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 second quarter ending April 30, 2024. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Ian Humphreys, and the company's External Investigation Director, Cody Schloss. Before we go further, I would like to turn the call over to Mr. Schloss to read the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important caution 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'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. On a consolidated level, our revenue performance for the second quarter was largely in line with last year, and I am pleased with the resilience of our business model and the execution by our team in a dynamic volume environment across our end markets. In our U.S. pumping business, we experienced some softness across a variety of commercial work, with commercial projects remaining sensitive to higher for longer interest rates. However, offsetting some commercial softness, revenue in our infrastructure and residential sectors grew year over year in the second quarter by 14% and 12% respectively. Larger commercial projects remained mostly durable, albeit volumes were impacted by interest rate economics and project delays in the second quarter due to unseasonably wet weather in Texas and in the Southwest. In the UK, our team continued to support a high volume of key commercial and infrastructure projects and have successfully recalibrated rates to lessen the impact of cost inflation in the region. In our concrete waste management services segment, we sustained double digit growth in the second quarter, despite facing challenging volume and weather related environments that impacted our US concrete pumping operations. These factors affected our top line performance, both on a consolidated level and within our US concrete pumping segment. However, we maintain stable performance in our UK operations and strong organic growth momentum in concrete waste management services, delivering 8% year over year adjusted EBITDA growth in both segments. Transitioning to our segments by end market, we continue to experience similar trends to what we saw in our first quarter. Within the commercial end market, momentum in larger projects has tempered, like distribution centers, warehouses, semiconductor fabrication plants, and electric vehicle and battery manufacturing plants, amid growing reshoring trends in the U.S. As I just mentioned, concrete pumping demand and activity on commercial projects were relatively weaker given the interest rate environment. This has not only affected project volumes, but it has also driven competition to be more aggressive on rates, resulting in a reduction in our ability to gain the pricing leverage we would normally expect. While we had initially expected some recovery and an improved project funding landscape in the second half of fiscal 2024, current interest rates have stayed at levels more comparable to what we saw in 2023. This has had the impact of Weaker than expected demand environment in the commercial sector over the coming quarters, we will closely monitor further evolution in the broader interest rate environment and the shape of the recovery. Residential construction remains resilient, growing 12% year over year in the second quarter, with the structural supply demand imbalance continuing to drive increased home building activity. While interest rates remain elevated, home builders continue to provide creative solutions to home buyers, and we remain encouraged that demand momentum in this end market will remain stable despite the challenges of affordability between purchasing a new home versus an existing one. From a regional perspective, we continue to see strong residential construction investments within our mountain region and in Texas, which represent undersupplied regions where single-family construction is prominent. In infrastructure, Our expanded U.S. national footprint continued to drive strong results, growing 14% year-over-year in the quarter as we finally began to see momentum in capital deployment from the Infrastructure Investment and Jobs Act and other public project investments. As a result, we expect to see infrastructure projects continue to grow in 2024 and beyond as early IIJA projects advance to a major construction phase and we will plan to aggressively pursue these opportunities. In the U.K., infrastructure growth has continued to develop as funding is being deployed at faster timelines than domestic U.S. government investment. Phase one of HS2 infrastructure spending has continued as originally planned in the U.K., along with plans for investments in net zero projects such as Sizewell Sea, a concrete intensive nuclear power station project to which the U.K. government has committed approximately $3 billion. This project is similar to scale as Hinkley Point, a nuclear power project our Camford team has already supported. As a result of Camford's previous involvement with Hinkley Point, we believe we are well positioned for further involvement in size we'll see once the project is approved. Moving to the cost side of our business, our second quarter performance reflects similar headwinds to what we expected in Q1. Persistent inflation, largely a mix of labor and commercial insurance, have remained affecting our consolidated profitability performance along with downstream margin impacts from lower revenue volumes in our U.S. pumping business. While we expect these headwinds to be present in the second half of 2024, we are beginning to see our cost control initiatives take hold, which in conjunction with expected rate recalibration improvement across our end markets should yield improved margins. As we navigate lower commercial project volumes, we are tightening our financial outlook to the lower end of our initially stated range. Additionally, as a result of the investments we made in our fleet over the last several years, we are well-placed to optimize the utilization of our existing concrete pumping fleet, unlocking significant free cash flow. This flexibility, combined with other cost control initiatives, gives us the confidence that we can maintain our original 2024 free cash flow target of at least $75 million. We continue to use this free cash flow generation to pay down debt, and we are on track to reduce our net leverage to approximately 2.75 times by the end of this fiscal year, tracking steadily towards our long-term target of 2.5 times. 