Concrete Pumping Holdings, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Fiscal quarter and nine months ended July 31, 2021. The company provides concrete pumping services in the U.S. and U.K. and concrete-waste management services, primarily in the U.S. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Key financial metrics
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $80.8 million | $77.1 million | $228.1 million | $225.1 million |
| Gross profit / margin | $37.2 million / 46.1% | $37.8 million / 49.0% | $100.4 million / 44.0% | $101.8 million / 45.2% |
| Operating income (loss) | $12.2 million | $10.8 million | $26.4 million | $(36.1) million |
| Net income (loss) | $4.6 million | $0.2 million | $(18.5) million | $(58.6) million |
| Net income (loss) per common share, diluted | $0.07 | $0.00 | $(0.38) | $(1.14) |
| Adjusted EBITDA, non-GAAP | $28.4 million | $30.0 million | $75.9 million | $77.4 million |
Cash flow, debt and liquidity
- Cash from operations: $60.3 million for the nine months, versus $53.5 million in the prior-year period. Capital expenditures were $34.6 million; operating cash flow less these purchases was approximately $25.8 million.
- Cash and liquidity: Cash was $20.2 million at July 31, compared with $6.7 million at October 31, 2020. The company reported $121.9 million of available ABL borrowing capacity and total available liquidity of $142.2 million.
- Debt: Gross debt was $375.0 million, consisting of 6.0% senior secured second-lien notes due February 2026; carrying value net of financing costs was $368.7 million. No ABL balance was outstanding. The company reported covenant compliance. The notes are structurally subordinated to liabilities of subsidiaries that do not guarantee them.
- Other balance-sheet items: Current assets were $74.9 million and current liabilities $43.4 million. The balance sheet also included $25.0 million of zero-dividend convertible preferred stock and an $18.2 million warrant liability.
Material changes versus comparable periods
- Q3 revenue increased 4.7%, but gross margin fell 2.9 percentage points, which management attributed primarily to inflation in labor and fuel costs. Adjusted EBITDA decreased 5.3%.
- Q3 net income improved from $0.2 million to $4.6 million. Management cited higher revenue, $2.2 million lower interest expense, lower G&A, and a smaller warrant revaluation expense, partly offset by higher income tax expense.
- Nine-month revenue rose 1.3%, while adjusted EBITDA declined 2.0%. The nine-month net loss narrowed substantially, but comparisons include a $57.9 million goodwill and intangible impairment in FY2020 and a $15.5 million debt-extinguishment loss in FY2021.
- By segment, Q3 U.K. revenue grew 37.4% and U.S. waste-management revenue grew 7.8%; U.S. concrete-pumping revenue declined 1.1%. U.S. pumping was affected by weather and continued weakness in certain markets. U.K. growth largely reflected recovery from pandemic disruption.
- In January 2021, the company refinanced its term loan with the $375.0 million notes and an amended ABL facility, increasing commitments from $60 million to $125 million. Nine-month interest expense declined $7.6 million year over year.
Outlook, risks and unusual items
- The filing gives no specific revenue, earnings, or EBITDA guidance. Management said existing cash, operating cash flow, and ABL capacity should meet working-capital and capital-expenditure needs for at least the next 12 months.
- COVID-19 effects remained uncertain, including Delta-variant impacts, project delays, customer demand and payment risk, and the possibility of further asset impairment. Management said U.S. volumes had returned to pre-pandemic levels in most markets and U.K. volumes were near those levels, with some markets still affected.
- Adverse weather, including unusually high rainfall and freezing conditions in parts of the U.S., disrupted service. Inflationary labor and fuel costs pressured margins. The business is also seasonal, with typically lower sales in the first half of its fiscal year.
- The $11.2 million nine-month warrant-liability remeasurement expense was non-cash and materially affected reported loss and the effective tax rate. The warrants are liability-classified and remeasured at fair value through earnings.
- Management identified a material weakness in internal control over financial reporting related to accounting for SPAC-issued warrants. Disclosure controls were not effective as of July 31, 2021; remediation was underway, but the company gave no assurance it would be successful. Prior periods were restated or revised for warrant accounting; the revisions did not affect revenue, operating income, cash or cash flows.
- Management reported no litigation it believed material and no material changes to previously disclosed risk factors. On September 1, 2021, after quarter-end, the company acquired Hi-Tech Concrete Pumping Services for $12.3 million in cash; purchase accounting was not yet complete.
Important facts for investors to verify
- Review the warrant-liability accounting, its effect on earnings and taxes, and progress in remediating the disclosed material weakness.
- Assess whether margin pressure from labor and fuel inflation, adverse weather and residual pandemic impacts persists, particularly in U.S. concrete pumping.
- Check debt-service capacity, ABL borrowing availability and covenant compliance, including the terms and priority structure of the 2026 notes.
- Track cash conversion and capital spending, and evaluate the cash-funded Hi-Tech acquisition once purchase accounting and subsequent results are disclosed.
- Consider the non-GAAP nature of Adjusted EBITDA and its adjustments when comparing it with GAAP earnings and cash flow.