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 fourth quarter and fiscal year ended October 31, 2022. Joining us today are Concrete Pumping Holdings CEO Bruce Young, CFO Ian Humphreys, and the company's External Director of Investor Relations, Cody Slock. 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 meeting of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Camilla. 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 pre-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 that 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 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 closed out our 2022 fiscal year on a record high note, posting our fifth consecutive quarter of double-digit consolidated revenue growth. This exceptional growth across all segments was driven by continued market share gains and contributions from recent accretive acquisitions, underscoring the strength, operational efficiency, and resiliency of our business and execution of our strategic plan. As a result, we were able to drive financial performance records for annual revenue, adjusted EBITDA, and net income for the company. Looking at the full fiscal year of 2022, revenue increased 27% to $401.3 million, adjusted EBITDA increased 14% to $118.6 million, and net income increased $43.7 million to $26.9 million. By reporting segment, revenue in our U.S. pumping business increased 34% in the fourth quarter driven by our recent strategic acquisitions and strong performance in our commercial and market. We were successful in growing our commercial market share, opportunistically recalibrating rates, and capturing pent-up demand driven by the pandemic recovery. Of note, office buildings, data centers, warehouses, and distribution centers within our commercial market continue to grow, and there has been an encouraging recovery in the hospitality sector. Turning to infrastructure, Our expanded national footprint continued to drive results as it allowed us to capture more funds for public project investments. We continue to work to win projects at the state and local levels and look forward to renewed investment in the U.S. with the Infrastructure Investments and Job Act. At this time, the infrastructure bills benefits to our business remain uncertain and as such has not been built into our 2023 forecast. During the fourth quarter, our residential segment remains relatively stable due to the ongoing structural supply-demand imbalance that continues to unwind. We recognize that higher interest rates have created affordability issues in the housing market, but it is important to note the majority of our residential work resides in the Mountain States and in Texas, which continue to be resilient versus other areas in the U.S. As expected, the moderate change in residential volume in the fourth quarter was absorbed by other high margin work. For example, our residential work volumes traded growth with our commercial market in the fourth quarter, which typically carries higher margins in residential work. As noted in today's investor deck, at the end of 2022 fiscal year, our mix of U.S. pumping work was 56% commercial, 33% residential, and 11% infrastructure. The change in the distribution of our revenue by end market and diversity by geography illustrates the advantages of our broad and diverse national platform and the strength of our high-value service. In our UK segment, in spite of foreign exchange headwinds, revenue increased 8% compared to the prior year quarter. Our team continues to secure energy, road, and rail projects in addition to the work we have previously announced with the concrete incentive high-speed railway project HS2, which is expected to last beyond 2030. In Ecopan, our concrete waste management business, we continue to deliver exceptional organic growth with revenue up 42% in the quarter. This continues to be driven by an improved sales approach and the value of our enhanced service offering. Going forward, we expect to maintain Ecopan's double-digit organic revenue growth given its penetration to market and its relative size to our pumping business. During the last fiscal year, we were opportunistic with several tuck-in acquisitions and greenfield expansion opportunities. It was an exciting year to welcome new teammates into our family of businesses, and the operational integrations were seamless. Shifting to the cost side of our business, as was the case last quarter, persistent high inflation, particularly in diesel fuel, continued to impact year-over-year gross margin comparisons. Despite this headwind, our team has continued to execute cost containment actions and the recalibration of our rates have largely offset these inflationary costs and our margin dollars are in line with our expectations. As a result, we continue to realize the expected equipment return on investment for the same volume of work performed. As we close out the year and look forward to 2023, we are in a strong position to execute our strategic growth priorities. I will return later to discuss our longer-term growth strategy and provide an updated market outlook, but for now, I will pass the call off to Ian to discuss our results in more detail. Ian?

