Concrete Pumping Holdings, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings financial results for the first quarter ended January 31st, 2020. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Ian Humphreys, and the company's external director of investor relations, Cody Slaw. Before we go further, I would like to turn the call over to Mr. Slaw to read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important precautions regarding forward-looking statements. Cody, please go ahead.

Thank you. I'd like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements regarding our business and outlook. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Concrete Pumping Holdings' annual report on Form 10-K, quarterly report on Form 10-Q, and other publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. On today's call, we will also reference certain non-GAAP financial measures including adjusted EBITDA, net debt, and free cash flow, which we believe provide useful information for investors. We provide further information about these non-GAAP financial measures and reconciliations to the comparable GAAP measures in our press release issued today or the investor presentation posted on the company's website. I'd like to remind everyone this call will be available for replay later this evening. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website. Additionally, we have posted an updated presentation to the company's website. Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce?

Thank you, Cody, and good afternoon, everyone. We sincerely hope that you and your families remain safe and healthy at this time. I wanted to thank our team for their continued commitment to safety and in delivering exceptional service to our customers, while continuing to navigate the lingering effects of COVID-19. Today's discussion focuses mostly on our first quarter 2021 performance and once again our headline financial results highlight our continued operational strength and business resilience against COVID-19 disruptions. We continue to execute our plan of capturing market share in a large and growing yet highly fragmented market. Importantly, our scale, diversified regional and end market exposure, and our highly variable cost structure demonstrate the value of our operating business model. During the first quarter, revenue was down slightly when compared to a year ago as we are still experiencing COVID-19 impacts in our UK and US markets, whereas the first quarter of last year was completely was completed entirely before the onset of the COVID-19 pandemic. Softness in some of our commercial work is being largely offset by continued strength in residential construction, as well as a pickup in our infrastructure markets, which really highlights our agility and the value of being well diversified across end markets and geographically. Infrastructure has been an area of focus since the election, and while the details and timing are unknown at this point, President Biden has been clear that this will be a priority for his administration. And as the economy continues to recover, CPH is in a strong position to benefit from an increase in market spending, including infrastructure. Infrastructure is a market we have been pursuing more aggressively for the past several quarters, and we are seeing success not only in our infrastructure project heavy UK market, but also in our US markets. These projects include bridges, schools, wastewater treatment plants, hospitals, or any industrial projects supported by public funding. The residential improvement is a theme we have discussed in prior calls, and that momentum from prior quarters has certainly continued. To paint the end market picture in numbers in U.S. concrete pumping compared to end market of fiscal 2020, our commercial business moved from 57% of revenue to roughly 50%, whereas residential increased from 30% to 34% and infrastructure stepped up from 13% to 16%. As Ian will address shortly, this shift in our business mix has not impacted the discipline of strength of our gross margin structure, as variable costs for lower job tickets such as residential also flex downward. Our ability to pivot while maintaining our gross margins is a unique value driver of our business model and we are very pleased in our ability to continue finding opportunities to gain market share. For our concrete waste management business, our Q1 winter period is usually a slower growth quarter due to typical seasonal trends. However, even with the contracted construction market, when compared with our 2020 first quarter volumes, we were able to drive revenue expansion on continued organic growth, price improvements, and the expansion of our roll-off service. We have added to our sales force so that we continue to be focused in what could be a heavier virtual selling environment in the short term. Last but certainly not least, in January, we took advantage of our financial strength and favorable capital markets to restructure our debt facilities. We have been closely tracking the capital market trends for some time, and following robust fiscal year 2020 results, we believe the timing was right to pursue a refinancing and improve our debt facilities. The refinancing transaction has allowed us to substantially improve our liquidity profile and the structural flexibility of our debt facilities and lock in favorable interest rates through 2026. In 2020, our cash interest costs largely related to the repaid term loan facility were approximately $33 million. Going forward, the annual cash interest costs related to the high yield bond will be approximately $23 million. a $10 million savings. By further strengthening our balance sheet, doubling our liquidity from the 2024 quarter, and reducing our average cost of debt, we have enhanced our ability to pursue accretive investment opportunities. This strategic debt modification supports our overall long-term growth strategy, and we are actively making great progress exploring several accretive growth opportunities. In fact, we currently have multiple NDAs in place with companies suitable for acquisition criteria that we're pursuing across the U.S., and I will return to discuss more about this subject later. Given our operational momentum and financial strength, we remain committed to executing on our strategic priorities and maximizing shareholder values through fiscal year 2021. Now I'd like to hand the call over to Ian so he can provide a detailed overview on our first quarter 2021 financial results. I'll then return to provide some color on our market expectations for this fiscal year. Ian?

