Q2 2020 Brundage-Bone Concrete Pumping Holdings Inc Earnings Call
Good afternoon, everyone and thank you participating in todays conference call to discuss concrete pumping Holdings' financial results for the second fiscal quarter ended April Thirtyth 2020.
Joining us today, our concrete pumping holdings CEO, Bruce young CFO in Humphreys and the company's external director of Investor Relations Codis law.
Before we go further I would like to turn call over to Mr. slot to read the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act 1995 that provides important caution regarding forward looking statements Cody. Please go ahead.
Thanks.
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.
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 publicly available filings with the S. You see.
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 discuss adjusted EBITDA and net debt, which are non-GAAP financial measures adjusted EBITDA just reported EBITDA for certain items, we believe the press.
The addition of this non-GAAP financial measure it useful because it provides investors and industry analysts the same information that we use internally for purposes of assessing our core operating performance.
Not that reflects all principal amounts understanding outstanding under debt agreements less cash.
Cashless detracted from the GAAP measure because it could be used to reduce the companies that obligations.
We believe this non-GAAP measure provides useful information to management and and and investors in order to monitor the company's leverage and evaluate the company's consolidated balance sheet.
For a reconciliation of both of these measures to their most directly comparable GAAP financial measure. Please refer to the press release issued today or the investor presentation posted on the company's website.
I would like to remind everyone that this call will be available for replay later this evening a webcast replay will also be available via the link provided in todays press release as well as on the company's website. Additionally, we have posted an updated investor presentation on the company's website now.
Now I'd like to turn the call over to the CEO of concrete pumping holdings British young Bruce.
Thank you Cody and good afternoon, everyone. Thanks for joining our call today I'd like to open the call by recognizing the amazing efforts of our employees as we navigate to covert 19 pandemic from a position of agility and strength. Our team has shown an exceptional leadership resourcefulness and collaboration as we addressed this unprecedented event.
I'm also extremely proud or employee morale, our fellow colleagues have demonstrated a high degree of engagement and our work during these uncertain times.
At the onset of the pandemic our team spring into action to implement enhance safety and health protocols in the field as well as work at home mandates for office employees, all white performing to the level of service our customers expect.
We have followed all required health and hygiene protocols released by the CDC and the state and local authorities and implemented enhanced health guidelines involved involving hand hygiene employee temperature screening the provision of Maskin gloves supplies and this success disinfecting frequently touch objects in surfaces.
We have eliminated all 90 central travel and placed high emphasis on frequent internal communications by senior management regarding Cobiz 19 developments. These proactive health and safety measures have resulted in minimal disruption in our operations.
Moving to our financial performance as indicated in our second quarter pre announcement and further supported by today's strong results. Our business is showing resilience amongst the pandemic highlighting the agility of our operations, resulting in our consolidated revenue being up 19% gross margins improving 370 base.
This is points to 43% and it does and adjusted EBITDA growth of 29% is important to note that these strong consolidated second quarter results were achieved despite worksite closures praneeth, primarily in our UK and Seattle markets in March and April due to Kobin 19, as well as minimal project delays.
Elsewhere in the U.S. in the past several weeks. However, these markets have shown signs of recovery, particularly in Seattle, which is back to full revenue expectations and the UK, which is back to 60% of revenue expectations.
In the U.S. as construction activities were largely deemed essential under government mandates are combined concrete pumping in country waste management operations were able to continue their strong momentum freedom from the first quarter. This is reflected by revenue growth of 33%, 9% of wish was organic after taking out.
Asian from assets acquired in the capital acquisition.
Our robust organic revenue growth in the United States as a result, a strong project backlog as well as our belief that we continue to gain share from competitors and many of our markets due to our unique value proposition in the industry.
For a combined country pumping in country waste management operations in the U.S.. We also continued to demonstrate the value of our business model the second quarter adjusted EBITDA growth of 48%.
This performance has allowed us to reduce our leverage while taking proactive measures to improve our liquidity during the quarter. In fact as a result in implementing tighter cost controls cost savings measures, we reduced net debt approximately $20 million compared to the first quarter fiscal 2020, and strengthen our liquidity position.
He's cost saving measures include the suspension of uncommitted 2020, Capex cash preservation initiatives, resulting in approximately $33 million is available liquidity and utilizing our roughly 70% variable cost structure to scale back expenses in areas with weaker demand.
The combination of these measures with our help with healthy operating cash flow and no near term debt maturities allows us to manage our business from a position of strength.
