Q2 2021 Concrete Pumping Holdings Inc Earnings Call
[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss concrete pumping Holdings' financial results for the second quarter ended April 32021.
Joining us today are concrete pumping holdings' CEO, Bruce Young CFO, Ian Humphreys on the company's external director of Investor Relations Cody floor before we begin I would like to turn on the call over to Mr. Small to read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1095.
That provides important cautions regarding forward looking statements Cody. Please go ahead.
Thanks, Paul.
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 uncertainties.
<unk> 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 for the Investor presentation posted on the company's website.
I'd like to remind everyone on this call will be available for replay later this evening on 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 on the company's website.
Now I'd like to turn on the call over to the CEO of concrete pumping holdings Bruce Young Bruce.
Thank you Cody and good afternoon, everyone I am very pleased to report that our second quarter and continuing to highlight the resilience of our business the flexibility of our projects and the profitability of our business model.
<unk> record setting submarine temperatures in our Texas market that brought our business to a halt for half the month of February the same cold weather front also affecting construction activities in our central region, especially when compared to unseasonably favorable weather and favorable weather conditions experienced in the prior year. However is a testament to our resilient business model.
We delivered a second quarter that returns solid consolidated revenue growth strong margins and free cash flow performance that was in line with our internal expectations.
Included continued growth in our market share strength in our residential and infrastructure projects and the continued recovery in our commercial work. We continued to demonstrate our strong financial profile with $28.5 million and year to date free cash flow that contributed to our improving total available liquidity of 130.
$34.9 million.
Given our execution to date, we remain in a strong position to execute upon our strategic priorities and financial outlook and 2021.
To provide a bit more detail about our Q2 results total consolidated revenue improved by 4% compared to a year ago. Our second quarter last year was partially impacted by COVID-19, as the pandemic really started to set in during the month of April.
Our ability to return to revenue and margin growth is a testament to our scale diversified regional end market exposure in our highly variable cost structure.
Now to review, our individual reporting segments and our U S pumping business revenue was down slightly due to the historic Winter storm in February impacting our Texas and central regions and continued COVID-19 headwinds and somewhat for a commercial project. This volume headwind was mostly offset by continued strength and market share expansion in our other.
Regions across the residential and infrastructure sectors.
And our U K segment revenue was up 41% due to a strong recovery from the impacts of COVID-19, as our U K operations were hit harder by the pandemic earlier and for a more prolonged period in our U S business and eco Pan revenue increased almost 9% due to continued organic growth pricing improvements in <unk>.
In our roll off service adoption.
Eco Pan revenue growth was slightly muted when compared to the pre pandemic times due to our team's difficulty to thrive in a virtual sales environment, however, with our customers getting more and more comfortable in a virtual selling model and with the gradual reopening of the economy. We are optimistic about returning to our double digit sales growth rate soon and for.
<unk>, we continued to make additions in our eco pan salesforce during the quarter to strengthen our longer term growth strategy.
Now turning to some end market commentary in the residential market demands being especially strong for single family homes, and we have been able to capitalize on that momentum.
As discussed on our prior calls residential construction has been a bright spot for our company and we expect it to represent roughly a third of our total sales this fiscal year compared with 30% in fiscal 2020.
While the pandemic has caused some weakness in the commercial construction markets. We have intentionally shifted our focus on tables are tailored our fleet management to catheter capture residential opportunities and then picked up several new customers as a result.
From a commodities and supply chain perspective, the recent longer shortages and other impact cost increase and the industry have not affected demand for our services and we expect the residential market has remained strong over the near term staying on commodities for a moment there are some headwinds on human availability in our U S business several cement.
<unk> have undergone critical maintenance, which has introduced some regional tightness on the submit material supply. While this is expected to be a short term issue. There is yet. Another example of our fleet of or the value of our fleet management agility scale and diversity while.