Thanks, Bruce, and good afternoon, everyone. Moving right into our first quarter 2021 results, we generated revenue of $70.4 million compared to $73.9 million in the same year-ago quarter. The slight decrease was driven by the lingering COVID-19 volume impacts across the UK and certain US markets. Revenue in our US concrete pumping segment, mostly operating under the Brundage Bone brand, was 52.3 million compared to 55.1 million in the same year-ago quarter. We experienced modest organic growth within many of our US markets that were more than offset by COVID-19 headwinds in other markets. These headwinds took the shape of modest project delays and job site interruptions. On the other hand, we have continued to see growing demand within our US residential market and believe this momentum will carry through fiscal 2021. And as Bruce mentioned, we have also seen strength across multiple regions of our infrastructure end market as well as evidenced by the step up in our infrastructure revenue share. For our UK operations operating largely under the CAMFR brand, Revenue was 9.8 million compared to 10.7 million in the same year-ago quarter. The vaccine rollout is progressing more quickly in the UK than in our US market, and currently the UK is running at approximately 85% of our pre-COVID revenue run rate. We've reported an increase in this recovery each quarter from 25% at its low in March of 2020 to 60% in June 2020. and now 85% in January 2021. Going forward, we are optimistic about our long-term market share expansion, organic volume recovery to pre-COVID levels, and the ongoing multi-year high-speed rail project, HS2. Revenue in our U.S. concrete waste management services segment operating under the EcoPound brand increased 2% to 8.4 million in the first quarter of 2021, compared to 8.3 million in the same year-ago quarter. The increase was driven by organic growth, pricing improvements, and our expanded roll-off service offerings. As Bruce mentioned, Q1 is typically a slower growth quarter, and as markets in the US continue to reopen, we would expect a return to our prior double-digit rate of growth. Returning to our consolidated results, Gross profit in the first quarter was $29.9 million compared to $32.1 million in the same year-over-quarter, and gross margin was 42.4% compared to 43.5%. A slight decrease in margin is a reflection of the lower revenue volumes as well as the timing of certain insurance expenses. General and administrative expenses in Q1 improved by approximately 16% to $22.2 22.4 million compared to 26.6 million in the same year-ago quarter. This was primarily attributable to lower non-cash costs related to amortization of intangible assets and stock-based compensation expense. Cost containment measures put in place during the onset of COVID-19 make up the remainder of the improvement. When excluding amortization of intangible assets and stock-based compensation expense, G&A expenses were improved by approximately $1.7 million year-over-year. Net loss available to common shareholders in the first quarter was $12.8 million, or $0.24 per diluted share, compared to a net loss of $3.2 million, or $0.06 per diluted share in the same year-over-year quarter. The primary driver of the higher net loss was related to $15.5 million loss and extinguishment of debt due to our January refinancing transactions. Finally, adjusted EBITDA in the first quarter was 22.4 million compared to 23.8 million in the same year-ago quarter. Adjusted EBITDA margin was 31.7% compared to 32.2% in the same year-ago quarter. In our U.S. concrete pumping business, adjusted EBITDA was 15.3 million compared to 16.8 million in the same year-ago quarter. Again, this is primarily being driven by lower revenue volumes related to COVID-19 project delays, particularly in our commercial work. In our UK business, adjusted EBITDA improved 5% to 2.7 million when compared to 2.6 million in the same year-ago quarter. This reflects the continued recovery of the UK market and the effective cost containment measures put in place at the onset of the pandemic. For our US concrete waste management business, Adjusted EBITDA at 3.7 million was largely in line with the prior year quarter. Turning to liquidity, as mentioned earlier, we took advantage of the momentum from our 2020 financial performance and a favorable interest rate environment to successfully close a private offering of $375 million in senior secured second lien notes that matured in 2026. The notes were issued at par and bear interest at a fixed rate of 6% per annum. In addition, we amended and restated our existing ABL credit agreement and upsized this facility to provide up to 125 million of commitments, which replaced the prior 60 million committed facility. The refinance offering proceeds, along with approximately $15 million of borrowing under the ABL facility, were used to fully repay all outstanding indebtedness under the prior term loan agreement and pay-related fees and expenses. At January 31, 2021, we had total debt outstanding of $382.7 million or net debt of $380.4 million. As of January 31, 2021, we had approximately $118.4 million in liquidity, which includes cash on the balance sheet and availability from our upsized ABL facility. This reflects a 100% increase in liquidity since the end of our year-ended October 31, 2020, and greatly enhances our ability to pursue accretive investment opportunities like M&A and support our overall long-term growth strategy. Our business continues to generate healthy operating free cash flows. We invoice our customers daily for the work we perform and we have minimal working capital requirements since we do not take ownership of the concrete we place. Even through the current macroeconomic environment, our ability to generate strong operating free cash flows and strong margins allow us to expand our liquidity position and deliver in line with our strategic goals. In line with our replacement CAPEX schedule, we have been consistently making improvements to our existing concrete pumping fleet age. This is critically important for several reasons. First, by improving the age of our fleet, we inherently enhance the safety and reliability of our equipment. We lower our repair costs and improve the down for repair time which helps stimulate opportunities to capture project wins with new customers. Also, an enhanced fleet helps attract qualified employees and often improves employee retention. Our consistent investments in our fleet of equipment also underscores the strength and confidence we have in our business outlook. The combination of improved repair costs and improved equipment capacity ensure that our fleet uptime is optimized during our busiest periods. These are critical factors in driving improved margin performance across the US and UK concrete pumping segments. As 2021 progresses, we will continue to apply prudent capital allocation and remain opportunistic with strategic and accretive CapEx investments. Our fiscal year 2021 financial outlook remains unchanged and our first quarter results were in line with our expectations as our US and UK markets continue to recover from the COVID-19 disruptions. As a reminder of our previously released 2021 guidance, we expect our full-year revenues to range between 300 and 310 million, adjusted EBITDA to range between 105 and 110 million, and free cash flow, which we define as adjusted EBITDA, less net capex, less cash interest, to range between 47.5 million to $52.5 million. Operationally and financially, we remain strong, and we are actively working to execute on our growth strategy. With that, I will now turn the call back over to Bruce.