Thanks, Bruce, and good afternoon, everyone. In the fourth quarter of our 2022 fiscal year, revenue increased 31% to $114.9 million compared to $87.8 million in the same year-ago quarter. Strong organic growth, volume growth from recent acquisitions, and ongoing pricing improvement all contributed to the double-digit revenue increase. Revenue in our U.S. pumping segment, mostly operating under the Brundage Bone brand, increased 34% to $84.3 million compared to $63 million in the prior year quarter. Excluding acquisitions of Hitech, Pioneer, and Coastal, revenue increased 17% to $72.4 million on an organic basis due to the higher construction volumes and ongoing price improvements. For our UK operations, operating largely under the Camford brand, when excluding the foreign exchange translation effects from the weakening British pound, revenue for our UK operations increased by approximately 25% in the fourth quarter. This was due to strong volume recovery from the region's progress in overcoming the effects of COVID-19 along with the recalibration of our pricing. On an as-reported U.S. dollar basis, revenue improved 8% to $14.9 million, compared to $13.8 million in the same year-ago quarter. Revenue in our U.S. concrete waste management services segment, operating under the Ecopan brand, increased 42% to $15.6 million in the fourth quarter. This strong organic increase was driven by robust organic volume growth market share expansion, and sales conversion by our regional teams. Returning to our consolidated results, gross margin in the fourth quarter was 42.3% compared to 42.6% in the same year-ago quarter. The slight decrease is directly related to inflationary pressures, particularly related to diesel fuel price escalation. For the full fiscal year, the cost of diesel fuel inflation was approximately $10 million, or 240 basis points impact of the 280 basis point change for the full year gross margin. General and administrative expenses in Q4 were 30.1 million compared to 25.6 billion in the same year-ago quarter. In the fourth quarter, we experienced lower amortization cost of intangibles and lower stock-based compensation expense, but this was more than offset by labor costs headcount increases from recent acquisitions. As a percentage of revenue, G&A costs improved in the fourth quarter to 26.2% compared to 29.1% in the same year-ago quarter. Net income available to common shareholders in the fourth quarter increased 170% to $8.1 million or 14 cents per diluted share compared to $3 million or 5 cents per diluted share in the same year-ago quarter. The improvement was a result of substantial contributions from both acquired revenue and organic growth. Consolidated adjusted EBITDA in the fourth quarter increased 28% to £36.3 million compared to £28.3 million in the same year-ago quarter. Adjusted EBITDA margin was 31.6% compared to 32.2% in the same year-ago quarter. As discussed previously, the slight erosion in margin was driven by persistent cost inflation, particularly in the cost of diesel fuel. In our US concrete pumping business, adjusted EBITDA improved 29% to $23.4 million compared to $18.1 million in the same year-ago quarter, driven by the throughput from our strong revenue growth. In our UK business, adjusted EBITDA was $4.7 million compared to $4.2 million in the same year-ago quarter, as strong revenue growth was offset by currency translation weakness and significant inflation from diesel fuel costs. For our US concrete waste management business, adjusted EBITDA improved 42% to 7.6 million compared to 5.4 million in the same year-over-quarter due to strong organic growth in revenue and disciplined operational efficiency. Turning to liquidity, as of October 31, 2022, we had total debt outstanding of $427 million or net debt of $420 million. We had approximately $111 million in liquidity as of October 31, 2022, which includes cash on the balance sheet and availability from our ABL facility. As a reminder, we have no near-term debt maturities with our senior notes and asset-based lending facility maturing in 2026. Additionally, we delivered strong free cash flow in fiscal year 22 of approximately $59 million after investing $36 million in replacement equipment and disbursing approximately $24 million in cash interest. We remain in a strong liquidity position, which provides further optionality to pursue value-added investment opportunities like accretion of M&A or investment in the reduction of our fleet age to support our overall long-term growth strategy. As a reminder, during the third quarter of 2022, we initiated a share repurchase program that authorized the buyback of up to $10 million of our outstanding shares of common stock. In the fourth quarter, the company repurchased approximately 416,000 shares for approximately $2.7 million. On October 31, 2022, we had approximately $7.3 million remaining under the June 2022 authorization. In today's earnings release announcement, the board of directors have approved an additional $10 million increase to this program, and the share buyback program demonstrates both our commitment to delivering value to shareholders and underscores our confidence in our balance sheet, our liquidity, and strategic growth plan. Moving now into the 2023 full year guidance, we expect fiscal year revenue to range between $420 and $445 million. adjusted EBITDA to range between $125 million and $135 million, and free cash flow, which we define as adjusted EBITDA less net replacement capex, less cash paid for interest to range between $65 and $75 million. We are consistently enhancing our fleet of operating equipment to ensure safety and reliability, minimizing repair downtime, and optimizing equipment utilization, which help us capture additional market share and project wins with new customers. Operationally and financially, we have a solid foundation, and we have confidence in executing our growth strategy. With that, I will now turn the call back over to Bruce.

