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, 2024. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Ian Humphreys, the company's external director of investor relations, Cordy Slow. Before we go further, I would like to turn the call over to Mr. Cordy Slow, to read the company's safe harbor statements within the meaning of the Private Securities Litigation Reforms 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 reconciliation 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. 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. I'm pleased to report that although we experienced challenging winter weather conditions in our U.S. operations during the first quarter, We continue to deliver double-digit growth in our concrete waste management services and UK operations and maintain revenue growth on a consolidated basis. In the month of January, heavy rainfall, snow, and freezing temperatures across the United States brought many of our U.S. concrete pumping projects to a standstill. As a result, many of our customers' projects were delayed and job sites were closed. We estimate such weather events lowered the expected revenue volume of our concrete pumping work by approximately $7 million in January. However, work in February has recently returned to more normalized levels, and we are working closely with our customers to accommodate accelerated project schedules. In the first quarter, consolidated revenue increased by 4%, primarily driven by continued strong execution in our concrete waste management and UK operations. In fact, revenues for these segments increased by 14% and 21% year-over-year, respectively, and maintained their strong adjusted EBITDA margins. The performance of these two segments demonstrates the benefit of our diversification by end market and by service type. Additionally, despite the challenges we faced in this quarter, we are pleased with our ongoing efforts to improve the strength of our balance sheet. reducing our revolving ABL loan balance by approximately $6 million while maintaining liquidity at $217 million. Transitioning to our segments by end market, we continue to experience similar trends that we saw in our fourth quarter. In residential, the structural supply demand imbalance continues to grow, driving strong demand levels and increased activity among home builders. From a regional perspective, we see most development residential construction dollars being allocated within the mountain region in Texas, which represents undersupplied regions where single-family construction is prominent. While interest rates remain elevated, at this point we see no signs of slowing in this market due to the affordability imbalance that exists between purchasing a new home versus an existing one. We are optimistic that with expected interest rate cuts in 2024, we will capture additional tailwinds. In infrastructure, our expanded US national footprint continued to drive strong results as we captured more revenue from the 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. In particular, growth across the UK continues to develop as HS2 and energy-related infrastructure spending has accelerated, and capital is being deployed at faster timelines than domestic U.S. government funding. Within the commercial end market, momentum in larger commercial projects like distribution centers, warehouses, semiconductor fabrication plants, and electric vehicle and battery manufacturing plants remain strong, underpinned by the growing reshoring trends here in the U.S., With regards to concrete pumping demand from light commercial projects, activity continues to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has stalled some projects. We continue to expect a recovery in the second half of fiscal 2024 as the project funding backdrop improves. Turning to the cost side of the business, the headwinds we experienced in Q4 largely continued into our first quarter, In addition to the downstream impact margins from adverse weather conditions, persistent inflationary pressures driven by a mix of labor and insurance continue to impact our ability to flow through our revenue performance to the bottom line margin. Such headwinds are expected to continue throughout 2024, but with our continued rate recalibration across all geographies and end markets, we anticipate a positive offset that should drive margin expansion over time. Our measures to recalibrate rates and the systems we are implementing to attract and retain employees are right in step for our business and to drive long-term shareholder value. I will now let Ian walk through more details of our financial results before I return to provide some concluding remarks. Ian?