Thanks, Ian. Overall, we are pleased with our first quarter of 2021 and the trajectory it has set us on for the rest of our fiscal year. We remain focused on driving our scale through organic growth and strategic M&A. Looking ahead, we believe 2021 will be a year in which we see a return to a more normalized state as underlying demand fundamentals reset and the US and UK economies gain further momentum. While some of our customers' projects are still delayed due to COVID-19 impacts and restrictions, we have not seen any new major changes or delays to our project schedule or overall bidding environment. We continue to closely monitor the pace of recovery within regions that were more heavily impacted by the pandemic. In the US, we continue to view residential construction as an area of momentum and strength for our business, and we expect residential demand to remain robust going forward in 2021. Additionally, we expect that other projects within infrastructure will prove resilient, and we anticipate some of our regions will continue to experience positive trends following an anticipated increase in infrastructure investments. In commercial construction, we expect there will be a continued benefit from accelerating e-commerce and remote working trends that require increased investment in heavy industrial warehouses and data centers. Nevertheless, today we are winning work in these areas and are taking market share. Light commercial and retail construction will remain comparatively challenged until COVID-19 vaccines are more widely distributed. Over the longer term, we expect light commercial activity will benefit from the attractive collateral effects of strong single-family residential trends. Additionally, while commercial activity has been light due to COVID-19 disruptions, this was expected and we have intentionally focused on capturing additional share in our residential and infrastructure end markets as we track the recovery of commercial construction. We believe this is a strong testament to our scale, diversity, and ability to service our customers no matter what the end market. In Ecopan, we will focus on driving growth despite pandemic-related challenges and greatly look forward to accelerating our momentum in the years to come. We have a solid financial and operational strategy in place for the foreseeable years ahead. Our improved liquidity, debt facilities, and balance sheet provide greater flexibility for us to pursue accretive investment opportunities. As mentioned earlier, we plan to pursue accretive M&A opportunities to increase our penetration across our existing geographic footprint and entering new markets. We are progressing well with multiple acquisition targets. I would like to remind you of the structural advantages of our M&A platform. First, as the largest player in our field by far and with several transformational acquisition deals successfully completed and integrated within the last few years, we can confidently say that we are the acquirer of choice. As mentioned on prior calls, we have a strong acquisition pipeline with approximately $100 million of additional adjusted EBITDA identified. We have consistently been clear in the marketplace that for investment opportunities that meet our acquisition criteria, we typically pay a purchase price for acquisition that equates to four times EBITDA or 1.25 times the equipment value. Given our scale, we have delivered a track record of increasing adjusted EBITDA margins within the first few years by optimizing service value utilization, supply chain discounts, and other OPEX synergies. From a financial synergy perspective, it is also important to highlight the tax benefits from M&A transactions. They are typically structured as asset purchases, meaning we immediately deduct 100% of the equipment for depreciation purposes. Our acquisition strategy and appraisal criteria is clear. We look for strong management, great customer relationships, and a well-maintained fleet. The varying opportunities we are pursuing meet all of these criteria. Irrespective of this attractive and highly actionable M&A plan, our commitment to drive organic growth to maintain a strong balance sheet and optimize our highly variable cost structure will allow us to maximize returns and shareholder value as we take purposeful steps to grow our business and execute on our strategic plan. With that, I'd now like to turn the call back to the operator for Q&A. Paul?

Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pass the question. Thank you. Our first question comes from Tim Mulrooney with William Blair. Please proceed with your question.

Good afternoon, Ian and Bruce.

Hi, Tim. Hi, Jim.

A couple questions. So just on the guide, it looks like the midpoint of your guide implies full-year EBITDA margins in fiscal 21 to be very similar to what we saw in fiscal 20. With EBITDA margin, I guess, down about, 50 basis points in the first quarter. I'm curious how you're thinking about margins for the remainder of the year. Is it kind of like a down year over year in the first half, but up versus last year in the second half? Because it looks like second half margins were actually pretty good last year.

Yeah. Hi, Tim. This is Ian. I'll take that. So, yes, I mean, as you typically see with the seasonal trends of our revenue of that sort of 45, 55 between H1 and H2, there's not a linear relationship between the growth on the volume and the pickup in cost. So we do typically see improved margins in the back half of the year from that higher volume with that step up in the seasonal trend. Now, just as a reminder, when we talked about this on Q4, We didn't get the seasonal bump last year that we typically see. But through this year, we will expect, as these markets start to heal, that we'll see that pick up in margin through the financial year.

Yeah. Okay. That makes sense. Thanks, Ian. And are you guys seeing any signs of inflation in the business yet, either on the material side or the labor side or anything else, really?

Yeah, not really. I mean, the way that I break down the inflation piece, and if you think about the cost structure that we have, so if you look at the cost of sale footprint that we've got, the largest component of that is labour. So relative to the employee base and the wages that we pay, the inflation situation is not an area that we're concerned about, and obviously something that we will adjust annually with our employees. Outside of the employee base, I mean, obviously we watch the changes in things like fuel, Now, we have fuel surcharges and price escalators in place if fuel becomes incompatible. But those are probably the two areas that I would maybe call out from an inflation perspective. Nothing we're concerned about, nothing unusual from a normal year over year. And the rest of the supply chain, as you know, with our purchasing scale, is an area that we always look to put some competitive processes on.

Yeah. Okay. Thanks, Ian. Just one more from me. I know you maintain guidance, but I know the winter storms hit Texas pretty hard, and you got a decent amount of assets down there after the capital acquisition. So can you quantify for us, if possible, the impact that you expect those winter storms maybe had on your business, or just talk about it, walk us through it, how you're thinking about it?

Sure, Tim, I'll take that. So as you know, we like our geographic footprint where we're kind of resilient or we've diversified ourselves from getting hit in one particular area with the footprint that we have. And we do factor in weather into Q1 and Q2 especially. And as we look at that and we look at the impact that it has on our business, we really still feel very strong that our outlook for Q2 hasn't changed.