We are closely closely monitoring the velocity of our job volume and all of our markets and are cautiously optimistic in positive demand trends continuing Nevertheless, we believe the swift actions, we have taken in the current environment will maximize our our financial strength in support of our long term strategy to drive.
Shareholder value.
Now I'd like to hand, the call over to Ian So he can provide detailed overview on our second quarter financial results you.
Thanks, Bruce and good afternoon, everyone.
Before getting into the details I'd like to remind everyone that we refer to adjusted EBITDA and net debt, which are non-GAAP financial measures.
Reconciliation from net income to adjusted EBITDA and debt to net debt can be found in the press release, we issued earlier today.
Also please keep in mind, our business revenues are typically seasonal and given the effect of covert 19 or normal business trends capital expenditures in 2020, well, we particularly front half weighted given that we suspended all known committed capital expenditures in March.
Moving into our second quarter 2020 results, we generated strong topline revenue growth as Q2 revenue increased 19% to $74 million compared to 62 million in the same Euticals, Florida.
The increase was largely driven by the contribution from the capital pumping acquisition as well as strong organic growth in the U.S. for many of our existing core markets.
As Bruce mentioned this growth was partially offset by construction site shutdowns in our UTI and Seattle markets due to cope with 19 as well as minimal project delays elsewhere in the U.S.
In the second second fiscal quarter revenue and our U.S. concrete pumping segment, mostly all put it under the brand is born bronze increased 35% to $57.5 million the Capitol acquisition.
Which added additional pumping capacity to our Texas market drove approximately 12 million over the year over year increase.
Excluding the contribution from our capital pumping assets, we realize a 7% organic improvement and U.S. concrete pumping revenue over the previous year due to growth in this segment's regional markets.
This performance was partially off but offset by government directed work stoppage in Seattle, which most of the finally impacted our revenue velocity in April.
So it has all of the site shutdowns in Seattle, we experienced approximately 25% or typical revenue trends at the peak of the work stoppage. However restrictions have recently east on a revenue trends have improved back to near normal levels. In fact, Seattle is no back to fill revenue expectations and has been running that weve for 70.
Or weeks.
Q2, 2020 revenue in our UK operations operating largely under the comfort brand was $8.4 million compared to 12.7 million in the same you to go quarter.
Construction volume reductions due to covert 19 related site shut downs was the primary driver over the 34% decline in revenue.
At the on Saturday shutdowns, we should car Judy March our UK operations dropped to 25% of our pre covert 19 revenue run rate.
With the UK government and I'm, saying on maintained restarting construction and manufacturing was explicitly encouraged we're currently operating xsixty percent of our pre Kobin 19 revenue run rate.
As we anticipate tempur determined to food revenue expectations in the UK region. We believe we have ample run rate runway for a long term market should expansion, including the multi decade high speed rail project Hs too.
Revenue in our U.S. compete with management services segment operating under the Eagleton blonde increased 23% to $8.3 million in second quarter.
This improvement was driven by robust organic growth and the majority of our markets and higher utilization of our process, partially offset by the covert 19 work stoppage restrictions I mentioned earlier.
We also experienced strong growth in our next tier markets as we continue integrating the equal phone service into our concrete pumping throughput.
At the end of Q2 2020 pounds in the fields, which is a leading indicator for future pickups or 16% higher when compared to the same unit courtship.
Turning back to our consolidated results gross profit in second quarter increased 31% to $31.9 million compared to the same unico corridor and gross margin increased 370 basis points, the 43% compared to last year.
The increase in gross margin was primarily due to the capital pumping acquisition improved revenue pricing more favorable fuel costs and the continued improvement over supply chain procurement costs.
During the quarter or supply chain continue to operate without interruption as we maintain a rolling inventory of parts to ensure we are able to continually maintain our fleet.
General and administrative expenses in Q2 were $26.4 million compared to 21.9 million in the same you to go according to.
The 21% increase was largely due to the acquisition of capital, which drove a 1.6 million higher amortization expense and additional headcount and a 1 million higher stock based compensation expense. A result, as a result of the company stock grants in April 2019.
Excluding amortization of intangible assets and stock based compensation expense DNA expenses by 13% higher primarily due to additional headcount from the capital acquisition.
Net loss attributable to common shareholders in the second quarter fiscal year, 2020 was 59.4 million or $1.13 cents per diluted share compared to our net loss of 10.1 million or 35 cents per diluted share in the second quarter fiscal year 2019.
However, the net loss in the second quarter of 2020 included a 57.9 million noncash goodwill impairment charge, which was required you to the current 19 impact on a market capitalization during the second quarter.
