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, 2023. Joining us today are Concrete Pumping Holdings CEO Bruce Young, CFO Ian Humphreys, and Company's External Director of Investor Relations, Cody Slaw. Before we go further, I'd like to turn the call over to Mr. Slough 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. 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 would 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 on the company's website. Now, I would like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce?

Thank you, Cody, and good afternoon, everyone. I am pleased to report that our first quarter of 2023 is off to a strong start with 10% revenue growth, which marks our sixth consecutive quarter of double digit consolidated revenue growth. This consisted of growth across all segments and was driven by continued market share gains through organic growth and contributions from accretive acquisitions. Our results were in line with our expectations for the quarter. and would have exceeded expectations if we had not experienced abnormally severe winter weather in the US and UK markets. Now turning to our individual reporting segments, our US pumping business increased 7% in the first quarter driven by our recent strategic acquisitions and strong performance in our commercial and market. We were successful in growing our commercial market share through continued organic growth and successful successfully integrating our acquisitions completed in 2022. Of note, our national footprint and breadth of service offerings continues to position us well to win large complex projects with our customers. Some examples of these projects include office buildings, data centers, chip plants, electric vehicle facilities, battery plants, warehouses, and distribution centers within our commercial and market. For reference, in the construction of an average-sized battery plant, there is as much concrete as two 50-story buildings. And similarly, in an average-sized chip plant, there is as much concrete as four 50-story buildings. Turning to infrastructure, our expanded US national footprint continued to drive results as it allowed us to capture more revenue from public project investments. We will continue to work to win projects in the state, and local levels and look forward to renewed investment in the US with the enactment of the federal statutes regarding the CHIPS Act and the Infrastructure Investment and Jobs Act. However, at this time, we have yet to see any meaningful new projects emerge that are directly related to the new legislation and projected outlook is somewhat difficult to estimate. During the first quarter, our residential end market remained relatively stable due to the ongoing structural supply-demand imbalance that continues to unwind. We recognize the affordability-driven challenges come from the housing market, and as expected, the moderate change in residential volume in the first quarter was absorbed by other higher margin work. For example, as a percentage of our total revenue, our residential work volumes traded 300 basis points with the growth in our commercial market, which typically carries higher margins compared to other end markets. The change in the distribution of our revenue by end market illustrates the advantages of our diverse offering and agility in our fleet management approach. In our UK segment, despite foreign exchange headwinds, U.S. dollar revenues increased 6% compared to the prior year quarter, and excluding the FX translation impact, revenue grew by 18%. Our team continues to secure energy, road, and rail projects in addition to the work we have previously announced with the concrete-intensive 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 revenue with growth of 32% in Q1 2023-2022. compared to the same year-ago quarter driven by our expanded sales team and the value of our enhanced service offering. Going forward, we expect to maintain Ecopan's double-digit organic revenue growth given our continued investment in our team and equipment, its penetration in the market, and the continued evolution of the methods used in the concrete construction projects to contain concrete washout material. Shifting to the cost side of the business, As was the case last quarter, our team continues to recalibrate our rates successfully across all business segments. Consequently, we have largely offset higher input costs that remain persistent in our margin dollars that are in line with our expectations if we remove the inflationary pressures. As a result, we continue to realize the expected equipment return on investment for the same volume of work performed. So in summary, we had another great quarter that continues to show the strength of our business. I will let Ian walk through more details on our financial results before I return to provide some concluding remarks. Ian?

