Company Quick10K Filing
Construction Partners
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$15.01 51 $772
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-10-01 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-09-17 Enter Agreement, Other Events, Exhibits
8-K 2019-09-16 Regulation FD, Exhibits
8-K 2019-08-30 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-07-15 Other Events, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-04-30 Enter Agreement, Officers, Exhibits
8-K 2019-04-18 Other Events
8-K 2019-03-08 Shareholder Vote
8-K 2019-02-28 Other Events, Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-12-06 Earnings, Officers, Exhibits
8-K 2018-11-05 Regulation FD, Exhibits
8-K 2018-10-16 Regulation FD, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-05-29 Other Events
8-K 2018-05-17 Other Events, Exhibits
8-K 2018-05-15 Enter Agreement, Off-BS Arrangement, Exhibits
LMT Lockheed Martin 107,362
JEC Jacobs Engineering Group 11,993
SPR Spirit Aerosystems Holdings 8,198
ACM Aecom 5,302
FLR Fluor 2,368
ATRO Astronics 923
DCO Ducommun 484
HIL Hill International 165
ORN Orion Group Holdings 120
ENG ENGlobal 32
ROAD 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - General
Note 2 - Significant Accounting Policies
Note 3 - Accounting Standards
Note 4 - Business Acquisitions
Note 5 - Contracts Receivable Including Retainage, Net
Note 6 - Costs and Estimated Earnings on Uncompleted Contracts
Note 7 - Property, Plant and Equipment
Note 8 - Equity
Note 9 - Debt
Note 10 - Earnings per Share
Note 11 - Provision for Income Taxes
Note 12 - Related Parties
Note 13 - Settlement Agreement
Note 14 - Equity-Based Compensation
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 exhibit101-firstamendm.htm
EX-31.1 a2019q3exhibit311.htm
EX-31.2 a2019q3exhibit312.htm
EX-32.1 a2019q3exhibit321.htm
EX-32.2 a2019q3exhibit322.htm
EX-95.1 a2019q3exhibit951.htm

Construction Partners Earnings 2019-06-30

ROAD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

FALSEJune 30, 20192019Q30001718227290 Healthwest Drive, Suite 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Table of Contents
(Mark One)
For the quarterly period ended June 30, 2019
For the transition period from                      to                     
Commission File Number: 001-38479
Construction Partners, Inc.
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
290 Healthwest Drive, Suite 2
Dothan, Alabama
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (334) 673-9763
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.001 per shareROADThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒    No  £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
As of August 7, 2019, the registrant had 32,567,545 shares of Class A common stock, par value $0.001, and 19,114,417 shares of Class B common stock, par value $0.001, outstanding.

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"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements related to future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, and 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," "outlook" and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management's belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. We believe the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q 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 infrastructure construction, land usage, environmental, health and safety matters, and governmental contracting requirements and other laws and regulations;
unfavorable economic conditions and restrictive financing markets;
our ability to successfully identify, manage and integrate acquisitions;
our ability to obtain sufficient bonding capacity to undertake certain projects;
our ability to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us;
the cancellation of a significant number of contracts or our disqualification from bidding for new contracts;
risks related to adverse weather conditions;
our substantial indebtedness and the restrictions imposed on us by the terms thereof;
our ability to maintain favorable relationships with third parties that supply us with equipment and essential supplies;
our ability to retain key personnel and maintain satisfactory labor relations;
property damage and other claims and insurance coverage issues;
the outcome of litigation or disputes, including employment-related disputes, workers' compensation claims and breach of contract claims;
risks related to our information technology systems and 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. 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.

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Item 1. Financial Statements