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 second quarter, consolidated revenue was $107.1 million compared to $107.8 million in the same year-ago quarter. As Bruce mentioned, the slight year-over-year decrease was attributable to strong continued growth in U.S. concrete waste management services, and that was more than offset by a volume decline in our U.S. concrete pumping segment, specifically impacted by commercial projects and unseasonally wet weather events. As such, revenue in our U.S. concrete pumping segment mostly operating under the Brundage-Bowen brand, decreased 5% to $74.6 million, compared to $78.4 million in the prior year quarter. For our UK operations, operating under the Canford brand, revenue improved 2% to $15.5 million, compared to $15.2 million in the prior year quarter. When excluding the impact from foreign currency translation, revenue was largely in line with last year, The slightly lower activity volumes in the second quarter were offset by pricing improvements. Revenue in our U.S. concrete waste management services segment operating under the Ecopan brand increased 19% to $16.9 million compared to $14.2 million in the prior year quarter. The increase was driven by robust organic growth and pricing improvements. Returning to our consolidated results, gross margin in the second quarter was 39% compared to 40.3% in the same year-ago quarter, with the decreased margin primarily related to lower revenue volumes, lower labour utilisation driven by the adverse impact of weather conditions, and market rate increases in commercial insurance premium costs. General and administrative expenses in the second quarter decreased to $29.7 million compared to $30.2 million in the same year-ago quarter, with a decrease largely related to a non-cash decrease in amortization expense of $900,000. G&A costs as a percentage of revenue decreased slightly in the second quarter to 27.7% compared to 28% in the same year-ago quarter. Net income available to common shareholders in the second quarter was $2.6 million, or $0.05 per dilute share, compared to $5.2 million or $0.09 per diluted share in the same year-ago quarter. Consolidated adjusted EBITDA in the second quarter decreased 4% to $27.5 million compared to $28.8 million in the same year-ago quarter. Adjusted EBITDA margin declined to 25.7% compared to 26.7% in the same year-ago quarter. Again, EBITDA declines were driven by the aforementioned impacts from lower U.S. pumping revenue volumes, weather-impacted labor utilization, and market-related cost increases in commercial insurance. In our U.S. concrete pumping business, adjusted EBITDA decreased 11% to $17.2 million compared to $19.3 million in the same year-ago quarter. In our U.K. business, adjusted EBITDA increased 8% to $4.1 million compared to $3.8 million in the same year-ago quarter. For our US concrete waste management business, adjusted EBITDA also increased 8% to 6.2 million compared to 5.7 million in the same year ago quarter. Turning now to liquidity, at April 30th, 2024, we had total debt outstanding of 391.4 million or net debt of 373.5 million. This equates to a net debt to EBITDA leverage ratio of 3.2 times. We had approximately $216.9 million of liquidity as of April 30, 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 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 2023, the Board of Directors approved an additional $10 million increase, and in March 2024, an additional $15 million was approved. During the second quarter of 2024, under our share repurchase program, we repurchased approximately 171,000 shares of our common stock for $1.3 million at an average price of $7.42 per share. Since our buyback program was initiated through April 30th, 2024, we have repurchased approximately 2 million shares of our common stock for a total of $13.1 million or an average price of $6.67 per share. The current share buyback program, with 21.9 million still 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 into our 2024 full-year guidance, Due to the reduced commercial project volumes and adverse weather impacts through the first half of fiscal 2024, we have revised our expectations for fiscal year revenue to range between $455 and $465 million and adjusted EBITDA to range between $120 and $125 million. As Bruce mentioned, free cash flow, which we define as adjusted EBITDA, less net replacement capex, less cash paid for interest, will remain as at least $75 million, given the strength of our balance sheet, cost control initiatives we have put in place, and our ability to improve equipment utilization and flex CapEx investments based upon demand. This flexibility also is supported by previous investments we've made over the last three years, including from acquisitions to improve capacity in our fleet utilizations. As a result, and as Bruce mentioned earlier, we are targeting a net leverage ratio of approximately 2.75 times by the end of this fiscal year. In terms of cost, we will continue working to offset inflationary cost pressures through our continued rate recalibration and cost efficiency initiatives. Both operationally and financially, we believe we are entering the second half of fiscal 2024 with a solid, flexible foundation. With that, I will now turn the call back over to Bruce.