We do not purchase transport our own this commodity wherever possible, we are utilizing our breadth of relationships to help mitigate any project delays for our customers may face. We are also seeing continued success with our infrastructure projects in the U S and the U K. The U K market has always been infrastructure project heavy including the concrete intensive high speed rail.
Project debt was flat debt will last beyond 2030.
In the U S. We have a steady flow of industrial projects supported by public funding, including bridges schools wastewater treatment plants on hospitals much talk as it relates surrounds.
And the current administration's proposed infrastructure Bill.
We believe an infrastructure bill will ultimately be passed although the size timing and many other details are still unknown importantly, our current outlook for fiscal 2021 does not include possible benefits of an infrastructure Bill as we believe any resulting construction would not begin until fiscal 2022.
However, many states are beginning to return to physical health and we should be able to capitalize on increased infrastructure spending on the state level with or without the pass through of an infrastructure Bill as a result, the infrastructure verticals can become a larger percentage of our overall revenue mix over time.
Commercial projects continued to recover along with the nation's recovery for the pandemic. This includes continued progress in high growth markets, such as fulfillment centers and data centers for reference we have completed multiple fulfillment centers that require as much concrete is 25 storey building and are currently working on projects that are as <unk>.
<unk> is a 50 story building the typical datacenter requires about 80% of the amount of concrete and a typical fulfillment center.
So we were pleased with our operational execution on financial performance in the second quarter and what's the trajectory. It puts on us for the remainder of the year I'll return to discuss our long term growth strategy and provide a market outlook, but for now I will pass the call off to Ian to discuss our second quarter financial results.
Thanks, Bruce on good afternoon, everyone.
Moving on right into our second quarter of 2021 on results consolidated revenue increased by 4% to $76.9 million compared to $74 million in the same year ago quarter.
The revenue increase was mainly driven by organic growth in the UK operations as the U K construction market continues to emerge from the impacts of Brexit and Covid related shutdowns.
Additionally, our U S concrete waste mines will business operating under the Eco Pan brand showed improved momentum and solid organic growth of almost 9% when compared to the same year ago quarter.
Turning now to review our individual segment performance revenue in our U S concrete pumping segment.
Mostly operating under the Brundage bone brand was $56.2 million compared to 57.5 million in the same Utica low quarter.
The slight decline is attributed to the construction volume impact of the prolonged cold weather front that dominate the lower 48 in February and in particular, our southeast and central regions, including Texas, Oklahoma, Kansas and Colorado.
For our UK operations operating largely under the pump the comfort brand.
Revenue improved 41% to $11.9 million compared to $8.4 million in the same unit growth quarter.
This organic growth is largely attributed to the fact that the prior year period was impacted by COVID-19 shutdowns as a U K abruptly locked down on the at the onset of the pandemic.
We are pleased to report that the UK is now running at over 90% of our pre COVID-19 revenue run rate and.
And we are optimistic about the rest of the year as the UK region.
Reaching cover continues to recover.
Rapidly.
Revenue on our concrete waste management services segment increased almost 9% to $9 million on the second quarter of 2021 compared to $8.3 million in the same quarter.
This increase was due to solid organic volume growth pricing improvements and growth in our roll off service adoption.
As Bruce mentioned, we expect a return to double digit growth in this segment as the U S continues to reopen our sales teams are able to meet with customers in person.
Returning to our consolidated results gross profit in the second quarter improved to $33.3 million compared to $31.9 million in the same beautiful quarter and gross margin improved 30 basis points to 43, 3% compared to 43%.
Margin expansion is reflective of the improvement in revenue volumes on a disciplined control over variable cost.
General and administrative expenses in Q2 were $26.5 million compared to $26.4 million in the same year ago quarter.
The increase in G&A expenses of less than 1% share the revenue increase of 4% due to our team's successful efforts putting cost containment measures in place at the onset of COVID-19.
As a result of an $11.5 million fair value adjustment to warrant liabilities in the second quarter. The net loss available to common shareholders was $11.4 million or 21 per diluted share.