Thanks, Bruce, and good afternoon, everyone. In the first quarter, consolidated revenue increased 4% to $97.7 million compared to $93.6 billion in the same year-ago quarter. The increase was due to strong growth across our concrete waste management services and UK operations. As Bruce mentioned, this growth will offset by a decrease in volumes in US concrete pumping due to the harsh winter weather events experienced across the United States, primarily in the month of January. Revenue in our US concrete pumping segment, mostly operating under the Brundage Bone brand, decreased 1% to 66.7 million compared to 67.2 million in the prior year quarter. The decrease was due to weather impacts in January, as the severe winter temperatures and freezing rainfall stalled many of our customers' projects. We estimate the extreme weather lowered the expected revenue volume of our US concrete pumping work by approximately $7 million in January. For our UK operations, operating largely under the Camford brand, revenue improved 21.2% to $15.4 million, compared to $12.7 million in the same year-ago quarter. Excluding the impact from foreign currency translation, revenue was up 16% year-over-year. The increase was primarily due to pricing improvements and operating efficiencies. Revenue in our U.S. concrete waste management services segment, operating under the Ecopan brand, increased 14.2% to $15.6 million compared to $13.7 million in the prior year quarter. The increase was driven by strong organic growth in pricing improvements, notwithstanding the first quarter growth rate being hampered by unseasonably harsh January winter weather. Returning to our consolidated results, gross margin in the first quarter was 34.1% compared to 39% in the same year-over-quarter, with the decreased margin primarily related to the weather impacted lower revenue volume and downstream lower equipment and headcount utilisation as a result of the extreme winter weather, as well as inflationary increases in insurance costs. General and administrative expenses in the first quarter were $31.9 million compared to $27 million in the same year-ago quarter. The increase was primarily due to higher headcount and wage inflation and a non-recurring $3.5 million charge as a result of a sales tax rule change dispute in our West region. Excluding the $3.5 million charge, G&A costs as a percent of revenue increased slightly in the first quarter to 29.1%, compared to 28.9% in the same year-ago quarter due to the lower revenue volume. Net loss available to common shareholders in the first quarter decreased to 4.3 million or 8 cents per dilute share compared to net income of 6 million or 11 cents per dilute share in the same year-ago quarter. Consolidated adjusted EBITDA in the first quarter decreased to 19.3 million compared to 25 million in the same year-ago quarter Adjusted EBITDA margin declined to 19.7% compared to 26.8% in the same year-ago quarter. Again, EBITDA declines were driven by the aforementioned impacts from extreme U.S. weather conditions and an increase in labor and insurance costs. In our U.S. concrete pumping business, adjusted EBITDA decreased to 10.7 million compared to 16.8 million in the same year-ago quarter. In our UK business, adjusted EBITDA increased 32.8% to 3.2 million compared to 2.4 million in the same year-ago quarter. For our US concrete waste management services business, adjusted EBITDA decreased slightly to 5.4 million compared to 5.8 million in the same year-ago quarter due to the downstream winter weather impact on labour utilization. Turning to liquidity, at January 31, 2024, we had a total debt outstanding of $388 million or net debt of $373.3 million. This equates to a net debt to EBITDA leverage ratio of 3.1 times. We had approximately $217 million of liquidity as of January 31, 2024, 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 the ability 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 2023, the Board of Directors approved an additional $10 million increase, and in March of 2024, an additional $15 million was approved. During the first quarter of 2024, under our share repurchase program, we repurchased approximately 36,000 shares of our common stock for $248,000. or an average price of $6.88 per share. Since our buyback program was initiated, we have repurchased approximately 1.8 million shares of our common stock for a total of $11.8 million or an average price of $6.61 per share. The current share buyback program with 23.2 million remaining is authorized by the Board of Directors through March of 2025 and we believe this demonstrates both our commitment to delivering long-term value to shareholders and our confidence in our strategic growth plan. Moving now to our 2024 full-year guidance, due to the weather-impacted year-to-date start in fiscal 2024, we have revised our expectations of fiscal year revenue to range between $460 and $480 million and adjusted EBITDA to range between $122 and $130 million. The target guidance for free cash flow, which we define as adjusted EBITDA, less net replacement CapEx, and less cash paid for interest, will remain unchanged at at least $75 million. This reflects our ability to control CapEx investments, given the current utilization capacity in our fleet due to the previous investments over the last three years, including acquisitions, to improve the age of our fleet. Operationally and financially, we continue to have a solid foundation and we have confidence in continuing to execute our growth strategy. With that, I will now turn the call back over to Bruce.

Thanks, Ian. In summary, we are pleased with the revenue growth in our concrete waste management services and UK operations and are optimistic US pumping will recover through the remainder of the year under normalized weather conditions as evidenced by a stronger February performance. We anticipate continued momentum in our residential and infrastructure end markets near term, and we are optimistic that interest rate reductions in the back half of fiscal year will improve the starts of various commercial projects. In the meantime, we continue to maintain our opportunistic approach to equipment utilization, enabling our fleet management strategy that allows us to capture value-driven work and deliver our expected return on invested capital. On the cost side of the equation, we remain focused on attracting and retaining the best talent in the industry while reducing the impact from inflationary cost pressures through continued 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 services in the construction industry positions us well for continued growth. We expect to complement organic growth by continuing to evaluate 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. Renju?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. you may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. The first question comes from the line of Andrew Whitman with Baird. Please go ahead.

Great, good evening, and thanks for taking my question, guys. I guess I wanted to understand the revision to your guidance to begin with here. I understand the $7 million shortfall here in the first quarter. I guess, given that there's so much of the year remaining, I would have thought that you would have probably been able to make that up in the balance of the year. I mean, that is about the magnitude of the guidance reduction. So is there something else that is being considered in the guidance cut that we should know about, or is that purely just timing and it actually gets pushed into your next fiscal year?

Andy, thanks for the question. So our concern is that many of the contractors have had their projects pushed because of the weather conditions that we had that went beyond the three or four weeks that we had the bad weather. And so while they're starting up now and with the lack of labor to accelerate the start of these projects, we're a little cautious on how the remainder of the year might play out that way. So we thought that it was best to address that now.

got it um okay is it so um was the weather affecting like newly starting projects or was it affecting in-flight projects it kind of sounds like from your answer there that it was affecting projects that have otherwise started and now they're not starting or have been delayed substantially enough that you don't want to put it in your view. I guess just a little bit more color on that would be helpful to understand.