Thanks Ian. In summary, we remain pleased with the momentum we have maintained in our concrete waste management services, along with the stability of our UK operations. With our residential and infrastructure end markets, we expect project momentum to continue. We are keeping a close eye on project volume patterns and further interest rate movements within our commercial end market. While visibility remains challenged at present, we believe the scale, breadth, and agility of our U.S. pumping business has optimized our position for recovery as macro improvements arise. Our positioning is further benefited by our operational flexibility and sustained opportunistic approach to equipment utilization as we can pursue more value-driven work rather than focus solely on more volume-based projects. We will continue our cost optimization focus through maintaining our efforts on attracting and retaining the best talent in our industry while working to reduce the impact of inflationary cost pressures through discipline cost initiatives and continued rate increases. As always, our focus remains on optimizing end market mix to drive towards top and bottom line growth. We expect to complement our organic growth initiatives by continuing to evaluate opportunistic accretive M&A while strategically reducing our leverage. With that, I would now like to turn the time back over to the operator for Q&A. Shamali?

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. The participants using speaker equipment It may be necessary to pick up your handset before pressing the start key.

And our first question comes from the line of Tim Mulroney with William Blair. Please proceed with your question.

Hi, Bruce and Ian. This is Luke McFadden on for Tim Mulroney. Thanks for taking our questions today. Just the first one here on the guidance. Just curious, as it pertains to the revised outlook, does that primarily reflect the pressures you saw during this quarter in the first half of the year, or does it also incorporate a more cautionary outlook on the back half of this year, perhaps as it relates to commercial project activity?

Yeah, that's a good question. Thanks for that. So, we do think that the second half of the year is going to have some of the same concerns that we've seen in the first half of the year. We did have several weather delays in the first half of the year that we don't expect, but we do feel like the commercial market is going to be a little sluggish through the remainder of this year.

Understood. Helpful. And then maybe switching gears here, in terms of some of the early rollout from IIJA infrastructure investment, what types of projects are you seeing come through first as it relates to that investment opportunity and How much visibility do you have into future projects tied to the IIJA?

Thanks. As you know, it's been difficult for us to really identify where that work is coming from. There aren't any really large projects like what we would see in the UK, but what we are seeing is healthcare. We're doing several hospitals across the country. Road and bridge work is coming around nicely. We're doing quite a few projects on airports and those sorts of things, as well as water and wastewater. So it's a little bit of a mixed bag across the board, but it's starting to build momentum, and we're starting to build a little more of a backlog. And so we do anticipate that getting better through this year and even stronger next year and for several years to come.

Great. Thanks so much.

Thank you.

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

Hey, Bruce. Ian, thank you guys for the question. Could you guys talk a little bit about the weather impact? How many days did you guys miss? Or maybe even from like a utilization perspective, how we were this quarter versus the prior year?