Excluding the non cash impairment you'd over your net loss would have been would have improved to $3.9 million or eight cents per share.
Finally, adjusted EBITDA in the second quarter increased 29% to $23.5 million compared to 18.2 in the same beautiful quarter.
Adjusted EBITDA margin improved by 240 basis points to 31.8%.
Volume and pricing gross coupled with our gross margin improvement drove the strong expansion.
It is important to note that our business in the U.S.K. substantial EBITDA improvement well in excess of the strong revenue growth.
In our U.S. clunky pumping business EBITDA improved 51% to $16.3 million on the back of 35% revenue growth and in our U.S. complete waste management business EBITDA improved 36% to $4.1 million on the back of 23% organic revenue growth.
Turning to the balance sheet given the current 19 pandemic, we've prioritized prioritized, the our liquidity and cash preservation.
Compared to Q1 of 2020 net debt in the second fiscal quarter was reduced by approximately $20 million to $413 million.
This was comprised of 431.4 million in debt principal an 18 million in cash.
We have no near term debt maturities as a reminder, our five year MB out of all work is due December 2023, and our seven year term loan facility matures in December 2025.
These debt instruments are also covenant light, we have no financial covenants on the term loan on our NGL has a one to one springing fixed charge ratio based on the total excess availability and we believe we have significant headroom.
The highlights of our various liquidity improvements and cost saving measures that we have implemented since the onset of the pandemic include the following items.
Firstly as mentioned, we prioritized cash preservation and it's a initiatives, resulting in approximately $33 million of total available liquidity Oh people start to your 2020.
This is held on the balance sheet split between cash and availability from the ABL revolver.
Next we suspended our own committed 2020 Capex investment.
Next we eliminate it nonessential spending made select far lose in the UK on Seattle markets and mandated organizational changes such as reduced non essential travel and eliminated our discretionary spend.
And finally, we tightened the disciplined control of our highly variable cost structure.
Approximately 70% of our cost base has been minimal initially our cost structure from potential demand shocks experiences or as a result over 19.
Furthermore, we have continued our diligence around accounts receivable and cash collection procedures.
Our daily Invoicing and light working capital business model and a significant advantages regard.
As a reminder, our business generates healthy operating cash.
Operating free cash flows as we English our customers daily for the work we perform.
We have minimal working capital requirements as we do not take the ownership of the concrete we place.
We believe that our ability to generate strong free cash flows along with our strong margins provides us with the ability to de lever and strengthening our balance sheet overtime, even in the current environment.
During the second quarter, we invested approximately $4 million and net capital expenditures, which has significantly below our historical seasonal spend.
Reflecting the suspension of uncommitted capex once the onset of the fun damn it became a part of.
As previously reported or me 11, she to pre announcement. We believe we are currently well positioned to navigate the current covert 19, and vitamin I'm prepared to leverage an economic recovery.
Given the heightened uncertainty about the economic recovery associated with a pandemic we have withdrawn our 2020 financial outlook provided on January 14 2020.
However, the combination of our healthy operating cash flow highly variable cost structure and ample liquidity with no near term debt maturities foods in a position of strength as we manage the business through the pandemic.
Finally, you can expect our 10-Q filing to be filed in the next few days, it's just slightly earlier than scheduled due to the disclosures related to the complexities with Goldman 19 with that I will never turn the call back over to Bruce. Thanks, Ian I now want to make some broad statements about how we see the remainder of the your shaping up and how CPH, we'll let.
Average its strength to succeed moving forward at the moment, we aren't experiences experiencing a significant drop off in demand. Some projects are getting delayed and even a small number are being canceled but for the most parser projects are expected to move forward and bidding environment is still relatively healthy. However, we are taking a cost.
Just approach to our growth expectations, while still remaining optimistic.
We do still expect to report year over year revenue growth in our U.S. concrete pumping in waste management services, but at a lower rate than originally contemplated in our outlook earlier this year.
And our UK market, we have seen encouraging signs of recovery with revenue steadily increasing each week the pace of recovery in the UK is slower than in a market like Seattle, because many of our customers employees rely on public transportation to arrive to one from work. However, we are seeing these headwinds slowly subside and would expect to see.
Near full recovery through the remainder of our fiscal year.
Well, it's difficult to know when normalized business returns throughout the world and I doubt there will be one playbook that fits all regions.
What we do know is that our company is well positioned both now and then no recovery.
