SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Delaware						26-0758017
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

290 Healthwest Drive, Suite 2 Dothan, Alabama						36303
(Address of principal executive offices)						(Zip Code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.001 per share	ROAD	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

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 x☒ 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 x☒ 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~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐☒
Non-accelerated filer	x☐	Smaller reporting company	x☒
Emerging growth company	x☒

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. x☒

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

As of February ~~8, 2019,~~5, 2020, the registrant had ~~11,950,000~~32,705,418 shares of Class A common stock, $0.001 par value, and ~~39,464,619~~19,076,327 shares of Class B common stock, $0.001 par value, outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ~~"Securities Act"~~“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”), including 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," "targeting," "intend," "could," "might," "should," "believe"~~“seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “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~~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 under the heading ~~"Risk Factors"~~“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. We believe the expectations reflected in the forward-looking statements contained in this ~~Quarterly Report on Form 10-Q~~report are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.

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 or infrastructure construction, land usage, ~~and~~ environmental, health and safety ~~matters;~~matters, and government 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 ~~results of litigation~~ 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;~~infrastructure, including cybersecurity incidents; and

•our ability to remediate the material weaknesses in internal control over financial reporting identified in preparing our financial statements for the fiscal years ended September 30, 2018 and September 30, 2017 and to subsequently 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 the 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 in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

See notes to ~~unaudited~~ consolidated financial ~~statements.~~statements (unaudited).


	Class A Common Stock				Class B Common Stock						Additional Paid-in Capital		Treasury Stock		Retained Earnings	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
September 30, 2019	32,597,736	$	33	22,106,961	$	22	$	243,452	$	(15,603)	$	115,646	$	343,550
Net income	—	—		—	—		—		—		5,461		5,461
Equity-based compensation expense	—	—		—	—		395		—		—		395
Conversion of Class B common stock to Class A common stock	107,682	—		(107,682)	—		—		—		—		—
Effect of adopting ASU Topic 842 (See Note 3)	—	—		—	—		—		—		(222)		(222)
December 31, 2019	32,705,418	$	33	21,999,279	$	22	$	243,847	$	(15,603)	$	120,885	$	349,184

Class A Common Stock Class B Common Stock
Additional
Paid-in
Capital

Treasury
Stock

Retained
Earnings

Total
Stockholders'
Equity
Shares Amount Shares Amount
September 30, 2018 11,950,000
$ 12
42,387,571
$ 42
$ 242,493
$ (15,603 ) $ 72,525
$ 299,469
Net income —
—
—
—
—
—
5,154
5,154
December 31, 2018 11,950,000
$ 12
42,387,571
$ 42
$ 242,493
$ (15,603 ) $ 77,679
$ 304,623

Common Stock Additional
Paid-in
Capital Treasury
Stock Retained
Earnings Total
Stockholders'
Equity
Shares Amount
September 30, 2017 44,987,575
$ 45
$ 142,385
$ (11,983 ) $ 21,734
$ 152,181
Net income —
—
—
—
10,996
10,996
December 31, 2017 44,987,575
$ 45
$ 142,385
$ (11,983 ) $ 32,730
$ 163,177


	Class A Common Stock				Class B Common Stock						Additional Paid-in Capital		Treasury Stock		Retained Earnings	Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
September 30, 2018	11,950,000	$	12	42,387,571	$	42	$	242,493	$	(15,603)	$	72,525	$	299,469
Net income	—	—		—	—		—		—		5,154		5,154
December 31, 2018	11,950,000	$	12	42,387,571	$	42	$	242,493	$	(15,603)	$	77,679	$	304,623

See notes to ~~unaudited~~ consolidated financial ~~statements.~~statements (unaudited).

(unaudited in thousands)

See notes to ~~unaudited~~ consolidated financial ~~statements.~~statements (unaudited).

Business Description

Construction Partners, Inc. (the ~~"Company"~~“Company”) is a leading infrastructure and road construction company operating in Alabama, Florida, Georgia, North Carolina and South Carolina through its wholly owned subsidiaries. The Company provides site development, paving, utility and drainage systems services, as well as hot mix asphalt ~~("HMA"~~(“HMA”), aggregates, ready-mix concrete, and liquid asphalt cement supply. The Company executes projects for a mix of private, municipal, state, and federal customers that are both privately and publicly funded. The majority of the work is performed under fixed unit price contracts and, to a lesser extent, fixed total price contracts.

The Company was formed as a Delaware corporation in 2007 as a holding company for its wholly owned subsidiary, Construction Partners Holdings, Inc., a Delaware corporation incorporated in 1999 that began operations in 2001, to execute an acquisition growth strategy in the ~~hot mix asphalt~~HMA paving and construction industry. On December 31, 2019, the Company completed an internal reorganization by merging Construction Partners Holdings, Inc. with and into the Company, with the Company surviving the merger. SunTx Capital Partners ~~("SunTx"~~(“SunTx”), a private equity firm based in Dallas, Texas, is the Company’s majority investor and has owned a controlling interest in the Company’s stock since the ~~Company's~~Company’s inception.

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.

Note 2 - Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of ~~Construction Partners, Inc.~~the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. These interim consolidated statements have been prepared pursuant to the rules and regulations of the ~~United States~~ Securities and Exchange Commission ~~("SEC"~~(“SEC”), which permit reduced disclosure for interim periods. The Consolidated Balance Sheet as of September 30, ~~2018~~2019 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required by accounting principles generally accepted in the United States of America ~~("GAAP"~~(“GAAP”) with respect to annual financial statements. In the opinion of management, the unaudited consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the ~~Company's~~Company’s financial position, results of operations and cash flows for the dates and periods presented. These consolidated financial statements and accompanying notes should be read in conjunction with the ~~Company's~~Company’s audited annual consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 (the ~~"2018~~“2019 Form ~~10-K"~~10-K”). Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.

~~Common share and per share amounts have been retroactively adjusted for all periods presented to give effect to the Stock Split described in Note 7 - Equity.~~

~~Management's~~Management’s Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the recorded amounts of assets, liabilities, ~~stockholders'~~stockholders’ equity, revenues and expenses during the reporting period, and the disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used in accounting for items such as recognition of revenues and cost of revenues, goodwill and other intangible assets, valuation of operating lease right-of-use assets, allowance for doubtful accounts, valuation allowances related to income taxes, accruals for potential liabilities related to lawsuits or insurance claims, and the fair value of equity-based compensation awards. Estimates are continually evaluated based on historical information and actual experience; however, actual results could differ from these estimates.

A description of certain critical accounting policies of the Company is presented below. Additional critical accounting policies and the underlying judgments and uncertainties are described in the notes to the ~~Company's~~Company’s annual consolidated financial statements included in its ~~2018~~2019 Form 10-K.

Emerging Growth Company

~~Construction Partners, Inc.~~The Company is an ~~"emerging~~“emerging growth ~~company"~~company,” as defined by the Jumpstart Our Business Startups Act (the ~~"JOBS Act"~~“JOBS Act”), enacted in April 2012. As an emerging growth company, the Company could have taken advantage of an exemption that would have allowed the Company to wait to comply with new or revised financial accounting standards until the effective date of such standards for private companies. However, the JOBS Act provides that a company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but such election to opt out is irrevocable. The Company has irrevocably elected to opt out of such extended transition period, which means that when a ~~standard is issued~~new or revised ~~and it~~standard has a different effective ~~dates~~date for public and private companies, the Company is required to adopt the ~~new or revised~~ standard at the effective date applicable to public companies that are not emerging growth companies.

Cash and Cash Equivalents

Cash consists principally of currency on hand and demand deposits at commercial banks. Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Cash equivalents include investments with original maturities of three months or less. The Company maintains demand accounts, money market accounts and certificates of deposit at several banks. From time to time, the account balances have exceeded the maximum available federal deposit insurance coverage limit. The Company has not experienced any losses in such accounts and regularly monitors its credit risk.

Contracts Receivable Including Retainage, net

Contracts receivable are generally based on amounts billed and currently due from customers, amounts currently due but unbilled, and amounts retained by the customer pending completion of a project. It is common in the ~~Company's~~Company’s industry for a small portion of either progress billings or the contract price, typically 10%, to be withheld by the customer until the Company completes a project to the satisfaction of the customer in accordance with contract terms. Such amounts, defined as retainage, represent a contract asset and are included on the ~~consolidated balance sheet~~Consolidated Balance Sheet as ~~"Contracts~~“Contracts receivable including retainage, ~~net"~~net”. Based on the ~~Company's~~Company’s experience with similar contracts in recent years, billings for such retainage balances are generally collected within one year of the completion of the project.

The carrying value of contracts receivable including retainage, net of the allowance for doubtful accounts, represents their estimated net realizable value. Management provides for uncollectible accounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts, type of service performed, and current economic conditions. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and an adjustment of the contract receivable.

Contract Assets and Contract Liabilities

Billing practices for the ~~Company's~~Company’s contracts are governed by the contract terms of each project based on (i) progress toward completion approved by the owner, (ii) achievement of milestones or (iii) pre-agreed schedules. Billings do not necessarily correlate with revenues recognized under the cost-to-cost input method (formerly known as the percentage-of-completion ~~method of accounting.~~method). The Company records contract assets and contract liabilities to account for these differences in timing.

The contract asset, ~~"Costs~~“Costs and estimated earnings in excess of billings on uncompleted contracts,"” arises when the Company recognizes revenues for services performed under its construction projects, but the Company is not yet entitled to bill the customer under the terms of the contract. Amounts billed to customers are excluded from this asset and reflected on the Consolidated Balance Sheet as ~~"Contracts~~“Contracts receivable including retainage, ~~net"~~net”. Included in costs and estimated earnings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for (i) errors, (ii) changes in contract specifications or design, (iii) contract change orders in dispute, unapproved as to scope and price, or (iv) other customer-related causes of unanticipated additional contract costs (such as claims). Such amounts are recorded ~~at estimated net realizable value when realization is probable and~~to the extent that the amount can be reasonably ~~estimated.~~estimated and recovery is probable. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Unapproved change orders and claims also involve the use of estimates, and revenues associated with unapproved change orders and claims are included ~~when realization~~in the transaction price to the extent that it is probable ~~and amounts can be reliably determined.~~that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. The Company did not recognize any material amounts associated with claims and unapproved change orders during the periods presented.

The contract liability, ~~"Billings~~“Billings in excess of costs and estimated earnings on uncompleted contracts,"” represents the ~~Company's~~Company’s obligation to transfer to a customer goods or services ~~to a customer~~ for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract. Revenue for future services reflected in this account are recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract.

Costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components.

Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of contracts receivable including retainage. In the normal course of business, the Company provides credit to its customers and does not generally require collateral. ~~Concentrations~~The Company monitors concentrations of credit risk associated with these receivables ~~are monitored~~ on an ongoing basis. The Company has not historically experienced significant credit losses, due primarily to ~~management's~~management’s assessment of ~~customers'~~customers’ credit ratings. The Company principally deals with recurring customers, state and local governments and well-known local companies whose reputations are known to management. The Company performs credit checks for significant new customers and generally requires progress payments for significant projects. The Company generally has the ability to file liens against the property if payments are not made on a timely basis. No single customer accounted for more than ~~10%~~10.0% of the ~~Company's~~Company’s contracts receivable including retainage, net balance at December 31, ~~2018~~2019 or September 30, ~~2018.~~2019.

Projects performed for various Departments of Transportation accounted for 31.0% and 37.3% of consolidated revenues for each of the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017.~~2018. Two customers accounted for more than ~~10%~~10.0% of consolidated revenues for the three months ended December 31, 2019 and 2018, ~~or December 31, 2017,~~ as follows:

Revenues from Contracts with Customers

The Company derives all of its revenues from contracts with its customers, predominantly by performing construction ~~projects~~services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential developments. These projects ~~represent~~are performed for a mix of federal, state, municipal and private customers. In addition, the Company ~~generates~~derives revenues from the sale of construction materials, including HMA, aggregates, liquid asphalt cement and ~~aggregates~~ready-mix concrete to third-party public and private customers pursuant to contracts with those customers. The ~~Company's revenue~~following table reflects, for the periods presented, (i) revenues generated from public infrastructure construction ~~contracts~~projects and ~~revenue~~the sale of construction materials to public customers and (ii) revenues generated from ~~sales~~private infrastructure construction projects and the sale of ~~HMA and aggregates are both generally impacted by similar economic factors.~~construction materials to private customers.


