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spk05: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings financial results for the third quarter ended July 31, 2023. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Ian Humphries, 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 cautions regarding forward-looking statements. Bodhi, please go ahead.
spk02: 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 the 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. And again, 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?
spk03: Thank you, Cody, and good afternoon, everyone. The growth we experienced in the first half of the year accelerated in our record-setting third quarter driven by double-digit revenue growth in every segment of our business. In fact, I'm pleased to report that our third quarter marked our eighth consecutive quarter of double-digit revenue growth. This was attributed to continued market share gain from recent accretive acquisitions and continued organic growth. By end market, our business is also performing well. In commercial, we continue to experience momentum in large commercial projects like distribution centers, warehouses, semiconductor fabrication plants, electric vehicle, and battery manufacturing plants. We expect this demand to continue given U.S. reshoring trends as companies look to build out their domestic manufacturing footprint. However, concrete pumping demand from light commercial projects has continued to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has stalled some projects. Despite this, our expectation for the commercial market in fiscal year 2023 remains strong given opportunities with large manufacturing, particularly as we head into another strong seasonal quarter for our business. Turning to infrastructure, Our expanding U.S. national footprint continued to drive strong results as it allowed us to capture more revenue from public project investments. We will 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 Investment and Jobs Act. We continue to see an improved visibility of funds flowing to numerous projects, many of which are located in existing markets where we operate. We plan to aggressively pursue these project opportunities and believe it has the potential to be a five year plus tailwind for our business. During the third quarter, our residential end market remained stable due to the continued momentum and new residential housing construction given not only the ongoing structural supply demand imbalance in housing, but the fact that home builders have enticed new home buyer with creative home design and financing options. During the quarter, Our commercial mix as a percentage of total revenue remained consistent at 60% of revenue, and there was a one percentage point of growth, gain, and infrastructure to 12% of revenue, once again highlighting the diversity of our business and the agility of our fleet. Shifting to the cost side of our business, impacts from inflation, particularly in the ongoing cost of labor, continue to hamper our ability to leverage our strong revenue growth. Our team continues to recalibrate our rates across all business segments and realize the expected equipment return on investment for the same volume of work performed, but it's difficult to fully offset the protracted inflationary headwinds. Importantly, however, we are using our strong free cash flow generation to pay down debt, and we are on track to reduce our leverage three times by the end of the fiscal year. I will now let Ian walk through more details on our financial results before I return to provide some concluding remarks. Ian?
spk01: Thanks, Bruce, and good afternoon, everyone. By segment, Q3 revenue in our U.S. pumping business increased 13% due to contributions from a recent acquisition of Coastal Carolina and organic volume growth. In our U.K. segment, operating largely under the Camford brand, U.S. dollar revenues increased 20% compared to the prior year quarter. 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 previously announced with the concrete-intensive high-speed railway project, HS2, which is expected to last beyond 2030. In our U.S. concrete waste management services segment, operating under the Ecopound brand, we continue to deliver record results, increasing revenue on an organic basis by 29%, compared to the same year-ago quarter. This continues to be driven by exceptional market expansion and penetration created by our sales team and the value of our enhanced service offering. Going forward, we continue to 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 concrete construction projects to contain concrete waste. Returning to our consolidated results, gross margin in the third quarter increased 90 basis points to 41%, compared to 40.1 in the same year-ago quarter. As Bruce noted earlier, our strong revenue growth in the quarter supported this margin expansion and was partially offset by the cost of higher wage inflation. General and administrative expenses in Q3 were 30 million versus 27.8 million in the same year-ago quarter, primarily due to headcount additions and higher labour costs related to recent