We have focused on proactive measures to rationalize expense and manage cash cash flow are highly variable cost structure makes us well position to accelerate growth and drive profit when conditions stabilize we also have a solid balance sheet with improved liquidity no near term debt maturities and like financial covenants are favor.
Total operating cash flow characteristics position positions us well to safeguard liquidity into service our debt obligation.
We have an unrivaled geographic footprint in the U.S. in UK as well as highly diversified end market exposure. This could clearly benefited our business in the second quarter as pockets of our operation, which temporarily shut down and only modest impact to our overall business, we have the financial profile and.
And available liquidity to weather the storm and we're confident we will emerge stronger on the other side.
In closing we wish you your colleagues and everyone's families. The very best during these trying times.
We are highly committed to maximizing shareholder value and supporting our employees in our partners in the coming months ahead with that I'd now like to turn the call back over to a Hector for acuity Hector.
Thank you Sir at this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation tonal indicate your line is into question Q.
You May press star to if you'd like to remove your question from Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith one moment. Please all we poll for questions.
Your first question comes from line to Brent dealing with D.A. Davidson. Please proceed with your question.
Great. Thank you good afternoon.
Hi, Brian.
You can I guess, it's kind of looking at the pipeline going forward.
In any major evolution from the projects are factored you regret not thinking, particularly within commercial or.
Good thing through to gravitate more towards.
Cool maybe about through hospitality is anything kind of the identified there.
Yes, so the way we identify our end markets. So we have residential.
Commercial or.
Nonresidential and then infrastructure and infrastructure is anything that's publicly funded.
As we've watched the different end markets says we've gone through the pandemic there hasn't been any real change and revenue mix or end markets are seeing very consistent.
We have had some concerns about a residential as there were many large homebuilders that had had stopped any new starts a when the pandemic started but as that market is now rebounded and no starts are quite strong again.
I'm going into a throughout the rain remainder of the sheer we feel fairly strong that all of our end markets with our backlog will stay very consistent with what we're currently seeing then we're monitoring very closely how things will look into 2021.
Okay and Bruce.
Talked about the sorta spread on margin I think somewhere in that 3% to 4% range between commercial and residential related work and I know, that's generalizing a bit but within that commercial sector should we be thinking about any major dances with respect to market.
In terms of these certain sectors, so maybe high rise office tower.
Capture more margin than no something in the lower right after.
Uh huh.
Yes, so when we're doing work that uses our specialty equipment. The margins can be higher on on that type of work, but we use the same analytics to figure out or pricing for all end markets and in all geographies. So our margins should be fairly consistent outside of that specialty work.
Okay. My last question just on eco pad no good momentum here.
I typically I think you do see improved margins as we get into kind of the second half the fiscal year I.
I know you guys aren't getting quantitative expectation, but qualitative outlook still sounds pretty good and that would that still be your expectation could have businesses remember that the second half.
Yes.
Okay, great. Thank you.
Thank you.
Our next question comes from line, Andrew Wittmann with Robert W. Baird. Please proceed with your question.
Hi, Greg. Thanks, I guess my question would be just to try to get some context here.
And on the amount of revenue that you think was lost due to shut down.
In year, two primary segments in particular, and just wondering if that is now basically pent up demand for the president quarter in other words would we expect an unusually strong third quarter. That's results those delays, it's you're maybe your utilization spikes as you guys, maybe you're working overtime to catch up I don't know you tell.
But that's the kind of question, but I'd like to understand a little better.
Yes, so am I mean, I mean in terms of the catch up I mean, as we normally see dependent on our kissed customer's ability to catch up then we can certainly much there slide on the on the revenue and in terms of how much was lost and then as you know from where you keep perspective with our where the markets largely through a piece of March and April.
But the business being done and some 70% I mean, obviously that was there.
At the have lost revenue just for those let's say half the quarter.
As we talk to that is 25% expectation that we achieved on revenue into Seattle market and that was where the lost revenue was in the U.S. So between the U.S. and UK I mean, those would be the exit we would catch up one no depending on like is that how quickly our customers can move and we are seeing.
And so faster recovery in the U.S. and we have seen in the in the UK, but we would match that expectation with our customers as they can mobilize back to site.
Great that's helpful.
One of the other things I wanted to ask about was but I guess the infrastructure piece of your business no.
Largest piece of your business, but there's been a lot of wrangling about keep the health and state local budgets gas taxes in particular as it relates to a road related infrastructure.
And I was just wondering if you could tell us what you're hearing from your customers in what you're seeing from your customers in terms of their schedules in their planning here have you seen any delays from them as they're getting more concerned about their budgets, perhaps or impact on that part of the business.