	% of Consolidated Revenues For the Three Months Ended December 31,
	2019		2018
Private	39.4	%	32.1	%
Public	60.6	%	67.9	%

Revenues derived from construction projects are recognized over time ~~using the percentage-of-completion method of accounting,~~ as the Company satisfies its performance obligations by transferring to the customer control of the asset created or enhanced by the ~~project to the customer.~~project. Recognition of revenues and cost of revenues for construction projects requires significant judgment by management, including, among other things, estimating total costs expected to be incurred to complete a project and measuring progress toward completion. Management reviews contract estimates regularly to assess revisions of estimated costs to complete a project and measurement of progress toward completion.

Management believes the Company maintains reasonable estimates based on prior experience; however, many factors contribute to changes in estimates of contract costs. Accordingly, estimates made with respect to uncompleted projects are subject to change as each project progresses and better estimates of contract costs become available. All contract costs are recorded as incurred, and revisions to estimated total costs are reflected as soon as the obligation to perform is determined. Provisions are recognized for the full amount of estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue, regardless of the stage of completion. When the Company incurs additional costs related to work performed by subcontractors, the Company may ~~have~~be able to utilize contractual provisions to back charge the subcontractors for those costs. A reduction to costs related to back charges is recognized when the estimated recovery is probable and the amount can be reasonably estimated. Contract costs consist of (i) direct costs on contracts, including labor, materials, and amounts payable to subcontractors and (ii) indirect costs related to contract performance, such as insurance, employee benefits, and equipment (primarily depreciation, fuel, maintenance and repairs).

Progress toward completion is estimated using the input method, measured by the relationship of total cost incurred through the measurement date to total estimated costs required to complete the project (cost-to-cost method). The Company believes this method best depicts the transfer of goods and services to the customer because it represents satisfaction of the ~~Company's~~Company’s performance obligation under the contract, which occurs as the Company incurs costs. The Company measures percentage of completion based on the performance of a single performance obligation under its construction projects. Each of the ~~Company's~~Company’s construction contracts represents a single performance obligation to complete a defined construction project. This is because goods and services promised for delivery to a customer are not distinct, as the customer cannot benefit from any individual portion of the services on its own. All deliverables under a contract are part of a project defined by a customer and represent a series of integrated goods and services that have the same pattern of delivery to the customer and use the same measure of progress toward satisfaction of the performance obligation as the ~~customer's~~customer’s asset is created or enhanced by the Company. The ~~Company's~~Company’s obligation is not satisfied until the entire project is complete.

Revenue recognized during a reporting period is based on the ~~estimated incremental percentage-of-completion~~cost-to-cost input method applied to the total ~~contract~~transaction price, including adjustments for variable consideration, such as liquidated damages, penalties or bonuses, related to the timeliness or quality of project performance. ~~Such adjustments are made to reflect~~The Company includes variable consideration in the estimated transaction price at the most likely amount ~~of consideration management expects~~to which the Company expects to be entitled or the most likely amount the Company expects to atincur, in the ~~completion~~case of liquidated damages or penalties. Such amounts are included in the ~~contract, based on the best information available~~transaction price to the Company. The basis for total contract price is a stated amount in the contract, which is generally either fixed unit price or fixed total price, as described below. The Company adjusts the estimated contract price to include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty ~~associated with the variable consideration~~ is resolved. ~~Total contract price is adjusted to reflect expected liquidated damages assessments or other penalties in the period the~~The Company determines they will be incurred or when the customer imposes the penalty. Total contract price is adjusted to reflect contract bonus provisions related to timeliness or quality metrics when realization is probable and amounts can be reliably determined, which is generally when they are awarded by the customer. We accountaccounts for ~~changes in the measure of progress and~~ changes to the estimated transaction price using a cumulative catch-up adjustment.

The majority of the ~~Company's~~Company’s public construction contracts are fixed unit price contracts. Under fixed unit price contracts, the Company is committed to providing materials or services required by a contract at fixed unit prices (for example, dollars per ton of asphalt placed). The ~~Company's~~Company’s 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. Contract cost is recorded as incurred, and revisions in contract revenue and cost estimates are reflected in the accounting period when known. 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 estimated revenues and cost 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 and become part of the single performance obligation that is partially satisfied at the date of the contract modification. This is because goods and services promised under change orders are generally not distinct from the remaining goods and services under the existing contract, due to the significant integration of services performed in the context of the contract. Accordingly, change orders are generally accounted for as a modification of the existing contract and single performance obligation. We account for the modification using a cumulative catch-up adjustment. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work.

Revenues derived from the sale of HMA, aggregates, ready-mix concrete, and ~~aggregates~~liquid asphalt are recognized at athe point in time at which ~~is when~~ control of the product is transferred to the customer. Generally, that point in time is when the customer accepts delivery at its facility or receives product in its own transport vehicles from one of the ~~Company's~~Company’s HMA plants. Upon purchase, the Company generally provides an invoice or similar document detailing the goods transferred to the customer. The Company generally offers payment terms customary in the industry, which typically require payment ranging from point-of-sale to 30 days following purchase.

The provision for income taxes includes federal and state income taxes. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which the temporary differences are expected to be reversed or settled. The effect of a change in tax rates on deferred tax assets and liabilities ~~of a change in tax rates~~ is recognized in income in the period that includes the enactment date. Management evaluates the realization of deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and deferred tax liabilities are presented on a net basis by taxing authority and classified as non-current on the Consolidated Balance Sheet. The Company classifies income tax-related interest and penalties as interest expense and other expenses, respectively.

As described in Note 7 – Equity, the Company completed an initial public offering (the "IPO") and reclassification (the "Reclassification") of its common stock during the fiscal year ended September 30, 2018, involving, among other things, a ~~25.2~~ ~~to 1 split of shares of common stock (the "Stock Split") and the creation of a dual-class common stock structure. Prior to the Reclassification, all~~Basic net income ~~of the Company was~~per share attributable to ~~the holders of shares of~~ common stock immediately prior to the Reclassification. During the period beginning from the Reclassification through the IPO, all net income of the Company was attributable to holders of Class B common stock. Since the IPO, all net income of the Company has been attributable equally, on a per share basis, to the holders of Class A common stock and Class B common stock.

~~Basic earnings per share~~stockholders is computed by dividing net income attributable to common stockholders by the weighted average number of ~~aggregate~~common shares ~~of pre-Reclassification~~outstanding during the period. Diluted net income per common ~~stock, Class A common stock and Class B common stock, as applicable for the respective periods, calculated on a post-Stock Split basis. Diluted earnings per~~ share ~~is calculated by dividing net income~~ attributable to common stockholders byis the ~~weighted average number of aggregate shares of pre-Reclassification~~same as basic net income per share attributable to common stockholders, but includes dilutive unvested stock ~~Class A common stock, Class B common stock and potential dilutive common shares determined~~awards using the treasury ~~method, calculated on a post-Stock Split basis as applicable for the respective periods. Securities that are anti-dilutive are not included in the calculation~~stock method.

Note 3 - Accounting Standards

Recently Adopted Accounting Pronouncements

~~In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~ ("ASC 606"), which revises and consolidates current guidance, eliminates industry-specific revenue recognition guidance and establishes a comprehensive principle-based approach for determining revenue recognition. The core principle of the guidance is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for providing those goods or services. Amendments of this update set forth a five-step revenue recognition model to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the Accounting Standards Codification ~~("ASC"~~(“ASC”)~~: (i) identify~~ Topic 842

ASC Topic 842, Leases (“Topic 842”) requires lessees to recognize operating lease right-of-use assets and operating lease liabilities on the ~~contract with~~balance sheet as described below. Prior to adoption of Topic 842, operating leases were expensed on a ~~customer, (ii) identify~~straight-line basis over the ~~performance obligations in~~lease term on the ~~contract, (iii) determine~~Company’s Consolidated Statements of Income, and the ~~transaction price, (iv) allocate the transaction price to the performance obligations in the contract,~~Company did not recognize operating lease right-of-use assets and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The update also provides guidance regarding the recognition of costs related to obtaining and fulfilling customer contracts. This update also requires quantitative and qualitative disclosures sufficient to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosuresoperating lease liabilities on ~~significant judgments made when applying the guidance. The FASB subsequently amended ASC 606 on multiple occasions to, among other things, delay~~ its ~~effective date and clarify certain implementation guidance.~~Consolidated Balance Sheet.

The ~~update permits adoption~~Company adopted Topic 842 effective October 1, 2019 using ~~either (i) a full retrospective approach, under which all years included in the financial statements are presented under the revised guidance, or (ii)~~ a modified retrospective transition approach ~~under which financial statements are prepared under~~with no prior-period retrospective adjustments. As a result, on the ~~revised guidance for~~adoption date, the ~~year of adoption, but not for prior years. Under the latter method, entities recognize~~Company recognized (i) a net cumulative ~~adjustment~~decrease to ~~the opening balance of~~ retained earnings ~~for contracts~~of $0.2 million, (ii) additional operating lease right-of-use assets of $9.1 million, (iii) current operating lease liabilities of $2.9 million and (iv) non-current operating lease liabilities of $6.4 million. The Company elected to apply optional practical expedients that ~~still require performance by~~allowed the ~~entity~~Company to forego reassessments of (i) the classification of leases existing at the date of ~~adoption.~~adoption, (ii) the initial direct costs of any existing leases and (iii) whether any expired or existing contracts are, or contain, leases.

~~Management adopted this update for~~In connection with the ~~Company's fiscal year beginning October 1, 2018, using the modified retrospective approach. The~~ adoption of ~~ASC 606 on October 1, 2018 did not result in a material impact that required recognition~~Topic 842, the Company implemented several accounting policies relating to the identification and measurement of operating lease right-of-use assets and liabilities. At the inception of a ~~cumulative adjustment~~contractual arrangement, the Company determines whether a contract contains a lease by assessing whether the contract conveys to the Company the right to control the use of an identified asset in exchange for consideration over a period of time. If so, the Company measures and records an operating lease liability equal to the present value of the ~~opening retained earnings balance~~future lease payments. Because most of the Company’s leases do not provide an implicit rate, the Company’s incremental borrowing rate is used in determining the present value of lease payments. The amount of the operating lease right-of-use asset consists of: (i) the amount of the initial measurement of the operating lease liability; (ii) any lease payments made at or before the commencement date, minus any lease incentives received; and (iii) any initial direct costs incurred. The present value calculation may account for ~~contracts~~options to extend or terminate the lease when it is reasonably certain that ~~still required performance at September 30, 2018. Application of ASC 606 for~~ the ~~three months ended December 31, 2018 had~~Company will exercise the ~~following impact on the Company's Consolidated Balance Sheet at December 31, 2018 and Consolidated Statement of Income for the three months ended December 31, 2018 (in thousands):~~

As Reported
Impact of
ASC 606
Without Application of ASC 606
Costs and estimated earnings in excess of billings on uncompleted contracts $ 10,192
$ (1,060 ) $ 11,252
Inventories $ 28,538
$ 1,604
$ 26,934
Accrued expenses and other liabilities $ 12,118
$ (41 ) $ 12,159
Billings in excess of costs and estimated earnings on uncompleted contracts $ 39,471
$ 705
$ 38,766
Revenues $ 154,327
$ (1,765 ) $ 156,092
Cost of revenues $ 133,199
$ (1,604 ) $ 134,803
Provision (benefit) for income taxes $ 1,651
$ (41 ) $ 1,692
Net income $ 5,154
$ (120 ) $ 5,274
option.

