718227us-gaap:CommonClassBMember2018-04-232018-04-230001718227us-gaap:CommonClassBMemberus-gaap:TreasuryStockMember2018-04-232018-04-2300017182272018-05-080001718227us-gaap:CommonClassAMemberus-gaap:IPOMember2018-05-080001718227us-gaap:CommonClassAMember2018-05-080001718227us-gaap:CommonClassBMember2018-05-082018-05-080001718227us-gaap:CommonClassAMember2018-05-082018-05-080001718227us-gaap:CommonClassAMemberus-gaap:IPOMember2018-05-242018-05-240001718227us-gaap:CommonClassAMemberus-gaap:IPOMember2018-05-240001718227us-gaap:CommonClassAMember2018-05-242018-05-240001718227us-gaap:CommonClassBMemberroad:TwoThousandTenNonPlanStockOptionsAgreementOptionsMember2017-10-012018-09-300001718227us-gaap:CommonClassBMemberroad:TwoThousandTenNonPlanStockOptionsAgreementOptionsMember2018-10-012019-09-300001718227us-gaap:CommonClassAMemberroad:TwoThousandAndEighteenEquityIncentivePlanMember2018-10-012019-09-300001718227us-gaap:CommonClassBMemberroad:TwoThousandAndEighteenEquityIncentivePlanMember2018-10-012019-09-300001718227us-gaap:CommonClassBMemberroad:TwoThousandAndEighteenEquityIncentivePlanMember2018-09-300001718227srt:DirectorMember2019-05-242019-05-240001718227us-gaap:OverAllotmentOptionMemberus-gaap:CommonClassAMember2019-09-012019-09-300001718227us-gaap:CommonClassAMember2019-09-012019-09-300001718227us-gaap:EmployeeStockOptionMember2018-10-012019-09-300001718227us-gaap:EmployeeStockOptionMember2017-10-012018-09-300001718227us-gaap:RestrictedStockMember2018-10-012019-09-300001718227us-gaap:RestrictedStockMember2017-10-012018-09-300001718227us-gaap:RestrictedStockMember2018-02-232018-02-230001718227us-gaap:RestrictedStockMember2019-09-300001718227us-gaap:RestrictedStockMember2018-09-300001718227us-gaap:CommonClassAMemberus-gaap:RestrictedStockMember2018-10-012019-09-300001718227us-gaap:CommonClassAMemberus-gaap:RestrictedStockMember2019-09-300001718227us-gaap:CommonClassBMember2018-06-012018-06-300001718227us-gaap:CommonClassBMember2018-06-300001718227us-gaap:CommonClassBMember2019-08-012019-08-310001718227us-gaap:CommonClassAMember2018-06-012018-06-300001718227us-gaap:StateAndLocalJurisdictionMember2019-09-300001718227us-gaap:StateAndLocalJurisdictionMember2018-09-300001718227road:ConsiderationNoteReceivableMember2017-12-310001718227us-gaap:OtherCurrentAssetsMemberroad:ConsiderationNoteReceivableMember2019-09-300001718227us-gaap:OtherNoncurrentAssetsMemberroad:ConsiderationNoteReceivableMember2019-09-300001718227road:AccountsPayableNoteReceivableMember2017-12-310001718227road:AccountsPayableNoteReceivableMemberus-gaap:OtherCurrentAssetsMember2019-09-300001718227road:AccountsPayableNoteReceivableMemberus-gaap:OtherNoncurrentAssetsMember2019-09-300001718227srt:AffiliatedEntityMemberroad:HKLtd.Member2019-06-012019-06-300001718227road:HAPropertiesLLCMembersrt:AffiliatedEntityMember2018-09-012018-09-300001718227srt:AffiliatedEntityMemberroad:SunTxCapitalPartnersMember2018-10-012018-12-310001718227road:PurchaserOfSubsidiaryMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:PurchaserOfSubsidiaryMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:PurchaserOfSubsidiaryMembersrt:AffiliatedEntityMember2019-09-300001718227road:PurchaserOfSubsidiaryMembersrt:AffiliatedEntityMember2018-09-300001718227road:DisposedEntitMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:DisposedEntitMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:DisposedEntitMembersrt:AffiliatedEntityMember2019-09-300001718227road:DisposedEntitMembersrt:AffiliatedEntityMember2018-09-300001718227road:LandDevelopmentProjectMembersrt:AffiliatedEntityMember2019-09-300001718227road:LandDevelopmentProjectMembersrt:AffiliatedEntityMember2018-09-300001718227road:SubcontractingServicesMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:SubcontractingServicesMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:SubcontractingServicesMembersrt:AffiliatedEntityMember2019-09-300001718227road:SubcontractingServicesMembersrt:AffiliatedEntityMember2018-09-300001718227road:ConstructionServicesMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:ConstructionServicesMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:ConstructionServicesMembersrt:AffiliatedEntityMember2019-09-300001718227road:ConstructionServicesMembersrt:AffiliatedEntityMember2018-09-300001718227road:IslandPondCorporateServicesLLCMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:IslandPondCorporateServicesLLCMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:IslandPondCorporateServicesLLCMembersrt:AffiliatedEntityMember2019-09-300001718227road:IslandPondCorporateServicesLLCMembersrt:AffiliatedEntityMember2018-09-300001718227us-gaap:VehiclesMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227us-gaap:VehiclesMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227us-gaap:VehiclesMembersrt:AffiliatedEntityMember2019-09-300001718227us-gaap:VehiclesMembersrt:AffiliatedEntityMember2018-09-300001718227road:ConsultingServicesMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:ConsultingServicesMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:ConsultingServicesMembersrt:AffiliatedEntityMember2019-09-300001718227road:ConsultingServicesMembersrt:AffiliatedEntityMember2018-09-300001718227road:LegalServiceMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:LegalServiceMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:LegalServiceMembersrt:AffiliatedEntityMember2019-09-300001718227road:LegalServiceMembersrt:AffiliatedEntityMember2018-09-300001718227srt:AffiliatedEntityMemberroad:HKLtd.Member2018-10-012019-09-300001718227srt:AffiliatedEntityMemberroad:HKLtd.Member2017-10-012018-09-300001718227srt:AffiliatedEntityMemberroad:HKLtd.Member2019-09-300001718227srt:AffiliatedEntityMemberroad:HKLtd.Member2018-09-300001718227road:HAPropertiesLLCMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:HAPropertiesLLCMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:HAPropertiesLLCMembersrt:AffiliatedEntityMember2019-09-300001718227road:HAPropertiesLLCMembersrt:AffiliatedEntityMember2018-09-300001718227road:SunTxManagementServicesAgreementMembersrt:AffiliatedEntityMember2018-10-012019-09-300001718227road:SunTxManagementServicesAgreementMembersrt:AffiliatedEntityMember2017-10-012018-09-300001718227road:SunTxManagementServicesAgreementMembersrt:AffiliatedEntityMember2019-09-300001718227road:SunTxManagementServicesAgreementMembersrt:AffiliatedEntityMember2018-09-300001718227us-gaap:SubsequentEventMember2019-10-012019-12-130001718227us-gaap:LineOfCreditMember2019-09-300001718227us-gaap:LineOfCreditMember2018-09-3000017182272017-11-300001718227road:SettlementAgreementMember2018-04-19road:installment0001718227road:SettlementAgreementMember2017-10-012018-09-300001718227road:SettlementAgreementMember2018-10-012019-09-300001718227road:SettlementAgreementMember2019-09-300001718227road:ConstructionPartnersIncMember2019-09-300001718227road:ConstructionPartnersIncMember2018-09-300001718227us-gaap:CommonClassAMemberroad:ConstructionPartnersIncMember2019-09-300001718227us-gaap:CommonClassAMemberroad:ConstructionPartnersIncMember2018-09-300001718227us-gaap:CommonClassBMemberroad:ConstructionPartnersIncMember2019-09-300001718227us-gaap:CommonClassBMemberroad:ConstructionPartnersIncMember2018-09-300001718227road:ConstructionPartnersIncMember2018-10-012019-09-300001718227road:ConstructionPartnersIncMember2017-10-012018-09-300001718227road:ConstructionPartnersIncMember2017-09-300001718227us-gaap:SubsequentEventMemberroad:BBVACreditAgreementMember2019-10-010001718227us-gaap:SubsequentEventMemberus-gaap:LineOfCreditMemberroad:BBVACreditAgreementMember2019-10-010001718227us-gaap:SubsequentEventMemberus-gaap:SeniorNotesMemberus-gaap:InterestRateSwapMemberroad:BBVACreditAgreementMember2019-10-010001718227us-gaap:SubsequentEventMemberroad:BBVACreditAgreementMember2019-10-182019-10-180001718227us-gaap:SubsequentEventMemberroad:HMAManufacturingPlantAndPavingCompanyMember2019-10-012019-10-010001718227us-gaap:SubsequentEventMemberroad:HMAManufacturingPlantAndPavingCompanyMember2019-10-010001718227us-gaap:OverAllotmentOptionMemberus-gaap:CommonClassAMemberus-gaap:SubsequentEventMember2019-10-212019-10-210001718227us-gaap:CommonClassAMemberus-gaap:SubsequentEventMember2019-10-21
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission file number:  001-38479
CONSTRUCTION PARTNERS, INC.
(Exact name of registrant as specified in its charter) 
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
26-0758017
(I.R.S. Employer Identification Number)
290 Healthwest Drive, Suite 2
Dothan, Alabama 36303
(Address of Principal Executive Offices) (ZIP Code)
(334) 673-9763
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A common stock, par value $0.001ROADThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
 
Securities registered pursuant to Section 12(g) of the Act: None.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   
 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  No ☒




The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on March 29, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $152,136,672.00.
As of December 11, 2019, the registrant had 32,705,418 shares of Class A common stock, par value $0.001, and 19,076,327 shares of Class B common stock, par value $0.001, outstanding. 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the registrant’s fiscal year ended September 30, 2019 in connection with the registrant’s 2020 annual meeting of stockholders are incorporated by reference into Part III of this report.




Table of Contents
TABLE OF CONTENTS
PART I
PART II
PART III
PART IV



Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “target,” “intend,” “could,” “might,” “should,” “believe,” “outlook” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described below under the heading “Risk Factors.” We believe that the expectations reflected in the forward-looking statements contained in this report are reasonable, but no assurance can be given that these expectations will prove to be correct. Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:
declines in public infrastructure construction and reductions in government funding, including the funding by transportation authorities and other state and local agencies;
risks related to our operating strategy;
competition for projects in our local markets;
risks associated with our capital-intensive business;
government inquiries, requirements and initiatives, including those related to funding for public infrastructure construction, land usage, environmental, health and safety matters, and governmental contracting requirements and other laws and regulations;
unfavorable economic conditions and restrictive financing markets;
our ability to successfully identify, manage and integrate acquisitions;
our ability to obtain sufficient bonding capacity to undertake certain projects;
our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
the cancellation of a significant number of contracts or our disqualification from bidding for new contracts;
risks related to adverse weather conditions;
our substantial indebtedness and the restrictions imposed on us by the terms thereof;
our ability to maintain favorable relationships with third parties that supply us with equipment and essential supplies;
our ability to retain key personnel and maintain satisfactory labor relations;
property damage and other claims and insurance coverage issues;
the outcome of litigation or disputes, including employment-related, workers’ compensation and breach of contract claims;
risks related to our information technology systems and infrastructure, including cybersecurity incidents; and
our ability to maintain effective internal control over financial reporting.
These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Risk Factors.” All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by law.
1