This compares to a net loss of $56.2 million or $1 <unk> per diluted share in the same year ago quarter.
Later in our commentary I will discuss the basis of this fair value warrant liability adjustment.
Adjusted EBITDA in the second quarter increased 6.5% to $25 million compared to $23.5 million in the same unit growth quarter.
Adjusted EBITDA margin increased 80 basis points to 32, 6% compared to 31, 8% in the same year ago quarter.
And our U S concrete pumping business adjusted EBITDA was $16.3 million, which is consistent in dollar terms with the same quarter, a 60 basis points higher than EBITDA margin percentage.
On our UK business, adjusted EBITDA improved 64% to $4.1 million compared to $2.5 million in the same year ago quarter, given the sharp recovery in our current organic revenue growth.
For our U S. Construction waste management business, adjusted EBITDA was $4 million compared to $4.1 million in the prior year quarter.
As Bruce mentioned, we have made strategic investments in our eco pump sales team ahead of Reaccelerate. The top line on our profitability. In this segment is reflective of these investments.
Now turning to our capital structure on liquidity.
On April <unk> 2021, we had total debt outstanding of $376.1 million or net debt of $362.4 million, which equates to a net debt to EBITDA leverage ratio of approximately 3.4 times.
We had on approximately $134.9 million on liquidity as of April <unk> 2021, which includes cash on the balance sheet and availability from our ABL facility.
This is an improvement of 14% compared to January 31st 2021, and greatly enhances our balance sheet capacity and ability to pursue accretive investment opportunities like M&A as well as support our overall long term growth strategy.
As a reminder, following our strategic refinance activities in January this year and our high cash generation business model. We have successfully lowered our income state interest expense by $5.3 million on our cash interest paid expense by $10.8 million year to date.
We have no near term debt maturities with our senior notes and asset based lending facility maturing in 2026.
Our business continues to generate healthy operating free cash flows.
We invoice our customers daily for the work, we perform and we have minimal working capital requirements. Since we do not take ownership of the concrete we place.
As an example of a healthy cash flow model, we have generated approximately $28.5 million and free cash flow year to date in fiscal 2021.
This equates to a free cash flow conversion rate from adjusted EBITDA of approximately 60%, which is well above our historical average.
Even through the current macroeconomic environment, our ability to generate strong free cash flow allows us to expand our liquidity position and de lever and align with our strategic goals.
And what was a relatively straightforward CT are operationally the SEC came out with a statement on April 12, which introduced new interpretations of the accounting guidance for warrant structures that are common and special purpose acquisition corporations.
The FCC's perspective is the most back wall and should be presented the liabilities on the balance sheet and mark to market each period.
So we have restated our prior audited financial statements in order to conform retroactively with the FCC statement.
The 8-K, and 10-K filings registered on Friday, and our 10-Q filed today provide the detail on this non cash mark to market impact on net income, which is valued using quoted market prices of our public warrants on our probably modestly a function of our stock price movement.
It falls below operating income and has nothing to do with the actual performance of our business operations.
This change does not impact any of our key operating metrics or any of our GAAP metrics above operating income or any of our non-GAAP metrics.
It also does not impact our capital structure on it any way such as on net debt our leverage covenants in our debt facilities or our economic share count.
I believe the point here is that this change does not alter the way, we think about our business in any way and we continue to be as transparent as possible about how the business is performing.
As a reminder, all of our outstanding public warrants expire on December of 2023.
Turning now to provide an update on capex investments, we have been consistently making improvements to our existing concrete pumping fleet age.
This is critically important for several reasons.
First by improving the age of our fleet, we inherently enhances safety and reliability over equipment, we lower our repair costs and reduced repair time, which helps stimulate opportunities to capture project wins with new customers.
Also on enhanced fleet helps attract qualified employees and often improves employee retention.
Our consistent investments in our fleet of equipment also underscores the strength and confidence that we have on our business outlook.