(in thousands, except share and per share data)
June 30, September 30,
2019 2018 
Current assets:
Cash and cash equivalents$59,648 $99,137 
Contracts receivable including retainage, net134,709 120,291 
Costs and estimated earnings in excess of billings on uncompleted contracts14,043 9,334 
Inventories37,069 24,556 
Prepaid expenses and other current assets13,533 14,137 
Total current assets259,002 267,455 
Property, plant and equipment, net201,712 178,692 
Goodwill36,968 32,919 
Intangible assets, net3,091 3,735 
Investment in joint venture384 1,659 
Other assets6,292 10,270 
Deferred income taxes, net1,575 1,580 
Total assets$509,024 $496,310 
Current liabilities:
Accounts payable$65,232 $63,510 
Billings in excess of costs and estimated earnings on uncompleted contracts32,344 38,738 
Current maturities of debt14,771 14,773 
Accrued expenses and other current liabilities19,028 17,520 
Total current liabilities131,375 134,541 
Long-term liabilities:
Long-term debt, net of current maturities37,096 48,115 
Deferred income taxes, net8,749 8,890 
Other long-term liabilities5,621 5,295 
Total long-term liabilities51,466 62,300 
Total liabilities182,841 196,841 
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized and no shares issued and outstanding at June 30, 2019 and September 30, 2018  
Class A common stock, par value $0.001; 400,000,000 shares authorized, 32,442,545 issued and outstanding at June 30, 2019, and 11,950,000 issued and outstanding at September 30, 201832 12 
Class B common stock, par value $0.001; 100,000,000 shares authorized, 22,162,369 issued and 19,239,417 outstanding at June 30, 2019, and 42,387,571 issued and 39,464,619 outstanding at September 30, 201822 42 
Additional paid-in capital242,639 242,493 
Treasury stock, at cost, 2,922,952 shares of Class B common stock, par value $0.001(15,603)(15,603)
Retained earnings99,093 72,525 
Total stockholders' equity326,183 299,469 
Total liabilities and stockholders' equity$509,024 $496,310 
See notes to consolidated financial statements (unaudited).

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(unaudited in thousands, except share and per share data)
For the Three Months Ended June 30,For the Nine Months Ended June 30,
2019 2018 2019 2018 
Revenues$227,290 $195,075 $545,921 $464,395 
Cost of revenues189,198 165,606 466,900 398,379 
Gross profit38,092 29,469 79,021 66,016 
General and administrative expenses(15,968)(14,788)(45,170)(40,572)
Settlement income   14,803 
Gain on sale of equipment, net58 86 1,085 1,117 
Operating income22,182 14,767 34,936 41,364 
Interest expense, net(615)(406)(1,509)(956)
Other income (expense), net190 15 296 (45)
Income before provision for income taxes and earnings from investment in joint venture21,757 14,376 33,723 40,363 
Provision for income taxes4,941 1,409 8,080 5,382 
Earnings from investment in joint venture386 436 925 666 
Net income$17,202 $13,403 $26,568 $35,647 
Net income per share attributable to common stockholders:
Basic$0.33 $0.29 $0.52 $0.82 
Diluted$0.33 $0.29 $0.52 $0.81 
Weighted average number of common shares outstanding:
Basic51,414,619 46,557,785 51,414,619 43,648,309 
Diluted51,422,899 46,988,359 51,414,887 43,932,546 
See notes to consolidated financial statements (unaudited).

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(unaudited in thousands, except share data)

Common StockClass A Common StockClass B Common StockAdditional
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 
Net income— — — — — — — — 4,212 4,212 
March 31, 2019  11,950,000 12 42,387,571 42 242,493 (15,603)81,891 308,835 
Equity-based compensation expense— — — — — — 146 — — 146 
Issuance of stock grant awards— — 267,343 — — — — — —  
Conversion of Class B common stock to Class A common stock— — 20,225,202 20 (20,225,202)(20)— — —  
Net income— — — — — — — — 17,202 17,202 
June 30, 2019 $ 32,442,545 $32 22,162,369 $22 $242,639 $(15,603)$99,093 $326,183 
Common StockClass A Common StockClass B Common StockAdditional
September 30, 201744,987,575 $45  $  $ $142,385 $(11,983)$21,734 $152,181 
Net income— — — — — — — — 10,996 10,996 
December 31, 201744,987,575 45     142,385 (11,983)32,730 163,177 
Equity-based compensation expense— — — — — — 604 — — 604 
Issuance of restricted shares from treasury— — — — — — (453)458 — 5 
Net income— — — — — — — — 11,248 11,248 
March 31, 201844,987,575 45     142,536 (11,525)43,978 175,034 
Reclassification of common stock(44,987,575)(45)— — 44,987,571 45 — — —  
Conversion of Class B common stock to Class A common stock— — 2,600,000 3 (2,600,000)(3)— — —  
Initial public offering of Class A common stock, net of offering cost— — 9,350,000 9 — — 98,000 — — 98,009 
Equity-based compensation expense— — — — — — 371 — — 371 
Cashless option exercise— — — — — — 1,586 (4,078)— (2,492)
Net income— — — — — — — — 13,403 13,403 
June 30, 2018 $ 11,950,000 $12 42,387,571 $42 $242,493 $(15,603)$57,381 $284,325 
See notes to consolidated financial statements (unaudited).

