Cautionary Statement Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, backlog, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. When evaluating forward-looking statements, you should consider the risk factors and other cautionary statements described below under the heading “Risk Factors.” We believe that the expectations reflected in the forward-looking statements contained in this report are reasonable, but no assurance can be given that these expectations will prove to be correct.
Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to:
These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Risk Factors.” All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no
obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by law.
Item 1. Business
Overview
Construction Partners, Inc. (the “Company”) is a leading infrastructure company that specializes in the construction and maintenance of roadways across Alabama, Florida, Georgia, North Carolina and South Carolina. Through its wholly owned subsidiaries, the Company provides a variety of products and services to both public and private infrastructure projects, with an emphasis on highways, roads, bridges, airports, and commercial and residential sites. Consistent with its vertical integration strategy, the Company's primary operations consist of (i) mining aggregates, such as sand and gravel, that are used as raw materials in the production of hot mix asphalt ("HMA"), (ii) manufacturing and distributing HMA for use by the Company and third parties in connection with construction projects, and (iii) site development, installing utility and drainage systems and paving.
The Company was formed as a Delaware corporation in 2007 as a holding company for its wholly owned subsidiary, Construction Partners Holdings, Inc., to facilitate an acquisition growth strategy in the HMA paving and construction industry.
As used in this report, the terms “Company,” “we” and “us” refer to Construction Partners, Inc. and its subsidiaries, except when the context requires that those terms mean only the parent company or a particular subsidiary.
2018 Fiscal Year Developments
Reclassification of Common Stock. On April 23, 2018, the Company amended and restated its certificate of incorporation to effectuate a dual class common stock structure consisting of Class A common stock and Class B common stock (the “Reclassification”). As a result of the Reclassification, each share of common stock, par value $0.001 per share, issued immediately prior thereto was converted into 25.2 shares of Class B common stock, and Class A common stock was initially authorized for issuance. Following the Reclassification, the Company’s amended and restated certificate of incorporation authorized 400,000,000 shares of Class A common stock and 100,000,000 shares of Class B common stock.
Initial Public Offering. On May 8, 2018, the Company completed an initial public offering of 11,250,000 shares of its Class A common stock for a price of $12.00 per share. Of these shares, 9,000,000 were sold by the Company, for which the Company received $100.4 million in proceeds, after deducting underwriting discounts and commissions of $7.6 million, and prior to additional total offering expenses of $6.3 million. The remaining 2,250,000 shares were sold by the holders of Class B common stock, which shares upon sale automatically converted on a one-to-one basis into 2,250,000 shares of Class A common stock. The Company did not receive any proceeds from the sale of shares by the holders of Class B common stock. On May 24, 2018, the underwriters of the initial public offering partially exercised their over-allotment option to purchase an additional 700,000 shares of Class A common stock at a price of $12.00 per share, less the underwriting discount and commissions. Of these shares, 350,000 were sold by the Company, for which the Company received $3.9 million in proceeds, after deducting underwriting discounts and commissions of $0.3 million. The remaining 350,000 shares were sold by the holders of Class B common stock, which shares upon sale automatically converted on a one-to-one basis into 350,000 shares of Class A common stock. The Company did not receive any proceeds from the sale of shares by the holders of Class B common stock.
Acquisition of The Scruggs Company. On May 15, 2018, the Company acquired all of the outstanding common stock of The Scruggs Company, a privately-owned infrastructure and road construction company headquartered in Hahira, Georgia, that operates three HMA plants, three aggregate mines and one industrial plant in Georgia. The purchase price of $51.3 million was funded by $29.3 million of cash on hand and $22.0 million borrowed under an existing credit facility.
Settlement Agreements. On April 19, 2018, certain of the Company’s subsidiaries entered into settlement agreements with a third party, pursuant to which they will receive aggregate net payments of approximately $15.7 million, payable in four equal installments between January 2019 and July 2020, in exchange for releasing and waiving all current and future claims against the third party relating to compensation to the Company for a business interruption event that (i) occurred more than five years ago, (ii) did not directly relate to the Company’s business and (iii) has not, and is not expected to, recur (the “Settlement”). The Company recorded a pre-tax gain of $14.8 million during the fiscal year ended September 30, 2018 related to the Settlement.
Our Industry
We operate in the large and growing highway and road construction industry and specifically within the asphalt paving materials and services segment. Asphalt paving mix is the most common roadway material used today due to its cost effectiveness, durability and reusability, and minimized traffic disruption during paving, as compared to concrete. Recent growth in our industry has been driven by