Yeah, hi, Stanley. So on the weather, I mean, as you know, we don't typically see the weather that we've seen in the second quarter. So we lost about like $2 million in revenue of unexpected weather in that second quarter. Utilization did pick up sequentially, but not as much as we would have seen in the prior year quarter. So it was maybe like two percentage points different from the prior year, just with some of those weather delays.

And could you comment on kind of what you've seen? you know, in May and even into June, we've heard that, you know, weather has been, you know, difficult in parts of the country in May as well.

Yeah, weather in May, I mean, it continued. I mean, obviously, when it happens in the, well, I would say in the first month of a quarter, our ability to catch up through the rest is more encouraged. So, I mean, it's nice to see some of the weather break and we expect that we can catch up on anything through May for the rest of the quarter. And we factor that into it. the revised update that we gave that any such shortfall we would recover as the projects keep going.

And the waste business, nice growth there. Are you guys moving into new markets? Is it kind of better uptake in existing markets? And maybe kind of how much more of the U.S. do you have left to cover with that product?

Yeah, so our growth there comes from two things. We've moved into a few new markets, basically adjacent markets to markets we're currently in that are very easy for us to service, and we're gaining more penetration in the markets that we're currently in. And we still are only 7% of that market, so we still believe that we have quite a bit of runway ahead.

And I guess lastly, you mentioned a fairly competitive environment on rates in some cases. Does that make you guys want to like accelerate the M&A, you know, in terms of kind of consolidating some of the markets to kind of alleviate some of those concerns? Or how should we think about the M&A environment you're sitting here today?

Yeah, so thanks for the question on that. Now, we are looking at several businesses right now. Our industry in general has been, you know, inflation has hurt our industry to the point where We haven't been able to get rates out in front of inflation, so it's been challenging over the last couple of years. Most of the businesses we're looking at have challenging margin issues to where when we put a reasonable multiple on EBITDA, it's still not worth the value of their assets. And so that complicates things a little bit, but we're looking at that. We think that'll start shifting into next year, and we look forward to continuing to do more consolidation, and that certainly could help with the rates.

Perfect. Thanks so much. Best of luck.

All right, thanks, Stanley.

Thank you. Our next question comes from the line of Abby with UBS. Please proceed with your question.

Hey, Bruce. I'll be on for Steve Fisher. I'm wondering if you can just kind of frame the impact of the slowdown in commercial projects. So, you know, I know you said about $2 million of revenue was lost due to weather. So still leaves us negative for the quarter in terms of your revenue, but how would you frame like industry revenues?

Yeah. So I would say that the balance of that related to this demands and slow down. Now, one thing I would comment, and we talked about this a little bit earlier in our prepared marks. I mean, as you've seen from our business, um, when the volumes change, this is when we see the mix change. Um, and you will see that in what we put out on the mix between the end markets. So, um, year over year like commercial is now around 55 percent so that's about a five percent drop from from the prior year but we've picked up momentum in infrastructure and residential has been quite solid so even though the volumes change i mean that's where and this agile business model we've got we move and through those volumes um and as that continues we would expect to like chase the project work and depending on the end market okay got it and then

In Ecopen, it seemed like there was a sizable step down in the margins quarter to quarter. Can you give us some more color there? I know you called out insurance costs and corporate allocations, but was price cost negative for the concrete waste management business? Or how should we be thinking about the margins for that business moving forward?

Yeah, so we still think that the margins and even the payback on the equipment and the growth that we've got there is still quite compelling. I mean, last year the margin was, what, 41%. Today it's 36%. So it's still a really compelling payback and margin on that business, which feeds right into our free cash flow. So we're still encouraged to invest in the growth of that. It really lines up nicely with the ROIs that we expect from that type of business.

All right. Got it. I'll leave it there. Thank you. Thank you.

Thank you. And just as a reminder, if anyone has any questions, you may press star 1 to join the question and execute. Our next question comes from the line of Junior Ramirez with VA Davidson. Please proceed with your question.

Hi. Thank you for the time. You cited oversaturation of concrete pumps in certain markets as a headwind. Could you talk about or provide some color about what markets are you referring to? And what is the company planning on doing to mature? This is not a headwind in the second half.