Okay. Thank you, guys.

Thanks, Tim.

Thank you. Our next question comes from Brent Seelman with VA Davidson. Please proceed with your question.

Hey, great. Thank you. Good afternoon. Bruce, maybe following up on that last question, typically the U.S. and U.K. operations, see that seasonal pickup into the second quarter last year was obviously an anomaly. But is there anything to date which would prevent you from doing that again this year?

Yeah, what I would say is now that there's light at the end of the tunnel of getting people back to work, And we expect that will happen sooner in the UK than it does in the US by maybe a month. We see projects will be picking up more aggressively than some of the ones that had slowed down last year. And it was difficult to get labor onto sites over the Q3 and Q4 for us last year just because of the restrictions that were in place. When they're lifted, we think the markets will become much stronger. You might remember that prior to the pandemic, there were no end markets or no geographies that were overbuilt. And so there's still an awful lot of pent up demand. So we feel very good once we get people back to work that our markets will rebound nicely.

Okay. And on Ecopan, I mean, you've had tremendous growth all through last fiscal year, slowed down quite a bit this year, at least from a year on year. Can you just talk a little bit more about what's happening within that, you know, why this lower growth this quarter and, you know, sort of what you've got built into guidance for that business through the year?

It's up year on year over last year, however, not as much as what we had been experiencing. One of the challenges that Ecopan has had is that we're converting other methods of clean-out to our system. which is more difficult to do virtually than it is on site. And so as offices open up and we have the ability to get into those offices and show them the value of what we do, we think that that will accelerate that growth. And we mentioned in our script that we've hired several more people in the sales team to help accelerate that. We still feel very good about our opportunity with Ecopan.

Okay. And the last one, I mean, the cost actions in the U.K. continue to be really impressive just in terms of defending margins. And presumably that business is going to start to see some, I think, some healthy growth here in the coming quarters. Can you talk about how much you're going to have to give back or what we can expect to see? Or can we expect to see even better leverage in that business as we just start to see growth returns?

Yeah, you know, I think you're right. I mean, with the effect that they had last year, it really just provides the opportunity for greater organic growth this year as that market recovers. And as you can tell from our prepared marks, they're making some nice progress of getting back to the pre-COVID volume. So obviously the cost containment measures that we put on at the onset of the pandemic have helped from a margin perspective. So we do expect to see that recovery pull through, both on the top line and also you'll see that on the margin performance as well.

Okay. Thank you, guys.

Thanks, Brent.

Thank you. Our next question comes from Andy Whitman with Baird. Please proceed with your question.

Yeah, great. Thanks. Guys, so I guess I wanted to just dig in on the commercial side a little bit. I think you mentioned in the script and the slide here that you've seen some delays. Have those delays cleared, or are they still continuing on given the macro?

The delays that are still there really are more related to transportation and hospitality. And most of those projects are still on hold now. What we're seeing is acceleration in data centers and fulfillment centers, that sort of thing. And we do have quite a few office buildings going where we're using our specialty equipment and our placing booms and high-rise pumps and that sort of thing. That market has slowed some. To kind of put it in perspective, so a fulfillment center, like an Amazon fulfillment center, has about the same amount of concrete in it or the same revenue for us as, say, a 25-story building would have. So as we transfer from one segment to the other segment, we're recognizing that there's still great opportunity there, and we do still have some concern about the timing of getting the hospitality back on track where we saw it. I think that's the one end market that we're still a little uncomfortable about.

Got it. I'm curious just on that. Are these like, is the hole dug and they've broke construction, or are they waiting for construction, they still need to dig the hole, and then you guys are coming in? I'm just kind of curious as to where these types of projects are getting stalled out along the way.

Yeah, so most of them, the site is ready. There are some where the hole isn't dug yet, but we have several that as soon as it's freed up that they'll start construction.

Okay. And then I just wanted to grab a couple other things here. Just related to the benefits, I think you said it was $1.7 million in the quarter on kind of SG&A savings as it relates to cost actions due to COVID. Was there anything unusual about that $1.7 million number in this quarter that will be reversing itself as things open more up, or do you feel like those actions that have taken can remain in place for the balance of the year?