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(unaudited in thousands)
For the Nine Months Ended June 30,
2019 2018 
Cash flows from operating activities:
Net income$26,568 $35,647 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization of long-lived assets22,698 17,929 
Amortization of deferred debt issuance costs and debt discount83 60 
Provision for bad debt421 435 
Gain on sale of equipment, net(1,085)(1,117)
Equity-based compensation expense146 975 
Earnings from investment in joint venture(925)(666)
Deferred income taxes(136)(1,430)
Changes in operating assets and liabilities:
Contracts receivable including retainage, net(14,839)14,055 
Costs and estimated earnings in excess of billings on uncompleted contracts(4,709)(6,128)
Other current assets604 (9,165)
Other assets3,978 (12,079)
Accounts payable1,722 (7,944)
Billings in excess of costs and estimated earnings on uncompleted contracts(6,394)2,823 
Accrued expenses and other current liabilities1,497 (6,048)
Other long-term liabilities326 (352)
Net cash provided by operating activities, net of acquisitions17,963 23,660 
Cash flows from investing activities:
Purchases of property, plant and equipment(31,744)(33,460)
Proceeds from sale of equipment2,898 2,889 
Business acquisition, net of cash acquired(8,854)(51,319)
Acquisition of liquid asphalt terminal assets(10,848) 
Investment in joint venture (400)
Distributions received from investment in joint venture2,200  
Net cash used in investing activities(46,348)(82,290)
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 21,917 
Repayments of long-term debt(11,104)(8,665)
Proceeds from initial public offering of Class A common stock, net of offering costs 98,009 
Proceeds from reissuance of treasury stock 5 
Net cash (used in) provided by financing activities(11,104)106,266 
Net change in cash and cash equivalents(39,489)47,636 
Cash and cash equivalents:
Beginning of period99,137 27,547 
End of period$59,648 $75,183 
Supplemental cash flow information:
Cash paid for interest$1,998 $1,578 
Cash paid for income taxes$3,232 $12,557 
Non-cash items:
Property, plant and equipment financed with accounts payable$332 $152 

See notes to consolidated financial statements (unaudited).

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Note 1 - General
Business Description
Construction Partners, Inc. (the "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, as well as construction materials including hot mix asphalt ("HMA"), aggregates, ready-mix concrete and liquid asphalt. 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 ("CPHI"), which incorporated in 1999 and began operations in 2001 to execute an acquisition growth strategy in the hot mix asphalt paving and construction industry. SunTx Capital Partners ("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 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 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 (the "SEC"), which permit reduced disclosure for interim periods. The Consolidated Balance Sheet as of September 30, 2018 was derived from audited financial statements for the fiscal year then ended, but does not include all necessary disclosures required by generally accepted accounting principles in the United States of America ("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 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 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 (the "2018 Form 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.
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' 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, 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 annual consolidated financial statements included in its 2018 Form 10-K.


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Emerging Growth Company
The Company is an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (the "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 elected to opt out of such extended transition period, which means that when a standard is issued or revised and it has different effective dates 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.
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 industry for a small portion of 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 as "Contracts receivable including retainage, net". Based on the 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 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 percentage-of-completion method of accounting. The Company records contract assets and contract liabilities to account for these differences in timing.
The contract asset, "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 receivable including retainage, 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 can be reasonably estimated. 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 is probable and amounts can be reliably determined. The Company did not recognize any material amounts associated with claims and unapproved change orders during the periods presented.
The contract liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents the Company's obligation to transfer 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.

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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 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 assessment of 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% of the Company's contracts receivable including retainage, net balance at June 30, 2019 or September 30, 2018.
Projects performed for various Departments of Transportation accounted for 41.8% and 45.6% of consolidated revenues for the three months ended June 30, 2019 and 2018, respectively, and for 39.4% and 40.9% of consolidated revenues for the nine months ended June 30, 2019 and 2018, respectively. Customers that accounted for more than 10% of consolidated revenues during those periods are presented below:
% of Consolidated Revenues
For the Three Months Ended June 30,For the Nine Months Ended June 30,
2019 2018 2019 2018 
Alabama Department of Transportation15.4 %17.0 %12.9 %14.8 %
North Carolina Department of Transportation13.9 %14.8 %13.4 %13.5 %

