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 31st, 2023. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Ian Humphreys, and the company's external director of investor relations, Cody Slaw. Before we go further, I would like to turn the call over to Mr. Slaw, to read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Camilla. I would 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 meetings 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 of 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 site. 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 had another strong year in fiscal 2023 driven by the strength and diversification of our business. As a result, we were able to drive financial performance records for annual revenue, adjusted EBITDA, and net income. Looking at our full fiscal year of 2023, revenue increased 10% to $442 million, adjusted EBITDA increased 7% to $125 million, and net income increased 12% to $30 million. Each of our end markets contributes to this performance, particularly as residential construction remains strong and our expanded footprint enabled us to continue to win infrastructure projects. We also continue to execute on our debt reduction initiative, achieving our three times leverage ratio target at the end of the 2023 fiscal year. Shifting to our fourth quarter performance by end market, our business performed in line with expectations. In the infrastructure end market, our expanded U.S. national footprint continued to drive strong results as we captured more revenue from public project investments. We continue to see more investment flowing to numerous projects where we operate, and we plan to aggressively pursue these project opportunities with the belief that it has the potential to be a five-year-plus tailwind for our business. During the fourth quarter, our residential end market remained stable due to the continued momentum in new residential housing construction Mike SanClements, Given not only the ongoing structural supply demand in balance and housing, but the fact that home builders have enticed a new home buyer with creative home design and financing options. Mike SanClements, With interest rates falling subsequent to quarter end and the projection of additional interest rate cuts in 2024 we expect residential housing projects remain healthy for our business. In the commercial end market, we continue to experience momentum in larger commercial projects like distribution centers, warehouses, semiconductor fabrication plants, and 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 have stalled some projects. We expect that interest rate cuts in 2024 could help get these projects moving again. During the quarter, our commercial mix as a percentage of our total revenue declined 100 basis points year over year to 59%. This was fully absorbed by our infrastructure projects while residential was flat year over year at 29%. This once again highlights the diversity of our business and the agility of our fleet. Shifting to the cost side of our business, persistent inflationary pressures, particularly in labor, continue to hamper our ability to flow through our strong revenue performance to the bottom line margin. We estimate labor inflation accounted for roughly half of the inflationary headwinds we experienced in our P&L. While we expect these headwinds to continue into the new year, we are confident the measures we are taking to recalibrate rates and the systems we are implementing to attract and retain our employees are the right steps for our business to drive long-term shareholder value. I will now let Ian walk through more details of our financial results before he returns to provide some concluding remarks. Ian?