acquisitions. As a percentage of revenue, G&A costs improved to 24.8% in the third quarter, compared to 26.6% in the same year-ago quarter. This is illustrative of the operating efficiencies we typically achieve as we scale both organically and through M&A. While we achieved a 5.5 million year-over-year improvement in our third quarter income from operations, Net income available to common shareholders was $9.9 million, or $0.18 per diluted share, compared to $12.5 million, or $0.22 per diluted share, in the same year-ago quarter. Q3 last year benefited from slightly lower interest and income tax expense, as well as a $7.4 million favorable change in the fair value of warrant liabilities, compared to a $900,000 benefit in the quarter this year. Excluding the impact of the fair value of warrants, our third quarter net income would have been approximately 70% or 3.9 million higher compared to the same year-ago quarter. Consolidated adjusted EBITDA in the third quarter increased 16% to 34.9 million compared to 30 million in the same year-ago quarter. Adjusted EBITDA margin improved slightly to 28.9% compared to 28.8% in the same year-ago quarter. Moving on to our results by segment, in our US concrete pumping business, adjusted EBITDA increased to $20.5 million compared to $19.8 million in the same year-ago quarter. In our UK business, adjusted EBITDA increased 41% to $5.6 million compared to $4 million in the prior year quarter. For our US concrete waste management business, adjusted EBITDA improved 44%, to 8.2 million compared to 5.7 million in the same year-ago quarter. Turning to liquidity, as at July 31, 2023, we had total debt outstanding of 411 million, or net debt of 399 million. In the third quarter, we'd reduced our net debt by $30 million, resulting in a net debt leverage ratio of 3.2 times on a trillion-12-month adjusted EBITDA basis, which is our lowest leverage ratio since becoming a public company. As a reminder in the third quarter, we upsized our asset-based lending facility from 160 to 225 million, while also extending its maturity to June of 2028. We had approximately 196 million in liquidity as of July 31, 2023, which includes cash on the balance sheet and availability from our ABL facility. Throughout the third quarter, we continue to improve our liquidity and leverage by delivering strong free cash flow. And as Bruce mentioned, we continue to track towards our target net debt leverage ratio of 2.5 times. We believe this strategic deleveraging enhances our ability to pursue accretive investment opportunities and support our overall long-term growth strategy. As a reminder, we have no near-term debt maturities. with our senior notes maturing in 2026 and our asset-based lending facility now maturing in 2028. We remain in a strong free cash flow position and liquidity also, which provides further optionality to pursue value-added investment opportunities like accrete of M&A, continued investment in the organic growth of Ecopan and our concrete pumping fleet. In the third quarter, the company repurchased approximately 200,000 shares for $1.4 million. As at July 31, 2023, we had approximately $8.7 million remaining under the existing share repurchase authorization. We are encouraged by what we are seeing in our business and the momentum that we are carrying into the fourth quarter and beyond. Now moving to our fiscal year 2023 financial outlook. With one quarter left in 2023, We are narrowing our guidance and expect fiscal year revenue of approximately $440 million, adjusted EBITDA of approximately $125 million, and free cash flow, which we define as adjusted EBITDA, less net replacement capex, and less cash paid for interest of approximately $70 million. Additionally, we expect our net debt leverage ratio to be approximately three times by our fiscal year end. 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.
spk03: Thanks, Ian. In summary, we are very pleased with another record quarter driven by double digit top line growth and expansion in every segment. We continue to prove 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. We anticipate ongoing growth in our end markets, particularly driven by infrastructure projects, heavy commercial work, and a resilient backlog of residential work. On the cost side of the equation, we are paying close attention to fuel costs, which have been volatile all year and recently increasing. However, our focus remains on optimizing end market mix to continue to deliver strong top and bottom line growth as we move into our fourth quarter, which is typically seasonally similar to Q3. We will also continue to focus on maximizing shareholder value by leveraging our unique operational capabilities, high-value service offering, and executing an opportunistic, accretive M&A while strategically reducing our leverage. With that, I would now like to turn the call back over to the operator for Q&A. Shamali?
spk05: Thank you, sir. At this time, we will 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 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. Our first question comes from the line of Steven Fisher with UBS. Please proceed with your question.