The Company has ~~refined its accounting policies and related internal controls affected by this update. Management's assessment of the Company's construction contracts under the new standard supports~~elected not to apply the recognition requirements to short-term leases (those with terms of ~~revenue over time using~~12 months or less) or leases to explore for or use minerals. Instead, for these types of leases, the percentage-of-completion method of accounting, measured by the relationship of total cost incurred to total estimated contract costs (cost-to-cost method), which is consistent with the Company's historical revenue recognition practices. As such, the Company's construction contracts continue to be recognized over time considering the continuous transfer of control to its customers during the performance of

~~construction projects. The~~ Company ~~also enhanced its disclosures regarding judgments and estimates used by management~~recognizes lease expense in the ~~application~~Consolidated Statements of ~~ASC 606 in Note 2 - Significant Accounting Policies.~~Income on a straight-line basis over the lease term.

Note 4 - Business Acquisitions

~~The Scruggs Company~~

On ~~May 15, 2018,~~October 1, 2019, a subsidiary of the Company ~~executed a stock purchase agreement (the "Stock Purchase Agreement") to complete the acquisition of 100%~~acquired substantially all of the ~~common shares~~assets of an HMA manufacturing plant and ~~voting interests of~~paving company located in Palm City, Florida. The ~~Scruggs~~acquired business is expected to benefit from geographic synergies resulting from its proximity to the Company’s preexisting operations in central Florida, including its Okeechobee, Florida HMA plant and office, which the Company ~~("Scruggs"), which complemented the Company's vertically integrated southeastern United States operations, providing new bidding areas~~acquired in ~~the expanding Georgia market (the "Scruggs Acquisition"). This~~February 2019. The acquisition ~~was~~has been accounted for as a business combination in accordance with ASC Topic 805, Business ~~Combinations.~~Combinations. The purchase price of $17.7 million was paid from cash on hand at closing.

The provisional allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, was determined in accordance with the methodology described under Fair Value Measurements in Note 2 - Significant Accounting Policies to the Company’s audited financial statements for the fiscal year ended September 30, 2019. The provisional amounts allocated are $9.6 million of property, plant and equipment, $1.2 million of other current assets and $6.9 million of goodwill. Goodwill, which is deductible for income tax purposes, primarily represents the assembled work force synergies expected to result from the acquisition. Upon finalizing the accounting for this transaction, management expects to ascribe value to other identifiable intangible assets, including customer relationships and customer backlog, which will reduce the preliminary amount allocated to goodwill.

The results of operations since the October 1, 2019 acquisition date attributable to this acquisition are included in the consolidated financial statements since the acquisition date and were not material to the Consolidated ~~Statement~~Statements of Income for the three months ended December 31, 2019. Pro forma results of operations as if the acquisition had been consummated October 1, 2018 ~~includes$16.3~~would not be material to the Consolidated Statements of Income.

The Company recorded certain costs to effect the acquisition as they were incurred, which are reflected in general and administrative expenses on the Company’s Consolidated Statements of Income in the amount of $0.1 million ~~of revenue and $1.5 million of net income attributable to operations of Scruggs. The following presents pro forma revenues and net income~~ for the three months ended December 31, ~~2017 as though the Scruggs Acquisition had occurred on October 1, 2016 (in thousands):~~2019.

Pro forma revenues $ 173,360
Pro forma net income $ 10,658

Pro forma information is presented for informational purposes only and may not be indicative of revenue or net income that would have been achieved if the Scruggs Acquisition had occurred on October 1, 2016.

Note 5 - Contracts Receivable Including Retainage, net

Contracts receivable including retainage, net consisted of the following at December 31, ~~2018~~2019 and September 30, ~~2018~~2019 (in thousands):

Retainage receivables have been billed, but are not due until contract completion and acceptance by the customer.

Note 6 - ~~Costs~~Contract Assets and ~~Estimated Earnings on Uncompleted Contracts~~Liabilities

Costs and estimated earnings compared to billings on uncompleted contracts at December 31, ~~2018~~2019 and September 30, ~~2018~~2019 consisted of the following (in thousands):


	December 31, 2019		September 30, 2019
	(unaudited)
Costs on uncompleted contracts	$	997,238	$	900,880
Estimated earnings to date on uncompleted contracts	131,978		123,256
	1,129,216		1,024,136
Billings to date on uncompleted contracts	(1,146,233)		(1,043,221)
Net billings in excess of costs and estimated earnings on uncompleted contracts	$	(17,017)	$	(19,085)

December 31, 2018 September 30, 2018

(unaudited)
Costs on uncompleted contracts $ 778,571
$ 743,322
Estimated earnings to date on uncompleted contracts 101,007
95,155

879,578
838,477
Billings to date on uncompleted contracts (908,857 ) (867,881 )
Net billings in excess of costs and estimated earnings on uncompleted contracts $ (29,279 ) $ (29,404 )

Significant changes to balances of costs and estimated earnings in excess of billings (contract asset) and billings in excess of costs and estimated earnings (contract liability) on uncompleted contracts from September 30, ~~2018~~2019 to December 31, ~~2018~~2019 are presented below (in thousands):

Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts

Billings in Excess of Costs and Estimated Earnings on
Uncompleted Contracts
Net Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
September 30, 2018 $ 9,334
$ (38,738 ) $ (29,404 )
Changes in revenue billed, contract price or cost estimates 858
(733 ) 125
December 31, 2018 (unaudited) $ 10,192
$ (39,471 ) $ (29,279 )


	Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts		Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts		Net Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
September 30, 2019	$	12,030	$	(31,115)	$	(19,085)
Changes in revenue billed, contract price or cost estimates	$	2,122	$	(54)	$	2,068
December 31, 2019 (unaudited)	$	14,152	$	(31,169)	$	(17,017)

At December 31, ~~2018,~~2019, the Company had unsatisfied or partially unsatisfied performance obligations under construction project contracts representing ~~$505.0~~approximately $456.5 million in aggregate transaction price. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of ~~$391.5~~approximately $327.2 million during the remainder of the fiscal year ending September 30, ~~2019~~2020 and ~~$113.5~~$129.3 million thereafter.

Note 7 - ~~Equity~~Property, Plant and Equipment

AtProperty, plant and equipment at December 31, ~~2018~~2019 and September 30, ~~2018,~~2019 consisted of the ~~Company had authorized~~following (in thousands):


	December 31, 2019		September 30, 2019
	(unaudited)
Construction equipment	$	239,486	$	214,500
Plants	94,743		92,279
Land and improvements	36,325		34,365
Quarry reserves	20,594		20,678
Buildings	16,833		15,458
Furniture and fixtures	5,072		4,864
Leasehold improvements	1,135		1,135
Total property, plant and equipment, gross	414,188		383,279
Accumulated depreciation, depletion and amortization	(186,106)		(177,927)
Construction in progress	1,420		518
Total property, plant and equipment, net	$	229,502	$	205,870

Depreciation and depletion expense related to property, plant and equipment was $9.4 million and $6.9 million for ~~issuance 10,000,000 shares of preferred stock, par value $0.001. No preferred shares were issued and outstanding at~~the three months ended December 31, 2019 and 2018, ~~or September 30, 2018.~~respectively.

~~Reclassification of Common Stock and Initial Public Offering~~

On April 23, 2018, the Company completed the Reclassification by amending and restating its certificate of incorporation to effectuate a dual class common stock structure consisting of Class A common stock and Class B common stock. As a result, each share of common stock, par value $0.001, was reclassified into 25.2 shares of Class B common stock so that all holders of shares of outstanding common stock became the holders of 41,817,537 shares of Class B common stock, and shares held by the Company in treasury became 3,170,034 Class B treasury shares. All share and per share amounts have been retroactively adjusted for all periods presented to give effect to the Stock Split.

On May 8, 2018, the Company completed its IPO, in which it sold 11,250,000 shares of Class A common stock at a price of $12.00 per share. Of these shares, 9,000,000 were shares of Class A common stock sold by the Company and 2,250,000 were sold by holders of Class B common stock, which shares upon sale automatically converted into 2,250,000 shares of Class A common stock. On May 24, 2018, the underwriters of the IPO partially exercised their over-allotment option to purchase an additional 700,000 shares of Class A common stock at the IPO price of $12.00, less the underwriting discount and commissions. Of these shares, 350,000 were shares of Class A common stock sold by the Company and 350,000 were sold by holders of Class B common stock, which shares upon sale automatically converted into 350,000 shares of Class A common stock.

~~At December 31, 2018 and September 30, 2018, the Company had authorized for issuance 400,000,000 shares of Class A common stock, par value $0.001, of which 11,950,000 were issued and outstanding.~~

At December 31, 2018 and September 30, 2018, the Company had authorized for issuance 100,000,000 shares of Class B common stock, par value $0.001 per share, of which 42,387,571 were issued and 39,464,619 were outstanding, respectively. At December 31, 2018 and September 30, 2018, the Company held 2,922,952 shares in treasury, at an average cost of $5.34 per share.

The Company maintains various credit facilities from time to time to finance acquisitions, the purchase of real estate, construction equipment, ~~asphalt~~ plants and other fixed assets, and for general working capital purposes. This includes, among other things, a credit agreement with ~~Compass Bank~~BBVA USA as agent, ~~sole lead arranger~~issuing bank and ~~sole bookrunner~~a lender, and certain other lenders (as amended, the ~~"Compass~~“BBVA Credit ~~Agreement"~~Agreement”) providing for a ~~$72.0~~$82.0 million term loan (the ~~"Compass Term Loan"~~“Term Loan”) and a $30.0 million revolving credit facility (the ~~"Compass Revolving~~“Revolving Credit ~~Facility"~~Facility”). Debt at December 31, ~~2018~~2019 and September 30, ~~2018~~2019 consisted of the following (in thousands):


	December 31, 2019		September 30, 2019
	(unaudited)
Long-term debt:
BBVA Term Loan	$	52,650	$	44,700
BBVA Revolving Credit Facility	5,000		5,000
Other long-term debt	464		563
Total long-term debt	58,114		50,263
Deferred debt issuance costs	(453)		(263)
Debt discount	(1)		(4)
Current maturities of long-term debt	(8,511)		(7,538)
Long-term debt, net of current maturities	$	49,149	$	42,458

On October 1, 2019, the Company and each of its wholly owned subsidiaries entered into an amendment to the BBVA Credit Agreement that, among other things: (i) added Bank of America, N.A. as a party in connection with the assignment by BBVA to Bank of America of certain of its lending obligations under the BBVA Credit Agreement; (ii) increased the aggregate amount of the Term Loan commitment by the lenders by $10.0 million, to $54.7 million; (iii) provided for a Term Loan advance to the Company in the aggregate amount of $10.0 million, with the proceeds to be used solely for the purpose of buying out certain operating lease obligations; and (iv) extended the maturity date for the outstanding term loan advances from July 1, 2022 to October 1, 2024. In order to hedge against the risk of changes in interest rates on this advance, on October 1, 2019, the Company entered into an interest rate swap agreement with a notional amount of $5.9 million, under which the Company pays a fixed percentage rate of 1.58% and receives a credit based on the applicable LIBOR rate.

December 31, September 30,
2018 2018

(unaudited)
Long-term debt:

Compass Term Loan $ 53,700

$ 57,300
Compass Revolving Credit Facility 5,000

5,000
Other long-term debt 853

964
Total long-term debt 59,553

63,264
Deferred debt issuance costs (337 )
(362 )
Debt discount (12 ) (14 )
Current maturities of long-term debt (14,836 )
(14,773 )
Long-term debt, net of current maturities $ 44,368

$ 48,115

Note 9 - Equity

Shares of our Class A common stock and Class B common stock are identical in all respects, except with respect to voting rights, conversion rights and transfer restrictions applicable to shares of Class B common stock. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to ten votes per share. The holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, including the election of directors, unless otherwise required by applicable law or the Company’s certificate of incorporation or bylaws. Shares of Class B common stock are convertible into shares of Class A common stock at any time at the option of the holder or upon any transfer, subject to certain limited exceptions. In addition, upon the election of the holders of a majority of the then-outstanding shares of Class B common stock, all outstanding shares of Class B common stock will be converted into shares of Class A common stock. Once converted into shares of Class A common stock, shares of Class B common stock will not be reissued. Class A common stock is not convertible into any other class of the Company’s capital stock.