Table of Contents
PART I
Item 1. Business
Overview
We are a leading infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina. Through our wholly owned subsidiaries, we provide a variety of products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports, and commercial and residential developments. 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 and gravel, 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.
The Company 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.
As used in this report, the terms “Company,” “we” 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. 
2019 Fiscal Year Developments
Acquisitions of Asphalt Manufacturing and Paving Companies. In February 2019, we acquired an HMA and ready-mixed concrete business located in Okeechobee, Florida. This transaction allowed us to serve new markets in south central Florida through an expanded geographic presence in the state. In July 2019, we acquired an HMA manufacturing plant and paving company located near Gadsden, Alabama that complemented our existing operations in northeast Alabama.
Acquisition and Operation of Liquid Asphalt Terminal. In February 2019, we acquired a liquid asphalt terminal located in Panama City, Florida. The acquisition supports our vertical integration strategy by facilitating our procurement, storage and distribution of a key input for the production of HMA. Through the terminal, we supply liquid asphalt to a number of our HMA plants in the southern portion of our geographic footprint, including Florida, Alabama and Georgia. We also are able to blend on-site certain emulsions and polymer-modified asphalt required by some of our project contracts. To date, sales of liquid asphalt to third parties have not been material.
Amendment to Credit Agreement. In August 2019, we entered into an amendment to our existing Credit Agreement with BBVA USA (formerly known as Compass Bank) dated June 30, 2017, as amended (the “BBVA Credit Agreement”). Among other things, the amendment: (i) reduced the baseline interest rate payable on both the term loan and the revolving facility components of the credit relationship; (ii) established a four-tier escalating interest rate tied to our leverage ratio; (iii) reduced the fees for letters of credit issued on our behalf and for unused balances on our revolving credit facility; (iv) reduced by half the quarterly principal repayments under the term loan; and (v) amended certain financial covenants. No additional borrowings were made under the BBVA Credit Agreement in connection with the amendment. For more information about the BBVA Credit Agreement and the amendment, see Note 11 - Debt to our consolidated financial statements included elsewhere in this report.
Secondary Offering of Class A Common Stock. In September 2019, certain stockholders of the Company (the “Selling Stockholders”) completed an underwritten secondary offering (the “Secondary Offering”) of 5,000,000 shares of our Class A common stock at a public offering price of $14.25 per share. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders and, pursuant to a registration rights agreement with the Selling Stockholders, incurred approximately $0.7 million in expenses in connection with the Secondary Offering. For more information about the Secondary Offering, see Note 12 - Equity to our consolidated financial statements included elsewhere in this report.
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. 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. The federal Fixing America’s Surface Transportation Act (the “FAST Act”), which was signed into law in 2015, provides long-term funding for surface transportation infrastructure planning and investment. Among other things, the FAST Act authorized $305 billion in federal expenditures over fiscal years 2016 through 2020 for highway, motor vehicle safety, public transportation, motor carrier safety, hazardous materials safety, rail, and research, technology, and statistics programs. In addition to the FAST Act, certain states within our markets have in recent years approved legislation that will increase funding of transportation
2

Table of Contents
construction for local road, bridge and transit projects. The non-discretionary nature of highway and road construction services and materials supports stable and consistent industry growth.
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. 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 69.3% and 30.7% of our fiscal 2019 construction contract revenues, respectively. Our public customers include federal agencies, state DOTs and local municipalities. Our private clients include commercial and residential developers and local businesses.
Our largest customers are state DOTs. For the fiscal year ended September 30, 2019, the Alabama DOT and the North Carolina DOT accounted for 13.8% and 13.1% of our revenues, respectively. Other than these customers, no other customer accounted for more than 10% of our revenues for such periods, and projects performed for all DOTs accounted for 40.4% of our revenues. Our 25 largest projects accounted for 22.5% of our revenues for the fiscal year ended September 30, 2019.
Types of Contracts
Our public customer contracts are primarily fixed unit price contracts. Pricing on a fixed unit price contract is typically based on approved quantities. 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. We also occasionally enter into design-build contracts, which generally are performed under fixed total price contracts. For the majority of our customer contracts, we receive our final payment upon completion and final acceptance of the services that we were contracted to perform and delivery of the necessary contract closing documents, and our obligations to the owner are complete at that point. For some contracts, we are required to furnish a warranty on our construction. These warranties, when required, are usually one year in length, but can extend up to three years according to the owners’ specifications. Historically, warranty claims have not been material to our business. 
Contract Management
We identify potential contracts through a variety of sources, including: (i) subscriber services that consolidate and alert us to contracts open for bidding; (ii) posted solicitations by federal, state and local governmental entities through agency websites, disclosure of long-term infrastructure plans or advertising and other general solicitations; (iii) our business development efforts; and (iv) communications with other participants in our industry. We consider several factors that can create variability in contract performance and our financial results compared to our bid assumptions and methodologies on a contract. As a result, after determining the potential contracts that are available, we decide which contracts to pursue based on a non-exclusive list of factors, which include relevant skills required by the contract, the contract size and duration, availability of our personnel and equipment, size and makeup of our current contract backlog, our competitive advantages and disadvantages, our prior experience, the contracting agency or customer, the source of contract funding, the geographic location, the likely competition, the construction risks, the gross margin opportunities, the penalties or incentives and the type of contract.
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.
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. Substantially all of our estimates are made on a per-unit basis for each bid item, with the typical contract containing 50 to 200 bid items.
Phase Three: Management conducts a detailed review of the estimate. This review includes an analysis of assumptions regarding (i) cost, approach, means and methods of completing the project, (ii) staffing and productivity and (iii) risk. After concluding this detailed review of the cost estimate, management determines the appropriate profit margin to calculate the total bid amount. 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.
To ensure that subcontracting costs used in submitting bids for construction contracts do not change, we obtain firm quotations from our subcontractors before submitting a bid. Also, to mitigate the risk of material price changes, we obtain “not to exceed” quotations
3

Table of Contents
from our suppliers, which, for projects of longer duration, usually contain price escalator provisions. 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.
After a contract has been awarded and during the construction phase, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the project schedule. Monthly, we review our estimate of total forecasted revenue, cost and expected profit for each contract.
During the normal course of some projects, we or our customer may initiate modifications or changes to the original contract to reflect, among other things, changes in quantities, specifications or design, method or manner of performance, facilities, materials, site conditions and period for completion of the work. Generally, the scope and price of these modifications are documented in a “change order” to the original contract and reviewed, approved and paid for in accordance with the normal change order provisions of the contract. Occasionally, we are asked to perform extra or change order work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original contract plans and specifications or, even if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. These disputes may not be settled to our satisfaction. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for an extended period of time until the change order is approved and funded by the customer. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other work on the contract (or on other contracts) and our ability to meet contract milestone dates. Historically, we have been successful at managing the impacts caused by change orders, and change orders have not had a material adverse effect on our business.
Most of our contracts with governmental agencies provide for termination at the convenience of the customer, with requirements to pay us for work performed through the date of termination. The termination of a government contract for the convenience of the customer is an extremely rare occurrence. Many of our contracts contain provisions that require us to pay liquidated damages if specified completion schedule requirements are not met. Historically, we have not been materially adversely affected by liquidated damages provisions.
We act as prime contractor on most of our construction projects. As prime contractor, we are responsible for the performance of the entire contract, including subcontract work. To manage the risk of non-performance by our subcontractors, we typically require the subcontractor to furnish a bond or other type of security to guarantee its performance and/or we retain payments in accordance with contract terms until their performance is complete. 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, 2019, our contract backlog was $531.6 million, compared to $594.4 million at September 30, 2018. Contract backlog is a financial measure that generally reflects the dollar value of work that the Company expects to perform in the future. Although contract backlog is not a term recognized under generally accepted accounting principles in the United States (“GAAP”), it is a common measure used in our industry. We generally include a construction project in our contract backlog at the time it is awarded and to the extent we believe funding is probable. Our backlog consists of uncompleted work on contracts in progress and contracts for which we have executed a contract but have not commenced the work. For uncompleted work on contracts in progress, we include (i) executed change orders, (ii) pending change orders for which we expect to receive confirmation in the ordinary course of business and (iii) claims that we have made against our customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider collection to be probable. Backlog of uncompleted work on contracts in progress was $481.1 million and $528.4 million at September 30, 2019 and 2018, respectively.
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. Low bid/no contract backlog was $50.5 million and $66.0 million at September 30, 2019 and 2018, respectively. At September 30, 2019, we expect approximately 82% of our contract backlog will be completed during the next 12 months.
Certain customer contracts contain options that are exercisable at the discretion of our customer to award additional work to us, without requiring us to go through an additional competitive bidding process. In addition, some customer contracts also contain task orders that are signed under master contracts pursuant to which we perform work only when the customer awards specific task orders to us. 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.
Substantially all of the contracts in our contract backlog, as well as unexercised contract options and unissued task orders, may be canceled or modified at the election of the customer. Historically, we have not experienced material amounts of contract cancellations
4

Table of Contents
or modifications. 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.
Insurance and Bonding
We maintain general and excess liability, property, workers’ compensation and medical insurance, all in amounts consistent with industry practice.
In the ordinary course of our business, we are required to provide various types of surety bonds that provide an additional measure of security to the customer for our performance under certain public and private sector contracts. Our ability to obtain surety bonds depends on our capitalization, working capital, past performance, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our contract backlog that we have bonded and their underwriting standards. The capacity of the surety market is subject to market-based fluctuations driven primarily by the level of surety industry losses and the degree of surety market consolidation.
Competition
We compete against multiple competitors in all of the markets in which we operate. Competition is constrained in our industry because participants are limited by the distance that materials can be efficiently transported, resulting in a fragmented market with thousands of participants nationwide, many of which are local or regional operators. Our competitors typically range from small, family-owned companies focused on a single material, product or market to multinational corporations that offer a wide array of construction materials, products and paving and related services. We believe that we are well-positioned to compete effectively in the markets in which we operate.
Seasonality
The activity of our business fluctuates due to seasonality because our business is primarily conducted outdoors. 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. 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. 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.
Sources and Availability of Raw Materials
We purchase raw materials, including, but not limited to, diesel fuel, liquid asphalt, other petroleum-based resources, sand and rock from numerous sources. With few exceptions, we do not enter into long-term agreements to purchase raw materials. We receive quotes from suppliers, most with a “not to exceed” price for the quoted product over the life of a project. In the HMA production process, components of a mix include virgin aggregates, such as sand and rock, liquid asphalt, and reclaimed asphalt pavement (“RAP”). 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’ rock quarries, thereby reducing the hauling cost of material to our plant. The price and availability of raw materials may vary from year to year due to market conditions and production capacities. We do not expect a lack of availability of any raw materials over the next 12 months.
Government and Environmental Regulations
Our operations are subject to stringent and complex federal, state and local laws and regulations governing the environmental, health and safety aspects of our operations or otherwise relating to environmental protection. 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.
5

Table of Contents
Such 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. Numerous governmental authorities, such as the Environmental Protection Agency and corresponding state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them. Such enforcement actions often involve difficult and costly compliance measures or corrective actions. 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. In addition, we may experience delays in obtaining, or be unable to obtain, required permits, which may delay or interrupt our operations and limit our growth and revenue.
Certain environmental laws impose strict liability (i.e., no showing of “fault” is required) as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. We may be required to remediate contaminated properties currently or formerly owned or operated by us, regardless of whether such contamination resulted from the conduct of others or from the consequences of our own actions that complied with applicable laws at the time those actions were taken. In connection with certain acquisitions, we could assume, or be required to provide indemnification against, environmental liabilities that could expose us to material losses. Furthermore, the existence of contamination at properties we own, lease or operate could result in increased operational costs or restrictions on our ability to use those properties as intended, including for mining purposes.
In certain instances, citizen groups also have the ability to bring legal proceedings against us if we are not in compliance with environmental laws, or to challenge our ability to receive environmental permits that we need to operate. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the construction industry could continue, resulting in increased costs of doing business and consequently affecting profitability.
We have incurred, and may in the future incur, significant capital and operating expenditures to comply with such laws and regulations. To the extent that laws are enacted or other governmental action is taken that restricts our operations or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, our business, prospects, financial condition or results of operations could be materially adversely affected.
We regularly monitor and review our operations, procedures, and policies for compliance with our operating permits and related laws and regulations. We believe that our operations and facilities, whether owned or leased, are in substantial compliance with applicable environmental laws and regulations and that any existing non-compliance is not likely to have a material adverse effect on our operations or financial condition.
Industrial operations, including equipment maintenance and storage, asphalt manufacturing and processing, underground storage tank usage, and other storage and use of hazardous materials and petroleum products, have been and/or are conducted at our facilities for, in some cases, more than 50 years. While we have conducted our operations in substantial compliance with applicable environmental laws, we have, from time to time, identified contamination associated with these activities at certain of our facilities. We have incurred costs for the investigation and remediation of hazardous substances and petroleum products identified at several facilities, and investigation and remediation activities are ongoing at others. 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. 
Employees
As of September 30, 2019, we employed 628 salaried employees and 1,661 hourly employees. The total number of hourly personnel is subject to the volume of projects in progress and fluctuates on a seasonal basis. During fiscal year 2019, the number of hourly employees ranged from 1,483 to 1,661 employees and averaged 1,558 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 is dependent upon 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. 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. Our crews typically specialize in a specific phase of construction, such as grading or paving, with each crew member assigned to a specific task in order to maximize daily production. A core tenet of our organizational philosophy is to promote from within and offer advancement opportunities at all levels of employment, which helps us retain talented employees. Moreover, we proactively recruit additional talent in both conventional and creative manners to fill open positions when promoting internally is not an option. Like others in our industry, we experience some
6

Table of Contents
recurring employee turnover; however, we historically have been able to attract sufficient numbers of personnel to support the growth of our operations. Nonetheless, we continue to face competition for experienced workers in all of our markets. 
We place a great emphasis on the safety of the public, our customers and our employees. To that end, we conduct extensive safety training programs, which have allowed us to maintain a high safety level at our worksites. All newly-hired employees undergo an initial safety orientation, and for certain types of projects and processes, we conduct specific hazard training programs. Our project foremen and superintendents conduct on-site safety meetings, and our full-time safety inspectors make random site safety inspections and perform assessments. In addition, certain operational employees are required to complete a safety course approved by the Occupational Safety and Health Administration (“OSHA”) or the Mine Safety and Health Administration (“MSHA”), as applicable. Moreover, we promote a culture of safety by encouraging employees to immediately correct and report all unsafe conditions. 
Website Information
The Company maintains a website at www.constructionpartners.net. Certain corporate governance information, filings with the Securities and Exchange Commission (the “SEC”) and other information of potential interest to our stockholders are available free of charge through the “Investors” page of the Company’s website. These include, for example, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These documents are made available as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Information on, or accessible through, the Company’s website is not part of or incorporated into this Annual Report on Form 10-K. We have included the website address only as an inactive textual reference and do not intend for it to be an active link to the website. We will provide electronic or paper copies of our periodic and current reports to stockholders free of charge upon written request to: Construction Partners, Inc., Attention: Corporate Secretary, 290 Healthwest Drive, Suite 2, Dothan, Alabama 36303.