Thanks, Bruce, and good afternoon, everybody. In the fourth quarter, revenue increased 5% to $120.2 million compared to $114.9 million in the same year-ago quarter. The increase is mainly attributable to growth across each of our segments as a result of organic growth from higher volumes in certain regions and improved pricing. Revenue in our U.S. concrete pumping segment, mostly operating under the Brundage Bone brand, increased 1% to $85 million compared to $84.3 million in the prior year quarter. For our U.K. operations operating largely under the Camford brand, revenue improved 17% to $17.4 million compared to 14.9 million in the same year-ago quarter. When excluding the foreign exchange translation effects from the British pound, revenue for our UK operations increased approximately 10% in the fourth quarter, due primarily to pricing improvements. Revenue in our US concrete waste management services segment, operating under the EcoPan brand, increased 15% to 18 million, compared to 15.6 million in the prior year quarter. The strong organic increase in revenue was driven by increases in volume and sustained improvement in pricing. Returning to our consolidated results, gross margin in the fourth quarter was 40.7% compared to 42.3% in the same year-ago quarter, with the decreased margin mostly being related to the impact of labour inflation. General and administrative expenses in the fourth quarter were roughly flat at 29.6 million compared to 30.3 million in the same year-ago quarter. As a percentage of revenue, G&A costs improved in the fourth quarter to 24.6% compared to 26.4% in the same year-ago quarter. For the full year of 2023, when excluding the non-cash G&A expenses for amortization and stock-based compensation, GMA costs as a percentage of revenue were approximately 21%, which is consistent with the prior year. Net income available to common shareholders in the fourth quarter increased 11% to $9 million, or 16 cents per diluted share, compared to $8.1 million, or 14 cents per diluted share in the same year-ago quarter. Consolidated adjusted EBITDA in the fourth quarter increased marginally to 35.8 million, compared to 35.6 million in the same year-ago quarter. Adjusted EBITDA margin was 29.8% compared to 31% in the same year-ago quarter. And as discussed previously, the slight erosion margin was driven by persistent cost inflation, particularly in the cost of labor. In our U.S. concrete pumping business, adjusted EBITDA decreased 7% to 21.2 million compared to 22.7 million in the same year-ago quarter. In our UK business, adjusted EBITDA increased 9% to 5.1 million compared to 4.7 million in the same year-ago quarter. For our US concrete-based management business, adjusted EBITDA increased 16% to 8.8 million compared to 7.6 million in the same year-ago quarter. Turning now to free cash flow and liquidity, for the full year of 2023, we delivered 23% growth in free cash flow, to approximately $69 million, which is compared to $56 million in the prior year. This is after investing approximately $29 million in replacement equipment and disbursing almost $27 million in cash interest. At October 31, 2023, we had total debt outstanding of $394 million or net debt of $378 million, a decrease of $42 million over the course of the year, which is a testament to our strong free cash flow generation. This equates to a net debt to EBITDA leverage ratio of three times, which was our guided target for the 2023 year end. We had approximately $217 million of liquidity as of October 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 maturing in 2026. and our asset-based lending facility maturing in 2028. We remain in a strong liquidity position, which provides further optionality to responsibly pursue value-added investment opportunities like accretive M&A or the organic investment in our fleet of equipment to support our overall long-term growth strategy. During the third quarter of 2022, we entered into a share repurchase program that authorized the buyback of up to $10 million of our outstanding shares of common stock. In January of 2023, the Board of Directors approved an additional 10 million increase. During the fourth quarter of 2023, under our share repurchase program, we repurchased approximately 34,000 shares of our common stock for a total of approximately $240,000 at an average price of $7.08 per share. During fiscal years 2023 and 2022, Under our share repurchase program, we repurchased approximately 1.7 million shares of our common stock for a total of 11.6 million, or an average price of $6.57 per share. The current share buyback program is authorized by the Board of Directors through March of 2025, and we believe this demonstrates both our commitment to delivering value to our shareholders and our confidence in our strategic growth plans. Moving now into our 2024 full-year guidance, we expect fiscal year revenue to range between $465 and $490 million, adjusted EBITDA to range between $127 and $137 million, and free cash flow, which we define as adjusted EBITDA, less net replacement capex, and less cash paid for interest to be at least $75 million. For fiscal year 2024, we expect to be impacted by continued inflationary cost pressures, primarily labor and insurance costs, and expect to offset these costs from the continued rate recalibration and cost efficiency initiatives. Operationally and financially, we continue to have a solid foundation, and we have confidence in continuing to execute on our growth strategy. With that, I want to turn the call back over to Bruce.

Thanks, Ian. In summary, we are incredibly pleased with a record year of revenue and EBITDA accompanied by expansion in every segment. We anticipate ongoing growth in our residential and infrastructure end markets, particularly driven by infrastructure projects and a resilient backlog of residential work. On the cost side of the equation, we are focused on attracting and retaining the best talent in the industry while reducing the impact from inflationary cost pressures through rate increases. As always, our focus remains on optimizing end market mix to continue to deliver strong top and bottom line growth. Looking ahead, we believe our end market diversity and mission critical service in the construction industry positions us well for continued growth. We expect to complement organic growth by continuing to evaluate opportunistic creative 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. Camilla?

Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation sign 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 key. One moment, please, while we poll for questions. Thank you. And our first question will come from the line of Brent Thielman with DA Davidson. Please proceed with your question.

Hey, great. Thanks. Good afternoon. I guess, Bruce or Ian, first question is just the labor inflation. It still looks like it's presenting some compression in the margin on U.S. pumping. Is the proportion of lower margin revenue in that segment, I guess, still shrinking as new businesses sort of better reflects today's labor cost environment? Are we still sort of two or three quarters away from seeing some sort of an inflection in margins in that business group? Just be helpful to get your thoughts there.

Yeah, Brian, good question. Yes, I mean, in short, it is shrinking. So a couple of points on that. And this is obviously part of... We mentioned cost initiatives in our prepared remarks. So the labor portion of that is certainly a big feature. I mean, as Bruce mentioned... About half of the inflation we've seen this year has been around labor, so it's certainly one of our key focuses. So the margin impact is certainly shrinking, but still some work to do, and those are a big part of the cost initiatives going forward.

Yeah, Brent, I think what I would add to that is it is shrinking now and will continue to get better as the year plays out.

Okay.

That's great.

I mean, the outlook for revenue for 2024, I mean, it does call for reasonably healthy growth. I mean, just in light of kind of the moving pieces of the market. And I guess, you know, also the fact that you did see some moderation in U.S. pumping growth this quarter, maybe relative to what you've seen in terms of growth rates there. So I guess, Bruce, can you just sort of bridge what you anticipate for this new fiscal year, the confidence that you see some reacceleration and growth in U.S. pumping.

