Concrete Pumping Holdings, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Three and nine months ended July 31, 2023; comparisons are with the same periods in 2022. Amounts below are in U.S. dollars. The company provides concrete pumping services in the U.S. and U.K. and concrete waste-management services, primarily in the U.S.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $120.7 million | $104.5 million | $322.0 million | $286.4 million |
| Gross profit / margin | $49.5 million / 41.0% | $41.9 million / 40.1% | $129.4 million / 40.2% | $115.0 million / 40.2% |
| Operating income | $19.5 million | $14.1 million | $42.2 million | $31.8 million |
| Net income | $10.3 million | $13.0 million | $22.4 million | $20.1 million |
| Diluted EPS | $0.18 | $0.22 | $0.38 | $0.33 |
| Adjusted EBITDA | $34.9 million | $30.0 million | $88.8 million | $80.4 million |
- Q3 revenue increased 15.5%; operating income rose about 39%, while net income fell about 20%. The smaller warrant-liability remeasurement gain in Q3 2023 ($0.9 million versus $7.4 million) was a key reason net income declined despite higher operating income.
- Nine-month revenue grew 12.4% and net income grew 11.2%. Adjusted EBITDA increased 10.4% for the nine months but was nearly flat in Q3 GAAP EBITDA ($35.4 million versus $35.7 million).
- Q3 revenue growth came from U.S. Concrete Pumping (+12.9%), U.K. Operations (+19.7%) and U.S. Concrete Waste Management (+28.8%). Management cited acquisitions and pricing in pumping, and organic volume growth and pricing in waste management. Coastal contributed $5.6 million of Q3 revenue and $15.0 million over nine months.
- Q3 gross margin improved 0.9 percentage points, which management attributed to revenue growth and easing diesel prices, partly offset by labor inflation. Nine-month gross margin was unchanged as fuel-price relief was offset by labor inflation.
- Interest expense rose to $7.1 million in Q3 and $21.3 million for nine months, primarily reflecting higher average ABL borrowings. Nine-month income tax expense was $5.4 million versus $2.5 million; the company says warrant fair-value changes, which are not recognized for tax purposes, affected the effective tax rate.
Cash flow, debt and liquidity
- For the nine months, operating cash flow was $66.2 million, versus $53.7 million a year earlier. Investing cash outflow was $35.9 million, including $43.2 million of property and equipment purchases, partly offset by $8.0 million of sale proceeds. Financing cash outflow was $26.7 million, including $9.7 million of treasury-stock purchases. Cash increased $4.1 million to $11.5 million.
- At July 31, cash was $11.5 million and available ABL borrowing capacity was $184.0 million, for reported total available liquidity of $195.5 million. Working capital was a deficit of $2.4 million; management says it generally operates with a working-capital deficit.
- Gross debt was $410.7 million: $375.0 million of 6.0% Senior Notes due February 2026 and $35.7 million outstanding on the variable-rate ABL. The ABL weighted-average rate was 7.8%, versus 4.4% at October 31, 2022. Cash less gross debt implies approximately $399.2 million of net debt.
- A June 2023 amendment increased ABL commitments to $225 million, raised the letter-of-credit sublimit to $22.5 million and extended maturity subject to an earlier-maturity provision tied to the Senior Notes. The company reported covenant compliance and $4.2 million of outstanding letters of credit.
- Capital expenditures were $43.2 million for nine months, down from $81.0 million in the comparable period. Management believes cash, operating cash flow and ABL availability will meet working-capital and capital-expenditure needs for at least 12 months and service debt for the foreseeable future.
Outlook, risks and notable items
- No specific revenue, earnings or cash-flow guidance is provided. Management notes that results are seasonal, typically weaker in the first quarter and stronger in the fourth, with weather affecting construction activity and working-capital needs.
- Key cited risks include inflation and fuel costs, construction-market and economic conditions, weather, labor and retention, acquisition integration, currency movements, access to credit, insurance claims, and substantial indebtedness and related restrictions.
- Disclosure controls and procedures were deemed ineffective as of July 31, 2023 because of two previously identified material weaknesses: review of manual journal entries and IT access/segregation of duties affecting accounts payable and expenditures. Management says remediation controls were designed and implemented, but require continued operation and testing; it cannot yet conclude the weaknesses are fully remediated.
- The company repurchased 1.30 million shares for $8.6 million during the nine months, including 199,000 shares for $1.4 million in Q3. The January 2023 authorization added $10 million to the program and expires March 31, 2024.
- There were 13.0 million public warrants outstanding, exercisable at $11.50 per share and expiring December 6, 2023, absent earlier redemption or liquidation. Management reported no goodwill or intangible-asset impairment trigger during the nine months.
- Management says ordinary-course legal matters are not expected to materially affect the financial statements. Self-insured commercial liabilities were $24.7 million, with $18.9 million of expected recoveries, for a reported net amount of $5.8 million.
Important facts for investors to verify
- Whether the newly implemented internal controls operate effectively long enough to support formal remediation of the material weaknesses, and the status of the previously disclosed interim-period restatement.
- ABL borrowing-base availability, variable interest costs, covenant headroom and the Senior Notes’ February 2026 maturity, including the ABL’s springing maturity provision.
- Whether pricing and organic volume growth continue across segments, particularly given labor inflation and construction-market and weather exposure.
- Cash conversion and future equipment spending relative to operating cash flow, as well as the company’s continued share repurchases and acquisition activity.
- The December 2023 warrant expiration and related fair-value effects on reported earnings and taxes; compare GAAP results with non-GAAP Adjusted EBITDA, which excludes specified items.