Business context and reporting period
Concrete Pumping Holdings, Inc. provides concrete pumping services in the U.S. and U.K. and concrete-waste management services, principally in the U.S. This Form 10-Q covers the fiscal second quarter and six months ended April 30, 2020. Amounts below are in U.S. dollars; financial-statement comparisons may be affected by the company’s 2018 business combination and different predecessor/successor accounting bases.
Key financial metrics
| Metric | Three months ended April 30, 2020 | Six months ended April 30, 2020 |
|---|---|---|
| Revenue | $74.0 million; up 19.4% year over year | $148.0 million; up 23.0% versus the company’s non-GAAP combined prior-year period |
| Gross profit / margin | $31.9 million / 43.0%, versus 39.3% | $64.0 million / 43.3%, versus 39.5% |
| Operating loss | $52.5 million | $46.9 million |
| Net loss | $59.0 million; loss per share $1.13 | $61.7 million; loss per share $1.19 |
| Adjusted EBITDA (non-GAAP) | $23.5 million, up 29.0% | $47.3 million, up 33.8% versus the non-GAAP combined prior-year period |
| Cash from operations | Not presented separately for the quarter | $27.0 million |
Second-quarter general and administrative expense was $26.4 million, or 35.6% of revenue. Net interest expense was $8.8 million for the quarter and $18.3 million for the six-month period. The company recorded a $2.2 million quarterly income-tax benefit; the six-month benefit was $3.4 million.
At April 30, 2020, cash was $18.0 million and total current assets were $72.3 million, compared with current liabilities of $98.4 million. Management reported total available liquidity of $33.1 million, including $15.1 million of availability under the ABL facility. Gross term loans were $391.7 million and revolving borrowings were $39.2 million; balance-sheet long-term debt, net of financing costs, was $352.4 million. The company reported compliance with debt covenants. Six-month capital-equipment purchases were $23.3 million.
Material changes versus prior comparable periods
- Revenue growth primarily reflected the May 2019 Capital Pumping acquisition and organic improvement in many U.S. markets. U.S. Concrete Pumping revenue rose 35.0% in the quarter; U.S. waste-management revenue rose 23.0%.
- U.K. Operations revenue fell 33.8% in the quarter, principally due to April COVID-19 shutdowns and, to a lesser extent, foreign-currency translation. Seattle operations were also affected by construction-site closures.
- Gross margin improved 370 basis points in the quarter and 380 basis points in the six-month comparison, which management attributed to Capital, lower fuel costs, and improved procurement costs.
- Net loss increased to $59.0 million in the quarter, largely because of $57.9 million of non-cash goodwill and intangible-asset impairment charges. For the six months, the larger net loss versus the combined prior-year comparison also reflects those charges, partly offset by lower prior-year transaction and debt-extinguishment costs.
- Total assets declined to $804.2 million from $871.4 million at October 31, 2019, primarily because of the impairment charges. Total debt and preferred stock remain significant financing obligations.
Outlook, risks, contingencies, and unusual items
- COVID-19: Management said the duration and effects of the pandemic were uncertain. It cited potential project delays or cancellations, further shutdowns, customer payment difficulties, operating disruption, and additional asset impairments. Cost actions included suspending uncommitted 2020 capital expenditures, headcount reductions, reduced hours, and limited furloughs. Management believed disruptions would be temporary but could not predict their duration.
- Liquidity outlook: Management expected cash, operating cash flow, ABL availability, and reduced capital spending to meet working-capital and capital-expenditure needs for at least 12 months. It cautioned that future requirements could vary and additional financing might be needed.
- Impairments: The company recorded $5.0 million against the Brundage-Bone trade name, $38.5 million against U.S. Concrete Pumping goodwill, and $14.4 million against U.K. Operations goodwill. Management cited lower expected cash flows and higher discount rates; further impairments remain possible if conditions deteriorate.
- Internal controls: Management concluded disclosure controls were ineffective as of April 30, 2020 because of a material weakness in review of certain goodwill-impairment valuation inputs. An error that reduced the impairment originally recorded was identified and corrected before the 10-Q was filed; remediation was still being evaluated.
- Contingency: The company received a March 31, 2020 demand letter from predecessor shareholders concerning potential CARES Act tax refunds from net-operating-loss carrybacks. No complaint had been filed, the matter remained under review, and its outcome was undetermined.
- Other items: A $0.9 million tax expense reflected remeasurement of U.K. deferred taxes following an enacted increase in the U.K. corporate tax rate. The company reported ordinary-course litigation that management did not expect to materially affect the financial statements. No formal financial guidance was provided.
Important facts for investors to verify
- Whether COVID-related project disruption, customer demand, collections, and U.K. operations improved or worsened after quarter-end.
- Available ABL borrowing capacity, covenant headroom, debt-service requirements, and cash generation relative to capital spending.
- Whether the impairment assumptions and valuation-review controls are supportable, and whether the material weakness has been remediated or further impairments are required.
- The status and potential financial effect of the predecessor shareholders’ CARES Act tax-refund demand.
- How much reported growth and adjusted EBITDA depend on the Capital acquisition and non-GAAP adjustments, compared with organic operating performance.