Yeah, so it affects both. So the projects that we're currently on, it's very difficult to pour concrete in extreme weather conditions, so the concrete placement gets delayed. And then the new projects get delayed because the concrete comes right after the excavation, and the excavation gets delayed because of the weather conditions as well.

Okay. I guess for my follow-up question, I wanted to ask on... excuse me, on your M&A outlook. I heard your comments here at the end of your prepared remarks. But obviously, you guys have been a little bit more patient, I think, with M&A. Given the environment, that changes the demand picture. That changes the financing picture for the people who you might be buying. There's lots of ramifications from the macro we've been living in here for the past year, couple years. So I guess, Bruce, is there – is the patience – Or do you feel like it's getting more visibility, more certainty that you feel like you can start maybe being a little bit more aggressive with M&A than you've been in the past 12 months?

Yeah, certainly we can get a little more aggressive. I think what we've talked about in the past with mostly family-owned businesses in our industry and their lack of confidence in getting rates up ahead of inflation, their margins have been affected severely. So as we look at the value that those businesses bring to us, and then with the value of the assets continuing to increase in price, most of the businesses we look at aren't worth the value of their assets. And so that's really where we're waiting for that shift to happen, but we're certainly aggressively looking at each one, and when the opportunity looks right, we'll certainly jump on it.

Okay. I'm going to leave it there, guys. Have a good night.

Thanks, Andy.

Thank you. Next question comes from the line of Jean Ramirez with DA Davidson. Please go ahead.

This is John Ramirez for Brent Thielman. I'll start with a question. Can you provide some color on your outlook regarding labor and energy costs for the remaining year? And I guess to follow up, after the slow first quarter, How should we think about the inflection on margins for the concrete, the U.S. concrete pumping segment? Yeah, I guess we'll start with the first half.

Yeah, so on the labor and energy costs, they're quite stable right now. I mean, fuel has been volatile lately, but it's less than where it was maybe 18 months ago. But there's relative stability. in the fuel side of things. We still have wage inflation that we're working through, as Bruce mentioned, on recalibrating rates, but that's something that we'll work on through the rest of the year as we offset that through rate increases. On the US pumping margins for the back half or remaining quarters in this year, as we mentioned in our original guidance, we're working on recalibrating a lot of cost initiatives, so we would expect to at least get back to the U.S. margins that we've seen in the past and expect to outperform that as well. So other than the Q1 that was impacted, more on the operating leverage from the volume of weather that came through. You can expect at least the margins that we've seen before, if not better, in the back half of the year.

And in terms of a full year, do we expect the margins for the full year end to be just, you know, greater than fiscal year 23 or around? Do you mind providing a little more color on that?

Yeah, so, I mean, based on the SLU start with the weather and our updated guidance, they would be at least compatible.

Thank you. And if I could, one more. Could you provide an update on the bidding environment right now and how you're working through these large projects? that you, you know, and the work that you want.

Yeah, as you know, on the larger projects, we don't have near as many people as we're competing against as we would smaller projects. And so the bid environment, while it's active, and on the larger commercial projects, it's very much the same as what we have seen in the past.

Thank you. I appreciate the time. Thank you.

Thank you. Next question comes from the line of Stanley Elliott with Stiefel. Please go ahead.

Hey, everybody. Thank you guys for the question. Could you all go back and talk a little bit more about kind of the decision to kind of lower the full year? At one point in that, I thought you guys said there were certain types of projects that maybe were not seeing some level of softness. Is that because of financing costs? Just trying to get a little more color since we're really at the seasonally weakest part of your fiscal year.

Yeah, and certainly there's a little caution with our response as well. The area that we're seeing the most challenging would be like commercial that is more sensitive to interest rates and inflation and relying on more regional banks. Those projects have either been pushed out or shelved entirely and so We're waiting to see that come back, and then we believe as the economy improves, there are new projects that will come on in that sector that will give us opportunities for growth as well. But the infrastructure is growing. We're seeing more visibility there. Residential has been very stable for us, and we see that continuing. The large projects are fairly stable. It's just that light commercial that's causing concern.

Can you all talk about like a backlog of business, maybe – where it is now, how that's changed. You mentioned it sounds like the order environment and kind of the quoting activity is still pretty strong, but would also seem to imply that you're working through some of the kind of existing book of business that you've been building up.

Yeah, that's right. And as you remember about 50% of our business, we can track as backlog and that's the larger commercial projects in the infrastructure projects that really hasn't changed. It's the, uh, It's the light commercial projects that are more difficult to track that we're seeing the softness in.

Could you talk a little bit about the restatement piece that you had in the U.S. pumping business? Exactly, what was that for? Remind us again why you decided to do it now.