Thanks, Ian. In the fourth quarter of 2022, we are pleased to report a continuation of double-digit revenue growth and a return to a more normalized operating environment. Looking more broadly, in 2022, we took deliberate steps to drive scale through continued organic growth as well as strategic M&A. Our Ecopan business continued to deliver exceptional double-digit growth as we expanded the value of our service offering and grew our Ecopan sales force. Additionally, throughout the year, we were able to recalibrate rates in all of our businesses to combat the rapid and persistent cost inflation pressures. I want to thank our entire team for this truly remarkable effort. As we think about where our business is positioned, we have high conviction that commercial and infrastructure will continue to have strong demand due to the factors that we are experiencing today. Given interest rates rising and recent indicators of consumer spending weakening, it's only practical for us to assume our residential business volumes may fluctuate and give some ground to our commercial and infrastructure business in 2023. However, this is an example of the agility and resilience of our business model and fleet management. Where construction volumes change in one region or end market, we adjust our fleet management to ensure we optimize equipment utilization. In summary, we are very pleased with our fourth quarter and full year 2022 results against a challenging backdrop and are optimistic about our business momentum heading into 2023. With almost 30% year-over-year consolidated revenue growth in 2022, we are delighted with the 30% year-over-year organic growth in our Ecopan business. The exceptional execution and contribution of our M&A strategy and the expansion into new markets with promising long-term fundamentals. We fully expect expanded federal and state-level infrastructure investment and the commercial market recovery to support growing construction activity for years to come. We remain focused on the execution of the growth strategy to continue to drive scale through investing in organic growth and M&A and believe that this is the best path to provide superior shareholder value. With that, I would now like to turn the call back over to the operator for a Q&A. Camilla?

Thank you, Mr. Young. We will now be conducting a question and answer session. If you'd 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. You may press Start 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 Start key. One moment, please, while we pull for questions. And our first question will come from Tim Mulroney with William Blair. Please proceed with your question.

Hey, this is Sam Kusform filling in for Tim. Bruce, Ian, hope you both are doing well.

Hi, Sam. Hi, Sam. How are you?

Doing pretty good. You know, we've spoken before about the Infrastructure Act, but maybe it would be also helpful to talk about the CHIPS Act. It seems likely we'll be having a lot of semiconductor fabs being built in the U.S. soon, and I guess I'm wondering if you could give us a sense of both the concrete needs for a facility like this and if a large chunk of that would come from concrete pumping.

Yeah, so CHIPS Act has helped us, and there are several large facilities that we are currently working on and several that we're bidding into the future. And those types of facilities are very concrete and intensive, and so, yes, that's a very good thing for us.

And maybe just as far as, like, the timing of these projects, you know, I know some of the infrastructure act might benefit this fiscal year, though. You guys don't have any guidance. But is that something we could also maybe expect, for the chips actors, that may be, is the benefit from that maybe 2024 at the earliest?

Yeah, I would say late 23 into 24.

Okay, thanks. And then maybe just one more from us related to Outlook, but, you know, in regard to your fiscal outlook, I was just hoping you can maybe share what customer and market mix you guys are contemplating compared to fiscal 2022, and then maybe what the margin impact of that change might be.