Yeah. The way in our industry, most of the equipment comes from overseas, and so the manufacturers plan a year or so in advance of what they're going to order for trucks and then get the pumping units from overseas mounted on those trucks. And so I think everyone anticipated the market would be stronger in 2023 and 2024 to where it ended up being, meaning that there were more concrete pumps brought into this market, that they were able to find owners for those machines. As markets go forward, they'll order less machines over. They'll be, in fact, for 2024, there's quite a few fewer machines going in the market than what you would see in 2023. And I think we'll see that again in 2025 as the market catches up with the volume of equipment that are here. So, you know, certainly we're careful within our own business to make sure that we're running at the right utilization. And that's why you'll see that our capex spend is much less this year and with utilization being down. because of anticipated growth not being there, we'll sell off assets that will be of benefit to us. And over the next year or so, we'll see that settle out.

So just to clarify, when you say in certain markets, you're referring like U.S. versus abroad, or are you referring to certain markets across the U.S. that just overbooked?

Yeah, I'm saying all of the U.S. So when we say the oversaturation, we're talking about the country. Now, the U.K. sees it similarly, but not to the same extent. But largely, it's an issue in the U.S. where there's just too much equipment across the U.S. And then that equipment ends up affecting all end markets.

I appreciate that. And going back to weather on U.S. pumping, would revenue and volume have been flat otherwise if you had favorable weather? And could you just provide us a glimpse of what you've seen post the quarter through May regarding weather impact.

Yeah, so the volume would have been large in line with where we'd expect to be. If you look at the mix of main revenue 1% down, 2% reduction on that came from volume. So yeah, if the weather had cooperated, at least flat would have been more in line with where we'd expect to be. In May, it It's early in the quarter, to really call it anything specific around what the weather done and what the contribution would be. But we've factored that into the updated guidance for the rest of the year in terms of what we expect Q3 and Q4 to look like and really what that percentage looks like, given it will make up about 55% of the full year guide, which is in line with where we usually trend between 45% of work in the first half and 55% in the second half.

Got it. And just one more from me. Just citing or looking at underutilization as the primary overhang on margins, is the current environment where you're at, is it price exceeding costs within the business, or are we looking at that a little different?

Do you mean in terms of the price that we're charging for the work that we do? Yeah, and then just looking at the margins, are you guys... Yeah, the margin is mostly... Yeah, so when you get volume changes or a volume slowdown, there's really underutilization, but it doesn't materially change our return on investment based on the margin that we get and the payback and equipment that we've got. So as we think about it, more from an investment in the assets that we've got, we expect to catch up on that. It's not a permanent change in the profile. So, yes, weather causes delays, which causes a bit of softness and utilization, but it's certainly something that we are familiar with recovering from.

Understood. Thank you so much. Thanks.

Thank you. Thank you. Our next question comes from Stephen Fisher with UBS. Please proceed with your question.

Thanks. Good afternoon. Sorry, I got on a little late. I think you made some comments about some of the larger projects in terms of semiconductors and EVs and batteries, but I wanted to see if you could just clarify or maybe elaborate on what you're seeing on those types of scale projects relative to some of the more kind of smaller or medium-sized general commercial projects. Thank you.

Yeah, Steve, what we're seeing are several of those large projects that are in the planning stage have been pushed out. We're not seeing any of them being canceled. They're just being delayed. And so we do anticipate them starting later in the year or in the next year. So we are encouraged about the long-term opportunities there. It's just affected us in the short term.

Any particular drivers of those delays? Is it more labor concerns, inflation, and market demand? Any sense of is there any consistency there?

Yeah, we're thinking it's more along the lines of inflation and interest with the total cost of the project. I don't think there's the labor concerns that we've had in the past or there currently.

Okay, terrific. Thank you. Thank you.

Thank you. 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.

Thanks, Jamali. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our third quarter fiscal 2024 results in September. Thank you.

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