Revenues from Contracts with Customers
The Company derives all of its revenues from contracts with its customers, predominantly by performing construction services for both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports and commercial and residential developments. These projects are performed for a mix of federal, state, municipal and private customers. In addition, the Company generates revenues from the sale of construction materials including HMA, aggregates, liquid asphalt and ready-mix concrete to third-party public and private customers pursuant to contracts with those customers. The following table reflects, for the periods presented, (i) revenues generated from public infrastructure construction projects and the sale of construction materials to public customers and (ii) revenues generated from private infrastructure construction projects and the sale of construction materials to private customers.
For the Three Months Ended June 30,For the Nine Months Ended June 30,
2019 2018 2019 2018 
Private$66,207 $56,293 $166,193 $148,525 
Public$161,083 $138,782 $379,728 $315,870 

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 control of the asset created or enhanced by the project to the customer. 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 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

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(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 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 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 asset is created or enhanced by the Company. The 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 applied to the total contract 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 most likely amount of consideration management expects the Company to be entitled to at the completion of the contract, based on the best information available 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 it is probable that a significant reversal 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 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 account 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 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 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 costs 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 liquid asphalt are recognized at a point in time, 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 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.
Income Taxes
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 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 Sheets. The Company classifies income tax-related interest and penalties as interest expense and other expenses, respectively.

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Earnings per Share
As described in Note 8 – 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 net income of the Company was 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 is computed by dividing net income attributable to common stockholders by the weighted average number of aggregate shares of pre-Reclassification 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 by the weighted average number of aggregate shares of pre-Reclassification common stock, Class A common stock, Class B common stock and potential dilutive common shares determined 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 of diluted earnings per share.

Note 3 - Accounting Standards
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("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"): (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, 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 disclosures 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.
The update permits adoption 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 approach, under which financial statements are prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities recognize a cumulative adjustment to the opening balance of retained earnings for contracts that still require performance by the entity at the date of adoption.
Management adopted this update for 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 of a cumulative adjustment of the opening retained earnings balance for contracts that still required performance at September 30, 2018. Application of ASC 606 for the nine months ended June 30, 2019 had the following impact on the Company's Consolidated Balance Sheet at June 30, 2019 and Consolidated Statements of Income for the three and nine months ended June 30, 2019 (in thousands):

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As ReportedImpact of ASC 606Without Application of ASC 606
At June 30, 2019
Costs and estimated earnings in excess of billings on uncompleted contracts$14,043 $(982)$15,025 
Inventories37,069 1,205 35,864 
Accrued expenses and other liabilities19,028 (29)19,057 
Billings in excess of costs and estimated earnings on uncompleted contracts$32,344 $338 $32,006 
For the Three Months Ended June 30, 2019
Revenues$227,290 $(343)$227,633 
Cost of revenues189,198 311 188,887 
Provision (benefit) for income taxes4,941 9 4,932 
Net income$17,202 $(23)$17,225 
For the Nine Months Ended June 30, 2019
Revenues$545,921 $(1,321)$547,242 
Cost of revenues466,900 (1,205)468,105 
Provision (benefit) for income taxes8,080 (29)8,109 
Net income$26,568 $(87)$26,655 

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 the recognition of revenue over time using 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 in the application of ASC 606 in Note 2 - Significant Accounting Policies.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASC 805"). The amendments of this update refine the definition of a business. Prior to this update, guidance in ASC 805 defined a business as having an integrated set of assets along with three elements or activities: inputs, processes, and outputs (collectively referred to as a "set"). The amendments of this update provided a framework to assist in the evaluation of when a set is not a business. If substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If that threshold is not met, the Company must perform further analysis to determine whether the set is a business. At a minimum, the set must include an input and a substantive process that together significantly contribute to the ability to create outputs. The Company adopted this update for the Company’s fiscal year beginning October 1, 2018 and applied the guidance to acquisitions during the second quarter of the fiscal year ending September 30, 2019 as described in Note 4 - Business Acquisitions and Note 7 - Property, Plant and Equipment.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which becomes effective for the Company on October 1, 2019. The standard requires that lessees present right-of-use assets and lease liabilities on the balance sheet. The Company’s implementation efforts are focused on accounting policy and disclosure updates and system enhancements required to meet the new standard. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

Note 4 - Business Acquisitions
Florida Acquisition
On February 26, 2019, a subsidiary of the Company executed an asset purchase agreement to acquire substantially all of the assets of an HMA and ready-mix concrete business located in Okeechobee, Florida. This transaction enables the Company to serve new markets