Hey, Andy This is Bruce thanks for the question. So as we track our infrastructure as you know, it's roughly 10% of a revenue a little bit better. We've only had one project a that has been put on hold it is currently under construction and I was a waste water treatment plant in Oregon.
The rest of the projects are on going under our concerns about next year and how those projects that are plan will be funded based on a.
State and federal budgets, we're monitoring that closely.
And we'll have to watch and see you know any kind of infrastructure support that comes up to support some of those projects.
Okay great.
I'm going to leave it there thanks.
Okay.
[noise]. Our next question comes from line of sand customer with William Blair. Please proceed with your question.
Hey, Bruce same my coming through all right.
Sam.
Perfect I'm just to help expanding are softening demand comments can you help break down how much about as from delayed projects first and fully cancel projects.
Yes, so while well it's hard to quantify there were several in Seattle, we were off to 75% when the market was shutdown. So certainly those projects were delayed.
Almost two months period of time in that area. We had other projects primarily in the southeast that were put on hold for for up to a month, but it's fairly minimal and the southeast to the Seattle market was probably where we saw the most impact all those projects that were put on pause or now are now moving forward.
Okay, perfect switching gears back to eat Okay first back within the UK for a few quarters now you've had some eco can't branches go there I'm wondering if you could share how its performance compares your initial expectations and kinda comparisons to the U.S. operations.
Yes, so we don't break equal pan out separately in the UK, we have one truck there. So it's just one operation that we run in the London area. It was a little slower to to start out. However, we are starting to gain some traction there and there's somebody legislation on water quality that we believe that will come out in the very near future.
We will help support that to improve even faster, but it hasn't been a little slower start up than what we would have expected and what we see in the U.S.
Okay, great. Thanks, My commentary and good luck next one here.
Thanks SASSA.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. One moment. Please why we pulled from more question.
Our next question comes from lineup Stanley Elliott with Stifel. Please proceed with your question.
Hey, guys. Thank you for a for taking the question I apologize I got a little bit late can you talk about <unk>.
Yeah, I heard you say bidding activity remained fairly healthy, but what about these markets like Seattle in the UK that were down so meaningfully in the corridor.
What sort of deterioration or are you seeing into pricing for those sorts of projects as the markets recover and people are trying to get their assets utilized.
Yes, we're not seeing any deterioration in price no in spirit, Seattle, specifically the conditions to open up require more monitoring of employees. The projects are not as efficiently run is what they were prior with the new restrictions and so the portion that we are doing or are smaller and take more.
Time to do which actually pushing things out for more more work for us as as and as the UK opens up I see that we're going to see a lot at the same can conditions in those markets. So while they would like to kinda have a bump but getting caught up because then you conditions. It's really just just trying to stay the course.
Yes, that's actually because I I would I would think that as well that less people needed for various pores do you think this is an opportunity that oh.
Pumping can actually continue to take more share from from filling up a bucket.
Oh absolutely.
Well what about the the UK business remind us again, when you have some of the high speed rail sort of projects or start to we'll start to kick in and.
Does that end up getting pushed out further because of what's happening with with the virus.
No what we're seeing in UK is that they're putting emphasis on infrastructure and specifically Hs to another major projects to spur the economy and get couldn't construction people back to work.
Last month, the there was a major contract that was let out a is the first major contract at the project.
And we've had the opportunity to secure some of that work. We are now starting on the Hs to project and we expect that to build up through the remainder of this year and become quite strong in 2021.
So we should expect you all to start showing revenues from from pouring it does locations in the back part of a 2020.
I think you'll see some of that in Q3 of this year and and it will continue through the back half it it'll continue to improve through the back half of 2020.
Perfect and then you know this.
Kind of modeling question, but you you with the DNA pizza business in so many changes too.
You know from from acquisitions et cetera, it's like a 26 million run rate kind of the way to think about SGN a ought to go forward basis, just be curious to hear what you would a point us to there.
Yeah, I mean, obviously it means that selling as you know I mean that would include the noncash items as well so I mean so.
Well see factoring in the non cash and <unk>.
Assessment right.
Perfect guys. Thank you very much best of luck.
Thanks, gentlemen.
At this time this concludes our question and answer session.
I'd now like turn the call back to Mr. young for closing remarks.
Thanks sector, we'd like to thank everyone for listening to the call today and we look forward to speaking with you. When we report our third quarter fiscal 2020 results in September. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
[noise] [noise].
[music].