Yeah, Andy, yeah, those actions will remain in place for the balance of the year. We also got some of it last year, but it will be there for the full term this year. It was effectively eliminating where we could, that cost that will be permanent and certainly not deferred in the business. So you'll see that come through, that improvement come through for the subsequent periods.

Okay, super helpful. Then just my last question was back just on Ecopan and wanted to just, in the past you've talked about the number of pans in the field as kind of a leading indicator of what the growth rate might be there. So Bruce, I was just wondering if you could comment on what the number of pans in the field is telling you about the growth rate here for the balance of the year. I heard some optimism about getting back to double-digit growth, and that's great, but do the pans in the field today support that, or do you need things to get incrementally better for that to be the case?

Yeah, and the month of – thanks for the question on that. This month in March, we're starting out to be back in line with where we expected to be, and so we're quite optimistic that that the PANs in the field and the new roll-off service that we put in place will get us back to where we expect it to be.

Okay, great. I think that's all I had for questions. Thank you very much, and have a good evening, guys. Thanks, Andy.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. Our next question comes from Stanley Elliott with Stifel. Please proceed with your question.

Hey, guys. Thank you all for taking the question. On the Ecopan business, have you ever talked about, like, fleet utilization within that kind of as a metric? I know you guys have spent a fair amount investing in that last year, just trying to kind of see exactly what's happening from a utilization standpoint with the 2% growth.

Good question, Stanley. Thank you. So we track utilization more on the dollar utilization on the Ecopan business, revenue per truck, that sort of thing. We have added several more units in Q1, and so utilization is down from where it was in Q4, but we expect that to continue to improve as the service builds out over the year.

Perfect. Actually, that's very helpful. Along the CapEx lines, you basically held the same, I guess, the two moving parts or interest in CapEx, net CapEx. With the interest going down, are we to assume that the net CapEx piece is actually going up? And if that's correct, what sort of projects or investments are you all looking to make?

Yeah, so on the capex, maybe I'll take that first. I mean, it will be relatively consistent year over year. On the interest, now we had factored that in. When we provided the free cash flow guide, I mean, obviously the element that was variable in there was LIBOR. So if that's 15 or 18 BIPs, it's 500,000 or 600,000 from an interest perspective. So that was implied within the guide that we've given from an interest perspective, but that's how we would break down the two-component part, Stanley, that you mentioned.

Okay, perfect. And in terms of the infrastructure markets, you mentioned some of the U.S. where you're seeing some growth. You would love to kind of get a little bit of color regionally where you're seeing momentum on the infrastructure side.

Yeah, so we started last spring when we recognized that this may last a while and we needed to focus on some markets that we weren't strong in. As you know, we've always been very strong in the commercial markets. We focus in all areas on all types of infrastructure projects that were out there. And, you know, I received a report from our team just this morning of the infrastructure projects that we picked up, and every one of our regions has done a good job of improving their infrastructure revenues.

Perfect. And then lastly, for me, you talk about the M&A pipeline being very active. Any sense for kind of, you know, where you would want to potentially end next year from a leverage standpoint, just to kind of get a flavor for the size of deals that potentially could come down the pipe?

Yeah, I mean, from a leverage perspective, I mean, we ended the year at the end of last year at three and a half times, and we've said probably that our long-term target is two and a half times. So, I mean, we stayed true and committed to that piece from the strength of our balance sheet. Based on the size of the opportunities we're looking at, I mean, we would expect that there would be a delevering component to that when we're looking at a creative investment. So we don't expect the growth of our business to impact that long-term trajectory of leverage.

No, I was just trying to get a flavor for it. I mean, look, if you do $50 million of free cash, that's half a turn of leverage right there. I was just trying to get a sense for it. how aggressive you're looking to get in terms of the M&A piece. Maybe that's just being opportunistic with what comes down the pipe.

Stanley, what we're trying to do, as you know, is buy businesses for four times EBITDA and then put synergies in place and other opportunities that come with that to get us to where ultimately they're still at three and a half times. So every one of these acquisitions should, at worst, keep leverage the same and improve it depending on how well we do with the synergies and the integration.

Perfect, guys. Thank you for the time. Appreciate it. Best of luck.