Thanks, Bruce, and good afternoon, everyone. In the first quarter, revenue increased 10% to $93.6 million compared to $85.4 million in the same year-ago quarter. The double-digit revenue growth was a result of volume growth from recent acquisitions, solid organic growth in Ecopan, and continued pricing improvements. Revenue in our U.S. concrete pumping segment, mostly operating under the Brundage Bone brand, increased approximately 7% to 67.2 million compared to 63 million in the same prior year quarter. Excluding the acquisition of Coastal, and I guess the backdrop of the adverse effect of severe winter weather, especially in comparison to the unseasonably warm and dry weather experienced in the same prior quarter last year, Revenue was largely in line with the same year-ago quarter on an organic basis. For our UK operations, operating largely under the Camford brand, revenue improved 6% to 12.7 million compared to 12 million in the same year-ago quarter. When excluding the foreign exchange translation effects from the weakening British pound, revenue for our UK operations increased approximately 18% in the first quarter. Revenue in our US concrete waste management services segment operating under the Ecopan brand increased 32% to 13.8 million in the first quarter. The strong increase in revenue was driven by our continued investment in our team and equipment, sustained improvement in pricing, and the organic growth in pan pickup volume. We are extremely pleased by our team's dedicated efforts and execution to successfully sell the value of our Ecopan offering. Returning to our consolidated results, Gross margin in the first quarter was 39%, compared to 39.9% in the same year-ago quarter. The slight margin decrease is directly related to continued inflationary pressures, particularly in diesel fuel price. To provide an order of magnitude versus last year's quarter, we estimate gross margin in the first quarter was impacted by more than $1 million, or approximately 150 basis points due to the higher cost of diesel fuel. General and administrative expenses in Q1 were 27 million compared to 26.7 million in the same year-ago quarter. In the first quarter, we experienced lower amortization costs of intangibles, but this was more than offset by primarily headcount and labor cost increases from recent acquisitions. As a percentage of revenue, G&A costs were 28.9% in the first quarter compared to 31.3% in the same year-ago quarter. This is illustrative of our operating efficiencies as you scale both organically and through M&A regardless of the operating environment. Net income available to common shareholders in the first quarter increased to $6 million or 11 cents per diluted share compared to $0.7 million or 1 cent per diluted share in the same year-ago quarter. The improvement was a result of the $2.3 million improvement in gross profit due to contributions from both acquired revenue and organic growth and a favourable change in the fair value of warrants. Consolidated adjusted EBITDA in the first quarter increased 7% to $25 million compared to $23.3 million in the same year-ago quarter. Adjusted EBITDA margin declined slightly to 26.8% compared to 27.3% in the same year-ago quarter. In our US concrete pumping business, adjusted EBITDA improved 1% to 14.7 million, compared to 14.5 million in the same year-ago quarter, driven by our revenue growth. In our UK business, adjusted EBITDA was 3.2 million, which is largely in line with the same year-ago quarter, as strong revenue growth was offset by inflationary pressures, primarily in diesel fuel costs. In our US concrete waste management business, adjusted EBITDA improved 33%, to 6.5 million compared to 4.9 million in the same year-ago quarter. Now turning to liquidity, on January 31, 2023, we had total debt outstanding of 425 million or net debt of 421 million. We had approximately 110 million in liquidity as of January 21, 2023, 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.

Ladies and gentlemen, kindly stay connected. We have lost the line of the management. We will be connecting back soon. Please stay connected. Thank you. Thank you. Thank you. Thank you.

Thank you.

Thank you for patiently holding, ladies and gentlemen. We have the management's line reconnected. Over to you, gentlemen.