Secondary Offering - Exercise of Over-Allotment Option

On October 21, 2019, in conjunction with an underwritten secondary offering of the Company’s Class A common stock, the underwriters of the offering exercised their option to purchase from the selling stockholders in such offering a total of 750,000 shares of the Company’s Class A common stock at a price of $14.25 per share, before selling commissions and discounts. The Company did not receive any proceeds from the offering or the underwriters’ exercise of their over-allotment option.

Conversion of Class B Common Stock to Class A Common Stock

During the three months ended December 31, 2019, certain stockholders of the Company converted a total of 107,682 shares of Class B common stock into shares of Class A common stock on a 1-for-one basis. Following the conversions, there were 32,705,418 shares of Class A common stock and 19,076,327 shares of Class B common stock outstanding.

Note 910 - Earnings Per Share

As ~~described~~discussed in Note 79 -Equity, the Company ~~completed an IPO and Reclassification~~has two classes of common stock. The Company has not presented earnings per share under the two-class method, because the earnings per share are the same for both Class A common stock ~~during the third quarter of the fiscal year ended September 30, 2018.~~

and Class B common stock. The following table summarizes the weighted-average number of basic common shares outstanding and the calculation of basic earnings per share for the periods presented (in thousands, except share and per share amounts):


	For the Three Months Ended December 31,
	2019		2018
Numerator
Net income attributable to common shareholders	$	5,461	$	5,154
Denominator
Weighted average number of common shares outstanding, basic	51,489,211		51,414,619
Net income per common share attributable to common shareholders, basic	$	0.11	$	0.10

The following table summarizes the calculation of the weighted-average number of diluted common shares outstanding and the calculation of ~~basic and~~ diluted earnings per share for the periods presented (in thousands, except share and per share amounts):


	For the Three Months Ended December 31,
	2019		2018
Numerator
Net income attributable to common stockholders	$	5,461	$	5,154
Denominator
Weighted average number of basic common shares outstanding, basic	51,489,211		51,414,619
Effect of dilutive securities:

Restricted stock grants under 2018 Equity Incentive Plan	120,169		—
Weighted average number of diluted common shares outstanding:	51,609,380		51,414,619
Net income per diluted common share attributable to common stockholders	$	0.11	$	0.10

For the Three Months Ended December 31,

2018 2017
Numerator

Net income attributable to common shareholders $ 5,154
$ 10,996
Denominator

Weighted average number of common shares outstanding, basic and diluted 51,414,619
41,691,541
Net income per common share attributable to common shareholders, basic and diluted $ 0.10
$ 0.26

There is no difference between basic and diluted earnings per share for the three months ended December 31, 2018 or December 31, 2017. The Company excluded 768,984 common stock equivalents from the calculationTable of diluted earnings per share for the three months ended December 31, 2017 because their inclusion would be anti-dilutive. There were no anti-dilutive securities excluded from the calculation of diluted earnings per share for the three months ended December 31, 2018.Contents

Note 1011 - Provision for Income Taxes

The Company files a consolidated United States federal income tax return and income tax returns in various states. Management evaluated the ~~Company's~~Company’s tax positions ~~at December 31, 2018,~~ based on appropriate provisions of applicable enacted tax laws and regulations and believes that they are supportable based on their specific technical merits and the facts and circumstances of the respective transactions.

~~On December 22, 2017, the United States government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "Tax Act").~~ The ~~Tax Act included broad and complex changes to the United States tax code, including a reduction in the United States federal corporate~~Company’s effective income tax rate from 35.0% to 21.0% effective January 1, 2018. Accordingly, the United States statutory income tax rate applicable to the Company was 21.0% and 35.0% during the three months ended December 31, 2018 and December 31, 2017, respectively. During the three months ended December 31, 2017, the Company recorded a provisional discrete tax benefit of $3.5 million related to the Tax Act, primarily related to an adjustment of its United States deferred tax liabilities by the same amount, reflecting the reduction in the United States federal corporate tax rate. This net reduction in deferred tax liabilities also included the estimated impact on the Company's net state deferred tax assets. The Company completed its accounting for the income tax effects of the Tax Act during the fourth quarter of its fiscal year ended September 30, 2018.

~~The Company's effective~~ tax rate for the three months ended December 31, 2019 and 2018 was 19.5% and ~~2017 was~~ 24.3% ~~and (7.8)%~~, respectively. The ~~lower~~ effective income tax rate for the three months ended December 31, ~~2017 compared to~~2019 was favorably impacted by the ~~three months ended December 31, 2018 was primarily due to the~~filing of an amended consolidated state return. The Company recorded an amended return benefit of $0.4 million resulting from the ~~tax credit recorded during the three months ended December 31, 2017 related to the enactment~~utilization of ~~the Tax Act.~~net operating loss carryforwards.

Note 1112 - Related Parties

On December 31, 2017, the Company sold an indirect wholly owned subsidiary to an immediate family member of a Senior Vice President of the Company ("(“Purchaser of ~~subsidiary"~~Subsidiary”) in consideration for ~~an interest-bearing~~a promissory note ~~receivable~~ in the amount of $1.0 million, which approximated the net book value of the disposed entity. At December 31, ~~2018,~~2019, $0.1 million and ~~$0.7~~$0.6 million was reflected on the ~~Company's~~Company’s Consolidated Balance Sheet within other current assets and other assets, respectively, representing the remaining balances on this note receivable. In connection with this transaction, the Company also received ~~an interest-bearing~~a promissory note ~~receivable~~ from the disposed entity ("(“Disposed ~~entity"~~Entity”) on December 31, 2017 in the amount of $1.0 million representing certain accounts payable of the disposed subsidiary that were paid by the Company. At December 31, ~~2018,~~2019, $0.1 million and ~~$0.8~~$0.4 million was reflected on the ~~Company's~~Company’s Consolidated Balance Sheet within other current assets and other assets, respectively, representing the remaining ~~balance~~balances on this note receivable. Remaining ~~principal and interest~~ payments are scheduled to be made in periodic installments during fiscal year ~~2019~~2020 through fiscal year 2026.

From time to time, the Company conducts or has conducted business with the following related parties:

~~On January 30, 2015,~~•Prior to its acquisition by the Company, a current subsidiary of the Company ~~entered into a master services subcontract with Austin Trucking, LLC ("Austin Trucking"),~~advanced funds to an entity owned by an immediate family member of a Senior Vice President of the ~~Company. Pursuant~~Company in connection with a land development project. The obligations of the borrower entity to repay the ~~agreement, Austin Trucking performs~~advances are guaranteed by a separate entity owned by the same family member of the officer. Amounts outstanding under the advances do not bear interest and must be repaid in full no later than March 17, 2021 (“Land Development Project”).

•Entities owned by immediate family members of a Senior Vice President of the Company perform subcontract work for ~~the~~a subsidiary of the Company, including trucking ~~services.~~and grading services (“Subcontracting Services”).

•From time to time, a subsidiary of the Company provides construction services to various companies owned by a family member of a Senior Vice President of the Company ("(“Construction ~~Services"~~Services”).

~~For periodic corporate events, the Company charters a boat from Deep South Adventures, LLC, which is owned by a Senior Vice President of the Company.~~

~~A company~~•The Company rents and purchases vehicles from an entity owned by ~~an immediate~~a family member of a Senior Vice President of the Company ~~provides subcontracting~~(“Vehicles”).

•Family members of a Senior Vice President of the Company provide consulting services to a subsidiary of the Company ~~("Subcontracting Services"~~(“Consulting Services”).

•A subsidiary of the Company leased office space for its Dothan, Alabama office from H&K, Ltd. (“H&K”), an entity partially owned by a Senior Vice President of the Company. The office space was originally leased through early 2020, but the subsidiary terminated the lease in June 2019 and paid $15,000 to H&K as consideration for the early termination. Under the lease agreement, the Company paid a fixed minimum rent per month.

•The Company is party to a management services agreement with SunTx, under which the Company pays SunTx $0.25 million per fiscal quarter and reimburses certain travel and other out-of-pocket expenses.

The following table presents revenues earned and expenses incurred by the Company during the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017, if and to the extent the Company engaged in transactions with the parties described above during the respective periods,~~2018, and accounts receivable and ~~accounts~~ payable balances at December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, related to transactions with ~~such~~the related parties described above (in thousands):


	Revenue Earned (Expense Incurred)								Accounts Receivable (Payable)
	For the Three Months Ended December 31,								December 31,		September 30,
	2019			2018			2019		2019
	(unaudited)			(unaudited)			(unaudited)
Purchaser of Subsidiary	$	—		$	—		$	725	$	756
Disposed Entity	$	—		$	—		$	462	$	846
Land Development Project	$	—		$	—		$	774	$	774
Subcontracting Services	$	(1,578)	⁽¹⁾	$	(3,293)	⁽¹⁾	$	(316)	$	(1,238)
Construction Services	$	1,280		$	113		$	1,643	$	2,434
Island Pond	$	(80)	⁽²⁾	$	(80)	⁽²⁾	$	—	$	—
Vehicles	$	(253)	⁽²⁾	$	(289)	⁽²⁾	$	—	$	—
Consulting Services	$	(71)	⁽²⁾	$	(67)	⁽²⁾	$	—	$	—
H&K	$	—	⁽²⁾	$	(21)	⁽²⁾	$	—	$	—
SunTx	$	(314)	⁽²⁾	$	(254)	⁽²⁾	$	—	$	—

⁽¹⁾ Cost is reflected as cost of revenues on the Company’s Consolidated Statements of Income.
⁽²⁾ Cost is reflected as general and administrative expenses on the Company’s Consolidated Statements of Income.

Revenue Earned (Expense Incurred) Accounts Receivable (Payable)
For the Three Months Ended December 31, December 31, September 30,
2018 2017 2018 2018
(unaudited) (unaudited) (unaudited)
Purchaser of subsidiary $ —
$ —
$ 864
$ 850
Disposed entity $ —
$ —
$ 952
$ 937
Austin Trucking $ (3,089 )
⁽¹⁾
$ (2,945 )
⁽¹⁾
$ (266 ) $ (790 )
Construction Services $ 113
$ 1,291
$ 2,466
$ 2,863
Deep South Adventures, LLC $ —
⁽²⁾
$ (33 )
⁽²⁾
$ —
$ —
Vehicle Rentals $ (289 )
⁽²⁾
$ (288 )
⁽²⁾
$ —
$ —
Consulting Services $ (67 )
⁽²⁾
$ (60 )
⁽²⁾
$ —
$ —
Legal Services $ —
⁽²⁾
$ (58 )
⁽²⁾
$ —
$ —
H&K $ (21 )
⁽²⁾
$ (21 )
⁽²⁾
$ —
$ —
H&A $ —
⁽²⁾
$ (17 )
⁽²⁾
$ —
$ —
Island Pond $ (80 )
⁽²⁾
$ (80 )
⁽²⁾
$ —
$ —
Subcontracting Services $ (193 )
⁽¹⁾
$ —
⁽¹⁾
$ —
$ (52 )
SunTx $ (254 )
⁽²⁾
$ (340 )
⁽²⁾
$ —
$ —

⁽¹⁾ Cost is reflected as cost of revenues on the Company's Consolidated Statements of Income.
⁽²⁾ Cost is reflected as general and administrative expenses on the Company's Consolidated Statements of Income.

