Concrete Pumping Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter ended April 30, 2019. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted. The December 2018 business combination created a new accounting basis, so “Successor” and “Predecessor” results are not directly comparable. Management also presents combined six-month results as a non-GAAP measure to aid comparison.
Business context and reporting period
The company provides concrete pumping services through Brundage-Bone in the U.S. and Camfaud in the U.K., and concrete waste management services through Eco-Pan. On December 6, 2018, it completed its business combination with CPH and Industrea. It acquired Atlas Concrete Pumping in April 2019. The Capital Pumping acquisition closed after quarter-end, on May 15, 2019.
Key financial metrics
| Metric | Q2 2019 | Comparable Q2 2018 | Combined six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $62.0 | $56.4 | $120.4 | $109.2 |
| Gross profit | $24.4 | $24.4 | $47.6 | $47.2 |
| Gross margin | 39.3% | 43.3% | 39.5% | 43.3% |
| Operating income (loss) | $1.2 | $10.9 | $(8.3) | $20.0 |
| Net income (loss) | $(9.6) | $4.6 | $(35.9) | $22.2 |
| Adjusted EBITDA | $17.9 | $17.7 | $35.0 | $34.1 |
Q2 diluted loss per share was $0.35, versus diluted earnings per share of $0.39 in Q2 2018. Combined six-month adjusted EBITDA and combined results are non-GAAP presentations; the six-month net loss includes business-combination-related and other unusual costs.
- Cash flow: Successor operating cash flow was $(4.1) for December 6, 2018–April 30, 2019; the Predecessor generated $7.9 from November 1–December 5, 2018. Successor investing cash flow was $(237.2), including acquisition spending and $25.0 of equipment purchases. Successor financing cash flow was $247.1. These separate periods should not be treated as a directly comparable six-month cash-flow total.
- Balance sheet and liquidity: At April 30, cash was $2.9 and current assets were $52.4 against current liabilities of $91.2. Management reported $20.2 of ABL availability and total available liquidity of $23.1. Total assets were $747.7 and total liabilities were $484.2.
- Debt: The term loan principal was $352.5 and ABL borrowings were $31.8 at quarter-end. The balance sheet reports $366.3 of debt after current/noncurrent presentation and deferred financing costs; the filing’s risk discussion cites $366.3 of indebtedness. The company was in compliance with debt covenants at April 30.
- Other: Preferred stock of $25.0 was outstanding. Cash declined from $8.6 at October 31, 2018 to $2.9 at April 30, 2019, though the periods span the business combination and are not on a consistent accounting basis.
Material changes versus prior comparable period
- Q2 revenue rose 9.9% year over year, while gross profit was essentially flat and gross margin fell 400 basis points.
- Q2 net income shifted to a $9.6 loss from $4.6 income. Operating income declined to $1.2 from $10.9, reflecting higher costs and purchase-accounting effects.
- Combined six-month revenue grew 10.2%, but the company reported a $35.9 net loss versus $22.2 of income in the prior-year six months. Combined Adjusted EBITDA increased 2.7%.
- Interest expense increased by $4.2 in Q2 and $6.3 for the combined six months, primarily due to higher average debt and higher rates on the replacement financing.
Outlook, risks, contingencies and unusual items
- Management cited sustained residential and commercial construction activity, relatively consistent infrastructure prospects, improved asset utilization in many markets and improving pricing where supply and demand are favorable. It noted adverse West Coast weather, which reduced revenue and weighed particularly on Eco-Pan. No numerical earnings or revenue guidance was provided.
- Management stated that cash, operating cash flow and ABL capacity should meet working-capital and capital-expenditure needs for the next 12 months, while noting additional financing could be needed if liquidity proves insufficient. The company identified substantial indebtedness, floating-rate exposure, covenant constraints and potential dilution from equity financing as risks.
- The May 2019 Capital Pumping purchase price was $129.2, funded with $78.2 net proceeds from an offering of 18.1 million shares at $4.50 and $60.0 of incremental term loans. The acquisition’s purchase accounting was incomplete at filing.
- Business-combination effects include a new fair-value basis, higher depreciation and amortization, $14.2 of transaction costs and $16.4 of debt-extinguishment costs in the Predecessor period. The warrant exchange resulted in a $5.2 reduction to retained earnings. Reported tax expense in Q2 despite a pretax loss reflected an updated estimated annual effective tax rate; the combined six-month tax benefit also reflects tax-law and other period-specific items.
- Management described ordinary-course litigation as not expected to have a material financial impact and recorded no contingency liability for those matters. Outstanding letters of credit were $1.5. The company disclosed weaknesses in disclosure controls and procedures identified in the prior quarter and said it had begun remediation through new controls, process changes and finance-team hires.
Most important facts for investors to verify
- How much of revenue and Adjusted EBITDA growth is organic versus attributable to acquisitions, and whether utilization, pricing and weather trends persist.
- The company’s post-Capital Pumping debt, interest burden, covenant headroom and liquidity after the May acquisition and share offering.
- Whether purchase-accounting estimates, including acquired assets and intangibles, change materially as valuations are finalized.
- Whether gross margins and cash generation improve as acquisition-related depreciation, amortization and public-company costs affect reported results.
- Progress in remediating financial-reporting control weaknesses and any resulting changes to reported financial information.
- Potential dilution from the May share issuance, outstanding warrants, preferred stock conversion and equity awards.