Item 1A. Risk Factors.
An investment in our Class A common stock involves risks. You should carefully read and consider the following risks, as well as all of the other information contained in this report, before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. As a result, the trading price of our Class A common stock could decline, and you could lose all or part of your investment. The risks described below are not the only ones facing us. Additional risks not presently known to us or that we currently consider immaterial also may adversely affect us.
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. A significant slowdown or decline in economic conditions or uncertainty regarding the economic outlook in the United States generally, or in any of these states particularly, could result in reduced demand for infrastructure projects, which could materially adversely affect our financial condition, results of operations and liquidity. Demand for infrastructure projects depends on the overall condition of the national and local economies, the need for new or replacement infrastructure, the priorities placed on various projects funded by governmental entities and federal, state and local government spending levels. 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. For example, during the most recent recession, decreases in tax revenues reduced funding for infrastructure projects. 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/or could create difficulties for customers to obtain adequate financing to fund new construction projects, including through the issuance of municipal bonds.
Our business is dependent on federal, state and local government spending for public infrastructure construction, and reductions in government funding could adversely affect our results of operations.
During the fiscal year ended September 30, 2019, we generated approximately 69.3% of our construction contract revenues from publicly funded construction projects at the federal, state and local levels. As a result, if publicly funded construction decreases due to reduced federal, state or local funding or otherwise, our financial condition, results of operations and liquidity could be materially adversely affected.
Federal highway bills provide spending authorizations that represent maximum amounts. Each year, Congress passes an appropriation act establishing the amount that can be used for particular programs. The annual funding level is generally tied to receipts of highway user taxes placed in the Highway Trust Fund (as defined in the FAST Act). Once Congress passes the annual appropriation, the federal government distributes funds to each state based on formulas or other procedures. States generally must spend these funds on the
7

Table of Contents
specific programs outlined in the federal legislation. In recent years, the Highway Trust Fund has faced insolvency as outlays have outpaced revenues. Annual shortfalls have been addressed primarily by short-term measures, including the transfer of funds from the General Fund (as defined in the FAST Act) into the Highway Trust Fund. As a result, we cannot be assured of the existence, timing or amount of future federal highway funding. Any reduction in federal highway funding, particularly in the amounts allocated to Alabama, Florida, Georgia, North Carolina and South Carolina, could have a material adverse effect on our results of operations.
Each state funds its infrastructure spending from specially allocated amounts collected from various 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 on state infrastructure projects. Delays in state infrastructure spending can adversely affect our business. Many states have experienced state-level funding pressures caused by lower tax revenues and an inability to finance approved projects. Prior to the FAST Act, states took on a larger role in funding sustained infrastructure investment. Recently, many states have again taken on a significantly larger role in funding infrastructure investment, including initiating special-purpose taxes and increased fuel taxes.
While the current administration has announced an infrastructure stimulus plan, we cannot predict the impact, if any, that it or other proposed changes in law and regulations may have on our business.
We derive a significant portion of our revenues from state DOTs. The loss of our ability to competitively bid for certain projects or successfully contract with state DOTs could have a material adverse effect on our business.
Our largest customers are state DOTs. During the fiscal year ended September 30, 2019, the Alabama DOT and the North Carolina DOT accounted for 13.8% and 13.1% of our revenues, respectively, and projects performed for all DOTs accounted for 40.4% of revenues. We believe that we will continue to rely on state DOTs for a substantial portion of our revenues for the foreseeable future. The loss or reduction of our ability to competitively bid for certain projects or successfully contract with a state DOT could have a material adverse effect on our financial condition, results of operation and liquidity. See Note 2 - Significant Accounting Policies, Concentration of Risks, to the consolidated financial statements for the fiscal year ended September 30, 2019 included elsewhere in this report, for information relating to concentrations of revenues by type of customer and for a description of our largest customers.
Government contracts generally are subject to a variety of governmental regulations, requirements and statutes, the violation or alleged violation of which could have a material adverse effect on our business.
During the fiscal year ended September 30, 2019, approximately 69.3% of our construction contract revenues were derived from contracts funded by federal, state and local governmental agencies. Our contracts with these governmental agencies are generally subject to specific procurement regulations, contract provisions and a variety of socioeconomic requirements relating to their formation, administration, performance and accounting and often include express or implied certifications of compliance. Further, government contracts typically provide for termination at the convenience of the customer with requirements to pay us for work performed through the date of termination. We may be subject to claims for civil or criminal fraud for actual or alleged violations of these various governmental regulations, requirements or statutes. In addition, we may also be subject to qui tam litigation brought by private individuals on behalf of the government under the federal False Claims Act, which could include claims for treble damages. Further, if we fail to comply with any of these various governmental regulations, requirements or statutes, or if we have a substantial number of accumulated OSHA, MSHA or other workplace safety violations, our existing government contracts could be terminated, and we could be suspended from government contracting or subcontracting, including federally funded projects at the state level. Even if we have not violated these various governmental regulations, requirements or statutes, allegations of violations or defending qui tam litigation could harm our reputation and require us to incur material costs to defend any such allegations or lawsuits. Should one or more of these events occur, it could have a material adverse effect on our financial condition, results of operations, cash flow and liquidity.
If we do not comply with certain federal or state laws, we could be suspended or debarred from government contracting, which could have a material adverse effect on our business.
Various laws to which our operations are subject, including the Davis-Bacon Act (regulating wages and benefits), the Walsh-Healy Public Contracts Act (prescribing a minimum wage and regulating overtime and working conditions), Executive Order 11246 (establishing equal employment opportunity and affirmative action requirements) and the Drug-Free Workplace Act, provide for mandatory suspension and/or debarment of contractors in certain circumstances involving statutory violations. In addition, the Federal Acquisition Regulation and various state statutes provide for discretionary suspension and/or debarment in certain circumstances, including as a result of being convicted of, or being found civilly liable for, fraud or a criminal offense in connection with obtaining, attempting to obtain or performing a public contract or subcontract. The scope and duration of any suspension or debarment may vary depending upon the facts of a particular case and the statutory or regulatory grounds for debarment. Any suspension or debarment from government contracting could have a material adverse effect on our financial condition, results of operations or liquidity.
8

Table of Contents
If we are unable to accurately estimate the overall risks, revenues or costs on our projects, we may incur contract losses or achieve lower profits than anticipated.
Pricing on a fixed unit price contract is based on approved quantities irrespective of our actual costs, and contracts with a fixed total price require that the work be performed for a single price irrespective of our actual costs. We only generate profits on fixed unit price and fixed total price contracts when our revenues exceed our actual costs, which requires us to accurately estimate our costs, to control actual costs and to avoid cost overruns. If our cost estimates are too low or if we do not perform the contract within our cost estimates, then cost overruns may cause us to incur a loss or cause the contract not to be as profitable as we expected. The costs incurred and profit realized, if any, on our contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:
the failure to include materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a fixed total price contract;
delays caused by weather conditions or otherwise failing to meet scheduled acceptance dates;
contract or project modifications or conditions creating unanticipated costs that are not covered by change orders;
changes in the availability, proximity and costs of materials, including liquid asphalt cement, aggregates and other construction materials, as well as fuel and lubricants for our equipment;
to the extent not covered by contractual cost escalators, variability in, and our inability to predict, the costs of diesel fuel, liquid asphalt and cement;
the availability and skill level of workers;
the failure by our suppliers, subcontractors, designers, engineers or customers to perform their obligations;
fraud, theft or other improper activities by our suppliers, subcontractors, designers, engineers, customers or our own personnel;
mechanical problems with our machinery or equipment;
citations issued by a government authority, including OSHA or MSHA citations;
difficulties in obtaining required government permits or approvals;
changes in applicable laws and regulations;
uninsured claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part; and
public infrastructure customers seeking to impose contractual risk-shifting provisions that result in increased risks to us.
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.
Because our industry is capital-intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes in volume.
The property, plants and equipment needed to produce our products and provide our services can be very expensive. We must spend a substantial amount of capital to purchase and maintain such property, plants and equipment. Although we believe our current cash balance, along with our projected internal cash flows and available financing sources, will provide sufficient cash to support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to purchase and maintain the property, plants and equipment necessary to operate our business, we may be required to reduce or delay planned capital expenditures or to incur additional indebtedness. In addition, due to the level of fixed and semi-fixed costs associated with our business, particularly at our HMA production facilities, volume decreases could have a material adverse effect on our financial condition, results of operations or liquidity.
9

Table of Contents
The cancellation of a significant number of contracts, our disqualification from bidding for new contracts and the unpredictable timing of new contracts could have a material adverse effect on our business.
We could be prohibited from bidding on certain government contracts if we fail to maintain qualifications required by those entities. In addition, government contracts typically can be canceled at any time, with us receiving payment only for the work completed. The cancellation of an unfinished contract, or our disqualification from the bidding process, could result in lost revenues and cause our equipment to be idled for a significant period of time until other comparable work becomes available. In addition, the timing of project awards is unpredictable and outside of our control. Project awards, including expansions of existing projects, often involve complex and lengthy negotiations and competitive bidding processes.
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 20 complementary businesses, which have contributed to a significant portion of our growth. We continue to evaluate strategic acquisition opportunities that have the potential to support and strengthen our business, including acquisitions in states in the southeastern United States, as part of our ongoing growth strategy. We expect to evaluate, negotiate and enter into acquisition transactions on an ongoing basis in the future. We expect to regularly make non-binding acquisition proposals, and we may enter into non-binding, confidential letters of intent from time to time in the future. We cannot predict the timing or size of any future acquisitions. 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 enter into definitive agreements with respect to any contemplated transaction or that any contemplated transaction will be completed. The investigation of acquisition candidates and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments require substantial management time and attention and costs for accountants, attorneys and others. If we fail to complete any acquisition for any reason, including events beyond our control, the costs incurred up to that point for the proposed acquisition likely would not be recoverable.
Acquisitions typically require integration of the acquired company’s estimation, project management, finance, information technology, risk management, purchasing and fleet management functions. We may be unable to successfully integrate an acquired business into our existing business, and an acquired business may not be as profitable as we had expected or at all. Our inability to successfully integrate new businesses in a timely and orderly manner could increase costs, reduce profits or generate losses. Factors affecting the successful integration of an acquired business include, but are not limited to, the following:
we may become liable for certain liabilities of an acquired business, whether or not known to us, which could include, among others, tax liabilities, product and other tort liabilities, breach of contract claims, environmental liabilities, permitting and regulatory compliance issues and liabilities for employment practices;
we may not be able to retain local managers and key employees who are important to the operations of an acquired business;
substantial attention from our senior management and the management of an acquired business may be required, which could decrease the time that they have to service and attract customers;
we may not effectively utilize new equipment that we acquire through acquisitions;
the complete integration of an acquired company depends, to a certain extent, on the full implementation of our financial and management information systems, business practices and policies; and
we may actively pursue a number of opportunities simultaneously and we may encounter unforeseen expenses, complications and delays, including difficulties in employing sufficient staff and maintaining operational and management oversight.
Acquisitions involve risks that the acquired business will not perform as expected and that our expectations concerning the value, strengths and weaknesses of the acquired business will prove incorrect. 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. In addition, if we enter into new geographic markets, we may be subject to additional and unfamiliar legal and regulatory requirements.
We cannot guarantee that we will achieve synergies and cost savings in connection with future acquisitions. Many of the businesses that we previously acquired, and businesses that we may acquire in the future, could have unaudited financial statements that are prepared by management and are not independently reviewed or audited. We cannot guarantee that such financial statements would not be materially different if such statements were independently reviewed or audited. We cannot guarantee that we will continue to acquire businesses at valuations consistent with our prior acquisitions or that we will complete future acquisitions at all. We cannot guarantee that there will be attractive acquisition opportunities at reasonable prices, that financing will be available or that we can successfully integrate acquired businesses into our existing operations. In addition, our results of operations from these acquisitions
10