spk07: Thanks. Good afternoon, and nice to see the revenue performance there. Your implied Q4 growth implies a pretty significant slowdown in the growth rate. I'm wondering if you can just give us a little bit of color by segment where you see that the bigger slowdown. It seems like possibly the U.S. concrete pumping might only be growing a percent or two organically. Do I have that right? And it seems surprising if the resi market is accelerating and infrastructure is kind of growing steadily, even with a little bit of commercial softness?
spk01: Yeah, hi Steve, this is Ian. Thanks for the question. Typically, as you know, our fourth quarter is quite comparable to Q3, and I think that's what we're projecting for Q4. I mean, with $120 million of revenue in Q3, other than the Labor Day holiday, which can slow things down, usually the Q4 is quite comparable, and I think that's what we've given for Q4 guidance. So the way, I guess, to think about Q4 is somewhat comparable to to Q3 on the top line and marginal growth on the EBITDA side. By segment, we would expect, as Bruce mentioned in his comments, ongoing momentum from each of the segments as we go into the fourth quarter. So like I said, Q4 is largely compatible to Q3, and I think that's what we've underscored on our guidance for the full year.
spk07: Okay, can you maybe just give us a sense for what the price versus volume was in Q3 and what you've assumed for Q4, particularly in concrete pumping, the U.S. concrete pumping?
spk01: Yeah, sure. So also we have some M&A in this year, so maybe the best way to look at the growth for the third quarter was about 16%, and that's broken down 5% from M&A, which was mostly volume on the U.S. pumping side, 6% on volume and 5% on price. Maybe some further context. If you look, and it's quite the same, Steve, for a year-to-date basis, the 12% growth for the year, 12% or 13% for the year-to-date, it's the same 5% on M&A and about 4% on volume and 3% on price. So we expect that to be quite comparable in the fourth quarter as well, which have been quite consistent for the full year.
spk07: Okay. Okay. And then maybe just looking out a little bit further, if we annualize your second half adjusted EBITDA, that would give us around $140 million of adjusted EBITDA, which happens to be the consensus for 2024. I know there's seasonality. Your second half is usually a bit stronger than the first half. But I mean, is that kind of somewhere in the right neighborhood of of how we should be thinking about 2024 at this early point? I mean, how much visibility do you have at this point to 2024 to kind of be able to comment on that?
spk03: Steve, this is Bruce. Thanks for the question. It's still a little too early for us to put that type of a projection out there. We do see infrastructure improving. We are now starting to see some of that revenue flow through our business. However, it's been a little slow in coming. The residential market looks pretty stable, and we expect, you know, we'll learn more over the next few months as we look into next year. The large projects are good. It's still the, you know, I'm trying to understand where the light commercial work goes in the next year is the one thing that we need to get more understanding on before we put that guidance out in January.
spk07: Terrific. Thank you very much.
spk03: Thank you.
spk05: Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.
spk06: Hi, Bruce and Ian. This is Luke McFadden on for Tim. Thanks for taking my questions. So I know you're doing well. Thanks so much. So I know you addressed commercial and markets a bit in your prepared remarks, but could you comment further on how clients have been dealing with higher interest rates? Are there certain areas where you've noticed greater pullback or have certain clients expressed hesitation with new projects given the higher interest rate environment? Thanks.
spk03: What we're seeing is, and thanks for the question, Tim, is it's more in the lighter commercial projects that are a lot more sensitive, that sort of thing. The large projects, anything that comes from chip manufacturing plants, electric vehicle plants, anything at large scale like that, we're not really seeing much pullback or concern about the interest rates, but it's more in the smaller projects where it really affects their returns.
spk06: Great. And then if you could, maybe talk further about demand trends that relates to the Government Infrastructure Act. Are you starting to see some projects related to those initiatives break ground, or are we still broadly more in the funding allocation and bidding process?