Note 1213 - Settlement Agreement

On April 19, 2018, certain of the ~~Company's~~Company’s subsidiaries entered into settlement agreements with a third party ~~pursuant~~arising from a business interruption event not directly related to ~~which they will~~the Company’s business that the Company does not expect to reoccur (the “Settlement”). The Settlement provides for the Company’s subsidiaries to receive aggregate net payments of approximately $15.7 ~~million. These agreements provided for the payments to be made~~million in ~~four~~4 equal installments between January 2019 and July 2020, in exchange for releasing and waiving all current and future claims against the third party relating to a business interruption event that occurred more than five years ago that did not directly relate to the Company's business and that has not, and is not expected to, recur (the "Settlement").party. The Company recorded a pre-tax gain of $14.8 million during the fiscal year ended September 30, 2018 related to the Settlement. ~~The subsidiaries received the first installment payments in the total amount of $3.9 million in January 2019.~~ Future payments are reflected on the Consolidated Balance Sheet at December 31, ~~2018~~2019 and September 30, 2019 as other current ~~assets and other~~ assets in the amount of ~~$7.9~~$7.8 million.

Note 14 - Equity-Based Compensation

During the fiscal year ending September 30, 2019, the Company awarded a total of 292,534 restricted shares of Class A common stock to its non-employee directors under the Construction Partners, Inc. 2018 Equity Incentive Plan in lieu of any cash compensation. The grants are classified as equity awards. The aggregate grant date fair value of these restricted awards was $3.8 million. The grants will vest as to two-thirds of the underlying shares on January 1, 2021 and as to the remaining one-third of the underlying shares on January 1, 2022.

During the three months ended December 31, 2019, the Company recorded compensation expense in connection with these grants in the amount of $0.4 million, which is reflected as general and administrative expenses in the Company’s Consolidated Statements of Income. At December 31, 2019, there was approximately $2.8 million of unrecognized compensation expense related to these awards.

The Company leases certain facilities, office space, vehicles and equipment. As of December 31, 2019, operating leases under Topic 842 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 Sheet in the amounts of $8.5 million, $2.9 million and ~~$7.4~~$5.8 million, respectively. As of December 31, 2019, the Company had no lease contracts that had not yet commenced but created significant rights and obligations.

Lease expense was $0.9 million and $2.6 million during the three months ended December 31, 2019 and 2018, respectively, which included operating lease costs related to short-term leases. During the quarter, the Company used cash in the amount of $11.5 million to buy out certain operating lease obligations.

As of December 31, 2019, the weighted-average remaining term of the Company’s leases was 8.2 years, and the weighted-average discount rate was 4.00%. As of December 31, 2019, 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, 2019 (in thousands):


Fiscal Year	Amount
Remainder of 2020	$	2,483
2021	1,999
2022	962
2023	621
2024	596
2025 and thereafter	3,797
Total future minimum lease payments	$	10,458
Less: imputed interest	1,710
Total	$	8,748

As previously disclosed, the Company’s future minimum lease payment obligations as of September 30, 2019 were as follows:


Fiscal Year	Amount
2020	$	6,537
2021	3,043
2022	1,041
2023	351
2024	255
Thereafter	58
Total	$	11,285

Item 2. 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 unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto included in our ~~2018~~2019 Form 10-K. 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~~“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.

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 ~~developments~~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 ~~they receive.~~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 ~~sitework~~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

We derive our revenues predominantly ~~from~~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 ~~developments.~~sites. Our projects represent a mix of federal, state, municipal and private customers. We also ~~generate~~derive revenues from the sale of HMA, aggregates, ready-mix concrete and ~~aggregates~~liquid asphalt cement to customers. Revenues derived from projects are recognized as performance obligations are satisfied over ~~a period of~~ time, ~~on the percentage-of-completion basis,~~ measured byaccording to the relationship of total cost incurred ~~compared~~as of a given determination date to the total estimated contract ~~costs (cost-to-cost method).~~costs. 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 ~~generated~~derived from the sale of HMA, aggregates, ready-mix concrete and ~~aggregates~~liquid asphalt cement are recognized ~~at the point in time~~ when risks associated with ownership have passed to the customer.

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, ~~subcontractor~~subcontract costs and other expenses at our HMA plants, ~~and~~ aggregate mining ~~facilities.~~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.

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 ~~Compass~~ Term Loan and the ~~Compass~~ 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 ~~as applicable from time to time,~~ (i) interest expense, net, (ii) provision ~~(benefit)~~ for income taxes, (iii) depreciation, depletion and amortization ~~of long-lived assets,~~ (iv) equity-based compensation expense, (v) loss on extinguishment of debt and ~~(v)~~(vi) certain management fees and expenses, and excludes income recognized in connection with the Settlement (see Note 12 - Settlement Agreement to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).expenses. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues for each period. ~~Adjusted EBITDA and Adjusted EBITDA Margin~~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 ~~believes they are measures frequently used by~~we believe that securities analysts, investors and ~~other parties~~others use these measures to evaluate companies in our industry. ~~These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP.~~

Our calculation of Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly named measures reported by other companies. Potential differences ~~between our measure of Adjusted EBITDA and other companies' measures of Adjusted EBITDA~~ 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, ~~to Adjusted EBITDA,~~ and the calculation of Adjusted EBITDA Margin for ~~each of~~ the periods presented (in thousands, except percentages):


	For the Three Months Ended December 31,
	2019			2018
Net income	$	5,461		$	5,154
Interest expense, net	281			515
Provision for income taxes	1,319			1,651
Depreciation, depletion and amortization of long-lived assets	9,438			7,138
Equity-based compensation expense	395			—


Management fees and expenses⁽¹⁾	314			254
Adjusted EBITDA	$	17,208		$	14,712
Revenues	$	175,314		$	154,327
Adjusted EBITDA Margin	9.8		%	9.5		%

⁽¹⁾Reflects fees and reimbursement of certain travel expenses under a management services agreement with SunTx (see Note 12 - Related Parties to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

For the Three Months Ended December 31,
2018 2017
Net income $ 5,154
$ 10,996
Interest expense, net 515
297
Provision (benefit) for income taxes 1,651
(797 )
Depreciation, depletion and amortization of long-lived assets 7,138
5,675
Management fees and expenses⁽¹⁾
254
340
Adjusted EBITDA $ 14,712
$ 16,511
Revenues $ 154,327
$ 150,421
Adjusted EBITDA Margin 9.5 % 11.0 %

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⁽¹⁾	Reflects fees and reimbursement of certain travel expenses under a management services agreement with SunTx (see Note 11 - Related Parties to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Results of Operations

Three Months Ended December 31, ~~2018~~2019 Compared to Three Months Ended December 31, ~~2017~~2018

The following table sets forth selected financial data for the three months ended December 31, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands, except percentages):


									Change From the Three Months Ended
	For the Three Months Ended December 31,													December 31, 2018
															to the Three Months Ended
	2019						2018						December 31, 2019
	Dollars		% of Revenues		Dollars		% of Revenues		$ Change		% Change
Revenues	$	175,314	100.0	%	$	154,327	100.0	%	$	20,987	13.6	%
Cost of revenues	151,557		86.4	%	133,199		86.3	%	18,358		13.8	%
Gross profit	23,757		13.6	%	21,128		13.7	%	2,629		12.4	%
General and administrative expenses	(17,113)		(9.8)	%	(14,431)		(9.3)	%	(2,682)		18.6	%

Gain on sale of equipment, net	309		0.2	%	334		0.2	%	(25)		(7.5)	%
Operating income	6,953		4.0	%	7,031		4.6	%	(78)		(1.1)	%
Interest expense, net	(281)		(0.2)	%	(515)		(0.3)	%	234		(45.4)	%

Other expense	65		—	%	(17)		(0.1)	%	82		(482.4)	%
Income before provision for income taxes and earnings from investment in joint venture	6,737		3.8	%	6,499		4.2	%	238		3.7	%
Provision for income taxes	1,319		0.8	%	1,651		1.1	%	(332)		(20.1)	%
Earnings from investment in joint venture	43		0.1	%	306		0.2	%	(263)		(85.9)	%
Net income	$	5,461	3.1	%	$	5,154	3.3	%	$	307	6.0	%
Adjusted EBITDA	$	17,208	9.8	%	$	14,712	9.5	%	$	2,496	17.0	%

Change From the Three Months Ended
For the Three Months Ended December 31, December 31, 2017
to the Three Months Ended
2018 2017 December 31, 2018
Dollars % of
Revenues Dollars % of
Revenues
$
Change
%
Change
Revenues $ 154,327
100.0 % $ 150,421
100.0 % $ 3,906
2.6 %
Cost of revenues 133,199
86.3 % 127,623
84.8 % 5,576
4.4 %
Gross profit 21,128
13.7 % 22,798
15.2 % (1,670 ) (7.3 )%
General and administrative expenses (14,431 ) (9.5 )% (12,426 ) (8.3 )% (2,005 ) 16.1 %
Gain on sale of equipment, net 334
0.2 % 145
0.1 % 189
130.3 %
Operating income 7,031
4.5 % 10,517
7.0 % (3,486 ) (33.1 )%
Interest expense, net (515 ) (0.3 )% (297 ) (0.2 )% (218 ) 73.4 %
Other expense (17 ) — % (21 ) — % 4
(19.0 )%
Income before provision (benefit) for income taxes and earnings from investment in joint venture 6,499
4.2 % 10,199
6.8 % (3,700 ) (36.3 )%
Provision (benefit) for income taxes 1,651
1.1 % (797 ) (0.5 )% 2,448
(307.2 )%
Earnings from investment in joint venture 306
0.2 % —
— % 306
N/A
Net income $ 5,154
3.3 % $ 10,996
7.3 % $ (5,842 ) (53.1 )%
Adjusted EBITDA $ 14,712
9.5 % $ 16,511
11.0 % $ (1,799 ) (10.9 )%

Revenues. Revenues for the three months ended December 31, ~~2018~~2019 increased ~~$3.9~~$21.0 million, or ~~2.6%~~13.6%, to ~~$154.3~~$175.3 million from ~~$150.4~~$154.3 million for the three months ended December 31, ~~2017, including $16.3~~2018. The increase included $13.1 million of revenues attributable to ~~Scruggs, which we acquired~~acquisitions completed subsequent to December 31, ~~2017. Revenues~~2018 and an increase of approximately $7.9 million of revenues in ~~many of~~ our existing markets ~~both~~ from contract ~~revenue~~work and sales of HMA and aggregates to third ~~parties, were lower during the three months ended December 31, 2018 than the three months ended December 31, 2017 due to sustained rainfall in those areas.~~parties.

Gross Profit. Gross profit for the three months ended December 31, ~~2018 decreased $1.7~~2019 increased $2.7 million, or ~~7.3%~~12.4%, to ~~$21.1~~$23.8 million from ~~$22.8~~$21.1 million for the three months ended December 31, ~~2017.~~2018. The ~~lower~~increase in gross profit was primarily the result of ~~a decrease~~the 13.6 % increase in ~~gross profit as a percentage of~~ revenue ~~to 13.7%~~ from ~~15.2% for~~ the three months ended December 31, ~~2018~~2019 compared to the three months ended December 31, 2017, partially offset by the 2.6% revenue increase for those same periods. Gross profit decreased approximately $3.0 million, primarily due to a decline in production of HMA for both internal and external sales, as well as lower utilization of equipment resulting from construction project work deferred due to sustained rainfall during November and December of 2018. The decline in production of HMA and lower utilization of equipment resulted in under-absorption of fixed costs. This decrease was partially offset by an improvement in gross profit and gross profit margin on construction projects, for which cost of revenue is primarily variable in nature.

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 the three months ended December 31, ~~2018~~2019 increased ~~$2.0~~$2.7 million, or ~~16.1%~~18.6%, to ~~$14.4~~$17.1 million from ~~$12.4~~$14.4 million for the three months ended December 31, ~~2017.~~2018. The increase in general and administrative expenses for the three months ended December 31, ~~2018~~2019 compared to ~~fiscal 2017~~the three months ended December 31, 2018 was primarily the result of (i) a ~~$1.2~~$1.4 million increase ~~associated with Scruggs, which we acquired~~in management personnel payroll and benefits, (ii) a $0.8 million increase attributable to acquisitions completed subsequent to December 31, ~~2017~~2018 and ~~(ii)~~(iii) a ~~$0.7~~$0.4 million increase in the costs of professional services and insurance reflecting our growth and increased regulatory and reporting requirements due to becoming a public company subsequent to the three months ended December 31, 2017.stock compensation expense.