Table of Contents
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. Our inability to effectively manage the integration of our completed and future acquisitions could prevent us from realizing expected rates of return on an acquired business and could have a material adverse effect on our financial condition, results of operations or liquidity.
We may lose business to competitors that underbid us, and we may be unable to compete favorably in our highly competitive industry.
Most of our project awards are determined through a competitive bidding process in which price is the determining factor. Because of the high cost of transporting HMA, our ability to win a project award is often influenced by the distance between a work site and our HMA plants. We compete against multiple competitors in all of the markets in which we operate, most of which are local or regional operators. Some of our competitors are larger than we are, are vertically integrated and/or have similar or greater financial resources than we do. As a result, our competitors may be able to bid at lower prices than we can due to the location of their plants or as a result of their size or vertical integration advantages. Government funding for public infrastructure projects is limited, thus contributing to competition for the limited number of public projects available. An increase in competition may result in a decrease in new project awards to us at acceptable profit margins. In addition, in the event of a downturn in private residential and commercial construction, the competition for available public infrastructure projects could intensify, which could materially and adversely impact our financial condition, results of operations or liquidity.
We may be unable to obtain or maintain sufficient bonding capacity, which could materially adversely affect our business.
A significant number of our contracts require performance and payment bonds. Our ability to obtain performance and payment bonds primarily depends upon our capitalization, working capital, past performance, management expertise, reputation and certain external factors, including the overall capacity of the surety market. If we are unable to renew or obtain a sufficient level of bonding capacity in the future, we may be precluded from bidding on certain projects or successfully contracting with certain customers. In addition, even if we are able to successfully renew or obtain performance or payment bonds, we may be required to post letters of credit in connection with such bonds, which could negatively affect our liquidity and results of operations.
It is standard for sureties to issue or continue bonds on a project-by-project basis, and they can decline to do so at any time or require the posting of additional collateral as a condition thereto. Events that adversely affect the insurance and bonding markets generally may result in bonding becoming more difficult or costly to obtain in the future. If we were to experience an interruption or reduction in the availability of our bonding capacity as a result of these or any other reasons, or if bonding costs were to increase, we may be unable to compete for certain projects that require bonding, which would materially and adversely affect our financial condition, results of operations or liquidity.
Our business is seasonal and subject to adverse weather conditions, which can adversely impact our business.
Our construction operations occur outdoors. As a result, seasonal changes and adverse weather conditions can adversely affect our business operations through a decline in both the use and production of HMA, a decline in the demand for our construction services and alterations and delays in our construction schedules. Adverse weather conditions, such as extended snowy, rainy or cold weather in the winter, spring or fall can reduce demand for our products and reduce sales or render our contracting operations less efficient, resulting in under-utilization of crews and equipment and lower contract profitability. Major weather events, such as hurricanes, tornadoes, tropical storms and heavy snows, could also adversely affect our revenues and profitability.
We depend on information technology, and our systems and infrastructure face certain risks, including cybersecurity risks and data leakage risks.
We are dependent on information technology systems and infrastructure that could be damaged or interrupted by a variety of factors. Any significant breach, breakdown, destruction or interruption of these systems by employees, others with authorized access to our systems or unauthorized persons has the potential to negatively affect our operations. There is also a risk that we could experience a business interruption, theft of information or reputational damage as a result of a cyber attack, such as the infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. Although we have invested in the protection of our data and information technology to reduce these risks and periodically test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could have a material adverse effect on our financial condition, results of operations and liquidity.
11

Table of Contents
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. However, in the event of a design error or omission that causes damages, there is a risk that the subcontractor and/or its errors and omissions insurance would not be able to absorb the full amount of the liability incurred. In this case, we may be responsible for the liability, resulting in a potentially material adverse effect on 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.

From time to time, we perform construction projects as part of a joint venture, under which our relationship to the other joint venture partners is governed by a written contract. Participation in these arrangements exposes us to risks and uncertainties, including the risk that if our partners fail to perform under joint and several liability contracts, we could be liable for completion of the entire contract. In addition, if our partners are not able or willing to provide their share of capital investment to fund the operations of the venture, there could be unanticipated costs to complete the project, or we could be liable for financial penalties or liquidated damages. In the event that we are not the controlling partner in the joint venture, we may have limited control over the decisions made with respect to the project. The occurrence of any of the foregoing could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
Our continued success requires us to hire, train and retain qualified personnel and subcontractors in a competitive industry.
The success of our business depends on our ability to attract, train and retain qualified, reliable personnel, including, but not limited to, our executive officers and key management personnel. 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. Competition for these and other experienced personnel is intense, and it may be difficult to attract and retain qualified individuals with the requisite expertise and within the time frame demanded by our customers. In certain geographic areas, for example, we may not be able to satisfy the demand for our services because of our inability to successfully hire, train and retain qualified personnel. Also, it could be difficult to replace personnel who hold credentials that may be required to perform certain government projects and/or who have significant government contract experience.
As some of our executives and other key personnel approach retirement age, we must provide for smooth transitions, which may require that we devote time and resources to identify and integrate new personnel into vacant leadership roles and other key positions. If we are unable to attract and retain a sufficient number of skilled personnel or effectively implement appropriate succession plans, our ability to pursue projects and our strategic plan may be adversely affected, the costs of executing both our existing and future projects may increase, and our financial performance may decline.
In addition, the cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. For example, the uncertainty of contract award timing can present difficulties in matching our workforce size with our contracts. If an expected contract award is delayed or not received, we could incur costs resulting from excess staff or redundancy of facilities that could have a material adverse impact on our business, financial condition and results of operations.
We depend on third parties for equipment and supplies essential to operate our business.
We rely on third parties to sell or lease properties, plants and equipment to us and to provide us with supplies, including liquid asphalt cement, aggregates and other construction materials (such as stone, gravel and sand), necessary for our operations. We cannot assure you that our favorable working relationships with our suppliers will continue in the future. In addition, there have historically been periods of supply shortages in our industry.
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 or distribution problems, our business, financial condition, results of operations, liquidity and cash flows could be materially and adversely affected.
12

Table of Contents
We consume natural gas, electricity, diesel fuel, liquid asphalt and other petroleum-based resources that are subject to potential reliability issues, supply constraints and significant price fluctuations.
In our production and distribution processes, we consume significant amounts of natural gas, electricity, diesel fuel, liquid asphalt and other petroleum-based resources. The availability and pricing of these resources are subject to market forces that are beyond our control, such as unavailability due to refinery turnarounds, higher prices charged for petroleum-based products, and other factors. Furthermore, we are vulnerable to any reliability issues experienced by our suppliers, which also are beyond our control. Our suppliers contract separately for the purchase of such resources, and our sources of supply could be interrupted if our suppliers are unable to obtain these materials due to higher demand or other factors that interrupt their availability. Additionally, increases in the costs of fuel and other petroleum-based products utilized in our operations, particularly increases following a bid based on lower costs for such products, could result in a lower profit, or a loss, on a contract. Variability in the supply and prices of these resources could have a material adverse effect on our financial condition, results of operations and liquidity.
Our contract backlog is subject to reductions in scope and cancellations and therefore could be an unreliable indicator of our future earnings.
At September 30, 2019, our contract backlog was $531.6 million, compared to $594.4 million at September 30, 2018. 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 current low bid. Contract backlog does not include external sales of HMA, aggregates, and liquid asphalt cement. Moreover, our contract backlog reflects our expected revenues from the contract, commitment or bid, which is often subject to revision over time. We cannot guarantee that the revenues projected in our contract backlog will be realized or, if realized, will be profitable. Projects reflected in our contract backlog may be affected by project cancellations, scope adjustments, time extensions or other changes. Such changes may adversely affect the revenues and profit we ultimately realize on these projects.
Failure of our subcontractors to perform as expected could have a negative impact on our results.
We rely on third-party subcontractors to perform some of the work on many of our contracts, but we are ultimately responsible for the successful completion of their work. Although we seek to require bonding or other forms of guarantees from our subcontractors, we are not always able to obtain such bonds or guarantees. 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, resulting in a potentially adverse impact on our cash flows and liquidity. In addition, if the total costs of a project exceed our original estimates, we could experience reduced profits or a loss for that project, which could have an adverse impact on our financial position, results of operations, cash flows and liquidity.
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. 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.
An inability to secure sufficient aggregate reserves could have a negative impact on our future results of operations.
Strict governmental regulations and the limited number of properties containing useful aggregate 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. If we are unable to obtain adequate reserves to support our business, then our financial position, results of operations, cash flows and liquidity may be adversely affected.
Force majeure events, such as natural disasters and terrorist attacks, and unexpected equipment failures could negatively impact our business, which may affect our financial condition, results of operations or cash flows.
Force majeure events, such as terrorist attacks or natural disasters, have impacted, and could continue to negatively impact, the United States economy and the markets in which we operate. As an example, from time to time, we face unexpected severe weather conditions, evacuation of personnel and curtailment of services, increased labor and material costs or shortages, inability to deliver materials, equipment and personnel to work sites in accordance with contract schedules and loss of productivity. We seek to include language in our contracts with private customers that grants us certain relief in connection with force majeure events, and we attempt to mitigate the potential impact arising from force majeure events in both public and private customer contracts. However, the extra costs incurred as a result of these events may not be reimbursed by our customers, and we remain obligated to perform our services after most extraordinary events, subject to any relief that may be available pursuant to a force majeure clause.
13

Table of Contents
Additionally, our manufacturing processes depend on critical pieces of equipment, such as our HMA plants. This equipment, on occasion, may be out of service as a result of unanticipated failures or damage. Any significant interruption in production capability may require us to make significant capital expenditures to remedy problems or damage and cause us to lose revenues due to lost production time.
These force 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.
A failure to obtain or maintain adequate insurance coverage could adversely affect our results of operations.
We have obtained and maintain insurance coverage as part of our overall risk management strategy and pursuant to requirements contained in our financing agreements and in a majority of our contracts to maintain specific types and amounts of coverage. Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future. For example, catastrophic events can result in decreased coverage limits, more limited coverage, and increased premium costs or deductibles. If we are unable to obtain adequate insurance coverage, we may not be able to procure certain contracts, which could materially adversely affect our financial position, results of operations, cash flows or liquidity.
We could incur material costs and losses as a result of claims that our products do not meet regulatory requirements or contractual specifications.
We provide our customers with products designed to comply with building codes or other regulatory requirements, as well as any applicable contractual specifications, including, but not limited to, durability, compressive strength and weight-bearing capacity. 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.
We are, and may continue to be, involved in routine litigation and government inquiries in the ordinary course of business.

Due to the nature of our business, we are, and may continue to be, involved in routine litigation or subject to other disputes or claims related to our business activities, including, among other things, workers compensation claims, employment-related disputes and liability issues or breach of contract or tortious conduct in connection with the performance of services and provision of materials. 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. 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.

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.
Our operations are subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection and public health and safety. These laws and regulations impose numerous obligations applicable to 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; limitations on activities on certain lands lying within wilderness, wetlands, and other protected areas; and assessments of substantial liabilities for pollution resulting from our operations. For example, a number of governmental bodies have finalized, proposed or are contemplating legislative and regulatory actions to reduce emissions of greenhouse gases, such as monitoring, reporting and emissions control requirements for certain large sources of greenhouse gases and greenhouse gas cap-and-trade programs. Because we emit greenhouse gases through the manufacture of HMA products and through the combustion of fossil fuels as part of our mining and road construction services, any such laws and regulations applicable to jurisdictions in which we operate could require us to incur costs to reduce greenhouse gas emissions associated with our operations.
We may be required to remediate contaminated properties currently or formerly owned or operated by us or third-party facilities that received waste generated by our operations, regardless of whether such contamination resulted from our own actions or those of others and whether such actions complied with applicable laws at the time they were taken. In connection with certain acquisitions, we could assume, or be required to provide indemnification against, environmental liabilities that could expose us to material losses. Furthermore, the existence of contamination at properties that we own, lease or operate could result in increased operational costs or restrictions on our ability to use those properties as intended, including for mining purposes.
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
14

