Concrete Pumping Holdings, Inc.

Q2 2021 Earnings Conference Call

6/14/2021

spk08: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings financial results for the second quarter ended April 30th, 2021. 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 begin, 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 cautions regarding forward-looking statements. Cody, please go ahead.
spk06: Thanks, Paul. 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 investor presentation on the company's website. Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce?
spk02: Thank you, Cody, and good afternoon, everyone. I am very pleased to report that our second quarter continued to highlight the resilience of our business, the flexibility of our projects, and the profitability of our business model. We experienced record-setting sub-freezing temperatures in our Texas market that brought our business to a halt for half the month of February. The same cold weather front also affected construction activities in our central region, especially when compared to unseasonably favorable weather conditions experienced in the prior year. However, as a testament to our resilient business model, we delivered a second quarter that returned solid, consolidated revenue growth, strong margins, and free cash flow performance that was in line with our internal expectations. This included continued growth in our market share, strength in our residential and infrastructure projects, and the continued recovery in our commercial work. We continue to demonstrate our strong financial profile with $28.5 million in year-to-date free cash flow that contributed to our improving total available liquidity of $134.9 million. Given our execution to date, we remain in a strong position to execute upon our strategic priorities and financial outlook in 2021. To provide a bit more detail about our Q2 results, total consolidated revenue improved by 4% compared to a year ago. Our second quarter last year was partially impacted by COVID-19 as the pandemic really started to set in during the month of April. Our ability to return to revenue and margin growth is a testament to our scale, diversified regional and market exposure, and our highly variable cost structure. Now to review our individual reporting segments. In our U.S. pumping business, revenue was down slightly due to the historic winter storm in February impacting our Texas and central regions and continued COVID-19 headwinds in some of our commercial projects. This volume headwind was mostly offset by continued strength and market share expansion in our other regions across the residential and infrastructure sectors. In our UK segment, revenue was up 41% due to a strong recovery from the impacts of COVID-19 as our UK operations were hit harder by the pandemic earlier and for a more prolonged period than our US business. In Ecopan, revenue increased almost 9% due to continued organic growth, pricing improvements, and growth in our roll-off service adoption. Ecopan revenue growth was slightly muted when compared to the pre-pandemic times due to our team's difficulty to thrive in a virtual sales environment. However, with our customers getting more and more comfortable in a virtual selling model and with the gradual reopening of the economy, we are optimistic about returning to our double-digit sales growth rate soon. In fact, we continue to make additions in our Ecopan sales force during the quarter to strengthen our longer-term growth strategy. Now turning to some end market commentary, in the residential market, demands remain especially strong for single-family homes, and we have been able to capitalize on that momentum. As discussed on our prior calls, residential construction has been a bright spot for our company, and we expect it to represent roughly a third of our total sales this fiscal year, compared to a 30% in fiscal 2020. While the pandemic has caused some weakness in the commercial construction markets, we have intentionally shifted our focus and tailored capture residential opportunities and have picked up several new customers as a result. From a commodities and supply chain perspective, the recent lumber shortages and other impact costs increased in the industry have not affected demand for our services, and we expect the residential market to remain strong over the near term. Staying on commodities for a moment, there are some headwinds on cement availability in our U.S. business. Several cement plants have undergone critical maintenance, which has introduced some regional tightness in the cement material supply. While this is expected to be a short-term issue, there is yet another example of the value of our fleet management agility, scale, and diversity. While we do not purchase, transport, or own this commodity, wherever possible, we are utilizing our breadth of relationships to help mitigate any project delays our customers may face. We are also seeing continued success with our infrastructure projects in the US and the UK. The UK market has always been infrastructure project heavy, including the concrete intensive high speed railway project that was flat that will last beyond 2030. In the US we have a steady flow of industrial projects supported by public funding, including bridges, schools, wastewater treatment plants and hospitals. Much talk as of late surrounds around the current administration's proposed infrastructure bill. We believe an infrastructure bill will ultimately be passed, although the size, timing, and many other details are still unknown. Importantly, our current outlook for fiscal 2021 does not include possible benefits of an infrastructure bill as we believe any resulting construction would not begin until fiscal 2022. However, many states are beginning to return to fiscal health and we should be able to capitalize on increased infrastructure spending on the state level with or without the passage of an infrastructure bill. As a result, the infrastructure verticals should become a larger percentage of our overall revenue mix over time. Our commercial projects continue to recover along with the nation's recovery from the pandemic. This includes continued progress in high-growth markets such as fulfillment centers and data centers. For reference, we have completed multiple fulfillment centers that require as much concrete as a 25-story building and are currently working on projects that are as large as a 50-story building. The typical data center requires about 80% of the amount of concrete in a typical fulfillment center. So we were pleased with our operational execution and financial performance in the second quarter and with the trajectory it puts on us for the remainder of the year. I will return to discuss our long-term growth strategy and provide a market outlook. But for now, I will pass the call off to Ian to discuss our second quarter financial results. Ian?
