Construction Partners, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

The Company leases certain facilities, office space, vehicles and equipment. As of December 31, 2020, operating leases under ASC Topic 842, Leases, were included in (i) operating lease right-of use assets, (ii) current portion of operating lease liabilities and (iii) operating lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets in the amounts of $6.9 million, $1.7 million and $5.4 million, respectively. As of December 31, 2020, the Company did not have any lease contracts that had not yet commenced but had created significant rights and obligations.

The components of lease expense were as follows for the periods presented (in thousands):


	For the Three Months Ended December 31,
	2020		2019
	(unaudited)		(unaudited)
Operating lease cost	$	800	$	864
Short-term lease cost	2,490		3,719
Total lease expense	$	3,290	$	4,583

Short-term leases (those with terms of 12 months or less) are not capitalized but are expensed on a straight-line basis over the lease term. The majority of our short-term leases relate to equipment used on construction projects. These leases are entered into at periodic

rental rates for an unspecified duration and typically have a termination for convenience provision. Short-term lease cost includes leases with terms of one month or less.

As of December 31, 2020, the weighted-average remaining term of the Company’s leases was 9.2 years, and the weighted-average discount rate was 4.00%. As of December 31, 2020, the lease liability was equal to the present value of the remaining lease payments, discounted using the incremental borrowing rate on the Company’s secured debt using a single maturity discount rate, as such rate is not materially different from the discount rate applied to each of the leases in the portfolio.

The following table summarizes the Company’s undiscounted lease liabilities outstanding as of December 31, 2020 (unaudited in thousands):


Fiscal Year	Amount
Remainder of 2021	$	1,514
2022	1,291
2023	873
2024	782
2025	622
2026 and thereafter	3,616
Total future minimum lease payments	$	8,698
Less: imputed interest	1,564
Total	$	7,134

The Company has lease agreements associated with quarry facilities under which the Company makes royalty payments. The payments are generally based on tons sold in a particular period; however, certain agreements have minimum annual payments. Royalty expense recorded in cost of revenue during the three months ended December 31, 2020 and 2019 was $0.2 million.