Yeah, and as you know, because we operate under so many different geographies, that it'll be different in different markets. But what we're seeing is, and what we're working very hard on, is getting rates up in markets where we can. And maybe it's different end markets, different customers, different sizes of equipment, things that we've been able to analyze that we need to do a little bit better on. We think we'll drive that. And we also see some opportunities and some fairly large projects that we're on to now that will be impactful to our revenues growing over the next year. But, you know, it's always the same. It's, you know, just holding our share, gaining share, you know, kind of winning the battles in the trenches.

And, Bruce, are those large projects ones that you've effectively been awarded or you've got a high level of confidence you're going to be attached to those?

Yeah, some that we're currently on, some that we expect to be awarded to us, and others that we'll be bidding shortly.

Okay. Okay. And just my last question, I mean, I just worked into the 3X this year. You know, I guess any further thoughts on, you know, where you want to be in 2024 with the balance sheet and leverage?

Yeah, I mean, obviously, I mean, the starting point, as you know, Brian, for us is the free cash flow number. So again, we're coming out with what we think is quite a strong indication of free cash flow. But consistent with the themes, we're always looking for the best opportunity to create the most shareholder value. So we'll continue to allocate from a capital allocation perspective, that free cash flow into the growth of the business in the areas that have the most value. A lot of it Obviously, an Ecopan is organic, but we also have the inorganic M&E opportunities if the values are right. So there's a number of options, we think, from that free cash flow number to keep on doing the things that we have been doing.

Got it. Okay. I'll pass it on. Thank you. Thanks, Brent.

Thank you. Our next question will come from the line of Andy Whitman with Baird. Please proceed with your question.

Great, and good afternoon, guys. Thank you for taking my questions. I guess I just wanted to start with a question on the revenue outlook here for 24. I guess the implied growth right there is about 5% to almost 11%. I just wanted to kind of understand what's in the low and the high end of the range. Is it fair to think of the low end being basically all price and flattish volumes and then

volumes positive to get to the high end ian is that is that one way of thinking about it is that the correct way to think about it how are you thinking about it yeah i think that's fair andy um i think you're right on i mean obviously we're doing continued rate recalibration as we mentioned but you're right on the low end uh there is an assumption of like flatter volume and as we get to that midpoint i mean as you know the split between volume and pricing is can be somewhat equal So if we talk just around the midpoint, it's let's say 3% or 5% on the volume, 3% or 5% on the price. And obviously that will flex based on the volume piece. So I think you're thinking about it, right?

Okay. That makes sense. And then I guess just on the implicit EBITDA margins in the 24 guidance, I wanted to dig in that. I mean, they're basically implied down a couple hundred basis points and heard the commentary on labor and Heard you guys say that you're expecting that challenge to continue here into 2024. But I'm just wondering, is there more to it that we should be thinking about? Is the competition competing differently as the growth opportunities, broadly speaking, are maybe not as robust? And is that a factor that goes into the margins? Or maybe, Bruce, what are the other considerations we should be thinking about that's implicit in that margin rate for 2024?

Yeah, I think the biggest thing is the competitive environment that we're in. We talked about this on our last call where there's not a lot of discipline. We're competing against family offices for the most part that don't have the confidence in themselves to get rates up ahead of inflation. And so and we know and because we've always had to do this as the largest players kind of drive that and get out in front of that. And so we're finding creative ways to get out in front of that. But there is some concern about how that will play out through the year.

Got it. Okay, that's helpful perspective. And then I guess maybe my last question here is, just on the commercial side, just wondering if you wanted to give some commentary about what you're seeing there. Obviously, this has been the toughest spot. That's not new, but are there green shoots to be seen here, or are you seeing... delays at all on some of the projects that you were kind of eyeing down or even cancellations. It certainly feels like peak rates in the case that you made in your prepared remarks. It seems like it's directionally positive. I'm just wondering what you're seeing on the ground in terms of the movement of these commercial, including the light commercial jobs through the bid to build processes.

Yeah, so things haven't changed a lot from the last quarter. The larger projects are going. There's still some concern about the light commercial. That activity, we don't see, you know, it doesn't create a backlog like what we get on the larger projects where we know about them, you know, six, eight months, a year in advance. The lighter commercial ones, sometimes it's just two or three months. So we don't have as much visibility, but we do believe as interest rates lighten up and demand becomes greater that we'll see that increase.

Okay. Thank you for the context. I appreciate it. Have a good evening. Thanks, Andy. Thanks, Andy.

Thank you. Our next question comes from the line of Luke McFadden with William Blair. Please proceed with your question.