spk01: Thanks, Bruce, and good afternoon, everyone. Moving right into our second quarter 2021 results, consolidated revenue increased by 4% to 76.9 million compared to 74 million in the same year ago quarter. The revenue increase was mainly driven by organic growth in the UK operations as the UK construction market continues to emerge from the impacts of Brexit and COVID related shutdowns. Additionally, our US concrete waste management business operating under the Ecopan brand showed improved momentum and solid organic growth of almost 9% when compared to the same year-ago quarter. Turning now to review our individual segment performance, revenue in our U.S. concrete pumping segment, mostly operating under the Brandeis Bone brand, was 56.2 million compared to 57.5 million in the same year-ago quarter. The slight decline is attributed to the construction volume impact of the prolonged cold weather front that dominate the lower 48 in February, and in particular, our south and central regions, including Texas, Oklahoma, Kansas, and Colorado. For our UK operations, operating largely under the Camford brand, revenue improved 41% to $11.9 million compared to $8.4 million in the same year-over-quarter. This organic growth is largely attributed to the fact that the prior year period was impacted by COVID-19 shutdowns as the UK abruptly locked down at the onset of the pandemic. We are pleased to report that the UK is now running at over 90% of our pre-COVID-19 revenue run rate, and we are optimistic about the rest of the year as the UK region continues to recover rapidly. Revenue in our concrete waste management services segment increased almost 9% to $9 million in the second quarter of 2021, compared to 8.3 million in the same year-ago quarter. This increase reduced the solid organic volume growth, pricing improvements, and growth in our roll-off service adoption. As Bruce mentioned, we expect a return to double-digit growth in this segment as the U.S. continues to reopen and our sales teams are able to meet with customers in person. Returning to our consolidated results, gross profit in the second quarter improved to 33.3 million compared to 31.9 million in the same year-ago quarter, and gross margin improved 30 basis points to 43.3% compared to 43%. The margin expansion is reflective of the improvement in revenue volumes and the discipline controlled over available costs. General and administrative expenses in Q2 were 26.5 million compared to 26.4 million in the same year-ago quarter. The increase in G&A expenses of less than 1% trailed the revenue increase of 4% due to our team's successful efforts putting cost containment measures in place at the onset of COVID-19. As a result of an 11.5 million fair value adjustment to warrant liabilities in the second quarter, the net loss available to common shareholders was 11.4 million or 21 cents per diluted share. This compares to a net loss of 56.2 million or $1.06 per dilution share in the same year-ago quarter. Later in our commentary, I will discuss the basis of this fair value warrant liability adjustment. Adjusted EBITDA in the second quarter increased 6.5% to $25 million compared to $23.5 million in the same year-ago quarter. Adjusted EBITDA margin increased 80 basis points to 32.6% compared to 31.8% in the same year-ago quarter. In our U.S. concrete pumping business, adjusted EBITDA was $16.3 million, which is consistent in dollar terms with the same year-ago quarter and 60 basis points higher than EBITDA margin percentage. In our UK business, adjusted EBITDA improved 64% to 4.1 million compared to 2.5 million in the same year-ago quarter, given the sharp recovery in organic revenue growth. For our US construction waste management business, adjusted EBITDA was 4 million compared to 4.1 million in the prior year quarter. As Bruce mentioned, we have made strategic investments in our Ecopan sales team ahead of re-accelerating the top line and our profitability in this segment is reflective of these investments. Now turning to our capital structure and liquidity. On April 30th, 2021, we had total debt outstanding of $376.1 million, our net debt of $362.4 million, which equates to a net debt to EBITDA leverage ratio of approximately 3.4 times. We had approximately 134.9 million in liquidity as of April 30th, 2021, which includes cash on the balance sheet and availability from our ABL facility. This is an improvement of 14% compared to January 31st, 2021, and greatly enhances our balance sheet capacity and ability to pursue accretive investment opportunities like M&A, as well as support our overall long-term growth strategy. As a reminder, following our strategic refinance activities in January this year and our high cash generation business model, we have successfully lowered our income state interest expense by $5.3 million and our cash interest paid expense by $10.8 million year-to-date. We have no near-term debt maturities with our senior notes and asset-based lending facility maturing in 2026. 