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

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

9 Months Ended

Jun. 30, 2021

The Company leases certain facilities, office space, vehicles and equipment. As of June 30, 2021, 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 $6.7 million, $1.5 million and $5.3 million, respectively. As of June 30, 2021, the Company had no 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 June 30,
	2021		2020
	(unaudited)		(unaudited)
Operating lease cost	$	593	$	875
Short-term lease cost	3,732		3,229
Total lease expense	$	4,325	$	4,104


	For the Nine Months Ended June 30,
	2021		2020
	(unaudited)		(unaudited)
Operating lease cost	$	1,946	$	2,652
Short-term lease cost	8,857		10,592
Total lease expense	$	10,803	$	13,244

Short-term leases (i.e., 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 the Company's 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 June 30, 2021, the weighted-average remaining term of the Company’s leases was 9.2 years, and the weighted-average discount rate was 3.89%. As of June 30, 2021, 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 June 30, 2021 (in thousands):


Fiscal Year	Amount (unaudited)
Remainder of 2021	$	511
2022	1,489
2023	1,092
2024	834
2025	663
2026 and thereafter	3,698
Total future minimum lease payments	$	8,287
Less: imputed interest	1,466
Total	$	6,821

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 was $0.3 million for the three months ended June 30, 2021 and 2020 and $0.7 million and $0.8 million for the nine months ended June 30, 2021 and 2020, respectively.