Hi, thanks. This is Ian Humphries. Apologies for the drop in line. I'm not sure where we dropped. I will start from our consolidated adjusted EBITDA. In the first quarter, which increased 7% to 25 million compared to 23.3 million in the same year-ago quarter, adjusted EBITDA margin declined slightly to 26.8% compared to 27.3% in the same year-ago quarter. In our US concrete pumping business, adjusted EBITDA improved 1% to 14.7 million compared to 14.5 million in the same year-ago quarter, driven by our revenue growth. In our UK business, adjusted EBITDA was 3.2 million, which is largely in line with the same year-ago quarter, as strong revenue growth was offset by inflationary pressures, primarily in diesel fuel costs. For our US concrete waste management business, adjusted EBITDA improved 33% to 6.5 million, compared to 4.9 million in the same year-ago quarter. Turning to liquidity, As of January 31, 2023, we had total debt outstanding of $425 million or net debt of $421 million. We had approximately $110 million in liquidity as of January 31, 2023, 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. We remain in a strong cash flow position cash flow and liquidity position, which provides further optionality to pursue value-added investment opportunities like accretive M&A and continued investment in our EcoPAN and concrete pumping fleet to support the overall long-term growth strategy. In the first quarter of 2023, the company repurchased 760,000 shares for $4.9 million. As of January 31, 2023, we had approximately $12.4 million remaining under the share repurchase authorization. Our fiscal year 2023 financial outlook remains unchanged. As a reminder of our 2023 previously stated guidance, we continue to expect fiscal year revenue to range between $420 and $445 million, adjusted EBITDA to range between $125 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. 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 summary, the strength of our business was once again on display for this first quarter. We are very pleased with another record quarter driven by double digit top and bottom line growth and expansion in every segment. We continue to prove out the compelling business proposition of our high value service and the necessity of our mission critical service offering in the construction industry, which positions us well for 2023 and beyond. 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 factors we are experiencing today. Given elevated interest rates and recent indicators of consumer spending weakening, it is only practical for us to assume our residential business volumes may fluctuate and give up some ground to our commercial and infrastructure business throughout the year. 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. We remain focused on the execution of our growth strategy to continue driving scale through investing in organic growth in M&A, and we believe this is the best path to providing superior shareholder value. With that, I would like to now turn the call back to the operator for Q&A. Back, Ron.

Thank you. We will now be conducting our question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. We take a first question from lineup Tim Mulroney with William Blair. Please go ahead.

Hey, this is Sam Kustler, I'm out for Tim. Bruce, Ian, hope you all are doing well.

Hi, Sam. Hey, Sam.

I guess to start here, I was hoping you could break down your organic growth for us between volume and pricing, and if the breakout aligned with your expectations or if there were any surprises. And maybe you could comment more broadly about how your pricing conversations have gone with customers. I believe you set rates at the start of the year. I'm wondering if those conversations were receptive and customers were open to the increases.

Yes, Sam, thanks for the question. In Q1, if you break it down by segment, the growth between price and volume on Ecopan was about 50-50 between that segment. I would say for the US segment, it's a little harder to define right now in Q1 just based on some of the changes. You heard us talk about You've got the impact of weather and the end market change on pricing. So we'll probably see more clarity on the pricing and organic volume for the U.S. pumping side in the second quarter. But as a reminder, the guidance for 23 was around 2% on volume and 2% on price.

Gotcha.

That's very helpful.

Maybe switching gears to M&A, I wanted to ask about your acquisition of the Cherokee businesses. I was curious because the name Cherokee Materials made it seem like it might be more of a supplier of concrete. Maybe you can clarify me on that and just get more of your thoughts on the acquisition in general.

Hi, Sam. This is Bruce. So Cherokee does own a ready mix company, a small ready mix company. We did not buy that part of the business. We bought their concrete pumping business and then a machine that basically blows our beauty bark or mulch to, you know, playgrounds and landscaping. But largely what they do outside of that one piece of equipment is very well tucked in with what we do.

Gotcha. Appreciate the cover. We'll leave it there. Thanks. Thank you.

Thank you. We'll take a next question from the lineup. Brent Thelman with DA Davidson. Please go ahead.

Hey, thanks. Good afternoon, guys. I wanted to come back to the last question. I think last quarter in the U.S. pumping business, you had price up something like 14%. And I guess if I fast forward to this quarter, it looks like you're about flat organic. So can we infer that you had rate up at some degree like that and volume down?

completely offset it understanding there's a lot of weather in the quarter here but just trying to flesh that out a little more on the organic side yeah on the organic side i mean the pricing recalibration as bush mentioned i mean it continues um obviously the the headwind in the quarter was mostly around the weather um so when you have the weather impact and then you have a change in the end market um like seeing the price pull through is a little trickier to um to see just looking at the summary level. But the recalibration of rates, it continues within the team.