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. As an example of a healthy cash flow model, we have generated approximately $28.5 million in free cash flow year-to-date in fiscal 2021. This equates to a free cash flow conversion rate from adjusted EBITDA of approximately 60%, which is well above our historical average. Even through the current macroeconomic environment, our ability to generate a strong free cash flow allows us to expand our liquidity position and deliver in line with our strategic goals. In what was a relatively straightforward quarter operationally, the SEC came up with a statement on April 12th which introduced new interpretations of the accounting guidance for warrant structures that are common and special purpose acquisition corporations. The SEC's perspective is that most SPAC warrants should be presented as liabilities on the balance sheet and marked to market each period. So we have restated our prior audit financial statements in order to conform retroactively with the SEC's statement. The 8K and 10K-A filings registered on Friday and our 10Q filed today provide the detail on this non-cashed mark-to-market impact on net income, which is valued using quoted market prices over public warrants and are primarily a function of our stock price movement. It falls below operating income and has nothing to do with the actual performance of our business operations. This change does not impact any of our key operating metrics or any of our GAAP metrics above operating income or any of our non-GAAP metrics. It also does not impact our capital structure in any way, such as our net debt or leverage, the covenants in our debt facilities or our economic share count. I believe the point here is that this change does not alter the way that we think about our business in any way and we continue to be as transparent as possible about how the business is performing. As a reminder, all of our outstanding public warrants expire in December of 2023. Turning now to provide an update on CAPEX investments, 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 reduce 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 that 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 business. 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 second quarter results were in line with our internal expectations as our US and UK markets continue to recover from the Q2 weather and 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, and 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.
spk02: Thanks, Ian. In the second quarter of 2021, we were pleased with our organic growth and the trajectory of our business. We are gradually returning to a normalized state in both the U.S. and the U.K., and we look forward to driving scales for continued organic growth as well as strategic M&A. Regarding our organic growth strategy, we have some exciting news to share today. as we enhance our U.S. national sales strategy to capture additional growth opportunities. In our Ecopan business, we continue to build our U.S. sales team in strategic locations to enhance the reach of our service and communicate the disruptive economic value of our service offering to new customers. In our U.S. pumping business, we are delighted to announce that we have recently hired Tom O'Malley as our Senior Vice President of Sales and Marketing. Tom joins our executive team after 25 years as a senior executive with Schwing America, who is a leading global supplier of concrete pumping equipment. We are very pleased to welcome Tom to our team, and his first-class industry expertise will be valuable in driving the continued development in our U.S. national sales strategy. Now turning to our acquisition strategy that I've shared in prior earnings calls, we have a clear criteria for how we approach potential acquisitions. We continue to balance our discipline capital allocation priorities to responsibly grow our business while maintaining a healthy balance sheet and financial flexibility. Our priorities remain focused on value enhancement acquisitions, prudent organic capital investment, and the consistent return of value to our shareholders. We continue to prioritize high returning capital investments that enable revenue growth and improving operational efficiencies to drive margin expansion. The acquisition deals that we are looking at is a robust pipeline, and our team has consistently had a very disciplined approach to M&A, and that is what we'll see us continue to do. We are very clear in these areas we want to grow, and we will continue to develop our market-leading share position as this ultimately what is important to accretive value creation. Looking forward to the rest of the year, in the U.S., residential construction continues to be an area of momentum and strength for our business. and we expect continued demand for these projects for the rest of the year. In our infrastructure projects, we also expect continued momentum, especially in areas like the UK. In commercial, we are seeing the continuation of increased investment in heavy industrial warehouses and data centers as e-commerce accelerates and people remain working from home. We expect this investment to aid the recovery of our commercial business in the second half of this fiscal year. In Ecopan, we will focus on driving growth despite pandemic-related challenges and greatly look forward to accelerating our momentum as the year progresses. With that, I'd now like to turn the call back over to Paul for Q&A.
spk08: Thank you. 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. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the 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 poll for questions. Thank you. Our first question comes from Andy Whitman with Robert W. Baird. Please proceed with your question.