Thank you.

Thank you. Our next question comes from Stephen Fisher with UBS. Please proceed with your question.

Thanks. Good afternoon, guys. I just wanted to start off coming back to the situation in Texas in February. I know you mentioned the resilience, but I guess I'm just curious, did it really have zero impact because I'm wondering if you might have been trending toward the upper end of your guidance range. I know you kept it the same, but absent any impact in February, if you might have been trending toward the higher end.

Sure. So we came out of Q1 and into Q2 with very good momentum, and certainly we were shut down in Texas for about a week. However, as soon as the weather broke – our revenues were much larger than what they were going into the, you know, there's some catch up. And so we were very encouraged by that. And we see the markets, all of our markets are in fairly good position for the remainder of this quarter. So that's where, you know, while we never like it when we're impacted by weather like that, we still feel like we're very resilient to deal with that and we can recover very quickly.

Great. And then To what extent do you have visibility into your customers' backlogs? Are you actually seeing their backlogs up? Are they down? Are they flat? What are you hearing or seeing from your customers in their actual backlogs?

That varies by customer and by end market and by region. There are some that are extremely optimistic about the next six months, where others still have some concern. Overall for our business, as you see, residential has taken over a larger share of our business by about 4%. It's very difficult to track that, but the commercial and infrastructure is very much what we typically see.

Okay. And then are you able to give us what your pricing year-over-year and your utilization was year-over-year in the quarter?

Yeah, I mean, from a pricing perspective, I mean, as you know, our pricing adjustments go into effect in January, and we're looking for 2% or 3% on pricing. Utilization through the first quarter is usually around the 70% mark, which obviously picks up through the year, and it's quite consistent year over year.

Okay, and then just lastly, It seems like you were talking more about M&A on this call. Have we hit some sort of turning point in that process, something in the market conditions? Is there something going on that's making M&A kind of more imminent at the moment?

Yeah, great question. Thanks for asking that. So last year with the pandemic and some uncertainty, we really focused on the balance sheet. And we were quite successful with that. And that led to the debt restructuring that we were able to accomplish in January. That put us in a really nice position to go after M&A, where last year we decided that wasn't the right move for us. Any of those opportunities that would have been there last year are still there this year. In fact, there are more now. So we'll be very selective. We'll make sure that they meet all of our criteria and they'll be easily integrated into our systems. We are more aggressively going after that, and we do expect to have some M&A this year.

Terrific. Best of luck. Thank you.

Thank you. Our last question comes from Tim Mulrooney with William Blair. Please proceed with your question.

Hey, thanks for squeezing me back in. Just a couple more. Ian, on that annual interest expense you provided, the $23 million, is that an annual run rate or is that the actual cash interest expense you expect for fiscal 21?

That's what we expect for fiscal 21.

Okay, so even lower for 22. I guess while I got you here, I'll ask you one or two more. I think you said infrastructure is now 16% of sales over time, I guess. Would you expect that to increase or decrease or remain pretty static? And if an infrastructure bill were to pass this year, does that change your answer at all?

Yeah, I think it will slightly go up if there is not an infrastructure bill. If there is an infrastructure bill, that could go up substantially.

Yep. Okay. And just lastly for me, well, first of all, how much of your CapEx is maintenance CapEx? Is it 50-50?

No. So what we've said on CapEx that we typically spend around 11%, we haven't split that between replacement and growth. Obviously, we'll keep an eye on the growth opportunities in the business, but what we have said consistently, it's around 11%. Okay.

I mean, you talked about all the benefits of improving the fleet age, which sounds like a very good ROI for you guys. Can you actually, I guess, quantify this for us in any way? How much has the maintenance capex spend lowered average fleet age, say, I guess, over the last couple of years?

Yeah, we can't be precise on it in terms of what we share publicly. But the way we think about it is that All of the things that we mentioned around the down for repair time, which improves utilization and improving uptime, and the lower maintenance costs would obviously come through on that repair cost line within our income statement. So there's definitely a benefit organically in that area to investing in the fleet.

Yep. Okay. Got you. Thanks again.

Thanks, Ben. Thanks, Tim.

There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Thanks, Paul. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our second quarter fiscal 2021 results in June. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.