Interest Expense, Net. Interest expense, net for the three months ended December 31, ~~2018 increased~~2019 decreased $0.2 million, or ~~73.4%~~45.4%, to ~~$0.5~~$0.3 million compared to ~~$0.3~~$0.5 million for the three months ended December 31, ~~2017.~~2018. The ~~increase~~decrease in interest expense, net, isreflects a $0.5 million decrease in interest expense, partially offset by a $0.2 million decrease in interest income. The decrease in interest expense was due to ~~an increase~~a decrease in the average principal debt balance outstanding to $56.8 million for the three months ended December 31, 2019 from $60.4 million for the three months ended December 31, 2018 and a decrease in the average interest rate on the Term Loan and the Revolving Credit Facility to 3.044% during the three months ended December 31, 2019 from ~~$53.8 million~~4.296% during the three months ended December 31, 2018. The decrease in interest income was due to a lower average cash balance during the three months ended December 31, 2019 compared to the three months ended December 31, 2018.

Table of Contents

Provision for Income Taxes. Our effective tax rate decreased to 19.5% for the three months ended December 31, ~~2017. During the three months ended December 31, 2018, the change in the fair value of the interest rate swaps resulted in a $0.2 million charge to interest expense.~~

~~Provision for Income Taxes.~~ ~~Our effective tax rate increased to~~2019, from 24.3% for the three months ended December 31, ~~2018, from (7.8)% for the three months ended December 31, 2017.~~2018. Our lower effective tax rate ~~for~~was the ~~three months ended December 31, 2017 was primarily due to~~result of filing an amended consolidated state return, as a result of which the ~~impacts of the Tax Act. Specifically, during the three months ended December 31, 2017, we~~Company recorded ~~a provisional discrete tax~~an amended return benefit of ~~$3.5~~$0.4 million related to the Tax Act, primarily related to adjusting our United States deferred tax liabilities by the same amount, reflecting the reduction in the United States federal corporate income tax rate. We completed our accounting for the income tax effectsutilization of ~~the Tax Act in subsequent periods during fiscal 2018, resulting in a discrete tax benefit of $4.6 million for the full fiscal year. This~~ net reduction in deferred tax liabilities also included the estimated impact on the Company's net state deferred tax assets. Accordingly, the effective tax rate for the three months ended December 31, 2017 reflects a federal income tax provision based on the blended United States statutory tax rate of 24.5%, the $3.5 million tax benefit related to the Tax Act and the effect of applicable state income taxes. The effective tax rate for the three months ended December 31, 2018 reflects a federal income tax provision based on the United States statutory tax rate of 21.0% and the effect of applicable state income taxes.operating loss carryforwards.

Earnings from Investment in Joint Venture. During the three months ended December 31, 2019 and 2018, we earned $0.04 million and $0.3 million, respectively, of pre-tax income from our 50% interest in the earnings of a joint venture that we entered into with a third party in November 2017 for the sole purpose of performing a construction project for the Alabama Department of Transportation. ~~We did not have earnings from an interest in a joint venture during~~

Net Income. Net income increased $0.3 million, or 6.0%, to $5.5 million for the three months ended December 31, ~~2017.~~

~~Net Income.~~ ~~Net income decreased $5.8 million, or 53.1%,~~2019, compared to $5.2 million for the three months ended December 31, ~~2018, compared to $11.0 million for the three months ended December 31, 2017. This decrease~~2018. The increase in net income was a result of ~~(i) a reduction~~an increase in gross profit, ~~(ii)~~partially offset by an increase in general and administrative expenses, ~~(iii) an increase in interest expense~~ and ~~(iv) an increase~~a decrease in the effective tax rate during the three months ended December 31, ~~2018~~2019 compared to the three months ended December 31, ~~2017,~~2018, all as described above. ~~This decrease was partially offset by an increase in gain on sale of equipment, net, for those same periods.~~

Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin were $17.2 million and 9.8%, respectively, for the three months ended December 31, 2019, compared to $14.7 million and 9.5%, respectively, for the three months ended December 31, ~~2018, compared to $16.5 million~~2018. The increase in Adjusted EBITDA was the result of a higher gross profit and ~~11.0%, respectively, for~~depreciation, depletion and amortization of long-lived assets, partially offset by an increase in general and administrative expenses. The higher Adjusted EBITDA Margin was a primarily a result of increased depreciation, depletion and amortization of long-lived assets during the three months ended December 31, 2017. The decrease in Adjusted EBITDA is the result of a lower gross profit and higher general and administrative expenses, partially offset by an increase in depreciation, depletion and amortization of long-lived assets. The lower Adjusted EBITDA Margin is a result of a lower gross profit percentage and a higher general and administrative expense as a percentage of revenue, as discussed above.2019. See the description of Adjusted EBITDA and Adjusted EBITDA Margin, as well as a reconciliation of Adjusted EBITDA to net income, under the heading “How We Assess Performance of Our Business”.

Inflation and Price Changes

Inflation had an immaterial impact on our results of operations for the three months ended December 31, ~~2018~~2019 and ~~2017~~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 Three Months Ended December 31,							For the Three Months Ended December 31,
	2018			2017				2019		2018
Net cash provided by operating activities, net of acquisition	$	1,211		$	19,490		Net cash provided by operating activities, net of acquisition	$	1,547	$	1,211
Net cash used in investing activities	(5,070		)	(9,318		)	Net cash used in investing activities	(40,351)		(5,070)
Net cash used in financing activities	(3,711		)	(7,500		)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	7,628		(3,711)
Net change in cash and cash equivalents	$	(7,570	)	$	2,672		Net change in cash and cash equivalents	$	(31,176)	$	(7,570)

Operating Activities

Cash provided by operating activities was $1.5 million for the three months ended December 31, 2019, an increase of $0.3 million compared to $1.2 million for the three months ended December 31, ~~2018, a decrease of $18.3 million compared to $19.5 million for the three months ended December 31, 2017.~~2018. The ~~decrease~~increase was primarily due to a ~~$5.8~~$0.3 million ~~decrease~~increase in net income for the three months ended December 31, ~~2018~~2019 compared to the three months ended December 31, ~~2017~~2018 and a ~~$16.9 million reduction in changes in operating assets and liabilities, partially offset by a $4.4~~$3.0 million increase in adjustments to reconcile net income to cash flows ~~from~~provided by operating activities, partially offset by a $2.9 million decrease in changes in operating assets and liabilities for those same periods. The $3.0 million increase in adjustments to reconcile net income to cash flows provided by operating activities was primarily due to a $2.3 million increase in depreciation, depletion and amortization of long-lived assets. The $2.9 million decrease in changes in operating assets and liabilities included (i) a ~~$14.0~~$4.2 million ~~greater~~ decrease in contracts receivable due to normal fluctuations resulting from the timing of processing transactions in our accounts receivable cycle, (ii) a $2.0 million decrease in accrued expenses and other current liabilities primarily related to payroll and benefits, (iii) a $1.3 million decrease in costs and estimated earnings in excess of billings on uncompleted contracts resulting from the timing of performing and closing projects, (iv) a $3.5 million increase in accounts payable due to normal fluctuations in the timing of processing ~~transactions~~transaction in our accounts payable cycle and ~~(ii)~~(v) a ~~$2.2~~$2.4 million ~~greater decrease~~increase in ~~net billings in excess of costs and estimated earnings on uncompleted contracts. Changes in adjustments to reconcile net income to cash flows from operating activities were primarily~~inventories due to ~~the $3.5 million lesser reduction~~normal fluctuations in ~~net deferred income tax liabilities, due to the discrete tax benefit recognized during the three months ended December 31, 2017 reflecting the effects~~our inventory cycle.

Table of ~~the Tax Act.~~Contents

Investing Activities

Cash used in investing activities was $40.4 million for the three months ended December 31, 2019 compared to $5.1 million for the three months ended December 31, ~~2018 compared to $9.3~~2018. The increase reflects $17.7 million ~~for the three months ended December 31, 2017. The decrease reflects~~used in connection with a ~~$2.1~~business acquisition in October 2019 and a $16.2 million ~~decrease~~increase in purchases of property, plant and equipment, ~~and $1.8~~which includes $11.5 million for the buyout of equipment leases. The increase also included a $1.3 million decrease in distributions received from our investment in a joint venture during the three months ended December 31, ~~2018,~~2019, compared to ~~no such distributions during~~ the three months ended December 31, ~~2017.~~2018.

Financing Activities

Cash ~~used in~~provided by financing activities was ~~$3.7~~$7.6 million for the three months ended December 31, ~~2018~~2019 compared to ~~$7.5~~$3.7 million of cash used ~~in financing activities~~ during the three months ended December 31, ~~2017,~~2018, reflecting a ~~$5.0~~$9.8 million ~~repayment of debt under our Compass Revolving Credit Facility,~~term loan advance, net of issuance cost, related to our buyout of certain lease obligations in October 2019 and a ~~$1.2~~$1.5 million lower repayment of the ~~Compass~~ Term Loan and other debt during the three months ended December 31, ~~2017~~2019 compared to the three months ended December 31, 2018.

~~Compass~~BBVA Credit Agreement

~~On June 30, 2017, Construction Partners Holdings, Inc. ("CPHI"),~~We and each of our ~~wholly owned subsidiary, entered into~~subsidiaries are parties to the ~~Compass~~BBVA Credit Agreement. The BBVA Credit Agreement ~~with Compass Bank as agent (the "Agent"), sole lead arranger and sole bookrunner, providing~~provides for ~~a $50.0 million Compass~~the Term Loan and ~~a $30.0 million Compass~~the Revolving Credit Facility.~~In connection with the Scruggs Acquisition,~~ At December 31, 2019 and September 30, 2019, we ~~amended the Compass Credit Agreement on May 15, 2018~~had $52.7 million and ~~borrowed an additional $22.0~~$44.7 million, respectively, of principal outstanding under the ~~Compass~~ Term Loan, ~~to fund a portion~~$5.0 million and $5.0 million, respectively, of principal outstanding under the ~~purchase price.~~Revolving Credit Facility, and availability of $13.6 million and $14.4 million, respectively, under the Revolving Credit Facility, after reduction for outstanding letters of credit. The ~~principal amount~~obligations of our subsidiaries under the ~~Compass~~ Term Loan ~~including~~and the ~~additional borrowing, must be paid~~Revolving Credit Facility are secured by a first priority security interest in ~~quarterly installments~~substantially all of ~~$3.6 million. All amounts borrowed under the Compass Credit Agreement mature on July 1, 2022.~~

~~CPHI’s obligations under the Compass Credit Agreement~~our assets and are guaranteed by the Company, ~~and all of CPHI's direct and indirect subsidiaries and are secured by first priority security interests in substantially all~~as the ultimate parent company of the ~~Company's assets.~~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. In October 2019, the BBVA Credit Agreement was amended to add Bank of America, N.A. as a party in connection with the assignment by BBVA to Bank of America of certain of its lending obligations under the BBVA Credit agreement and extend the maturity date for the outstanding term loan advances from July 1, 2022 to October 1, 2024. 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%. At December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, the interest rate on outstanding borrowings under the ~~Compass~~ Term Loan and ~~Compass~~ Revolving Credit Facility was ~~4.522%~~2.999% and ~~4.242%~~3.244%, 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 December 31, 2019, all amounts borrowed under the BBVA Credit Agreement were scheduled to mature on October 1, 2024.

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. At December 31, ~~2018~~2019 and September 30, ~~2018, we had availability of $14.0 million~~2019, our fixed charge ratio was 3.51-to-1.00 and 4.04-to-1.00, respectively, and our consolidated leverage ratio was 0.73-to-1.00 and 0.66-to-1.00, respectively. At both December 31, 2019 and September 30, 2019, the Company was in compliance with all covenants under the ~~Compass Revolving~~BBVA Credit ~~Facility, including reduction for outstanding letters of credit. In order~~Agreement.