Table of Contents
and costly compliance measures or corrective actions. Certain environmental laws impose strict liability (i.e., no showing of “fault” is required) or joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. 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. In addition, we may experience delays in obtaining, or be unable to obtain, required permits, which may delay or interrupt our operations and limit our growth and revenue.
In certain instances, citizen groups also have the ability to bring legal proceedings against us if we are not in compliance with environmental laws, or to challenge our ability to receive environmental permits that we need to operate. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to our industry could continue, resulting in increased costs of doing business and, consequently, affecting profitability.
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.
Operating hazards inherent in our business, some of which may be outside of our control, can cause personal injury and loss of life, damage to or destruction of property, and environmental damage. We maintain insurance coverage in amounts and against risks that we believe are consistent with industry practice, but this insurance may be inadequate or unavailable to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts are accrued based upon our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. 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. If we were to experience insurance claims or costs above our estimates, we may be required to use working capital to satisfy these claims rather than for maintaining or expanding our operations.
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations.
Each of our subsidiaries is party to the BBVA Credit Agreement. The BBVA Credit Agreement, as amended October 1, 2019, provides for a $54.7 million term loan (the “Term Loan”) and a $30.0 million revolving credit facility (the “Revolving Credit Facility”). We guarantee the obligations under the Term Loan and the Revolving Credit Facility. A significant portion of our cash flow will be required to pay interest and principal on our outstanding indebtedness, and we may be unable to generate sufficient cash flow from operations, or have future borrowings available, to enable us to repay our indebtedness or to fund other liquidity needs. Among other consequences, this level of indebtedness could:
require us to use a significant percentage of our cash flow from operations for debt service and the repayment obligations, and any such cash flow would not be available for other purposes;
limit our ability to borrow money or issue equity to fund our working capital, capital expenditures, acquisitions and debt service requirements;
cause our interest expense to increase if there is a general increase in interest rates, because a portion of our indebtedness bears interest at floating rates;
limit our flexibility in planning for or reacting to changes in our business and future business opportunities;
cause us to be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
make us more vulnerable to a downturn in our business or the economy; and
limit our ability to exploit business opportunities.
Despite our substantial indebtedness, we and our subsidiaries may still be able to incur additional debt. This could reduce our ability to satisfy our current obligations and further exacerbate the risks to our financial condition described above.
At September 30, 2019, we had $44.7 million outstanding under the Term Loan and $5.0 million outstanding under the Revolving Credit Facility. In addition, we and our subsidiaries may be able to incur significant additional indebtedness in the future, and we may do so, among other reasons, to fund acquisitions as part of our growth strategy. Although the BBVA Credit Agreement contains restrictions on 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.
15

Table of Contents
The BBVA Credit Agreement restricts our ability to engage in some business and financial transactions.
The BBVA Credit Agreement contains a number of covenants that limit our and our subsidiaries’ ability to: incur additional indebtedness or guarantees; create liens on assets; change our or our subsidiaries’ fiscal year; enter into sale and leaseback transactions; enter into certain restrictive agreements; engage in mergers or consolidations; participate in partnerships and joint ventures; sell assets; incur additional liens; pay dividends or distributions and make other restricted payments; make investments, loans or advances; repay or amend the terms of subordinated indebtedness; make acquisitions; enter into certain operating leases; enter into certain hedge transactions; amend material contracts; and engage in certain transactions with affiliates.
The BBVA Credit Agreement also requires us to maintain a fixed charge coverage ratio and a consolidated leverage ratio and contains certain customary representations and warranties, affirmative covenants and events of default (including, among others, an event of default upon a change of control). If an event of default occurs, the lenders under the BBVA Credit Agreement will be entitled to accelerate amounts due thereunder and take other actions permitted to be taken by a secured creditor. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
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.
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. Our ability to obtain such additional financing in the future will depend in part on prevailing market conditions, as well as conditions in our business and our operating results. Furthermore, if global economic, political or other market conditions adversely affect the financial institutions that provide credit to us, it is possible that our ability to draw upon our Revolving Credit Facility may be impacted. If adequate funds are not available, or are not available on acceptable terms, we may not be able to make certain investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges, each of which could have a material adverse impact on our financial position, results of operations, cash flows and liquidity.
We may be unable to identify and contract with qualified “disadvantaged business enterprises” to perform as subcontractors, which could cause us to breach certain contracts with governmental customers.
Some of our contracts with governmental agencies contain minimum “disadvantaged business enterprise” (“DBE”) participation clauses, which require us to maintain a requisite level of DBE participation. If we fail to obtain or maintain the required level of DBE participation, we could be held responsible for breach of contract. Such a breach could impair our ability to bid on future projects and could require us to pay monetary damages. To the extent that we are responsible for monetary damages, the total costs of the project could exceed our original estimates, we could experience reduced profits or a loss for that project and there could be a material adverse impact to our financial position, results of operations, cash flows or liquidity.
Failure to maintain safe work sites could result in significant losses, which could materially affect our business and reputation.
Because our employees and others are often in close proximity with mechanized equipment, moving vehicles, chemical substances and dangerous manufacturing processes, our construction and maintenance sites are potentially dangerous workplaces. Therefore, safety is a primary focus of our business and is critical to our reputation and performance. Many of our customers require that we meet certain safety criteria to be eligible to bid on contracts, and some of our contract fees or profits are subject to satisfying safety criteria. Unsafe work conditions also can increase employee turnover, which increases project costs and therefore our overall operating costs. If we fail to implement effective safety procedures, our employees could be injured, and we could be exposed to investigations and possible litigation. Our failure to maintain adequate safety standards through our safety programs could also result in reduced profitability or the loss of projects or clients, and could have a material adverse impact on our financial position, results of operations, cash flows or liquidity.
We may be required to record an impairment charge if we determine that goodwill recorded in connection with prior acquisitions has become impaired, and this determination requires us to make significant judgments and assumptions about the future that are inherently subject to risks and uncertainties.
At September 30, 2019 and 2018, we had $38.5 million and $32.9 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. The use of different assumptions or estimates could materially affect the determination as to whether or not an impairment has occurred. In addition, if future events are less favorable than what we assumed or estimated in our impairment analysis, we may be required to record an impairment charge, which could have a material impact on our consolidated financial statements.
16

Table of Contents
Our earnings are affected by the application of accounting standards and our critical accounting policies, which involve subjective judgments and estimates by our management. Our actual results could differ from the estimates and assumptions used to prepare our consolidated financial statements.
The accounting standards that we use in preparing our financial statements are often complex and require us to make significant estimates and assumptions in interpreting and applying those standards. These estimates and assumptions affect the reported values of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. We make critical estimates and assumptions involving accounting matters, including with respect to revenue recognition, contracts receivable including retainage, valuation of long-lived assets and goodwill, income taxes, accrued insurance costs and share-based payments and other equity transactions. These estimates and assumptions involve matters that are inherently uncertain and require us to make subjective and complex judgments. If we used different estimates and assumptions or used different ways to determine these estimates, our financial results could differ, which could have a material negative impact on our financial condition and reported results of operations. 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.”
Accounting for our revenues and costs involves significant estimates that may result in material adjustments, which could result in a charge against our earnings.
As further described in “Critical Accounting Policies and Estimates” under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, accounting for our contract-related revenues and costs, as well as other expenses, requires management to make a variety of significant estimates and assumptions. Although we believe we have the experience and processes to enable us to formulate appropriate assumptions and produce reasonably dependable estimates, these assumptions and estimates may change significantly in the future and could result in the reversal of previously recognized revenues and profit. Such changes could have a material adverse effect on our financial position and results of operations.
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.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of December 11, 2019, our outstanding Class B common stock, held almost exclusively by SunTx, its affiliates and certain members of management, represented approximately 85.4% of the total voting power of our outstanding common stock. Because of the ten-to-one voting ratio between our Class B common stock and our Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore control the outcome of all matters submitted to our stockholders. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future.
Future transfers of shares of our Class B common stock generally will result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers to permitted transferees. 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.
We have incurred, and expect to continue to incur, substantial costs as a result of being a public company, which may significantly affect our financial condition.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with our public company reporting requirements. We also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Act of 2010 and rules implemented by the SEC. These rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a publicly traded company, we were required to adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal control over financial reporting. These rules and regulations have made, and may continue to make, it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.
After we are no longer an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”), we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not emerging growth companies, including Section 404 of the Sarbanes-Oxley Act (“Section 404”).
17

Table of Contents
For so long as we are an “emerging growth company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies, and the reduced disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.
As an “emerging growth company” (as defined in the JOBS Act), we have taken, and intend to continue to take, advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our Class A common stock less attractive because we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our Class A common stock price may be more volatile.
We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which our total revenues equals or exceeds $1.07 billion, (ii) September 30, 2023, the last day of the fiscal year following the fifth anniversary of our initial public offering (“IPO”), (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.
If we are unable to maintain effective internal control over financial reporting, investors could lose confidence in our consolidated financial statements and our Company, which could have a material adverse effect on our stock price.
In the course of preparing financial statements for prior fiscal years, our management detected material weaknesses in our internal control over financial reporting, related primarily to the design and operation of our information technology general controls and overall closing and financial reporting controls. During our two most recent fiscal years, we have designed and implemented a number of internal controls and other remedial measures that we believe will provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with GAAP. A failure to maintain effective internal controls could result in a material misstatement of our consolidated financial statements that would not be prevented or detected on a timely basis, which could cause investors to lose confidence in our financial information or cause the trading price of our Class A common stock to decline. Our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting and, under the JOBS Act, will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting for so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
We have incurred, and expect to continue to incur, significant costs related to certain requirements of Section 404 to which we became subject in the 2019 fiscal year. If we are unable to timely comply with such requirements, our profitability, stock price, results of operations and financial condition could be materially adversely affected.

We are required to comply with certain provisions of Section 404, which requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting beginning with our fiscal year ended September 30, 2019. Section 404 also requires that our independent registered public accounting firm opine on those internal controls when we cease to qualify for an exemption from the requirement to provide auditors’ attestation on internal controls afforded to emerging growth companies under the JOBS Act. The out-of-pocket costs, the diversion of management’s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 have been significant, and we expect to continue to incur substantial costs in connection with our compliance efforts.

If we fail to comply with the requirements of Section 404, or if we or our auditors identify and report any material weaknesses, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Class A common stock. 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.

18

Table of Contents
If the price of our Class A common stock fluctuates significantly, your investment could lose value.
Prior to our IPO in May 2018, there was no public market for our Class A common stock. Although our Class A common stock is listed on the Nasdaq Global Select Market, we cannot guarantee that an active public market will be maintained for our Class A common stock. If an active public market for our Class A common stock is not maintained, the trading price and liquidity of our Class A common stock will be materially and adversely affected. If there is a thin trading market or “float” for our Class A common stock, the market price for our Class A common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our Class A common stock is less liquid than the securities of companies with broader public ownership and, as a result, the trading prices of our Class A common stock may be more volatile. In addition, in the absence of an active public trading market, investors may be unable to liquidate their investment in our Company at the times or prices they desire. In addition, the stock market is subject to significant price and volume fluctuations, and the price of our Class A common stock could fluctuate widely in response to several factors, including, but not limited to: our quarterly or annual operating results; investment recommendations by securities analysts following our business or our industry; additions or departures of key personnel; changes in the business, earnings estimates or market perceptions of our competitors; our failure to achieve operating results consistent with securities analysts’ projections; changes in industry, general market or economic conditions; and announcements of legislative or regulatory change.
The stock market has experienced substantial price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our Class A common stock could fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could materially reduce the price for our Class A common stock.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.
As of December 11, 2019, we had outstanding a total of 32,705,418 shares of our Class A common stock and 19,076,327 shares of our Class B common stock that are convertible by the holders thereof at any time into an equal number of shares of our Class A common stock. The sale of shares of our Class A common stock, or the perception of future sales by us or our existing stockholders, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
During the 2019 fiscal year, we filed a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the issuance of up to $250 million in aggregate amount of various securities (including Class A common stock) by us and the sale of up to 19,225,000 shares of Class A common stock by SunTx. As of December 11, 2019, we had not issued any securities under the registration statement, and 13,475,000 shares of Class A common stock remained available for future sale by SunTx under the registration statement. In addition, shares held by our affiliates, including our directors, executive officers and SunTx, may also be sold in compliance with various exemptions from registration.
In connection with the Secondary Offering in September 2019, we, our directors and executive officers and SunTx agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any common stock or securities convertible into or exchangeable for shares of such common stock until January 18, 2020. Upon the expiration of these agreements, 32,816,078 shares of our common stock will be eligible for resale. In addition, 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. 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 December 11, 2019, in addition to the 13,475,000 registered but unsold shares of Class A common stock held by SunTx, a total of 18,845,417 shares of our outstanding common stock were subject to potential future registration under the registration rights agreement. Registration of these shares would result in such shares becoming freely tradable upon effectiveness of the registration statement. As restrictions on resale end or if the stockholders who are parties to the registration rights agreement exercise their registration rights, the market price of the shares of our Class A common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our Class A common stock or other securities.
In the future, we may also issue shares of Class A common stock in connection with an offering or acquisition, and the number of shares issued could constitute a material portion of the then-outstanding shares of Class A common stock. Any such issuance would result in dilution to holders of our Class A common stock.
19