Every year, Stanley, we're looking at the allocation of resources across all the segments. So really the adjustment is really a true up of those central resources that we have within our business and allocating them based on the business segment and growth and use of capital. So it's really the update of that allocation that we've revised.

And then lastly, what are exactly your plans for the buyback? I know you put some timeframes around how long it extends out. I think it was March 2025, but Do you plan on being more active? Any help or contact there would be great.

Obviously, we continue to feel like our stock is undervalued, and some of the use of our capital, if we're not using it to buy businesses or equipment, maybe the best use of the capital is buying shares at values that we think are reasonable for us.

Great, guys. Thanks so much. Best of luck. Thanks, Stanley.

Thank you. Next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.

Bruce, Ian, good afternoon.

Hi, Tim. How are you?

I'm doing all right. Thank you. Let's start with your outlook here. You know, it looks like you're your guide's calling for about 6% revenue growth at the midpoint. Can you kind of break that down for us between your growth expectations for U.S. Concrete versus the U.K. business and Ecopan?

Yeah, so on the organic side, if you look at the midpoint, it's really 2% or 3% on growth on volume and 2% or 3% on price. What I would say beyond that is at the lower end of that range, there would be an assumption that price and volume is on the flatter side, and on the higher end, we would expect to capture more share and more price and more volume on the top end.

Is that the total business there, or is that for the U.S. pumping business specifically, Ian?

Yeah, that's for the total business. What you can expect to see on the on the year-over-year change for the Ecopan and the UK business. I mean, Ecopan, as you know, has been growing north of 20% year-over-year. The first quarter was a little softer than that based on the volume of weather they had to deal with. Obviously, we've guided consistently to at least double-digit growth, and we would expect to continue that for Ecopan business. And as you can see, the organic growth on the UK is continuing to move along at quite a nice pace. I mean, so in the quarter, they had 20% year-over-year growth. So that's moving along, I mean, as we would expect towards the back end of the year.

Okay, so no real change there. Continued strong growth in those businesses. On that Ecopent business, I saw that revenue was higher, but EBITDA was a little lower. It sounds like from weather-related impacts, I mean, do you expect margins to be up year over year for the remainder of the year, or are there other factors at play here for Ecopan?

Yeah, the impact in Q1, it was really that downstream impact of where they've got weather. I mean, they're less sensitive to it than the U.S. pumping business, but not immune to that. So there's a little bit of softness in the operating leverage just from that downstream effect of labor utilization when there's difficult weather.

Okay, so otherwise, though, you'd expect continued margin accretion in that business as you continue to build authenticity, et cetera?

Yeah, we'd expect continued strong margins on the Ecopan business, yeah, for sure. Okay, cool.

Last one from me. I think I recall you talking on your four-quarter earnings call about some undisciplined pricing from industry competitors, which crimped your ability a little bit to take rates higher. Did you see that dynamic carryover into this quarter?

We have seen some of it carry over, but it is improving. As the equipment prices go up and companies aren't doing quite as well as what they had in the past, we're seeing them being more thoughtful about how they bid work as well, and certainly that helps us out as well.

Okay. That's it for me. Thank you very much.

Thanks, Tim. Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Avi Jaroslawicz with UBS. Please go ahead.

Hey, guys. Thank you. I'm for Steve Fisher. So I'm just trying to understand some of the math and implications around what happened in the first quarter in U.S. pumping. Revenue had a $7 million-ish impact from weather, and the adjusted EBITDA was down about $6 million. So should we kind of be – considering that as roughly what you guys expected in the margin for the first quarter, as in, like, were you anyways expecting adjusted EBITDA to be down for the segment year over year regardless? Because if you didn't, then it sounds like that $7 million was expected to come in with a very high incremental margin. So just trying to understand if I'm missing something there.

Yeah, first of all, I mean, that's not the margin to expect for the US pumping business going forward. I mean, when we have weather events, obviously the downstream effect from interrupted volume reduces the operating leverage. So yeah, don't expect that margin performance going forward. It's going to be more consistent, if not improving, like I said earlier, through the rest of the year. So as we accelerate where we can, The volume of work, clearly we get operating leverage, which improves margin. It improves utilization of our equipment and our people. So certainly the Q1 event and the effect of that is more amplified than the normal run rate. And as we become more efficient, then like I said, the margin will improve.

Yeah, and what I would add to that is we have variable costs in labor and fuel and repair and maintenance, but In January, we still did the normal repair and maintenance that we would have done on that equipment just because it was scheduled and the people and equipment were there to do it and the parts supply. But that will actually offset through the remainder of the year because it is ultimately variable to our total cost.

Okay. Got it. That makes sense to me. That's all I have. 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 comments.

Thank you, Renju. We'd like to thank everyone for listening to today's call and we look forward to speaking to you when we report our second quarter fiscal results, fiscal 2024 results in June. Thank you. Thank you.

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