The combination of improved repair costs and improved equipment capacity and ensure that our fleet uptime is optimized shooting our busiest periods.
These are critical factors in driving improved margin performance across the business.
As 2021 progresses, we will continue to apply a prudent capital allocation and remain opportunistic with strategic and accretive Capex investments.
Our fiscal year 2021 financial outlook remains unchanged on our second quarter results were in line with our internal expectations as our U S and UK markets continue to recover from the Q2 weather and COVID-19 disruptions.
As a reminder of our previously released 2021 guidance, we expect our full year revenue to range between 303 hundred $10 million adjusted EBITDA to range between 105 on $110 million on free cash flow, which we define as adjusted EBITDA less net capex and less.
Cash interest to range between $47.5 million to $52.5 million operationally and financially. We remained strong and we are actively working to execute on our growth strategy.
With that I will now turn the call back over to Bruce.
Thanks, Ian in the second quarter of 2021, we were pleased with our organic growth and the trajectory of our business.
We're gradually returning to a normalized state in both the U S and the UK and we look forward to driving scale through continued organic growth as well as strategic M&A.
Regarding our organic growth strategy, we have some exciting news to share as we enhance our U S national sales strategy to capture capture additional growth opportunities.
In our eco Pan business, we continue to build our U S sales team and strategic locations to enhance the reach of our service and communicate the disrupted economic value of our service offerings to new customers in our U S. Pumping business. We are delighted to announce that we have recently hired Tom O'malley as our senior Vice President of <unk>.
<unk> and marketing.
Tom joins our executive team after 25 years as a senior executive with Schwing America, who is a leading global supplier of concrete pumping equipment.
We are very pleased to welcome Tom to our team and his first class industry expertise will be valuable in driving the continued development in our U S national sales strategy.
Now turning to our acquisition strategy that I've shared in prior earnings calls, we have a clear criteria for how we approach potential acquisitions, we continue to balance our disciplined capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and financial flexibility our priorities remain focused on.
On value enhancement acquisitions prudent organic capital investment and the consistent return of value to our shareholders. We continue to prioritize high returning capital investments that enable revenue growth and improving operational efficiencies to drive margin expansion.
The acquisition deals that we're looking at is a robust robust pipeline and our team has consistently had a very disciplined approach to M&A and that is what you will see us continue to do.
We were very clear in these areas, we want to grow and we will continue to develop our market leading share position is this ultimately is this ultimately what is important to accretive value creation looking.
Looking forward to the rest of the year in the U S. Residential construction continues to be an area of momentum and strength for our business and we expect continued demand for these projects for the rest of the year and our infrastructure projects. We also expect continued momentum, especially in areas like the U K in commercial we are seeing the continued continuation of increased investment in heavy.
Industrial warehouses and data centers as E Commerce accelerates and people remain working from home. We expect this investment to aid the recovery over commercial business in the second half of this fiscal year.
In eco Pan we will focus on driving growth despite pandemic related challenges and greatly look forward to accelerating our momentum as the year progresses with that I'd now like to turn the call back over to Paul for Q&A.
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. The confirmation tone will indicate that your line is on the question queue.
You May press Star 2 if you would like to remove your question from the queue for <unk>.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.
Thank you. Our first question comes from Andy Whitman with Robert W. Baird. Please proceed with your question.
Hey, guys. Good afternoon, Thanks for taking my question.
Maybe I was just hoping that you could help us get our arms around the magnitude of the weather in the quarter can you talk about with those 2 weeks in those market cost maybe.
Terms of revenue that got pushed out of the quarter, presumably into another quarter or not canceled but.
Can you also just talk about the mechanism is it all just delayed do you work extra hard and kind of making it up here in the current quarter and then you kind of back on track or does some of that work just kind of domino out of this fiscal year.
And then into next fiscal year, just wonder if we can understand that there's a little bit better.
Yes, Sandy we didn't actually catch up.
Where we were back in February.
<unk> impact on the second quarter was right on the <unk>.