Hey, Bruce and Ian. Thanks so much for taking our questions tonight. Maybe just one here. I know you kind of mentioned just in terms of you know, on the commercial side. You know, the ABI index, it's kind of been in negative territory for a while now. You know, I think the hope is that we start to see that improve somewhat as we move through 2024. But just curious kind of how you guys think about your non-residential construction business. And, you know, I think the hope is that it improves. But maybe, you know, if that's, from your perspective, more front-end weighted versus back-end weighted, just any take there would be helpful. Thanks so much.

Yeah, thanks, Luke. I think the ABI is where our concern with light commercial is at, where it was doing quite well until a few months ago, or at least even, and now it's gone back. We do have some concerns that that will affect light commercial. The larger projects, they seem to be going, but we expect that that will improve over the next few months, and then we'll see light commercial pick up in the second half of the year.

Great. And just one more on our end here. You know, residential was, again, you know, at a bright spot in the quarter. In November, we saw new single-family homes jump up again. Can you discuss any of the nuances around what you saw in the residential market during the fourth quarter, and in particular, you know, any geographies that were particularly strong? I know, you know, the mountain region was strong for you last quarter, but anything specific there?

Yeah, it's the same story. The home builders have done a really good job of making homes affordable, and the supply-demand has been in our favor for that, and we see that picking up into this year, and we expect residential could be even much better as the year plays out, as interest rates come back down.

Great. Thanks so much.

Thank you. Our next question comes from the line of Stanley Elliott with CIFL. Please proceed with your question.

Hey, guys. This is Andrew. I'm for Stanley. Thank you for taking my question. I was wondering if you could talk about M&A a little bit more. It seems like the appetite is certainly there given the balance sheet, but what is the landscape looking like as we enter the new year and where are the opportunities?

Yeah, so we're very interested in doing good M&A deals, and And the challenge that we've seen with inflation, many of the small competitors haven't done a very good job of getting their rates up with inflation, so their cash flow margins are down substantially. And the value of their assets are either holding strong or going up in value with the increased cost of new assets. And so it's been difficult for us to buy them at the right values. We think that will start shifting during the year, but we always have an appetite for that. create a balance sheet that puts us in a good position for that. And we'll just be thoughtful about doing the right deals.

And then related to the UK pumping segment, how are you thinking about growth this year? And do you have any concerns about the delays or cancellations in the high-speed rail project over there?

Not at this time. We feel really good about our workload for the UK going into 2024. The HS2 project that we're currently on or the portions that we're on, they're locked in, and so we expect that to continue strong throughout this year. And we're finding a lot of other infrastructure dollars that are being spent in the UK as well and other types of projects that are helping that growth. Now, the commercial markets in the UK are a little flattish, very similar to the US, but The growth potential on the infrastructure work is really the great opportunity we have in the UK for 24.

Thank you. Thanks, Andrew. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question will come from the line of Stephen Fisher with UBS. Please proceed with your question.

So, thanks. Good afternoon. I apologize. I missed the first part of the call, so not sure if you covered this or not. But in terms of the drivers of the commercial softness, it sounds like, how much of that is financing availability and perhaps actual level creating a challenge versus any other factors? I think last quarter you said it was a little bit more challenging. for some of like smaller warehouses and things to get financing. So how much is that still a factor? Has that intensified? Is it weakened? Maybe talk about that a little bit, please.

Yeah, it seems like it stayed fairly close to the same quarter over quarter for us. We watched that fairly closely. We do anticipate as rates come down, that should get easier for those projects to get funded. And we expect to see some positive impact from that in the second half of the year.

Okay. And then I guess just in terms of seasonality in the near term, obviously we're well through your first quarter, so anything to call out about what's been happening over the last couple of months? Curious how these rate increases that you're trying to put through, how those have been received, and just anything for modeling purposes we should be aware of in terms of near-term seasonality.

Yeah, Steve, good question. I mean, typically the seasonality is going to be quite consistent as we go through Q1 through Q4. What we expect actually is maybe a slightly stronger second half than the first half. With the expected changing rates, we'll see some of those light commercial projects come online. So where we're usually, as you know, sort of 45-55, we think it might be 54-56 with a stronger back half of the year just with that impact.

Okay, and how have the rate increases been accepted by the marketplace?

Yeah, as you know, rate increases are always challenging, especially in a market that we're dealing in today. We're having good success. We do believe we provide a great service. We're a great teammate to our customers, and it's really on us and our sales team to go out and prove out that value.

Okay, thank you very much. Thanks, Steve.

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.

Thank you, Camilla. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our first quarter fiscal 2024 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.