From time to time, we have entered into interest rate swap agreements to hedge against the risk of changes in interest ~~rates, on~~rates. On June 30, 2017, we entered into an ~~amortizing $25.0 million notional~~ interest rate swap agreement ~~applicable to outstanding debt under the Compass Term Loan,~~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. ~~In connection with the amendment to the Compass Credit Agreement and the additional borrowing on~~On May 15, 2018, we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million ~~of additional debt~~amount borrowed under the ~~Compass~~ Term ~~Loan. Under this additional swap agreement,~~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. On October 1, 2019, the Company entered into an additional $5.9 million notional interest rate swap agreement applicable to the $10.0 million amount borrowed under the Term Loan on that date, under which we pay a fixed percentage rate of 1.58% 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 December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, the aggregate notional value of these interest rate swap agreements was ~~$26.9~~$26.3 million and ~~$28.7~~$21.5 million, respectively, and the fair value was ~~$0.0~~$(0.2) million and ~~$0.3~~$(0.3) million, respectively, which is included within other ~~assets~~long-term liabilities on our Consolidated Balance Sheets. ~~We must pay a commitment fee~~

Table of ~~0.35% per annum on the aggregate unused revolving commitments under the Compass Credit Agreement. We also must pay fees with respect to any letters of credit issued under the Compass Credit Agreement.~~Contents

The Compass Credit Agreement contains usual and customary covenants for agreements of this type, including, but not limited to, certain financial covenants, such as a minimum fixed charge coverage ratio of 1.20 to 1.00. At December 31, 2018 and September 30, 2018, our fixed charge ratio was 1.55 to 1.00 and 1.51 to 1.00, respectively. The Compass Credit Agreement also requires us to maintain a consolidated leverage ratio not to exceed 2.00 to 1.00, subject to certain adjustments as further described in the Compass Credit Agreement. At December 31, 2018 and September 30, 2018, our consolidated leverage ratio was 0.84 to 1.00 and 0.95 to 1.00, respectively. At December 31, 2018 and September 30, 2018, we were in compliance with all covenants under the Compass Credit Agreement.

Capital ~~Requirements~~Expenditures and ~~Sources of Liquidity~~Working Capital

During the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, our capital expenditures were ~~approximately $7.4~~$23.6 million and ~~$9.5~~$7.4 million, respectively. Our capital expenditures are typically made during the same fiscal year in which they are approved. At December 31, ~~2018,~~2019, our commitments for capital expenditures were not material to our financial condition or results of operations on a consolidated basis. For ~~the full~~ fiscal ~~year 2019,~~2020, we expect total capital expenditures to be ~~approximately $39.0~~$44.0 million to ~~$42.0 million.~~$47.0 million, not including $11.5 million for the buyout of equipment leases. 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 at least the next ~~twelve~~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 ~~and~~of materials, production of materials and ~~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, ~~enhancements to~~enhancing our information systems, ~~integration of acquisitions and~~our compliance with laws and rules applicable to public ~~companies.~~companies and our integration of any acquisitions.

We have historically relied onupon cash available through credit facilities, in addition to cash ~~on hand and~~ 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 ~~cash on hand,~~ operating cash flow and available borrowings under the ~~Compass~~ Revolving Credit Facility will be sufficient to fund our operations for at least the next ~~twelve~~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 ~~Compass~~ 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.

Commodity Price Risk

We are subject to commodity price risk with respect to price changes in liquid asphalt and energy, ~~resources,~~ including ~~(i)~~ fossil fuels and electricity for aggregates and asphalt paving mix production, ~~(ii)~~ natural gas for HMA production and ~~(iii)~~ 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-term and long-term debt obligations used to finance our operations and acquisitions. We have LIBOR-based floating rate borrowings under the ~~Compass~~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~~to hedge 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 of outstanding debt under the ~~Compass~~ 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, ~~related to the Scruggs Acquisition,~~ we entered into an additional $11.0 million notional interest rate swap agreement applicable to the $22.0 million of additional debt ~~that we incurred~~ under the ~~Compass~~ 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. In connection with the amendment to the BBVA Credit Agreement and the additional borrowing on October 1, 2019, we entered into an additional $5.9 million notional interest rate swap agreement applicable to the $10.0 million of additional debt under the Term Loan. Under this additional swap agreement, we pay a fixed percentage rate of 1.58% and receive a credit based on the applicable LIBOR rate.

At December 31, ~~2018,~~2019, we had a total of ~~$58.7~~$31.3 million of unhedged variable rate borrowings outstanding. ~~Holding other factors constant and absent the interest rate swap agreement described above, a~~A hypothetical 1% change in our borrowing rates would result in a ~~$0.6~~$0.3 million change in our annual interest expense based on our variable rate debt at December 31, ~~2018 and September 30, 2018.~~2019.

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Off-Balance Sheet Arrangements

~~The Company enters into operating leases for property and equipment in the normal course~~As of business. See Note 19 - Commitments and Contingencies to our consolidated financial statements included in the 2018 Form 10-K for additional information. Other than the operating leases described therein,December 31, 2019, we ~~do not currently have any~~had no material 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.arrangements.

Item 3. 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.

Item 4. Controls and Procedures.

Evaluation of Disclosure ~~Controls~~Control and Procedures

~~We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in~~Our management carried out, as of December 31, 2019, with the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated toparticipation of our ~~management, including our President and~~ Chief Executive Officer and our Chief Financial Officer, ~~to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness~~an evaluation of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.

~~Our management, under the supervision of our President and Chief Executive Officer and Chief Financial Officer, evaluated~~ the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange ~~Act) as of the end of the period covered by this Quarterly Report~~Act. Based on ~~Form 10-Q. As a result of the material weaknesses in~~that evaluation, our ~~internal control over financial reporting described below, our President and~~ Chief Executive Officer and Chief Financial Officer ~~have~~ concluded that, as of ~~the end of the period covered by this Quarterly Report on Form 10-Q,~~December 31, 2019, our disclosure controls and procedures were ~~not~~ effective ~~at the~~to provide reasonable assurance ~~level.~~that material information required to be disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~Changes~~

Changes in Internal Control Over Financial Reporting

During the ~~course~~quarter ended December 31, 2019, we implemented new controls related to the adoption of ~~preparing~~Accounting Standards Update (“ASU”) No. 2016-02, Leases and subsequently issued related ASUs. These controls relate to the evaluation of our ~~consolidated financial statements for~~contracts and the ~~fiscal years ended September 30, 2018 and 2017, our management determined that we have material weaknesses in~~application of Topic 842 to them.

Except a stated above, there were no changes to our internal control over financial reporting relating to the design and operation of our information technology general controls and overall closing and financial reporting controls, including our accounting for significant and unusual transactions. We have concluded that these material weaknesses in our internal control over financial reporting are primarily due to the fact that we have historically operated as a private company with limited resources and had neither formally designed and implemented the necessary business processes and related internal controls nor employed personnel with the appropriate level of experience and technical expertise to oversee (i) our business processes and controls surrounding information technology general controls, (ii) our closing and financial reporting processes, or (iii) the accounting and financial reporting requirements related to significant and unusual transactions.

As a result of these material weaknesses, we have implemented and continue to implement remediation measures including, but not limited to, hiring additional accounting staff members and engaging a third party to assist us with our efforts to: (i) improve the effectiveness of our financial period close and reporting processes; (ii) comply with the accounting and financial reporting requirements related to significant and unusual transactions; (iii) identify and implement the business processes and controls surrounding information technology general controls; and (iv) formalize our business processes, accounting policies and internal control documentation, strengthen supervisory reviews by our management, and evaluate the effectiveness of our internal controls in accordance with the framework established by ~~Internal Control - Integrated Framework(2013)~~ ~~published by the Committee of Sponsoring Organizations of the Treadway Commission.~~

Other than the changes intended to remediate the material weaknesses noted above, there were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - Other Information

Item 1. 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'~~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. There have been no material changes to the legal proceedings disclosed in the 2019 Form 10-K.

Item 1A. Risk Factors.

In addition to the other financial information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, ~~"Risk~~“Risk Factors,"” in our ~~2018~~2019 Form 10-K that could materially affect our business, financial condition or future operating results. The risks described in our ~~2018~~2019 Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

The Company did not sell any of its equity securities during the period covered by this report that were not registered under the Securities Act.

~~Use of Proceeds from Initial Public Offering of Class A Common Stock~~

On May 3, 2018, the Company’s Registration Statement on Form S-1 (File No. 333-224174) (the "Form S-1") filed in connection with the initial public offering of the Company's Class A common stock was declared effective by the SEC. There has been no material change in the Company's planned use of the proceeds received from the sale of shares of Class A common stock in the initial public offering from that described in the prospectus forming part of the Form S-1 and other periodic reports that the Company has filed with the SEC.

Issuer Purchases of Equity Securities

During the quarter covered by this report, the Company did not purchase any of its equity securities that are registered under Section 12(b) of the Exchange Act.

Item 3. Defaults Upon Senior Securities.

None.

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 Quarterly Report on Form 10-Q.

Item 5. Other Information.

None.

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Item 6. Exhibits.



Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Construction Partners, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-224174) filed on April 27, 2018)
3.2						Amended and Restated Bylaws of Construction Partners, Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-224174) filed on April 27, 2018)
4.1						Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-224174) filed on April 23, 2018)
4.2						Registration Rights Agreement, dated June 8, 2007, by and among Construction Partners, Inc. (f/k/a SunTx CPI Growth Company, Inc.) and certain security holders party thereto (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 (File No. 333-224174) filed on April 6, 2018)
10.1						Loan Modification Agreement and Amendment to Loan Documents, effective as of December 31, 2019, by and among Construction Partners, Inc. (f/k/a SunTx CPI Growth Company, Inc.), Wiregrass Construction Company, Inc., FSC II, LLC, C.W. Roberts Contracting, Incorporated, Everett Dykes Grassing Co., Inc. and The Scruggs Company, as Borrowers, BBVA USA (f/k/a Compass Bank), as Agent for the Lenders and as a Lender and Issuing Bank, and Bank of America, N.A., as a Lender (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K (File No. 001-38479) filed on January 2, 2020)
31.1*						Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*						Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1**						Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2**						Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
95.1*						Mine Safety Disclosures
101101.INS						XBRL Instance Document
101.SCH*						Inline XBRL Taxonomy Extension Schema Document
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data ~~Files~~File (formatted as Inline XBRL and contained in Exhibit 101)
*						Filed herewith.
**						Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this ~~14th~~7th day of February, ~~2019.~~

2020.


			CONSTRUCTION PARTNERS, INC.