spk03: We actually have seen some of those bids let here recently, some fairly large projects that Nothing that we've gotten to the bid stage for us to secure that work, but we're encouraged by that. And so we do see into 2024 that being a much better opportunity than it was this year.
spk06: Great. And then if I could just squeeze in one more here. Obviously, no, you won't provide formal guidance for 2024 until your fourth quarter, but Just maybe as we look towards next year, are there any broader themes that you should keep in mind as it relates to your growth and margins?
spk01: Yeah, I mean, again, it really comes back for us as we recalibrate rates based on the supply and demand on project side. As Bruce mentioned in his comments, the inflation impact, certainly around labor, has been more protracted this year. So we would expect that to start ease as we recalibrate rates and then all From a margin perspective, obviously we've seen some quite stellar performance on the Ecopan and the UK side, and we expect that to continue to help improvement in margin.
spk03: Tim, what I would add to that is in 2022, we did a really good job of getting rates out up ahead of inflation, or at least with inflation. It was much harder in 2023. It's a much more competitive environment. The work that's out there isn't as great as it was in 2020, so it made it much more competitive, and it was more of battling for market share and harder to get rates. We see the markets improving into 24, and so the margin should improve with rates.
spk06: Great. Thanks so much, guys.
spk05: Thanks. And as a reminder, if anyone has any questions, you may press star 1 to join the question and answer. Our next question comes from the line of Andy Whitman with Baird.
spk04: please proceed oh yeah great thanks for taking my questions and good afternoon guys um i guess i wanted to just zoom in here on the um residential uh portion of your business uh obviously uh the rising rates here had been a factor off and on but the confidence or the uptick that you saw sequentially in demand there was maybe a little surprising to some so and it sounds like you've got a fairly decent outlook as you look forward as well. So I was just wondering if you could put a little bit more detail on the comments that you made, Bruce, around residential as to why you believe that that is shored up and may remain so.
spk03: Thanks for the question, Andy. So as we look at the residential markets we're in, and it's largely in the mountain states, Idaho, Utah, Arizona, and Texas is where we do most of our residential work. And the demand is still quite high in those markets. We've seen a lot of the large home builders have bought down interest rates, have built houses on smaller lots, maybe not as many features to keep them more affordable. And honestly, we've been really impressed with what they've been able to do to keep that flow going, and we see that continuing.
spk04: I see. Okay. And then maybe one for Ian. We just noticed there was a $12.8 million non-current liability that popped on the balance sheet this quarter. I was just wondering what that is. Is that like an earn-out or something? Or maybe can you just talk about what that is?
spk01: Yeah, it's really a presentation change on our self-insurance. So we think it provides – I mean, it's in line with GAAP, and we think it provides a bit more visibility on our self-insurance programs. So first of all, from a net liability perspective on our commercial insurance, it's still around like 5.8 million, which is consistent with prior quarters. So it's really a change in the presentation, Andy. So the way that it works from self-insurance between your attention programs and your excess deductibles, it's really a cross-up of that presentation. So on the asset side, there's about 24 million, and the liability side is about 18 million. So it's net the same number, but it's just a change in presentation. Got it.
spk04: Thank you. I think what else I wanted to ask about here. I guess just you guys have been talking about HS2 for a long time, and I know I ask about this on a lot of conference calls. It's been a contributor to your growth in the UK for a while. Do you think that as you look into 24 with the scheduling that's out there that there's another year of growth for the HS2 program, or? Or when does this start leveling off in terms of its annual revenue contribution recognizing that it still has these forecasts that have many more years of construction happening?
spk03: We see it growing slightly into next year and then leveling off there for the next several years. Okay.
spk04: All right, great. I think that's all the questions I had for this evening. Thank you for your time. Thanks, Andy.
spk05: And 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.
spk03: Thanks, Shamali. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our fourth quarter fiscal 2023 results and provide 2024 guidance in January. Thank you.
spk05: And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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