Concrete Pumping Holdings, Inc. — Form 10-Q Summary
Reporting period: Third fiscal quarter and nine months ended July 31, 2022. Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
The company provides concrete pumping services in the U.S. and U.K. and concrete waste-management services in the U.S. Its operations are reported across U.S. Concrete Pumping, U.K. Operations, U.S. Concrete Waste Management Services, and Corporate. Revenue is seasonal, generally lower in winter and spring and higher in the fourth fiscal quarter.
Financial results and key metrics
| Metric | Three months ended July 31, 2022 | Three months ended July 31, 2021 | Nine months ended July 31, 2022 | Nine months ended July 31, 2021 |
|---|---|---|---|---|
| Revenue | $104.5 | $80.8 | $286.4 | $228.1 |
| Gross profit / margin | $43.3 / 41.5% | $37.2 / 46.1% | $116.4 / 40.6% | $100.4 / 44.0% |
| Income from operations | $16.1 | $12.2 | $33.8 | $26.4 |
| Net income (loss) | $14.5 | $4.6 | $21.7 | ($18.5) |
| Basic / diluted EPS | $0.25 / $0.24 | $0.07 / $0.07 | $0.36 / $0.35 | ($0.38) / ($0.38) |
| Adjusted EBITDA (non-GAAP) | $32.6 | $28.4 | $84.3 | $75.9 |
Quarterly revenue increased 29.4%; nine-month revenue rose 25.6%. Quarterly adjusted EBITDA increased 14.7% and nine-month adjusted EBITDA increased 11.1%. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results.
For the nine months, operating cash flow was $53.7, versus $60.3 a year earlier. Purchases of property, plant and equipment were $81.0, versus $34.6; proceeds from equipment sales were $6.2. Cash fell to $2.4 at July 31, 2022 from $9.3 at October 31, 2021. Receivables increased to $58.8 from $49.0.
At July 31, 2022, total debt was $391.9 gross ($387.0 net of deferred financing costs): $375.0 of 6.0% senior notes due February 2026 and $16.9 drawn on the revolving ABL facility. The company reported $131.7 of available ABL capacity and total available liquidity of $134.1, including cash. Current assets were $72.3 and current liabilities were $71.6. Management said existing cash, operating cash flow and borrowing capacity should be sufficient for working capital and capital expenditures for at least 12 months.
Material changes versus the prior comparable period
- Revenue growth reflected acquisitions and organic improvement. U.S. Concrete Pumping revenue rose 33.3% for the quarter, including contributions from Hi-Tech and Pioneer; management also cited higher volumes and rates. U.K. revenue rose 14.0% as reported (28.4% excluding currency effects), reflecting recovery and rate increases. U.S. Waste Management revenue rose 26.6%, primarily from organic growth, pricing and continued recovery.
- Gross margin declined 460 basis points for the quarter and 340 basis points for the nine-month period. Management attributed pressure to higher labor and fuel costs, despite rate increases.
- Quarterly and year-to-date net income benefited from gains on remeasurement of warrant liabilities: $7.4 and $9.9, respectively. These non-cash gains are sensitive to the company’s share price. The nine-month comparison also benefited from the prior-year $15.5 debt-extinguishment loss.
- Capital spending increased substantially, contributing to negative operating-cash-flow less gross equipment-purchases arithmetic of approximately $27.2 for the nine months.
- On July 29, 2022, the ABL commitment increased from $125.0 to $160.0; an uncommitted accordion permits a further increase of up to $75.0, subject to conditions.
Outlook, management commentary, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management said it would continue to monitor and adapt its approach as inflation and the war in Ukraine persist.
- Management identified inflation, significant fuel-cost increases, supply-chain disruption, tight labor conditions and lingering COVID-19 effects as risks. Higher fuel and labor costs materially affected results; labor tightness affected some markets. The business is also exposed to construction-market cycles, weather and seasonality.
- The company reported no impairment indicators through July 31, 2022, but will continue evaluating goodwill and intangible assets. It reported no litigation believed to be material and no material changes to previously disclosed risk factors.
- On August 22, 2022, after quarter-end, the company acquired Coastal Carolina Pumping for $31.0 in cash; the purchase-price allocation was incomplete when the filing was issued.
- The board authorized repurchases of up to $10.0 through June 15, 2023. The company repurchased 62,850 shares during the quarter for $0.4, at an average $6.09 per share.
- The $25.0 zero-dividend convertible preferred stock may be redeemed by the company after December 6, 2022 for the principal amount plus a cumulative 7% annual amount. That accrued amount was $6.6 at July 31, 2022 and would be recognized when redemption is probable.
- The company stated it was in compliance with debt covenants. U.S. dollar ABL borrowings transitioned from LIBOR to SOFR effective June 29, 2022; U.K. borrowings had previously transitioned to SONIA.
Important facts for investors to verify
- How much of revenue and adjusted EBITDA growth is organic versus acquisition-related, and whether pricing can keep pace with fuel and labor inflation.
- Whether the lower gross margin and reduced operating cash flow persist, particularly given the elevated equipment purchases and increased receivables.
- The cash and borrowing impact of the Coastal acquisition, future acquisition plans, and the company’s ability to maintain liquidity while servicing debt.
- The effect of warrant fair-value changes on reported earnings, and the potential timing and cost of preferred-stock redemption or conversion.
- Debt availability and covenant headroom under the amended ABL facility, including effects of variable rates and seasonal working-capital needs.