Concrete Pumping Holdings, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended January 31, 2021; comparisons are to the three months ended January 31, 2020 unless noted. The company provides concrete pumping services in the U.S. and U.K. and concrete-waste containment and cleanup services, primarily in the U.S. Financial statements are unaudited.
Financial performance
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $70.4 | $73.9 | Down 4.8% |
| Gross profit / margin | $29.9 / 42.4% | $32.1 / 43.5% | Margin down 1.1 percentage points |
| Income from operations | $7.4 | $5.5 | Up $1.9 |
| Net loss | $(12.3) | $(2.7) | Loss increased $9.5 |
| Loss per common share, diluted | $(0.24) | $(0.06) | — |
| Adjusted EBITDA | $22.4 | $23.8 | Down 6.2% |
| Operating cash flow | $12.6 | $1.8 | Up $10.8 |
| Capital expenditures, net of disposals | $7.5 | $15.7 | Down $8.2 |
Segment and operating trends
- U.S. Concrete Pumping revenue declined 5.1% to $52.3 million; adjusted EBITDA fell 9.3% to $15.3 million.
- U.K. Operations revenue declined 8.5% to $9.8 million (down 11.2% excluding currency translation); adjusted EBITDA rose 5.1% to $2.7 million, which management attributed to cost-containment measures.
- U.S. Concrete Waste Management Services revenue increased 1.7% to $8.4 million; adjusted EBITDA was broadly flat at $3.7 million. Management cited organic growth, pricing and new roll-off services as offsets to pandemic effects.
- Management attributed lower revenue principally to COVID-19-related volume weakness in certain U.S. markets and the U.K. Lower volumes and the timing of insurance expenses contributed to gross-margin compression.
Cash, debt and liquidity
- At January 31, 2021, cash and cash equivalents were $2.3 million, down from $6.7 million at October 31, 2020. Current assets were $55.7 million and current liabilities were $40.3 million.
- Total debt was $382.7 million gross and $375.7 million net of unamortized financing costs, versus $382.9 million gross and $366.5 million net at October 31, 2020. Debt comprised $375.0 million of senior notes and $7.7 million drawn on the revolving facility. Long-term debt on the balance sheet was $368.0 million, net of financing costs.
- On January 28, 2021, the company issued $375.0 million of 6.0% senior secured second-lien notes due February 2026, repaid its prior term loan, and amended its asset-based revolving facility. The ABL commitment increased from $60 million to $125 million, with an additional $75 million accordion feature; $7.7 million was drawn at quarter-end. The company reported compliance with debt covenants.
- Management reported $116.1 million of available ABL borrowing capacity and $118.4 million of total available liquidity, including cash, at quarter-end. The liquidity discussion contains an apparent date typo (“January 31, 2020”); the surrounding figures and period context indicate it refers to January 31, 2021.
- Management stated that cash, operating cash flow and ABL capacity should be sufficient for working capital and capital expenditures for at least the next 12 months, while noting that future needs depend on revenue growth, acquisitions and economic conditions.
- Operating cash flow benefited from noncash expenses, including the $15.5 million debt-extinguishment charge, and a $5.7 million reduction in receivables. Cash declined by $4.5 million over the quarter after investing, financing and foreign-exchange effects.
Material changes and unusual items
- Net loss widened despite improved operating income, mainly because the refinancing resulted in a $15.5 million noncash loss on extinguishment of debt. The company also recorded $29,000 of transaction costs.
- Interest expense declined $2.6 million to $6.9 million, which management attributed to lower average debt during the quarter.
- General and administrative expense fell $4.2 million to $22.4 million. Management cited lower intangible amortization and stock compensation, along with COVID-related cost controls.
- In fiscal 2020, the company recorded $57.9 million of goodwill and intangible-asset impairment charges related to COVID-19 and economic deterioration. No new triggering events were identified through January 31, 2021, but further impairment remains possible.
- The company’s first-quarter results are seasonally affected: revenue is typically lower in the first half of the fiscal year, particularly during winter and spring.
Outlook, risks and contingencies
- The filing provides no numerical revenue, earnings or EBITDA guidance. Management described the COVID-19 outlook as uncertain, with risks from project delays or shutdowns, customer demand and payment capacity, operating restrictions, and the duration and severity of the pandemic.
- Management said pandemic-related volume weakness had particularly affected the U.K. and certain U.S. markets. Additional economic deterioration could adversely affect results and asset valuations.
- Debt carries refinancing and servicing risk. The notes bear fixed interest at 6.0%; the ABL has variable-rate borrowings, collateral requirements and a springing fixed-charge-coverage covenant tied to availability. The notes are second-priority secured and structurally subordinated to liabilities of subsidiaries that do not guarantee them.
- Ordinary-course legal proceedings were not believed by management to be material. The company reported $2.0 million of outstanding letters of credit and stated it was compliant with its debt covenants. It also disclosed $1.5 million of unrecognized tax benefits, none of which would favorably affect income tax expense if recognized.
Important facts for investors to verify
- Whether revenue volumes and margins recover, particularly in U.S. Concrete Pumping and U.K. Operations, and whether cost controls can be sustained.
- Actual borrowing availability under the ABL after borrowing-base limits, letters of credit and covenant requirements; also verify the filing’s liquidity-date typo.
- The impact of the refinancing on ongoing interest expense, debt-service capacity and covenant headroom.
- Whether COVID-19 or other conditions trigger additional goodwill or intangible-asset impairment charges.
- The quality and sustainability of operating cash flow, including working-capital movements and capital-expenditure requirements; adjusted EBITDA is a non-GAAP measure and should be assessed alongside GAAP results.