Yeah, so as we mentioned in the script, the work is shifting from residential into more commercial market. And with the commercial markets, we're using more of our specialty equipment and our larger booms and pumping higher volumes. So our revenue per hour is higher and our margins are greater in that market. And we expect that to continue through the remainder of this year.

Great.

We'll leave it there then. Thanks, guys. Thank you.

And our next question will come from Andy Whitman with Robert W. Baird. Please proceed with your question.

All right, great. Good evening, gentlemen. Thanks for taking my question. First, I guess I wanted to acknowledge the disclosure here that you have on your free cash flow, including the CapEx footnote here that talks about how you're doing asset purchases and you're splitting out the growth investment. I think that's helpful for all of us to get a better sense of what the underlying cash flow is. So it also generates questions. So I wanted to start there. Just a footnote here, Ian, it mentions $31 million of M&A in the fourth quarter. There's also $31 million called out separately on its own line here, it looks like, in the fourth quarter. I'm assuming that's the same $31 million that I'm not supposed to take 31 out of the CapEx line as well. Is that right?

Yeah, that's right, Andy. And the way to think about it, I mean, looking at the – if we take the full year, including obviously we've got business combination in there, the way you think about the $124 million investment for the full year is like $36 million in replacement, $37 in organic growth, and $51 in M&A.

So that's maybe a more helpful color as well.

Yeah, that's the sum total of what your footnotes say there. It is helpful. So I guess then here as it relates to the guidance that you gave for free cash flow, you kind of mentioned the free cash flow definition here being around net replacement capex. So I guess can you give the net replacement capex guidance that is the number that gets you to the free cash flow guidance that you've given here?

Yeah, so I guess if you take the midpoint for next year's free cash flow, you really subtract, call it $36 million in replacement capex and $24 million in cash interest. So that would get you to a midpoint of around $70 million for the free cash flow. And then the replacement, as you know, Andy, is largely consistent with the percent of revenue that we've done year over year.

Got it. What is the growth CapEx number then that we should be expecting in order to generate the EBITDA range that you've given? That's not all coming for free. There's some growth CapEx that's going to be needed to fund the range that you're talking about.

Yeah, so really the growth CapEx was invested in 22. So what we've got for the guide for next year is 2022's growth investment. into next year. So another way to think about that year-over-year change, so call it 8%, we have 4% pickup from the full year of M&A, and then we've got 2% from volume and 2% from price, and that volume would come from the growth investment in 22. So if there's additional growth investment in 23, then there would be a pickup to the current guidance range that we gave.

Sorry, are these the numbers you're talking about? I was asking about the growth capex numbers. It sounds like you're giving numbers that give income statement lines. What's the growth capex needed to drive the income statement range that you've given?

There's no growth capex contemplated in next year's free cash flow.

Okay, so for fiscal 22, there's 36 of replacement, 31 of growth capital, and 51 in M&A. So you're saying that it's going to be around... $36 million replacement, no growth capital this year, and then whatever you do in M&A is M&A. So that's a $30-plus million tailwind versus the prior year.

Yeah, Andy, and one thing you would add to that is through all our acquisitions that we did last year, they were all very underutilized, and we got a lot of additional assets through those acquisitions that helps that growth in the future as well.

Yeah, so thinking about it, on the revenue dollar terms, Andy, so coastal was obviously done at the end of 22. So if you just take the percentages that are given of that 8% pickup, 4% on M&A would be 16 million, 2% on volume would be 8, another 2 would be another 8. So that's really the bridge from 2022 to the midpoint of 23 without any growth investments.

Okay, that's interesting. I guess specifically with the Ecopan business growing so well and that being basically all organic, I'm surprised that there's no CapEx needed for that business to grow it.

Am I missing something? No, no, no, you're not. So that would come out of the free cash flow. Right, so that would require CapEx. Correct. How much CapEx is it just for that? That would be around $9 million. Okay. So our free cash flow number is just on the replacement side. It doesn't contemplate the growth investment.

Okay. So there's $9 million for PANS. Is there anything in other fleet that you need to grow the business?

No. The growth for Ecopan is PANS and equipment. Got it.