		By:	~~CONSTRUCTION PARTNERS, INC.~~

~~By:~~	/s/ Charles E. Owens
			Charles E. Owens
			President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name and Signature

Title

Date

/s/ Charles E. Owens

President, Chief Executive Officer and Director

February 7, 2020

Charles E. Owens

(Principal Executive Officer)

~~Name and Signature~~

~~Title~~

~~Date~~

~~/s/ Charles E. Owens~~

~~President, Chief Executive Officer and Director~~

~~February 14, 2019~~

~~Charles E. Owens~~

~~(Principal Executive Officer)~~

/s/ R. Alan Palmer

Executive Vice President and Chief Financial Officer

February ~~14, 2019~~7, 2020

R. Alan Palmer

(Principal Financial Officer)


	December 31,			September 30,				December 31,		September 30,
	2018			2018				2019		2019
	(unaudited)							(unaudited)
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	91,567		$	99,137		Cash and cash equivalents	$	49,443	$	80,619
Contracts receivable including retainage, net	93,972			120,291			Contracts receivable including retainage, net	118,548		139,882
Costs and estimated earnings in excess of billings on uncompleted contracts	10,192			9,334			Costs and estimated earnings in excess of billings on uncompleted contracts	14,152		12,030
Inventories	28,538			24,556			Inventories	36,271		34,291
Prepaid expenses and other current assets	16,414			14,137			Prepaid expenses and other current assets	16,087		13,144
Total current assets	240,683			267,455			Total current assets	234,501		279,966

Property, plant and equipment, net	178,972			178,692			Property, plant and equipment, net	229,502		205,870
Operating lease right-of-use assets							Operating lease right-of-use assets	8,532		—
Goodwill	32,919			32,919			Goodwill	45,467		38,546
Intangible assets, net	3,521			3,735			Intangible assets, net	3,381		3,434
Investment in joint venture	165			1,659			Investment in joint venture	39		496
Other assets	9,972			10,270			Other assets	1,953		2,284
Deferred income taxes, net	1,580			1,580
Deferred income taxes							Deferred income taxes	1,173		1,173
Total assets	$	467,812		$	496,310		Total assets	$	524,548	$	531,769
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	38,220		$	63,510		Accounts payable	$	48,627	$	70,442
Billings in excess of costs and estimated earnings on uncompleted contracts	39,471			38,738			Billings in excess of costs and estimated earnings on uncompleted contracts	31,169		31,115
Current portion of operating lease liabilities							Current portion of operating lease liabilities	2,930		—
Current maturities of debt	14,836			14,773			Current maturities of debt	8,511		7,538
Accrued expenses and other current liabilities	12,118			17,520			Accrued expenses and other current liabilities	11,649		19,078
Total current liabilities	104,645			134,541			Total current liabilities	102,886		128,173
Long-term liabilities:							Long-term liabilities:
Long-term debt, net of current maturities	44,368			48,115			Long-term debt, net of current maturities	49,149		42,458
Deferred income taxes, net	8,890			8,890
Operating lease liabilities, net of current portion							Operating lease liabilities, net of current portion	5,818		—
Deferred income taxes							Deferred income taxes	11,480		11,480
Other long-term liabilities	5,286			5,295			Other long-term liabilities	6,031		6,108
Total long-term liabilities	58,544			62,300			Total long-term liabilities	72,478		60,046
Total liabilities	163,189			196,841			Total liabilities	175,364		188,219
Commitments and contingencies							Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized and no shares issued and outstanding at December 31, 2018 and September 30, 2018	—			—
Class A common stock, par value $0.001; 400,000,000 shares authorized, 11,950,000 issued and outstanding at December 31, 2018 and September 30, 2018	12			12
Class B common stock, par value $0.001; 100,000,000 shares authorized, 42,387,571 issued and 39,464,619 outstanding at December 31, 2018 and September 30, 2018	42			42
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized at December 31, 2019 and September 30, 2019 and 0 shares issued and outstanding							Preferred stock, par value $0.001; 10,000,000 shares authorized at December 31, 2019 and September 30, 2019 and 0 shares issued and outstanding	—		—
Class A common stock, par value $0.001; 400,000,000 shares authorized, 32,705,418 shares issued and outstanding at December 31, 2019, and 32,597,736 shares issued and outstanding at September 30, 2019							Class A common stock, par value $0.001; 400,000,000 shares authorized, 32,705,418 shares issued and outstanding at December 31, 2019, and 32,597,736 shares issued and outstanding at September 30, 2019	33		33
Class B common stock, par value $0.001; 100,000,000 shares authorized, 21,999,279 shares issued and 19,076,327 outstanding at December 31, 2019, and 22,106,961 shares issued and 19,184,009 shares outstanding at September 30, 2019							Class B common stock, par value $0.001; 100,000,000 shares authorized, 21,999,279 shares issued and 19,076,327 outstanding at December 31, 2019, and 22,106,961 shares issued and 19,184,009 shares outstanding at September 30, 2019	22		22
Additional paid-in capital	242,493			242,493			Additional paid-in capital	243,847		243,452
Treasury stock, at cost	(15,603		)	(15,603		)
Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001							Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001	(15,603)		(15,603)
Retained earnings	77,679			72,525			Retained earnings	120,885		115,646
Total stockholders' equity	304,623			299,469
Total liabilities and stockholders' equity	$	467,812		$	496,310
Total stockholders’ equity							Total stockholders’ equity	349,184		343,550
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	524,548	$	531,769


	For the Three Months Ended December 31,							For the Three Months Ended December 31,
	2018			2017				2019		2018
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	5,154		$	10,996		Net income	$	5,461	$	5,154
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization of long-lived assets	7,138			5,675			Depreciation, depletion and amortization of long-lived assets	9,438		7,138
Amortization of deferred debt issuance costs and debt discount	27			19			Amortization of deferred debt issuance costs and debt discount	36		27

Provision for bad debt	145			145			Provision for bad debt	145		145
Gain on sale of equipment	(334		)	(145		)	Gain on sale of equipment	(309)		(334)
Equity-based compensation expense							Equity-based compensation expense	395		—
Earnings from investment in joint venture	(306		)	—			Earnings from investment in joint venture	(43)		(306)
Deferred income taxes	—			(3,470		)
Changes in operating assets and liabilities:

Other non-cash adjustments							Other non-cash adjustments	(6)		—
Changes in operating assets and liabilities, net of acquisition:							Changes in operating assets and liabilities, net of acquisition:
Contracts receivable including retainage, net	26,174			25,479			Contracts receivable including retainage, net	21,981		26,174
Costs and estimated earnings in excess of billings on uncompleted contracts	(858		)	(2,466		)	Costs and estimated earnings in excess of billings on uncompleted contracts	(2,122)		(858)
Inventories	(3,982		)	(706		)	Inventories	(1,535)		(3,982)
Other current assets	(2,277		)	(2,600		)
Prepaid expenses and other current assets							Prepaid expenses and other current assets	(2,943)		(2,277)
Other assets	298			(549		)	Other assets	331		298
Accounts payable	(25,290		)	(11,268		)	Accounts payable	(21,815)		(25,290)
Billings in excess of costs and estimated earnings on uncompleted contracts	733			4,599			Billings in excess of costs and estimated earnings on uncompleted contracts	54		733
Accrued expenses and other current liabilities	(5,402		)	(6,214		)	Accrued expenses and other current liabilities	(7,444)		(5,402)
Other long-term liabilities	(9		)	(5		)	Other long-term liabilities	(77)		(9)
Net cash provided by operating activities	1,211			19,490
Net cash provided by operating activities, net of acquisition							Net cash provided by operating activities, net of acquisition	1,547		1,211
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property, plant and equipment	(7,406		)	(9,509		)	Purchases of property, plant and equipment	(23,595)		(7,406)
Proceeds from sale of equipment	536			191			Proceeds from sale of equipment	492		536
Business acquisition, net of cash acquired							Business acquisition, net of cash acquired	(17,748)		—
Distributions received from investment in joint venture	1,800			—			Distributions received from investment in joint venture	500		1,800
Net cash used in investing activities	(5,070		)	(9,318		)	Net cash used in investing activities	(40,351)		(5,070)
Cash flows from financing activities:							Cash flows from financing activities:
Repayments on revolving credit facility	—			(5,000		)

Proceeds from issuance of long-term debt, net of debt issuance costs and discount							Proceeds from issuance of long-term debt, net of debt issuance costs and discount	9,777		—
Repayments of long-term debt	(3,711		)	(2,500		)	Repayments of long-term debt	(2,149)		(3,711)
Net cash used in financing activities	(3,711		)	(7,500		)

Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	7,628		(3,711)
Net change in cash and cash equivalents	(7,570		)	2,672			Net change in cash and cash equivalents	(31,176)		(7,570)
Cash and cash equivalents:							Cash and cash equivalents:
Beginning of period	99,137			27,547			Beginning of period	80,619		99,137
End of period	$	91,567		$	30,219		End of period	$	49,443	$	91,567

Supplemental cash flow information:							Supplemental cash flow information:
Cash paid for interest	$	747		$	489		Cash paid for interest	$	496	$	747
Cash paid for income taxes	$	60		$	916		Cash paid for income taxes	$	300	$	60
Operating lease right-of-use assets obtained in exchange for operating lease liabilities							Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	217	$	—
Cash paid for operating lease liabilities							Cash paid for operating lease liabilities	$	870	$	—
Non-cash items:							Non-cash items:
Property, plant and equipment financed with accounts payable	$	178		$	—		Property, plant and equipment financed with accounts payable	$	391	$	178
Note receivable obtained in consideration for disposition of assets	$	—		$	1,013


	December 31, 2018			September 30, 2018				December 31, 2019		September 30, 2019
	(unaudited)							(unaudited)
Contracts receivable	$	78,500		$	104,541		Contracts receivable	$	99,095	$	121,050
Retainage	16,715			16,848			Retainage	20,587		19,835
	95,215			121,389				119,682		140,885
Allowance for doubtful accounts	(1,243		)	(1,098		)	Allowance for doubtful accounts	(1,134)		(1,003)
Contracts receivable including retainage, net	$	93,972		$	120,291		Contracts receivable including retainage, net	$	118,548	$	139,882



PART I.		FINANCIAL INFORMATION		2
Item 1.		Financial Statements		2
		Consolidated Balance Sheets at December 31, ~~2018 (unaudited)~~2019 and September 30, ~~2018~~2019		2
		Consolidated Statements of Income for the three months ended December 31, ~~2018~~2019 and December 31, ~~2017 (unaudited)~~2018		3
		Consolidated Statements of Stockholders' Equity for the three months ended December 31, ~~2018~~201 9 and December 31, ~~2017 (unaudited)~~201 8		4
		Consolidated Statements of Cash Flows for the three months ended December 31, ~~2018~~2019 and December 31, ~~2017 (unaudited)~~2018		5
		Notes to Consolidated Financial Statements ~~(unaudited)~~		6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		1617
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.		Controls and Procedures		23

PART II.		OTHER INFORMATION		24
~~PART II.~~Item 1.		~~OTHER INFORMATION~~Legal Proceedings		24
Item 1.1A.		~~Legal Proceedings~~Risk Factors		24
~~Item 1A.~~		~~Risk Factors~~	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3.		Defaults Upon Senior Securities		24
Item 4.		Mine Safety Disclosures		24
Item 5.		Other Information		24
Item 6.		Exhibits		25

SIGNATURES				26



	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Total Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital		Treasury Stock			Retained Earnings		Total Stockholders' Equity
September 30, 2017	44,987,575	$	45	$	142,385	$	(11,983	)	$	21,734	$	152,181
Net income	—	—		—		—			10,996		10,996
December 31, 2017	44,987,575	$	45	$	142,385	$	(11,983	)	$	32,730	$	163,177


	% of Consolidated Revenues					% of Consolidated Revenues
	for the Three Months Ended December 31,					for the Three Months Ended December 31,
	2018		2017			2019		2018
Alabama Department of Transportation	9.6	%	13.2	%	Alabama Department of Transportation	10.8	%	9.6	%
North Carolina Department of Transportation	14.2	%	13.2	%	North Carolina Department of Transportation	8.5	%	14.2	%



	As Reported		Impact of ASC 606			Without Application of ASC 606
Costs and estimated earnings in excess of billings on uncompleted contracts	$	10,192	$	(1,060	)	$	11,252
Inventories	$	28,538	$	1,604		$	26,934
Accrued expenses and other liabilities	$	12,118	$	(41	)	$	12,159
Billings in excess of costs and estimated earnings on uncompleted contracts	$	39,471	$	705		$	38,766
Revenues	$	154,327	$	(1,765	)	$	156,092
Cost of revenues	$	133,199	$	(1,604	)	$	134,803
Provision (benefit) for income taxes	$	1,651	$	(41	)	$	1,692
Net income	$	5,154	$	(120	)	$	5,274


~~(a)~~	~~Include the pro forma results of operations of Scruggs for the three months ended December 31, 2017.~~


~~(b)~~	Include additional depreciation and depletion expense related to the fair value of acquired property, plant and equipment and quarry reserves, as applicable, as if such assets were acquired on October 1, 2016 and the Company's depreciation and depletion methodologies were consistently applied to such assets.