Dollar revenue Mark that you've seen as being slightly behind in the second quarter.
In terms of how that might play out for the SBA, we expect that we will recover that in subsequent quarters, so the 2% impact.
Sure.
Something that we expect will not be able to catch up on and our customers have actually done quite a good job recovering from the quite severe weather in February for <unk>.
Some locations were closed for about half of the month.
Got it okay. So it's a million bucks in the U S segment, 2%. So you guys kind of think of the quarter, it's kind of flat ex weather.
I guess that makes sense.
And then.
Bruce just on the the impacted the flow.
Pat plants being closed in.
The mid market.
I was hoping you could just put a little bit more meat on on that bone as well.
In particular.
I guess, how widespread are these issues it sounds like there are pockets maybe not everywhere.
Could you talk about if if the tightness is.
Getting worse or it's getting better here, even subsequent to the quarter.
So we can understand what the impact is to your business is this is this a new factor do you guys feel like you're going be able to work through this.
And supplement with other work that's going on.
Mike.
Gets you back to the original guidance did you feel like this is.
On your fault, but like is this a is this a negative to your ability to drive to the revenue guidance that you put on.
Yes, certainly it's a little bit of a headwind, but we're comfortable that we can work through it to meet our original guidance, we reaffirm that it's more regional.
And it can be at any point in time during the week, where they just run out of cement we may be delays some of them. Some markets are shutting down on.
Im happy day on Friday that sort of thing but.
It hasnt been a significant impact to us yet we don't think it will be during during the summer, but were certainly watching that and making sure that we bring the assets into the areas that arent as affected.
Got it.
<unk>.
I guess, maybe just my last question here.
Just.
What are you seeing on the infrastructure side of the business in the U S. Certainly it's strong in the U K.
For some time.
Even if we're starting to get into the more of the construction season, the way I think about it.
For that stuff.
We're going to break this year on healthy state budgets and potential.
The stimulus or do you think that's really more of a 'twenty 2 phenomenon, but just wondering.
If states are kind of going after state and local governments are getting back out there.
Flooding award so that these things can get built just kind of curious on the peso.
Sure we are seeing some improvement at the state level with projects that were put on hold that are now started in new projects that are being planned that will help us towards the end of this year on into next year, but it is there is reason to be a little more optimistic about debt.
Okay.
Guys I'll leave it there.
Thanks, Andy.
Thank you. Our next question comes from Sam <unk> with William Blair. Please proceed with your question.
Hey, guys hope, you're all doing volume.
On the labor side of things here 75 wage inflation for a second I want to focus more on labor availability has it been more difficult lately to find and retain skilled workers and has your employee retention rates for frontline workers changed at all in recent months.
It's great question I think the biggest challenge our industry faces not just us, but the entire construction industry is labor.
We've done a pretty good job of retaining the employees that we have for bringing new employees and has been a little more challenging for us we're hoping that as some of the stimulus packages and in folks or are you needing to get back to providing for their families that will open up a little bit more for us, but we've been able to balance it to this point.
It's not getting worse and hopefully it will continue to get better.
Great great.
Maybe switching to page that day here and in Europe.
Last earnings call me today, you mentioned, having several idea as possible acquisition targets.
I was hoping just to get an update on your M&A pipeline here.
Moving acquisition targets out there for you guys. If so what are the primary hurdles that you face in terms of closing an acquisition.
I don't know that Theres any primary hurdles. It's just a matter of getting the right acquisition that is the right fit for US we have several active conversations going on and we're hoping that we'll be able to act on some of those at some time in the future.
Cool I appreciate the commentary.
Alright, Thanks, Tim.
Thank you. Our next question comes from Brent Thielman with D. A Davidson. Please proceed with your question.
Okay.
Hey, Thanks, good afternoon for CN.
Question on <unk>.
Eco Pan and maybe just an update on net sales force growth initiatives, where do you feel like you are with that and your expectation right now debt.