Table of Contents
Affiliates of SunTx control us, and their interests may conflict with ours or yours in the future.
As of December 11, 2019, affiliates of SunTx beneficially owned approximately 41.2% of our Class A common stock and approximately 82.9% of our Class B common stock, representing 76.8% of the combined voting power of our common stock. Each share of our Class B common stock has ten votes per share, and each share of our Class A common stock has one vote per share. 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, the incurrence of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, and our entry into extraordinary transactions. This concentration of voting control could deprive you of an opportunity to receive a premium for your shares of our Class A common stock as part of a sale of our Company and ultimately might affect the market price of our Class A common stock. 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, SunTx 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 could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. SunTx is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our amended and restated certificate of incorporation provides that none of SunTx, any of its affiliates or any director who is not employed by us or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. SunTx 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. For example, if our Class B common stock amounted to 15% of our outstanding common stock, such Class B common stock (held almost exclusively by SunTx, its affiliates and certain members of management) would collectively represent approximately 63.8% of the overall voting power of our common stock based on the number of shares of Class A and Class B common stock outstanding at December 11, 2019. 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 have consented to such transfer in writing in advance.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our Class A common stock or if our operating results do not meet their expectations, the price of our Class A common stock could decline.
The trading market for our Class A common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our Class A common stock to decline. Moreover, if one or more of the analysts who cover our Company downgrades our Class A common stock or if our operating results do not meet their expectations, the price of our Class A common stock could decline.
We may issue preferred stock with terms that could adversely affect the voting power or value of our Class A common stock.
Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our Class A common stock with respect to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our Class A common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or upon the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware corporate law make it more difficult to effect a change in control of our Company, which could adversely affect the price of our Class A common stock.
Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws and Delaware corporate law could delay or prevent a change in control of our Company, even if that change would be beneficial to 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:
20

Table of Contents
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 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;
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 amend our amended and restated certificate of incorporation; and
the authorization given to our board of directors to issue and set the terms of preferred stock without the approval of our stockholders.
These provisions also could discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. As a result, these provisions could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders, which may limit the price that investors are willing to pay in the future for shares of our Class A common stock.
Our amended and restated certificate of incorporation designates courts in the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated certificate of incorporation provides that, subject to limited exceptions, state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any: (i) derivative action or proceeding brought on our behalf; (ii) action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law; or (iv) action asserting a claim against us that is governed by the internal affairs doctrine. In addition, our amended and restated certificate of incorporation provides that if any action specified above (each is referred to herein as a covered proceeding), is filed in a court other than a court located within the State of Delaware (each is referred to herein as a foreign action), the claiming party will be deemed to have consented to (i) the personal jurisdiction of state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the exclusive forum provision described above and (ii) having service of process made upon such claiming party in any such enforcement action by service upon such claiming party’s counsel in the foreign action as agent for such claiming party. These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the covered proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Because we are a “controlled company” under the listing standards of The Nasdaq Stock Market LLC and the rules of the SEC, our stockholders do not have, and may never have, certain corporate governance protections that are available to stockholders of companies that are not controlled companies.
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. 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. Because we intend to continue to take advantage of some or all of these exemptions, our stockholders may not have the protections that these rules are intended to provide. Our status as a controlled company could cause our Class A common stock to be less attractive to certain investors or otherwise reduce the trading price of our Class A common stock.
21

Table of Contents
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 currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends on our Class A common stock in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors deemed relevant by our board of directors. In addition, the BBVA Credit Agreement restricts our ability to pay cash dividends. As a result, only appreciation of the price of our Class A common stock, which may not occur, will provide a return to our stockholders.

Item 1B. Unresolved Staff Comments.
None.

Item 2. Properties.
Our principal executive office is located in Dothan, Alabama, in a building that we own. As of December 11, 2019, we operated (i) 33 HMA plants in Alabama, Florida, Georgia and North Carolina, (ii) nine quarries in Alabama, Georgia, and Florida, and (iii) one liquid asphalt terminal in Florida. Our HMA plants operate at varying levels of utilization depending on market conditions. We maintain offices at our HMA plants and quarries as we determine to be appropriate under the circumstances. We consider our plants and other physical properties, whether owned or leased, to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business. 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 asphalt plants and quarries. We own our liquid asphalt terminal.
Asphalt PlantsQuarries
LocationOwnedLeasedOwnedLeased
Alabama    
Florida —   —  
Georgia    
North Carolina—   —  —  

Item 3. Legal Proceedings.
Due to the nature of our business, we are involved in routine litigation or subject to other disputes or claims related to our business activities, including, among other things, (i) workers’ compensation claims, (ii) employment-related disputes and (iii) liability issues or breach of contract or tortious conduct in connection with the performance of services and provision of materials. 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. 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.
As previously disclosed, in February 2019, the Alabama Department of Environmental Management (“ADEM”) issued a consent order related to discharges of dredged or fill material into wetlands at the Company’s Lambert, Alabama mining site in violation of Section 402 of the Clean Water Act. In response to the consent order, the Company paid a $115,000 fine and submitted an engineering plan to the ADEM, which is currently under review by the ADEM. The Company does not expect the cost of implementing the remedial measures in the engineering plan to be material to the Company. To date, the Company has not received any assessments from the EPA related to this matter.

Item 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.

22

Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
From our inception until April 2018, we maintained a single class of common stock. On April 23, 2018, we amended and restated our certificate of incorporation to effectuate a dual-class equity structure, which we refer to as the “Reclassification.” The Reclassification resulted in the conversion of each share of our then-outstanding common stock into 25.2 shares of Class B common stock and the initial authorization of Class A common stock for issuance.  
Market for Our Common Stock 
Our Class A common stock is listed and trades on the Nasdaq Global Select Market under the symbol “ROAD.” Prior to its listing on the Nasdaq Global Select Market on May 4, 2018, there was no established public trading market for our Class A common stock. There is no established public trading market for our Class B common stock. 
Holders 
As of December 11, 2019, there were 32,705,418 shares of our Class A common stock outstanding, held by 10 stockholders of record. The actual number of beneficial holders of our Class A common stock is significantly greater than the number of record holders and includes stockholders who are beneficial owners, but whose shares are held by banks, brokers and other nominees. The last sale price for a share of our Class A common stock as reported on the Nasdaq Global Select Market on December 11, 2019 was $17.11.
As of December 11, 2019, there were 19,076,327 shares of our Class B common stock outstanding, held by 11 stockholders of record.
Dividends
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 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. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant. In addition, the terms of the BBVA Credit Agreement restrict our ability to pay cash dividends to the holders of our common stock unless, after giving effect to such dividend, we would remain in compliance with the financial covenants and, at the time any such dividend is made, no default or event of default exists or would result from the payment of such dividend.
Recent Sales of Unregistered Securities
During the fiscal year ended September 30, 2019, we granted to our non-employee directors a total of 292,534 restricted shares of our Class A common stock under the Construction Partners, Inc. 2018 Equity Incentive Plan. Two-thirds of the shares issued in connection with these grants will vest on January 1, 2021, and the remaining one-third of the shares will vest on January 1, 2022. These grants were made for compensatory purposes pursuant to a written plan or contract, a copy which was delivered to each grantee, in reliance on Rule 701 under the Securities Act.
Issuer Purchases of Equity Securities
During the quarter ended September 30, 2019, we did not purchase any of our equity securities that are registered under Section 12(b) of the Exchange Act.

Item 6. Selected Financial Data.
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide the information called for by this Item.

23

Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion and analysis of our financial condition and results of operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. 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 audited consolidated financial statements and the notes thereto included elsewhere in this report. In this discussion, we use certain non-GAAP financial measures. Explanation of these non-GAAP financial measures and 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.
Overview
We are one of the fastest growing civil infrastructure companies in the United States, specializing in the building and maintenance of transportation networks. Our operations leverage a highly skilled workforce, strategically located HMA plants, substantial construction assets and select material deposits. We provide construction products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites in the southeastern United States.
Our public projects are funded by federal, state and local governments and include 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 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. 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.
How We Assess Performance of Our Business
Revenues
We derive our revenues predominantly by providing construction products and services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential sites. Our projects represent a mix of federal, state, municipal and private customers. We also derive revenues from the sale of HMA, aggregates, and liquid asphalt cement to customers. Revenues derived from projects are recognized as performance obligations are satisfied over time (formerly known as the percentage-of-completion method), measured by the relationship of total cost incurred compared to total estimated contract costs (cost-to-cost input method). Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Revenues derived from the sale of HMA, aggregates, and liquid asphalt cement are recognized when 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 on 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 cement terminal. Our cost of revenues is directly affected by fluctuations in commodity prices, primarily liquid asphalt and diesel fuel. From time to time, when appropriate, we limit our exposure to changes in commodity prices by entering into forward purchase commitments. In addition, our public infrastructure contracts often provide for price adjustments based on fluctuations in certain commodity-related product costs. These price adjustment provisions are in place for most of our public infrastructure contracts, and we seek to include similar provisions in our private contracts.
Depreciation, Depletion 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.
24

Table of Contents
General and Administrative Expenses
General and administrative expenses 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, 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 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 cost 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 balances in excess of our current operating needs.
Other Key Performance Indicators — Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income before (i) interest expense, net, (ii) provision for income taxes, (iii) depreciation, depletion and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt and (vi) certain management fees and expenses, and excludes income recognized in connection with the Settlement described in Note 20 - Settlement Agreement to the consolidated financial statements included elsewhere in this report. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. These metrics are supplemental measures of our operating performance that are neither required by, nor presented in accordance with, GAAP. These measures have limitations as analytical tools and should not be considered in isolation or as an alternative to net income or any other performance measure derived in accordance with GAAP as an indicator of our operating performance. We present Adjusted EBITDA and Adjusted EBITDA Margin because management uses these measures as key performance indicators, and we believe that securities analysts, investors and others use these measures to evaluate companies in our industry. Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies. Potential differences may include differences in capital structures, tax positions and the age and book depreciation of intangible and tangible assets.
The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable measure calculated in accordance with GAAP, and the calculation of Adjusted EBITDA Margin for the periods presented (in thousands, except percentages):
For the Fiscal Year
Ended September 30,
20192018
Net income$43,121  $50,791  
Interest expense, net1,861  1,270  
Provision for income taxes13,909  10,525  
Depreciation, depletion and amortization of long-lived assets31,231  25,321  
Equity-based compensation expense957  975  
Settlement income (1)
—  (14,803) 
Management fees and expenses (2)
1,252  1,457  
Adjusted EBITDA$92,331  $75,536  
Revenues$783,238  $680,096  
Adjusted EBITDA Margin11.8 %11.1 %
(1)Represents pre-tax income recognized in connection with the Settlement (see Note 20 - Settlement Agreement to the consolidated financial statements included elsewhere in this report).
(2)Reflects fees and reimbursement of certain travel expenses under a management services agreement with SunTx (see Note 17 - Related Parties to the consolidated financial statements included elsewhere in this report).
25

Table of Contents
Results of Operations — Fiscal Year Ended September 30, 2019 Compared to Fiscal Year Ended September 30, 2018
The following table sets forth selected financial data for the fiscal years ended September 30, 2019 (“fiscal 2019”) and September 30, 2018 (“fiscal 2018”):
For the Fiscal Year Ended September 30,Change from Fiscal Year
2018 to Fiscal Year 2019
2019  2018  
Dollars% of
Revenues
Dollars% of
Revenues
$ Change%
Change
(in thousands, except percentages)
Revenues$783,238  100.0 %$680,096  100.0 %$103,142  15.2 %
Cost of revenues665,285  84.9 %580,560  85.4 %84,725  14.6 %
Gross profit117,953  15.1 %99,536  14.6 %18,417  18.5 %
General and administrative expenses(62,724) (8.0)%(55,303) (8.2)%(7,421) 13.4 %
Settlement income—  — %14,803  2.2 %(14,803) N/A  
Gain on sale of equipment, net1,909  0.2 %2,392  0.4 %(483) (20.2)%
Operating income57,138  7.3 %61,428  9.0 %(4,290) (7.0)%
Interest expense, net(1,861) (0.2)%(1,270) (0.2)%(591) 46.5 %
Other income (expense)416  — %(101) — %517  (511.9)%
Income before provision for income taxes and earnings from investment in joint venture55,693  7.1 %60,057  8.8 %(4,364) (7.3)%
Provision for income taxes13,909  1.8 %10,525  1.5 %3,384  32.2 %
Earnings from investment in
joint venture
1,337  0.2 %1,259  0.2 %78  N/A  
Net income$43,121  5.5 %$50,791  7.5 %$(7,670) (15.1)%
Adjusted EBITDA$92,331  11.8 %$75,536  11.1 %$16,795  22.2 %

Revenues. Revenues for fiscal 2019 increased $103.1 million, or 15.2%, to $783.2 million from $680.1 million for fiscal 2018. The increase in revenues was primarily due to a $44.6 million higher backlog at the beginning of fiscal 2019 compared to the beginning of fiscal 2018, the increase in available work in our existing markets, and $51.6 million of revenue from recent acquisitions, including (i) fiscal 2019 revenue attributable to acquisitions we completed during fiscal year 2019 and (ii) revenue earned during fiscal 2019 attributable to acquisitions that were completed during fiscal 2018 until the one-year anniversary date of such acquisitions.

