Concrete Pumping Holdings, Inc. — Q2 FY2023 Form 10-Q
Business context and period. The company provides concrete pumping services in the U.S. and U.K. and concrete waste-management services primarily in the U.S. This unaudited report covers the three and six months ended April 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars.
Key financial results
| Metric | Three months ended Apr. 30, 2023 | Year-over-year | Six months ended Apr. 30, 2023 | Year-over-year |
|---|---|---|---|---|
| Revenue | $107.8 million | Up 11.7% | $201.4 million | Up 10.7% |
| Gross profit / margin | $43.5 million / 40.3% | Profit up 11.6%; margin down 0.1 percentage point | $79.9 million / 39.7% | Profit up 9.4%; margin down 0.5 percentage point |
| Operating income | $13.2 million | Up from $10.4 million | $22.6 million | Up from $17.8 million |
| Net income | $5.6 million | Down from $6.0 million | $12.1 million | Up from $7.2 million |
| Diluted EPS | $0.09 | Down from $0.10 | $0.20 | Up from $0.11 |
| Adjusted EBITDA | $28.8 million | Up 6.6% | $53.9 million | Up 7.0% |
| Net cash from operating activities | Not provided for quarter | — | $31.1 million | Up from $21.4 million |
Quarterly interest expense was $7.3 million, compared with $6.3 million; six-month interest expense was $14.2 million, versus $12.6 million. The company recorded warrant-liability fair-value gains of $1.2 million for the quarter and $5.7 million for the six-month period, which affected reported earnings and are not representative of operating cash generation.
Financial position, liquidity and capital allocation
- At April 30, 2023, cash was $6.6 million. Gross debt was $435.9 million: $375.0 million of 6% Senior Notes due February 2026 and $60.9 million drawn on the revolving ABL Facility. Cash and available ABL capacity totaled $100.4 million.
- ABL borrowing capacity was $93.8 million, with $4.2 million of letters of credit and $1.1 million in credit-line reserves. The company reported compliance with debt covenants. ABL borrowings carried a 7.2% weighted-average rate, up from 4.4% at October 31, 2022.
- Current assets were $86.0 million and current liabilities $110.8 million; management reported a $23.5 million working-capital deficit and said this is generally typical of its operating model.
- For the six months, capital expenditures were $34.7 million, compared with $60.3 million in the prior-year period. The company repurchased $7.2 million of shares under its program.
- After quarter-end, on June 1, the ABL Facility was amended to increase maximum commitments from $160 million to $225 million and extend maturity to June 2028.
Material changes and management commentary
- Revenue increased across the operating segments. U.S. pumping growth reflected acquisitions, pricing and market growth; U.K. growth was primarily pricing-led; and U.S. waste-management growth reflected organic volume and pricing improvements. Coastal contributed $5.0 million of quarterly revenue and $9.4 million for the six months.
- Gross margin was broadly flat in the quarter but lower year to date. Management cited inflation in diesel and labor costs and reduced equipment utilization from adverse weather, particularly west of the Rocky Mountains. Pricing increases partly offset higher costs.
- Quarterly U.S. Concrete Pumping adjusted EBITDA declined to $17.1 million from $18.0 million, while U.S. Concrete Waste Management adjusted EBITDA rose to $6.5 million from $4.6 million. Six-month U.S. pumping net income turned to a $0.7 million loss from $1.0 million income.
- Operating cash flow improved year over year, while investing cash outflow was $31.1 million. Financing cash outflow was $1.1 million, including share repurchases and net ABL borrowings.
- Management stated that cash, operating cash flow and ABL availability should cover working capital and capital expenditure needs for at least the next 12 months. No specific revenue, earnings or EBITDA guidance is provided in the filing.
Risks, contingencies and unusual items
- Disclosure controls and procedures were deemed ineffective as of April 30, 2023 because of previously identified material weaknesses in journal-entry review and IT user access/segregation of duties. Management reported implementing remediation measures, but said they require further operation and testing before remediation can be confirmed.
- Principal disclosed risks include inflation and fuel costs, construction-market cyclicality, adverse weather, acquisition integration, labor and key-personnel retention, substantial indebtedness, credit-market access, currency movements, and insurance, injury and litigation claims.
- The company reported ordinary-course legal matters and said it did not expect them to have a material financial-statement impact. It also reported insurance-related accruals and self-insured employee health claims.
- The company completed one asset acquisition during the quarter, but the filing text does not provide a clear value or sufficient transaction detail for it.
- The company reported that the warrant-liability fair-value gains affected results; 13.0 million public warrants, exercisable at $11.50 per share, were outstanding and scheduled to expire in December 2023 absent earlier redemption or liquidation.
Most important facts for investors to verify
- Whether the implemented control-remediation measures operate effectively and are validated through testing, given the ineffective-controls conclusion and prior financial-statement restatement.
- How equipment utilization, weather and fuel and labor costs affect margins and U.S. pumping profitability in subsequent periods.
- Debt-service capacity and ABL borrowing costs as revolving borrowings and interest rates change; also confirm the operational terms and availability of the amended $225 million facility.
- Whether cash generation supports planned capital spending, acquisitions and share repurchases while maintaining adequate liquidity.
- The terms and financial contribution of the quarter’s asset acquisition, and the effect of warrant expiration or any related share dilution.