It still might cause a little bit of margin headwind.
Next couple of quarters, and maybe just a follow up to that how do you think about kind of returning to that double digit growth pace that you've seen in that business.
And of course for this year.
Yes, Brent Brent Thanks for asking that question. So as you know it was with concrete pumping most contractors know that if they can't drive for ready mix truck to the point on placement concrete pump is the best for most efficient safest way to place a concrete with with eco Pan is taking people from using some kind of a legacy legacy system that they used to.
2 using our system in having us show them, how much more environmentally compliant and cost effective at the same time.
So that's something that's more difficult to do on a virtual environment. We've done a good job of gaining some share in growing the business.
But not at the rate that we had in the past and that was as offices are getting back to work and we have the ability to to meet with folks we expect that to accelerate and we expect to get back to double digit growth by the end of the year.
Okay. That's great and then can you guys comment on utilization levels on the pumping debt I guess between the U S.
In UK, whether thats on average for the quarter or where you closed out the quarter just be curious where.
Lots of different designs between the 2 regions.
Yes, I mean.
The differences between the regions.
There is largely on the available we look at the.
Utilization by Joel and the U K and we looked at the utilization by hours in the U S is typically we get multiple jobs in the U S. As opposed to the U K in terms of percentages that actually quite compatible and consistently around the second quarter of our business.
We usually see utilization rates in the high Seventy's and Thats, where we are today, so thats quite comparable with last year. So the utilization trends that we see in our business, where we expect them to be for the second quarter.
Okay, and then you all had net price adjustments going into effect in January I guess I'm, just wondering if inflation gets a little more per day said labor.
It's always been challenging, but I mean, any anticipation of additional price adjustments needed at this stage in the fiscal year.
We are following that fairly closely.
The 2 things that we're most concerned about would be labor inflation in petroleum products fuel that sort of thing.
Right now we've been able to keep those are fairly consistent with what our expectations are that we'll continue to watch that and adjust as necessary.
Okay. Thank you guys.
Thanks Brent.
Other reminder, if you'd like to ask a question. Please press star 1 on your telephone keypad confirmation tone will indicate that your line is on the question queue.
Okay.
Thank you. Our next question comes from Steven Fisher with UBS. Please proceed with your question.
Thanks, Good afternoon guys.
In terms of seasonality your guidance implies around 55% of <unk>.
EBITDA in the second half.
I might have thought in the second half would be a higher percentage of that I had given.
Just to kind of weather patterns affecting your business.
And the first half issues with Covid in and.
And the severe weather, so I'm wondering if maybe or.
Second half.
Guidance imply it has some conservatism in there at the moment.
Yes, Hi, Steve.
We've said before I mean, what we typically see from a seasonality perspective is that our business is $45.55 and across our business. So and that's why we have reaffirmed guidance I mean, we're right around that range that we would expect to be performing at.
So the expectation for the second half is right around that 55% Mark as you mentioned, so we're right on pace.
With delivering that in the second half for the year.
Okay.
And in terms of inflation I guess, how would you anticipate this will affect your capex over the next.
Rest of the year and maybe into next year I know you're trying to take your fleet age down.
Imagine your suppliers are facing some inflationary pressure. So how is that being passed along back to you and how are you preparing for that or how are they preparing you for that for for next year.
Yes, so as we're as we're looking for the the Capex requirements for next year I mean, obviously with an early discussions on those.
On pricing measures would look like we arent seeing any meaningful change in pricing at this moment.
I mean, largely driven by I mean, as you know we are the largest purchaser of this type of equipment in the U S and the U K. So we have some scale purchasing.
We can work with Oems zone, So we haven't seen any meaningful change in pricing at this moment.
Okay. Thank you very much.
Thanks Pete.
Thank you there are no further questions at this time.
This does conclude our question and answer session I would now like to turn the call back over to Mr. Young for any closing comments.
Thank you Paul 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 2021 results in September. Thank you.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.
Okay.