Okay. Okay, that's great. And then I guess sticking to that segment, the compression and margins this quarter, I guess, versus the prior year was certainly more severe than what I think you saw last quarter. Is that really just due to adverse weather, inability to get out and work, just not getting the leverage you need, anything else in there? to think about in the margins. And I guess just fast forwarding, you know, how do you think about or what should we be thinking about for margins in that segment as we get into, you know, the busier period here in the second quarter, third quarter?

Yeah, I'll take the last part of that question. But first, so on the margin profile, I may expect to see the same as we've performed in even in just in last year going forward. So we don't expect any change there. The only real change in the quarter, was the severity of the weather that we've seen in the current quarter. And you're right. I mean, anytime that you have much colder and much wetter weather across the country, I mean, it was really from the mid part of December through the mid part of January. Obviously, that has an adverse effect slightly on margins. And the last thing you never mentioned, we had it in our prepared remarks. There was about 100 basis point change just in fuel. So from a year-over-year perspective, I mean, the fuel price will start to lap the inflation that we've seen, but the combination of those effects are really what we've seen in the first quarter.

Okay, just last one, you know, great progress again on Ecopan. Maybe just a reminder where you've got some density in that business right now and kind of your next market's thoughts for expansion.

Yeah, so obviously the margins are getting better as we create route density, and many of these smaller markets that we started over the last few years are creating that density now as we get enough volume there. So that's been a really good part of the story. We do have a few areas that we're moving into as we speak, but nothing that we want to announce publicly.

Okay, fair enough. Thanks, guys. Appreciate it. Thank you.

Thank you. We'll take next question from the line of Andrew Whitman with Baird. Please go ahead.

Yeah, great. I guess I'm just going to have you guys expand a little bit on some prior comments here. But just on the fuel, it kind of feels like as of this fiscal second quarter, you're going to start getting to a pretty neutral position, I think. Ian, maybe you could just comment on that. And do you expect – I mean, you're – percentage margin guidance for the year is up slightly over the actual 22 results. Do you believe that the second quarter is going to start showing some margin improvement, or do you think that that's going to come more in the second half of the year?

Yeah, good question, Andy. Yeah, I mean, as we've seen before, and with our normal seasonality of business, I mean, Q1, as you know, is our our slowest and often lowest margin part of our business. So yes, the answer is we expect to see progression on the margin through the year. We still feel good about the guide for the full year in terms of margin performance as well. And back to your comment on fuel, I mean, we are starting to see some stabilization on the diesel fuel price. So we've got that inflation aspect of diesel fuel where we expect to lap that quite soon. so there will be a normalization on the fuel price. We haven't seen it come down yet on pricing, but it certainly is stabilizing, Andy. Okay.

All right. I guess then – where do I want to go next? I guess any comments on the weather in the second quarter, how that's affecting you or not affecting you so far?

To this point, February was about where we expected it to be, and March has been kind of back to normal. So we think Q2 we should have very normal revenues as expected.

Got it. Okay. I guess yesterday in Parliament, HS2 came up as a topic, and there's some discussion now of slowing it down due to the inflationary factors that are so common in the global economy right now. I was just wondering if you've had any marching orders or how this factors into your plan, either in the near or intermediate term, recognizing that the long term lots of things could change when you're talking about a plan that's going to go almost another decade under at least the existing plan.

So the current projects that we're currently on have not been put on hold. This may affect the startup of additional sections. So if there is an issue, it would be more in the next year than this year.

Okay.

And then I guess just on residential, can you talk about, I guess, What does that backlog look like right now, realizing you gave us some detail on the mixed percentage change that we'll do the math on in terms of trying to understand how the residential market performed overall? But what's the backlog in that business telling you about the summer build season?

Yeah, so the backlog tells us that it's going to continue to slow down, but we're very fortunate that our commercial market is becoming much stronger with very large projects. So as you've seen over the last two quarters, as it's slowed down, we've been able to pick up the commercial infrastructure to offset that, and we think that's going to continue through the year.

Got it. Okay, I'll leave it there. Thank you very much.

Thanks, Eddie.