spk03: Hey, guys. Good afternoon. Thanks for taking my questions. Maybe, Ian, I was just hoping that you could help us get our arms around the magnitude of the weather in the quarter. Can you talk about what those two weeks and those markets cost you, maybe in terms of revenue that got pushed out of the quarter, presumably into another quarter and not canceled, but Can you also just talk about the mechanism? Is it all just delayed? Do you work extra hard and kind of make it up here in the current quarter, and then you're kind of back on track? Or does some of that work just kind of domino out of this fiscal year and then into next fiscal year? I just want to see if we can understand that mechanism a little bit better.
spk01: Yes, Andy, we did actually catch up from where we were back in February, and the resulting impact on the second quarter was right around that, million dollar revenue mark that you've seen as being slightly behind in the second quarter. In terms of how that might play out for the rest of the year, we expect that we'll recover that in subsequent quarters. So the 2% impact is not something that we expect that we will not be able to catch up on. And our customers have actually done quite a good job recovering from that quite severe weather in February where some locations were closed for about half the month.
spk03: Got it. Okay. So it's a million bucks in the U.S. segment, 2%. So you guys kind of think of the quarter as kind of flat ex-weather. I guess that makes sense. And then, Bruce, just on the impact of the cement plants being closed and the tightness in the cement markets, I was hoping you could just put a little bit more meat on that bone as well. In particular – I guess how widespread are these issues? It sounds like there are pockets, but maybe not everywhere. Could you talk about if the tightness is getting worse or it's getting better here, even self-sequencing the quarter, just so we can understand what the impact is to your business? Is this a new factor? Do you guys feel like you're going to be able to work through this, supplement with other work that's going to get you back to the original guidance? Or do you feel like this is not your fault, but is this a negative to your ability to drive to the revenue guidance that you put out?
spk02: Yes, certainly it's a little bit of a headwind, but we're comfortable that we can work through it to meet our original guidance. That's why we reaffirmed that. It's more regional and And it can be at any point in time during the week where they just run out of cement. We may be delayed. Some markets are shutting down on half a day on Friday, that sort of thing. But it hasn't been a significant impact to us yet. We don't think it will be during the summer, but we're certainly watching that and making sure that we bring the assets into the areas that aren't as affected.
spk03: Got it. I guess maybe just my last question here. What are you seeing on the infrastructure side of the business in the U.S.? Certainly it's strong in the U.K. You guys have been saying that for some time. Even if we're starting to get into more of the construction season, the way I think about it, for that stuff, is work going to break this year on healthy state budgets and potential stimulus, or do you think that's really more of a 22 phenomenon? But just wondering... If states are kind of going after, state and local governments are getting back out there and letting awards so that these things can get built. I'm just kind of curious on the pace there.
spk02: Sure. We are seeing some improvement at the state level with projects that were put on hold that are now started and new projects are being planned that will help us towards the end of this year and into next year. But there is reason to be a little more optimistic about that.
spk03: Got it. Thanks, guys. I'll leave it there.
spk02: Thanks, Andy.
spk08: Thank you. Our next question comes from Sam Cussworm with William Blair. Please proceed with your question.
spk05: Hey, guys. Hope you all are doing well. On the labor side of things here, setting aside wage inflation for a second, I want to focus more on labor availability. Has it been more difficult lately to find and retain skilled workers? And has your employee retention rate for frontline workers changed at all in recent months?
spk02: That's a great question. I think the biggest challenge our industry faces, not just us, but the entire construction industry is labor. We've done a pretty good job of retaining the employees that we have, but bringing new employees in has been a little more challenging for us. We're hoping that as some of the stimulus packages end and folks are needing to get back to providing for their families, that that will open up a little bit more for us. But we've been able to balance it to this point. It's not getting worse, and hopefully it will continue to get better.
spk05: Great, great. You know, maybe switching the page to M&A here. In your last hearing call today, you mentioned having several NDAs with possible acquisition targets. I was hoping just to get an update on your M&A pipeline here. Are there still good acquisition targets out there for you guys? If so, what are the primary hurdles that you face in terms of closing an acquisition?
spk02: I don't know that there's any primary hurdles. It's just a matter of getting the right acquisition that's the right fit for us. We have several active conversations going on, and we're hoping that we'll be able to act on some of those at some time in the future.
spk05: Cool. I appreciate the commentary.