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in south central Florida through an expanded geographic presence in the state. The acquisition was accounted for as a business combination in accordance with ASC 805. The purchase price of $8.9 million was paid from cash on hand at closing on February 28, 2019.
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 3 to the Company's audited financial statements for the fiscal year ended September 30, 2018. The amounts allocated were not material to the Company's Consolidated Balance Sheet. The purchase price exceeding the net fair value of identifiable assets acquired and liabilities assumed was recorded as goodwill in the amount of $4.0 million, which is deductible for income tax purposes. Goodwill primarily represents the assembled work force and 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 amount allocated to goodwill.
The results of operations since the February 28, 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 Statements of Income for the three or nine months ended June 30, 2019. Pro forma results of operations as if the acquisition had been consummated on October 1, 2017 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 as general and administrative expenses on the Company's Consolidated Statements of Income in the amount of $0.1 million for the three and nine months ended June 30, 2019.
The Scruggs Company
On May 15, 2018, the Company executed a stock purchase agreement (the "Stock Purchase Agreement") to complete the acquisition of 100% of the common shares and voting interests of The Scruggs Company ("Scruggs"), which complemented the Company's vertically integrated southeastern United States operations, providing new bidding areas in the expanding Georgia market (the "Scruggs Acquisition"). This acquisition was accounted for as a business combination in accordance with ASC 805.
The Consolidated Statements of Income include $18.5 million of revenue and $2.3 million of net income attributable to operations of Scruggs for the three months ended June 30, 2019, and $53.2 million of revenue and $5.2 million of net income attributable to the operations of Scruggs for the nine months ended June 30, 2019. The following presents unaudited pro forma revenues and net income for the three and nine months ended June 30, 2018 as though the Scruggs Acquisition had occurred on October 1, 2016 (in thousands):
For the Three Months Ended June 30, 2018For the Nine Months Ended June 30, 2018
Pro forma revenues$206,924 $519,735 
Pro forma net income$15,379 $40,653 

Unaudited pro forma financial information is presented as if the operations of Scruggs had been included in the consolidated results of the Company and gives effect to transactions that are directly attributable to the Scruggs Acquisition, including adjustments to:
a.Include the pro forma results of operations of Scruggs for the three and nine months ended June 30, 2018.
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.
c.Include interest expense under the Compass Term Loan, defined in Note 9 - Debt, as if the $22.0 million borrowed to partially finance the purchase price was borrowed on October 1, 2016. Interest expense calculations further assume that no principal payments were made applicable to the $22.0 million borrowed during the period from October 1, 2016 through June 30, 2018, and that the interest rate in effect on the date the Company made the additional $22.0 million borrowing on May 15, 2018 was in effect for the period from October 1, 2016 through June 30, 2018.
Unaudited pro forma information is presented for informational purposes only and may not be indicative of revenue or net income that have been achieved if the Scruggs Acquisition had occurred on October 1, 2016.


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Note 5 - Contracts Receivable Including Retainage, net
Contracts receivable including retainage, net consisted of the following at June 30, 2019 and September 30, 2018 (in thousands):

June 30, 2019September 30, 2018
Contracts receivable$117,046 $104,541 
Retainage19,182 16,848 
136,228 121,389 
Allowance for doubtful accounts(1,519)(1,098)
Contracts receivable including retainage, net$134,709 $120,291 

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

Note 6 - Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings compared to billings on uncompleted contracts at June 30, 2019 and September 30, 2018 consisted of the following (in thousands):
June 30, 2019September 30, 2018
Costs on uncompleted contracts$913,628 $743,322 
Estimated earnings to date on uncompleted contracts123,914 95,155 
1,037,542 838,477 
Billings to date on uncompleted contracts(1,055,843)(867,881)
Net billings in excess of costs and estimated earnings on uncompleted contracts$(18,301)$(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 to June 30, 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 estimates4,709 6,394 11,103 
June 30, 2019 (unaudited)$14,043 $(32,344)$(18,301)

At June 30, 2019, the Company had unsatisfied or partially unsatisfied performance obligations under construction project contracts representing approximately $522 million in aggregate transaction price. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $201 million during the remainder of the fiscal year ending September 30, 2019 and approximately $321 million thereafter.

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Note 7 - Property, Plant and Equipment
Property, plant and equipment at June 30, 2019 and September 30, 2018 consisted of the following (in thousands):
June 30, 2019September 30, 2018