Okay. And then I guess just if you could, I want to drill into the margin outlook here. Let's basically like the EBITDA Margin guidance is flat year over year, but you're making a definitional change here on adjusted EBITDA. You're now going to not exclude director's compensation and public company's costs, which is, by the way, a very positive change and actually a little bit of a surprise. I'm surprised you've been excluding it to this point. But I guess my question is, what are the other sources of variance? You know, 22 was a year that obviously had some margin pressures from diesel. Sounds like you're expecting that to, like, it sounds like after a year of those challenges on diesel that you're getting the rates up. So, I guess I'm just curious as to if we should be thinking about margin recovery. It sounds like, Bruce, you made the comment that you're recovering dollars, but what about the prospect of recovering margin percentage? What are the variables that are out there that could allow that to occur?

Yeah, fuel is the biggest one that we deal with there. Everything else is stabilized at a new level, and then really it comes down to just getting better rates over time.

Got it. Are you seeing the labor had been somewhat of a challenge as well? Has that stabilized, and do you feel like that's under better control today than it was maybe six or nine months ago?

Yeah, it's definitely more stable today than what we had seen over the last year. Got it. Okay. Thanks, guys. Thanks, Andy.

And our next question will come from Brent Thielman with DA Davidson. Please proceed with your question.

Hey, thanks, Bruce, Ian. Hey, Bruce, just on... You know, the rate increases you've pushed through the business over the last 12-plus months. What is the approach kind of going forward that now we're seeing sort of fuel prices flattening out and your operations sound like they're still pretty busy? So, you know, maybe you can continue to push on rate. But how do you approach that going forward with some of these costs leveling out?

Well, as you know, our customers all have a responsibility to their owners to get the best rate on all their services, and so we have to be able to prove out value. I think we've done a pretty good job. I think, as you can see the results from last year, that we were able to meet with our customers and really partner with them on what it took to provide the same level of service going forward, and I think we'll continue to do that. I would say that all of our customers knew that inflation was a real factor and they weren't just getting it from us, they were getting it from everyone and they were accommodating to that. I think going forward, they'll be a little more thoughtful about that and really we'll just have to continue to prove out our value.

And Bruce, are there any other sort of supply chain and efficiencies that continue to impact the business today that are worth calling out or are we really just talking about fuel when I think about recovery and margin percentage.

You know, the only other thing would be from a capital standpoint, the equipment is starting to get more expensive, where I think we've talked in the past that we paid in 2020 the same price for the same size concrete pump that we would have paid in 2006 or 2007. So really the pricing on the equipment really didn't go up. our manufacturers have got hit pretty hard through the last couple of years with inflation. So we're seeing the new equipment costs going up, but everything else is fairly stable.

Okay. I mean, it sounds like you guys are pretty confident, you know, what weakness does come from residential. I guess if any of this year, since, you know, we'll ultimately be offset by, you know, what you get from the commercial and infrastructure markets, caught your comments on, you know, sub-segments of commercial like the CHIPS Act, which, you know, clearly look like a tailwind. Are you seeing jobs on the infrastructure side, you know, that you're tracking coming forward that you expect to participate in? Maybe just help us kind of around the visibility you do see in those two markets that, you know, may help offset whatever comes in resi.

We do have more visibility on the dollar amount that would be going to each of the states through the Infrastructure Act. Tracing that down to the job site is still a bit more difficult, although it's becoming more clear going forward. And there's real dollars there, significant dollars that should impact our revenues in a very positive way going forward. We're still trying to sort through that. But it's still a little bit too early to tell, and that's what we mentioned in the script, that we're leaving any growth for infrastructure out of our forecast going forward. But we think that over this next year, that's going to become very clear for us.

Okay. All right. Great. I'll pass it on. Thank you.

Thanks, Brent.

As a reminder, it is star one to ask a question. At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Young for closing remarks.

Thank you, Camilla. We'd like to thank everyone for listening in to today's call, and we look forward to speaking with you when we report our first quarter fiscal 2023 results in March.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.