Thank you. Again, if you wish to ask any question at this time, please press star followed by one on your touchtone phone now. We'll take our next question from the line of Stanley Elliott with Stiefel. Please go ahead.

Hey, Bruce. Hey, Ian. Thank you guys for taking the question.

Hi, Stanley. Of the 420, 445 revenue number you guys have out,

Could you help us or remind us again what is embedded on the residential side? Is that like down 20%, down more, down less? Just trying to kind of triangulate some of that in markets.

Yeah, so we haven't really publicly announced where we think that shift will end up. Now, as you know, last year we got to a point where our end market had grown to the point where 37% of our revenue was residential. That's really the highest it's been since the GFC. More normal for us is somewhere between the 25% and 30% of revenue, and I think that's where we're going to find ourselves this year.

And on the CapEx piece, are you getting better velocity from your OEMs? Are they going to be able to fill all of the requests that you have out? Is there risk that some of your CapEx has to slip into OEMs to next year, just anything you could help us with that would be great.

There is a possibility that that may happen. We've done a pretty good job in the U.S. of getting things delivered fairly timely. It's a little more challenging in the U.K., but there could be some slippage, but it won't be a lot.

And with the Ecopan business performing as well as it has, are you seeing anything On the competitive landscape, other people moving into the markets, anything to help us kind of with how that trajectory of the business could ramp?

So we do have some small copycats that have been around for a few years. Nothing that has started over the last couple of years that has been significant towards us. But really, it's a race to market. We've got great relationships. We've got a great team building that out. And And I think you'll see really good results going forward with that.

And then finally, you all talked about battery plants and some of these larger megaprojects, which everybody is excited about. When do you think you're going to start to see not only those breaking ground, but actually when you will start to pump concrete for those projects?

We've recently received contracts on several of those projects, and they'll be breaking ground within this next quarter. So we see the impact of that coming quite strong over the summer and into next year.

Perfect, guys. That's it for me. Thanks so much, and best of luck.

All right. Thanks, Stanley. Thank you. We'll take a next question from the line-up, Stephen Fisher with UBS. Please go ahead.

Thanks. Good afternoon. In terms of how you manage the fleets and utilization, to what extent is it getting any easier or harder to maintain the utilization that you're targeting? Is it requiring more logistical efforts or costs to keep things at the utilization that you'd like? I'm wondering if there's maybe some costs there that might be flowing into the profit lines that you hadn't anticipated before.

We really haven't had a significant change in the size of fleets in each location. The only thing that might weigh into that is our specialty equipment, our placing booms and equipment that we use more on high-rise buildings. There's been a lot more activity with that, and it's all utilized now to the point where we've had to move a little bit of that around, but nothing out of the ordinary outside of that.

Okay, and... You talked about your view of customers being able to deliver machines. I guess I'm curious about your view of supply chain impacts on the broader construction industry and what you're seeing there in terms of how that might be affecting projects or project timings.

That's something that we see a little bit of. There's some supplier issues, especially when it comes to steel and steel structures, things along those lines. We're not hearing that there's any concerns with any concrete cement aggregates, that sort of thing this year. For the most part, any jobs that have been delayed because of that have been minor.

Lastly, if there's any comments you could have, giving a little more color on any momentum within the commercial side of the business? Which types of markets are you seeing increasing momentum? Which ones are sort of holding steady? Anything losing momentum?

Yeah, in our commercial sector, we're gaining positive momentum in nearly every segment. Even hospitality has gotten much better for us this year than what we've seen after it was completely stopped when COVID hit. But the manufacturing facilities and the chip plants, you know, they're all very large, and there's, you know, large amounts of concrete in those, and those projects will run for some period of time. And that's really our sweet spot. That's what we do best at.

So are you not seeing interest rates having any particular impact on – I know you talked about RESI, obviously, but not having any particular impact on the – non-RESI piece in general?

Not at this point in time. It's actually gotten quite strong and we expect it to continue.

Okay. Very good. Thank you.

Thank you. Thank you. 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. Over to you, sir.

Thank you, Bhakran. 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 2023 results in June. Thank you.

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