Business context and reporting period
Concrete Pumping Holdings, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended July 31, 2020. The company provides concrete pumping services in the U.S. and U.K. and concrete waste-management services, primarily in the U.S. Results are reported across U.S. Concrete Pumping, U.K. Operations, and U.S. Concrete Waste Management Services.
All dollar amounts below are in millions unless stated otherwise. The company’s 2019 reporting periods include predecessor and successor accounting periods following its December 2018 business combination. For nine-month comparisons, management uses a non-GAAP combined 2019 period; comparisons are therefore not fully equivalent to the GAAP successor-period presentation.
Financial performance and position
| Metric | Q3 2020 | Comparable period / change |
|---|---|---|
| Revenue | $77.1 | $78.7; down 1.9% |
| Gross profit / margin | $37.8 / 49.0% | $39.0 / 49.6%; margin down 0.6 percentage points |
| Operating income | $10.8 | $10.7 |
| Net income | $3.0 | $2.8 |
| Adjusted EBITDA (non-GAAP) | $30.0 | $30.6; down 1.7% |
Q3 revenue was nearly flat in U.S. Concrete Pumping (+0.5%), declined in U.K. Operations (-26.3%), and increased in U.S. Concrete Waste Management Services (+17.9%).
For the nine months, revenue was $225.1, up 13.1% against management’s combined 2019 comparison; Adjusted EBITDA was $77.4, up 17.4%. Net loss was $58.7 versus a $33.1 combined prior-period loss, primarily reflecting $57.9 of non-cash goodwill and intangible impairment charges. Gross margin was 45.2%, versus 43.5% in the combined comparison.
Nine-month operating cash flow was $53.5; investing cash outflow was $30.3, including $36.7 of property and equipment purchases, partly offset by asset-sale proceeds. Financing cash outflow was $27.8, and cash declined $3.3 to $4.1. Operating cash flow less equipment purchases was approximately $16.8, before asset-sale proceeds.
At July 31, cash was $4.1 and current assets and current liabilities were $63.2 and $73.9, respectively. The company reported $39.4 of available ABL borrowing capacity and total available liquidity of $43.5. Term loans had $386.4 of principal outstanding ($369.1 net of financing costs on the balance sheet); the ABL revolver balance was $13.0. The company reported compliance with debt covenants. Total assets were $787.5, down from $871.4 at October 31, 2019, largely due to impairment and depreciation/amortization.
Material changes, outlook, risks, and unusual items
- COVID-19: Construction shutdowns affected Seattle and U.K. operations late in Q2; most restrictions were lifted during Q3. U.K. revenue and Adjusted EBITDA remained under pressure. Management cited uncertainty around further shutdowns, project delays, customer demand and payment capacity.
- Impairments: The company recorded $52.9 of goodwill impairment in U.S. Concrete Pumping and U.K. Operations and $5.0 against the Brundage-Bone trade name, based on lower expected cash flows and increased discount-rate assumptions. No additional impairment was recorded in Q3, but further impairment remains possible.
- Operating actions and commentary: The company implemented headcount reductions, reduced hours and limited furloughs, and reduced certain discretionary costs. It lifted its prior suspension of uncommitted 2020 capital spending as liquidity and operations improved. Management expected available cash, operating cash flow and ABL capacity to meet working-capital and capital needs for at least 12 months, while noting that conditions remain uncertain.
- Contingency: A demand letter from predecessor shareholders disputes who is entitled to certain CARES Act tax refunds. The company recorded a $2.0 estimated liability; after a $1.4 tax benefit, management described the net estimated impact as $0.6. No agreement had been reached by the filing date.
- Controls: Management concluded disclosure controls were not effective at July 31 because of a material weakness in review controls over inputs to the goodwill impairment valuation. The issue was corrected before the Q2 filing, and a remediation plan was implemented; management said remediation had not yet been demonstrated through sufficient testing.
- Other: The company reported ordinary-course litigation that management did not expect to have a material effect. A $1.7 deferred-consideration liability related to the Camfaud acquisition was paid in Q1. The zero-dividend preferred stock carries a 7% cumulative redemption amount under specified redemption circumstances.
No numerical earnings or revenue guidance was provided.
Important facts for investors to verify
- Whether construction activity and demand, particularly in the U.K., continue to recover and whether pandemic disruption leads to additional impairment.
- The company’s ongoing cash generation, capital spending, ABL availability, debt service costs and covenant compliance.
- The resolution and final financial effect of the predecessor-shareholder tax-refund dispute.
- Whether the impairment-valuation control remediation is validated and the material weakness is fully remediated.
- The basis and limitations of non-GAAP Adjusted EBITDA and the combined 2019 comparison when assessing trends.