spk02: All right. Thanks, Sam.
spk08: Thank you. Our next question comes from Brent Thielman with VA Davidson. Please proceed with your question.
spk07: Hey, thanks. Good afternoon, Bruce. Good question on Ecopan and maybe just an update on the Salesforce growth initiatives, where you feel like you are with that. And, you know, is it your expectation right now that, you know, that still might cause a little bit of margin headwind here over the next couple of quarters? And maybe just a follow-up to that, how do you think about kind of returning to that double-digit growth pace that you've seen in that business, you know, over the course of this year?
spk02: Yeah, Brent, thanks for asking that question. So as you know, with concrete pumping, most contractors know that if they can't drive a ready-mix truck to the point of placement, a concrete pump is the best, most efficient, safest way to place the concrete. With Ecopan, it's taking people from using some kind of a legacy system that they use to using our system and having us show them how it's more environmentally compliant and cost-effective at the same time. So that's something that's more difficult to do in a virtual environment. We've done a good job of gaining some share and growing the business, but not at the rate that we had in the past. Now as offices are getting back to work and we have the ability to meet with folks, we expect that to accelerate and we expect to be back to double digit growth by the end of the year.
spk07: Okay. That's great. And then can you guys comment on utilization levels in the pumping business, I guess, between the U.S. and U.K., whether it's an average for the quarter or where you sort of closed out the quarter? Just be curious what the differences are between the two regions.
spk01: Yeah, I mean, the differences between the regions is largely on the availability. We look at the utilization by job in the U.K., and we look at the utilization by hours. in the U.S. because typically we get multiple jobs in the U.S. as opposed to the U.K. In terms of percentages, they're actually quite comparable. And consistently around the second quarter of our business, we usually see utilization rates in the high 70s, and that's where we are today. So that's quite comparable with last year. So the utilization trends that we see in our business are where we expect them to be for the second quarter.
spk07: Okay. And then you all had price adjustments go into effect in January. I guess I'm just wondering, as inflation gets a little more pervasive, labor has always been challenging. But, I mean, any anticipation of additional sort of price adjustments needed at this stage in the fiscal year?
spk02: We're following that fairly closely. The two things that we're most concerned about would be labor inflation and petroleum products, fuel, that sort of thing. Right now, we've been able to keep those fairly consistent with what our expectations are, but we'll continue to watch that and adjust as necessary. Okay.
spk07: Thank you, guys.
spk02: Thanks, Brent.
spk08: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation phone will indicate that your line is in the question queue. Thank you. Our next question comes from Stephen Fisher with UBS. Please proceed with your question.
spk04: Thanks. Good afternoon, guys. Just in terms of seasonality, your guidance implies around 55% of EBITDA in the second half. I might have thought that the second half would be a higher percentage of that, given just the kind of weather patterns affecting your business. and the first half issues with COVID and the severe weather. So I'm wondering if maybe your second half guidance implied has some conservatism in there at the moment.
spk01: Yeah, hi, Steve. And so we've said before, I mean, what we typically see from a seasonality perspective is that our business is 45-55 across our business. So And that's why we have reaffirmed guidance. I mean, we're right around that range that we would expect to be performing at. So the expectation for the second half is right around that 55% mark, as you mentioned. So we're right on pace with delivering that in the second half of the year.
spk04: Okay. In terms of inflation, I guess, how would you anticipate this will affect your CapEx over the next say, you know, rest of the year, maybe into next year. I know you're trying to take your fleet age down. Imagine your suppliers are facing some inflationary pressure. So how is that being passed along back to you, and how are you preparing for that, or how are they preparing you for that for next year?
spk01: Yes, as we're looking for the CAPEX requirements for next year, I mean, obviously we're in early discussions of what those requirements pricing measures would look like. We aren't seeing any meaningful change in pricing at this moment. I mean, largely driven by, I mean, as you know, we are the largest purchaser of this type of equipment in the U.S. and the U.K., so we have some scale purchasing that we could work with the OEMs on. So we haven't seen any meaningful change in pricing at this moment.
spk04: Okay. Thank you very much.
spk03: Thanks, Stephen.
spk08: Thank you. There are no further questions at this time. This does conclude our question and answer session. I would now like to turn the call back over to Mr. Young for any closing comments.
spk02: Thank you, 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 third quarter fiscal 2021 results in September. Thank you.
spk08: Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.
Disclaimer

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