Gross Profit. Gross profit for fiscal 2019 increased $18.4 million, or 18.5%, to $118.0 million from $99.5 million for fiscal 2018. The higher gross profit was the result of the 15.2% revenue increase and an increase in gross profit margin to 15.1% for fiscal 2019 from 14.6% for fiscal 2018, due to higher utilization of our plants and equipment, as well as the contribution of the liquid asphalt terminal.

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. General and administrative expenses for fiscal 2019 increased $7.4 million, or 13.4%, to $62.7 million from $55.3 million for fiscal 2018. The increase in general and administrative expenses for fiscal 2019 compared to fiscal 2018 was primarily the result of (i) a $2.6 million increase in overhead expenses attributable to acquisitions that we completed during or subsequent to fiscal 2018, (ii) $0.7 million in costs related to the Secondary Offering, and (iii) an increase in the cost of professional services and insurance, reflecting our growth and increased reporting and regulatory requirements as a public company for a full fiscal year. General and administrative expenses as a percentage of revenue declined 0.2% from fiscal 2018 to fiscal 2019.

Interest Expense, Net. Interest expense, net for fiscal 2019 increased $0.6 million, or 46.5%, to $1.9 million compared to $1.3 million for fiscal 2018. The increase in interest expense, net reflects a $1.3 million increase in interest expense, partially offset by a $0.7 million increase in interest income. The increase in interest expense was due to (i) an increase in the average principal debt balance outstanding for fiscal 2019 compared to fiscal 2018 as a result of borrowing for an acquisition in May 2018 and an increase in interest rates, and (ii) a $0.6 million charge to interest expense related to a change in the fair value of our interest rate swaps during fiscal 2019, compared to a $0.4 million credit during fiscal 2018. The increase in interest income was due to the higher average cash balance during fiscal 2019, resulting from proceeds attributable to our IPO in May 2018 and an increase in interest rates earned on our deposits.

26

Table of Contents
Settlement Income. During fiscal 2018, we recorded income of $14.8 million reflecting the net present value of future payments to be received in connection with the Settlement. Pursuant to the Settlement, we will receive aggregate net payments of approximately $15.7 million, payable in four equal installments between January 2019 and July 2020, in exchange for releasing and waiving all current and future claims against a third party.
Provision for Income Taxes. Our effective tax rate increased to 24.4% for fiscal 2019, from 17.2% for fiscal 2018. The Tax Cuts and Jobs Act (the “Tax Act”), which was effective January 1, 2018, included broad and complex changes to the United States tax code, including a reduction in the United States federal corporate income tax rate from 35.0% to 21.0%. As a result of this change, the Company recorded its income tax provision for fiscal 2018 based on a blended U.S. statutory rate of 24.5%, which represents prorated applicable tax rates before and after the effective date of the Tax Act and the effect of applicable state income taxes. The effective tax rate for fiscal 2019 reflects a federal income tax provision based on the U.S. statutory tax rate of 21.0% and the effect of applicable state income taxes. The effects of the higher blended U.S. statutory tax rate of 24.5% for fiscal 2018 compared the U.S. statutory tax rate of 21.0% for fiscal 2019 was offset by (i) a $4.6 million provisional discrete tax benefit related to the Tax Act, primarily due to an adjustment in our U.S. deferred tax liabilities by the same amount and (ii) a $1.3 million permanent tax benefit resulting from the deduction of the excess of fair market value of options exercised during fiscal 2018 over the exercise price. No such tax benefits were applicable to fiscal 2019. This net reduction in deferred tax liabilities also included the estimated impact on the Company’s net state deferred tax assets.
Earnings from Investment in Joint Venture. During fiscal 2019 and 2018, we earned $1.3 million and $1.2 million of pre-tax income, respectively, from our 50% interest in the earnings of a joint venture. We entered into the joint venture with a third party in November 2017 for the sole purpose of performing a construction project for the Alabama DOT.
Net Income. Net income decreased $7.7 million, or 15.1%, to $43.1 million for fiscal 2019 compared to $50.8 million for fiscal 2018. This decrease in net income was a result of (i) the $10.6 million settlement income, net of tax, recognized during fiscal 2018, (ii) higher general and administrative expenses during fiscal 2019 and (iii) an increase in the effective income tax rate during fiscal 2019 compared to fiscal 2018. The decrease was partially offset by an increase in gross profit, as described above.

Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $92.3 million and 11.8%, respectively, for fiscal 2019, compared to $75.5 million and 11.1%, respectively, for fiscal 2018. The increase in Adjusted EBITDA primarily results from the increase in gross profit and depreciation for fiscal 2019 compared to fiscal 2018, partially offset by an increase in general and administrative expense and a decline in gain on sale of equipment. The increase in the Adjusted EBITDA Margin is the result of a higher gross profit percentage and a lower general and administrative expenses as a percentage of revenue in fiscal 2019 compared to fiscal 2018, partially offset by a decline in the gain on sale of equipment. For 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.”

Inflation and Price Changes
Inflation had an immaterial impact on our results of operations for the fiscal years ended September 30, 2019 and 2018 due to relatively low inflation in the 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 Fiscal Year
Ended September 30,
20192018
Net cash provided by operating activities, net of acquisitions$55,274  $66,121  
Net cash used in investing activities(60,225) (89,592) 
Net cash provided by (used in) financing activities(13,567) 95,061  
Net change in cash and cash equivalents$(18,518) $71,590  
27

Table of Contents
Operating Activities
Cash provided by operating activities, net of acquisitions, was $55.3 million for fiscal 2019, a decrease of $10.8 million compared to $66.1 million for fiscal 2018. The decrease was primarily due to a $7.7 million decrease in net income for fiscal 2019 compared to fiscal 2018 and a $13.4 million reduction in changes in operating assets and liabilities, partially offset by a $10.2 million increase in adjustments to reconcile net income to cash flows from operating activities for those same periods. The changes in operating assets and liabilities included (i) a $20.6 million increase in contracts receivable including retainage for fiscal 2019 compared to a $9.3 million decrease for fiscal 2018 due to higher overall revenue, (ii) a $8.8 million increase in inventory, of which $6.5 million related to our acquisition and operation of a liquid asphalt terminal and other acquisitions during fiscal 2019, (iii) a $1.0 million decrease in other current assets for fiscal 2019 compared to a $8.9 million increase for fiscal 2018, primarily due to our recognition of $7.9 million of receivables during fiscal 2018 in connection with Settlement income, (iv) an $8.0 million decrease in other assets for fiscal 2019 compared to a $7.9 million increase for fiscal 2018, primarily reflecting recognition of receivables in connection with Settlement income during fiscal 2018 and $7.2 million in payments received pursuant to the Settlement during fiscal 2019, (v) a $7.6 million decrease in net billing in excess of costs and estimated earnings on uncompleted contracts for fiscal 2019 compared to a $2.0 million increase for fiscal 2018, primarily due to the timing of performing and closing the projects, and (vi) a $2.1 increase in accrued expenses and other current liabilities for fiscal 2019 compared to a $4.8 million decrease for fiscal 2018.

Investing Activities
Cash used in investing activities was $60.2 million for fiscal 2019 compared to $89.6 million for fiscal 2018. The decrease reflects (i) a $37.5 million decrease in cash used in business acquisitions, net of cash acquired during fiscal 2019 compared to fiscal 2018, (ii) a $2.5 million distribution received from a joint venture investment during fiscal 2019, and (iii) a partial offset by a $10.9 million purchase of a liquid asphalt terminal during fiscal 2019.
Financing Activities
Cash used by financing activities was $13.6 million for fiscal 2019 compared to $95.1 million of cash provided in financing activities during fiscal 2018. Fiscal 2018 included $98.0 million of proceeds from our IPO, net of offering costs.
BBVA Credit Agreement
We and each of our subsidiaries are parties to the BBVA Credit Agreement. The BBVA Credit Agreement provides for the Term Loan and the Revolving Credit Facility. At September 30, 2019 and 2018, we had $44.7 million and $57.3 million, respectively, of principal outstanding under the Term Loan, $5.0 million and $5.0 million, respectively, of principal outstanding under the Revolving Credit Facility, and availability of $14.4 million and $14.0 million, respectively, under the Revolving Credit Facility, including reduction for outstanding letters of credit. The obligations of our subsidiaries under the Term Loan and the Revolving Credit Facility are secured by a first priority security interest in substantially all of our assets and are guaranteed by the Company, as the ultimate parent company of the borrower entities.
In August 2019, the BBVA Credit Agreement was amended to, among other things, modify the interest rate and fee structure, as well as the repayment schedule and amounts. Currently, the BBVA Credit Agreement provides for a four-tier escalating interest rate for both the Term Loan and the Revolving Credit Facility that is tied to the London Interbank Offered Rate (“LIBOR”). The baseline rate for such borrowings is LIBOR plus 1.20%, and the rate may increase up to LIBOR plus 1.70% if the Company’s consolidated leverage ratio exceeds 2.00%. Prior to the August 2019 amendment, the interest rate on any particular borrowing was calculated based on one of several indices set forth in the agreement, plus an applied markup of 2.0% to 2.25%. At September 30, 2019 and 2018, the interest rate on outstanding borrowings under the Term Loan and Revolving Credit Facility was 3.244% and 4.242%, respectively. Principal repayments under the Term Loan are made in quarterly installments in an amount equal to 2.50% of the original amount borrowed, a reduction from the 5.00% rate that we paid prior to the August 2019 amendment. We pay a commitment fee of 0.20% per annum on the aggregate unused commitment amount under the Revolving Credit Facility, a reduction from 0.35% prior to the August 2019 amendment, as well as fees with respect to any letters of credit issued thereunder. As of September 30, 2019, all amounts borrowed under the BBVA Credit Agreement were scheduled to mature on July 1, 2022.
The BBVA Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on the Company’s ability to make acquisitions, make loans or advances, make capital expenditures and investments, pay dividends, create or incur indebtedness, create liens, wind up or dissolve, consolidate, merge or liquidate, or sell, transfer or dispose of assets. The BBVA Credit Agreement also requires the Company 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. Prior to the August 2019 amendment, the maximum consolidated leverage ratio was 2.00-to-1.00. At September 30, 2019 and 2018, our fixed charge ratio was 4.04-to-1.00 and 1.51-to-1.00, respectively, and our consolidated leverage ratio was 0.66-to-1.00 and 0.88-to-1.00, respectively. At both September 30, 2019 and 2018, the Company was in compliance with all covenants under the BBVA Credit Agreement.
28

Table of Contents
From time to time, we have entered into interest rate swap agreements to hedge against the risk of changes in interest rates. On June 30, 2017, we entered into an interest rate swap agreement with a notional amount of $25.0 million, under which we pay a fixed percentage rate of 2.015% and receive a credit based on the applicable LIBOR rate. On May 15, 2018, we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million amount borrowed under the Term Loan on that date, under which we pay a fixed percentage rate of 3.01% and receive a credit based on the applicable LIBOR rate. These interest rate swap agreements do not meet the criteria for hedge accounting treatment in accordance with GAAP. At September 30, 2019 and 2018, the aggregate notional value of these interest rate swap agreements was $21.5 million and $28.7 million, respectively, and the fair value was $(0.3) million and $0.3 million, respectively, which is included within other assets or other liabilities on our Consolidated Balance Sheets.
The BBVA Credit Agreement was amended subsequent to September 30, 2019. For more information about the amendment, see Note 22 - Subsequent Events to the consolidated financial statements included elsewhere in this report.
Capital Requirements and Sources of Liquidity
During fiscal 2019 and fiscal 2018, our capital expenditures were approximately $42.5 million and $42.8 million, respectively. Our capital expenditures are typically made during the same fiscal year in which they are approved.  At September 30, 2019, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For fiscal 2020, we expect total capital expenditures to be $44.0 million to $47.0 million, excluding amounts paid to purchase certain equipment previously subject to operating leases during the first quarter of fiscal 2020. For more information on these purchases, see Note 22 - Subsequent Events. Our capital expenditure budget is an estimate and is subject to change. As described further below, we believe that cash flows from operations combined with existing cash on hand and amounts available under our credit facilities will be sufficient to fund our working capital needs and planned capital expenditures for the next 12 months.
Historically, we have had significant cash requirements in order to organically expand our business into new geographic markets. Our cash requirements include costs related to increased capital expenditures, purchase of materials and production of materials and cash to fund our organic expansion into new markets. Our working capital needs are driven by the seasonality and growth of our business, with our cash requirements increasing in periods of growth. Additional cash requirements resulting from our growth include the costs of additional personnel, production and distribution facilities, enhancing our information systems and, in the future, our integration of any acquisitions and our compliance with laws and rules applicable to public companies.
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 equity and debt financings, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success will depend on our ability to access outside sources of capital.
We believe that our operating cash flow and available borrowings under the Revolving Credit Facility will be sufficient to fund our operations for at least the next 12 months. However, future cash flows are subject to a number of variables, 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 we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through borrowings under the Revolving Credit Facility, joint ventures, asset sales, offerings of debt or equity securities or other means. 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.
Off-Balance Sheet Arrangements
We enter into operating leases for property and equipment in the normal course of business. See Note 18 - Commitments and Contingencies to our consolidated financial statements included elsewhere in this report for additional information. Other than the operating leases described therein, we do not currently have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.
29

