Concrete Pumping Holdings, Inc. — Q1 FY2019 Form 10-Q
Reporting period: Quarter ended January 31, 2019; financial statements are unaudited. The company provides concrete pumping services in the U.S. and U.K. through Brundage-Bone and Camfaud, and concrete waste-management services through Eco-Pan.
Business context and comparability
The December 6, 2018 business combination acquired the operating business and established a new accounting basis. The filing therefore presents “Successor” results for December 6–January 31 and “Predecessor” results for November 1–December 5; these periods are not directly comparable. Management also presents a non-GAAP combined three-month view (“S/P Combined”) for operating comparisons.
Financial performance
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 FY2019 combined, non-GAAP | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $58.4 | $52.8 | +10.5% |
| Gross profit / margin | $23.2 / 39.8% | $22.8 / 43.2% | Margin down 3.4 percentage points |
| General and administrative expense | $18.6 | $13.7 | Higher by $4.9 |
| Operating income (loss) | $(9.5) | $9.1 | Decline |
| Interest expense | $7.2 | $5.1 | Higher by $2.1 |
| Net income (loss) | $(26.2) | $17.6 | Decline of $43.8 |
| Adjusted EBITDA, non-GAAP | $17.1 | $16.4 | +4.7% |
Management attributes revenue growth primarily to improved asset utilization and the O’Brien acquisition. The 2019 combined net loss includes $14.2 million of transaction costs and $16.4 million of debt-extinguishment costs, both incurred in the Predecessor period. The prior-year quarter benefited from a $13.5 million tax benefit related to U.S. tax-law changes; the current-year combined tax benefit was $7.0 million.
Cash flow, debt and liquidity
- Operating cash flow: Successor period used $12.9 million; the November 1–December 5 Predecessor period generated $7.9 million. The filing does not present a directly comparable combined three-month operating cash-flow figure.
- Investing cash flow: Successor period used $217.6 million, including $445.4 million paid for the business combination and $11.2 million of equipment purchases, partly offset by $238.5 million withdrawn from Industrea’s trust account.
- Financing cash flow: Successor period provided $235.8 million, including $357.0 million of term-loan proceeds, $17.3 million of ABL borrowings, $96.9 million from common shares and $25.0 million from preferred shares. Cash uses included $231.4 million of share redemptions and $20.9 million of debt issuance costs.
- Cash and liquidity: January 31 cash was $4.8 million. Management reported $46.4 million of available ABL borrowing capacity and total available liquidity of $51.2 million.
- Debt: The company had $357.0 million of term-loan principal and $17.3 million outstanding under its revolving ABL facility. Term loans mature in seven years and amortize annually at 5% of original principal; interest is LIBOR plus 6.00% or base rate plus 5.00%. The $60 million ABL facility matures in five years. The company reported compliance with ABL covenants.
- Balance sheet: Total assets were $735.4 million and total liabilities were $463.8 million at January 31. Current assets of $51.5 million were below current liabilities of $66.8 million. Acquisition accounting substantially increased goodwill and intangible assets.
Changes, outlook and risks
- Combined revenue rose 10.5%; Brundage-Bone increased 14.9%, Camfaud 2.1%, and Eco-Pan 0.9%. Severe winter weather affected western U.S. operations, including California and Oregon; currency translation partly offset Camfaud’s underlying improvement.
- Gross margin fell as depreciation increased following fair-value step-ups in the business combination and O’Brien acquisition. G&A also increased, primarily from approximately $4.0 million of additional intangible amortization and higher headcount.
- Management reported sustained construction activity, improving pricing in favorable supply-and-demand markets, and confidence in sustainable growth. The filing provides no quantified earnings or revenue guidance. Sales are seasonal, typically lower in the first quarter and higher in the fourth.
- On March 18, 2019, the company agreed to acquire Capital Pumping for $129.2 million in cash, with closing expected in Q2 2019 subject to conditions. Expected financing includes equity or equity-linked securities and additional term borrowing.
- Interest-rate exposure is relevant because term-loan rates are floating. The company also identifies weather, acquisition financing needs, working-capital variability, goodwill valuation, self-insurance estimates and foreign-exchange movements as considerations. It had $1.3 million of outstanding letters of credit.
- Management concluded disclosure controls were not effective due to a material weakness in the public-company accounting and reporting control environment, including staffing and close-process limitations. Remediation efforts were underway, with outside consulting support and additional hires.
- Management stated ordinary-course legal matters were not expected to have a material financial impact. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Use the filing’s non-GAAP combined results carefully: the accounting-basis change means the reported Successor and Predecessor periods are not directly comparable.
- Review the drivers and persistence of the $26.2 million combined net loss, including transaction and debt-extinguishment costs, acquisition-related depreciation and amortization, and higher interest expense.
- Assess leverage, floating-rate interest exposure, scheduled term-loan amortization, ABL availability and financing plans for the Capital Pumping acquisition.
- Monitor remediation of the disclosed material weakness and the reliability and timeliness of future financial reporting.
- Evaluate the assumptions supporting acquisition-date fair values, goodwill and intangible assets, and the resulting ongoing amortization and impairment exposure.