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. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
Critical accounting policies are those policies that, in management’s view, are the most important in the portrayal of our financial condition and results of operations. The notes to the consolidated financial statements also include disclosure of significant accounting policies. The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting policies and estimates include those involved in the recognition of revenues and provision for income tax expense. Those critical accounting policies and estimates that require the most significant judgment are discussed further below.
Revenue Recognition
The majority of our public construction contracts are fixed unit price contracts. 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. Revenues from these construction contracts are recognized as performance obligations are satisfied over time (formerly known as the percentage-of-completion method), measured by the relationship of total cost incurred compared to total estimated contract costs (cost-to-cost input method). Under this method, revenues are recognized as costs are incurred in an amount equal to cost plus the related expected profit based on the ratio of costs incurred to estimated final costs. This cost-to-cost method is used because management considers it to be the best available measure of progress on these contracts. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Change orders are modifications of an original contract that effectively change the existing provisions of the contract without adding new provisions or terms. Change orders may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Either we or our customers may initiate change orders. We consider unapproved change orders to be contract variations for which we have a change of scope for which we believe we are contractually entitled to a higher price, but where a price change associated with the scope change has not yet been agreed upon with the customer. Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred. We recognize revenues equal to costs incurred on unapproved change orders when realization of price approval is probable. Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers. Change orders that are unapproved as to both price and scope are evaluated as claims. We consider claims to be amounts in excess of agreed contract prices that we seek to collect from our customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. Claims are included in the calculation of revenues when realization is probable and amounts can be reliably determined. To support these requirements, the existence of the following items must be satisfied: (i) the contract or other evidence provides a legal basis for the claim or a legal opinion has been obtained, stating that, under the circumstances, there is a reasonable basis to support the claim; (ii) additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in our performance; (iii) costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and (iv) the evidence supporting the claim is objective and verifiable, not based on management’s subjective evaluation of the situation or on unsupported representations. Revenues in excess of contract costs incurred on claims are recognized when an agreement is reached with the customer as to the value of the claim, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred.
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. The accuracy of our revenues and profit recognition in a given period depends on the accuracy of our estimates of the revenues
30

Table of Contents
and costs to finish uncompleted contracts. Our estimates for all of our significant contracts use a highly detailed “bottom up” approach. However, our projects can be highly complex and, in almost every case, the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid. 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.
The accuracy of our revenue and profit recognition in a given period depends on the accuracy of our estimates of the cost to complete each project. Cost estimates for all of our projects use a detailed approach, and we believe our experience allows us to create materially reliable estimates. There are a number of factors that can contribute to changes in estimates of contract cost and profitability. The most significant of these include:
the completeness and accuracy of the original bid;
costs associated with scope changes;
changes in costs of labor and/or materials;
extended overhead and other costs due to owner, weather and other delays;
subcontractor performance issues;
changes in productivity expectations;
site conditions that differ from those assumed in the original bid;
changes from original design on design-build projects;
the availability and skill level of workers in the geographic location of the project;
a change in the availability and proximity of equipment and materials;
our ability to fully and promptly recover on affirmative claims and back charges for additional contract costs; and
the customer’s ability to properly administer the contract.
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. Many of the contracts under which we perform work contain retainage provisions. Retainage refers to amounts that we have billed to the customer, but are being held for payment by the customer pending satisfactory completion of the project. Retainage on active contracts is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract. At September 30, 2019 and 2018, contracts receivable included $19.8 million and $16.8 million, respectively, of retainage, which was being contractually withheld by customers until 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. We confirm that funds have been appropriated by the government project owner prior to commencing work on such projects. While most of our public contracts are subject to termination at the election of the government entity, in the event of any such termination, we are entitled to receive the contract price for completed work and reimbursement of termination-related costs. 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.
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. 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. For the fiscal years ended September 30, 2019 and 2018, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.
31

Table of Contents
Goodwill must be tested for impairment at least annually. We performed our most recent annual impairment test of goodwill on July 1, 2019. Our test indicated that there was no impairment of goodwill. We first evaluate our market capitalization compared to the net assets of the Company overall. Our final determination of valuation is impacted by a number of factors, but the key factors are the price of our common stock, recently completed transactions from both public companies and private transactions and our estimated forecast of future cash flows.
The valuation approaches contain uncertainty regarding the estimates used. Our market capitalization could be impacted because we are a controlled company, which impacts the control premium we apply to the market price of our common stock. One of the largest uncertainties relates to federal, state and local government spending, which management expects to increase in the upcoming years. There are a number of other uncertainties with respect to our future financial performance that could impact estimated future cash flows, including those discussed under the heading “Risk Factors” elsewhere in this report. 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, 2019 or 2018. At September 30, 2019 and 2018, we had goodwill with a carrying amount of $38.5 million and $32.9 million, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and, where necessary, establish a valuation allowance. Valuation allowances are established to reduce deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized in future periods.
To assess this likelihood, we use historical three-year results of operations, estimates and judgments regarding our future taxable income and consider the jurisdiction in which the taxable income is generated to determine whether a valuation allowance is required. Such evidence can include our current financial position, results of operations, actual and forecasted results, the reversal of deferred tax liabilities, tax planning strategies and the current and forecasted business economics of our industry. Additionally, we record uncertain tax positions at their net recognizable amount, based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in jurisdictions in which we operate.
On the basis of our evaluations, at September 30, 2019 and 2018, 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.
Accrued Insurance Cost
We carry insurance policies to cover various risks, primarily general liability, automobile liability and workers compensation, under which we are liable to reimburse the insurance company for a portion of each claim paid, ranging from $100,000 to $500,000 per occurrence. We accrue for probable losses, both reported and unreported, that are reasonably estimable using actuarial methods based on historic trends and modified, if necessary, by recent events. Changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position up to $500,000 per occurrence for general liability, automobile liability and workers’ compensation claims.
We provide employee medical insurance under policies that are both fixed-premium, fully-insured policies and self-insured policies that are administered by the insurance company. Under the self-insured policies, we are liable to reimburse the insurance company for actual claims paid plus an administrative fee. We purchase separate stop-loss insurance, which limits the individual participant claim loss to amounts ranging from $75,000 to $160,000.
Share-Based Payments and Other Equity Transactions
Our equity incentive plans are administered by the Compensation Committee of our Board of Directors. We account for our equity-based compensation plans 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.
Other Accounting Policies and New Accounting Pronouncements
See Note 2 – Significant Accounting Policies and Note 3 – Accounting Standards, to the consolidated financial statements for the fiscal year ended September 30, 2019, which are contained in Part II, Item 8 of this report and are incorporated by reference herein.
Emerging Growth Company
The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.
32

Table of Contents
Seasonality
The use and consumption of our products and services fluctuate due to seasonality. Our products are used, and our construction operations and production facilities are located, outdoors. 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 demand for our services. 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 the third and fourth quarters of our fiscal year typically result in higher activity and revenues during those quarters. The first and second quarters of our fiscal year typically have lower levels of activity due to adverse weather conditions.
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.
Interest Rate Risk
We are exposed to interest rate risk on certain of our short- and long-term debt obligations used to finance our operations and acquisitions. We have LIBOR-based floating rate borrowings under the BBVA Credit Agreement, which expose us to variability in interest payments due to changes in the reference interest rates. From time to time, we use derivative instruments as hedges 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 cash flows resulting from interest rate risk, on June 30, 2017, we entered into an amortizing interest rate swap agreement applicable to $25.0 million outstanding debt under the Term Loan, for which we pay a fixed rate of 2.015% and receive a credit based on the applicable LIBOR rate. In connection with the amendment to the BBVA Credit Agreement and the additional borrowing on May 15, 2018, we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million additional debt under the Term Loan. Under this additional swap agreement, we pay a fixed percentage rate of 3.01% and receive a credit based on the applicable LIBOR rate.
At September 30, 2019, we had a total of $49.7 million of variable rate borrowings outstanding. 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 $0.5 million change in our annual interest expense based on our variable rate debt at September 30, 2019.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide the information called for by this Item.

33

Table of Contents
Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2019 and September 30, 2018

34

Table of Contents
Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of Construction Partners, Inc.:


Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Construction Partners, Inc. and its subsidiaries (the Company) as of September 30, 2019 and 2018, the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ RSM US LLP

We have served as the Company’s auditor since 2017.

Birmingham, Alabama
December 13, 2019

35

Table of Contents
CONSTRUCTION PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30,
20192018
ASSETS
Current assets:
Cash and cash equivalents$80,619  $99,137  
Contracts receivable including retainage, net139,882  120,291  
Costs and estimated earnings in excess of billings on uncompleted contracts12,030  9,334  
Inventories34,291  24,556  
Prepaid expenses and other current assets13,144  14,137  
Total current assets279,966  267,455  
Property, plant and equipment, net205,870  178,692  
Goodwill38,546  32,919  
Intangible assets, net3,434  3,735  
Investment in joint venture496  1,659  
Other assets2,284  10,270  
Deferred income taxes, net1,173  1,580  
Total assets$531,769  $496,310  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$70,442  $63,510  
Billings in excess of costs and estimated earnings on uncompleted contracts31,115  38,738  
Current maturities of debt7,538  14,773  
Accrued expenses and other current liabilities19,078  17,520  
Total current liabilities128,173  134,541  
Long-term liabilities:
Long-term debt, net of current maturities42,458  48,115  
Deferred income taxes, net11,480  8,890  
Other long-term liabilities6,108  5,295  
Total long-term liabilities60,046  62,300  
Total liabilities188,219  196,841  
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized at September 30, 2019 and September 30, 2018 and no shares issued and outstanding
    
Class A common stock, par value $0.001; 400,000,000 shares authorized, 32,597,736 shares issued and outstanding at September 30, 2019, and 11,950,000 shares issued and outstanding at September 30, 2018
33  12  
Class B common stock, par value $0.001; 100,000,000 shares authorized, 22,106,961 shares issued and 19,184,009 shares outstanding at September 30, 2019, and 42,387,571 issued and 39,464,619 outstanding at September 30, 2018
22  42  
Additional paid-in capital243,452  242,493  
Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001
(15,603) (15,603) 
Retained earnings115,646  72,525  
Total stockholders’ equity343,550  299,469  
Total liabilities and stockholders’ equity$531,769  $496,310  
See notes to consolidated financial statements.
36

Table of Contents
CONSTRUCTION PARTNERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
For the Fiscal Year Ended
September 30,
20192018
Revenues$783,238  $680,096  
Cost of revenues665,285  580,560  
Gross profit117,953  99,536  
General and administrative expenses(62,724) (55,303) 
Settlement income  14,803  
Gain on sale of equipment, net1,909  2,392  
Operating income57,138  61,428  
Interest expense, net(1,861) (1,270) 
Other income (expense)416  (101) 
Income before provision for income taxes and earnings from investment
in joint venture
55,693  60,057  
Provision for income taxes13,909  10,525  
Earnings from investment in joint venture1,337  1,259  
Net income$43,121  $50,791  
Net income per share attributable to common stockholders:
Basic$0.84  $1.11  
Diluted$0.84  $1.11  
Weighted average number of common shares outstanding:
Basic51,421,159  45,605,845  
Diluted51,427,220  45,919,648  
See notes to consolidated financial statements.

37

Table of Contents
CONSTRUCTION PARTNERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common StockClass A Common StockClass B Common StockAdditional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmount
Balance, September 30, 201744,987,575  $45    $    $  $142,385  $(11,983) $21,734  $152,181  
Reclassification of common stock(44,987,575) (45) —  —  44,987,571  45  —  —  —    
Initial public offering of Class A common stock, net of offering costs—  —  9,350,000  9  —  —  98,000  —  —  98,009  
Conversion of Class B common stock to Class A common stock—  —  2,600,000  3  (2,600,000) (3) —  —  —    
Issuance of restricted shares from treasury—  —  —  —  —  —  (453) 458  —  5  
Cashless option exercise—  —  —  —  —  —  1,586  (4,078) —  (2,492) 
Equity-based compensation expense—  —  —  —  —  —  975  —  —  975  
Net income—  —  —  —  —  —  —  —  50,791  50,791  
Balance, September 30, 2018    11,950,000  12  42,387,571  42  242,493  (15,603) 72,525  299,469  
Conversion of Class B common stock to Class A common stock—  —  20,355,202  20  (20,355,202) (20) —  —  —    
Issuance of stock grant awards—  —  292,534  —  —  —  —  —  —    
Stock option exercise—  —  —  —