Q3 2021 Brundage-Bone Concrete Pumping Holdings Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss concrete pumping Holdings' financial results for the third quarter ended July 31st 2021 joining us today are concrete pumping holdings' CEO Bruce Young CFO.
Yeah, Humphrey and the company's external director of Investor Relations Cody saw before we go further I would like to turn the call over to Mr slot to read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statement.
Cody. Please go ahead.
Thanks, Laura 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.
Payments 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.
The concrete pumping Holdings' annual report on Form 10-K quarterly report on Form 10-Q.
They're 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.
Your presentation posted on the company's website.
I would like to remind everyone. This call will be available for replay later this evening.
This replay will also be available via the link provided in today's press release as well as on the Companys website.
Additionally, we have posted an updated investor presentation to the Companys 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 and thanks for joining today's teleconference. I am pleased to report that after a challenging weather start to the third quarter. We had a strong finish that highlighted the relative resilience and flexibility of our business at the beginning of the quarter, we experienced well above average rainfall in many of our markets, including Texas, Colorado and Arizona.
Because of the higher levels of precipitation in many of our customers projects in the month of May were delayed, but I am delighted to report that our team performed exceptionally well catching up in June and July and we ended the quarter with 5% year over year consolidated revenue growth.
This was driven by strong demand within our residential and infrastructure markets and our teams ability to opportunistically improve our rate.
We continue to grow market share and have maintained a strong financial profile with $45 million and year to date free cash flow that has driven significant improvement in our total available liquidity.
Based on our solid results to date, we remain in a strong position to execute our strategic growth priorities and financial outlook and 2021 and beyond.
Within our individual reporting segments, our U S pumping business was slightly low lower due to the above average rainfall that I just discussed as well as lingering COVID-19 headwinds in some of our commercial projects like last quarter. This volume headwind was mostly offset by strong results in market share expansion in our residential business.
<unk> and continued growth in infrastructure.
And our U K segment revenue increased 37% due to continued strong recovery from the impacts of COVID-19.
In eco Pan revenues were up 8% due to organic growth and pricing improvements eco Pan remains an important part of our long term growth strategy and during the quarter. We made great strides in further building out our sales team now.
Now turning to some end market commentary, we have continued to see strong demand within the residential market, especially for single family homes, we have been able to capitalize on this momentum in our residential construction continues to be a bright spot for our company today as for the commercial market dependent continues to cause some weakness.
As we discussed in our prior earnings calls, we have intentionally tailored our fleet management to capture residential opportunities while the commercial market recovers in the near term, we expect greater share of our overall revenue will come from residential projects.
We are continuing to see momentum with our infrastructure projects in the U S and the U K and the U K. Our team continues to work on the concrete intensive high speed Railway project that we expect will last beyond 2030 in the U S. We've seen increased public funding from state governments for bridges schools wastewater treatment plants and hospitals.
As for the current infrastructure build that is being debated in D. C. We believe that federal federal infrastructure Bill will ultimately be passed although the timing size and many other details are still unknown, regardless of whether an infrastructure Bill gets passed we expect to be able to capitalize on increased infrastructure spending at the state level import.
I want to note that our current outlook for fiscal 2021 does not include possible benefits of an infrastructure Bill.
Our commercial end markets continues to recover along with our nation's recovery from the pandemic as we reported last quarter. We've seen continued progress in high growth markets, such as fulfillment centers and data centers, both of which are concrete intensive projects.
We are actively bidding projects that require specialty equipment and it is expected that these projects will begin in early 2022.
On the cost side of the business. The most notable headwind that we encountered in the third quarter was from diesel fuel as a reminder, in our first two quarters of this year, if fuel was neither a headwind or a tailwind in our third quarter not only did we absorbed pure price increases of almost $1 per gallon compared to last year, but we were comparing to a quarter where much less.
You'll was consumed give me the lower traffic congestion due to COVID-19 related lockdowns.
In times, when we face inflationary cost pressures such as diesel fuel increases we update our prices accordingly, and there is typically a lag as we burn off current workload as previously agreed pricing.
Now we now looking at labor, we continue to endure challenges from availability of qualified workers due to the current tightness in the job market. It remains difficult to attract new and qualified talent given the various COVID-19 stimulus keeping some workers on the sidelines.
This isn't something that just impacted our business various trades across many of our customers projects also found workers hard to acquire in the current environment.
While our business has business generally has unique levers to pull to combat labor headwinds like a higher wage space, which generally helps attract more sticky talent unique environment experienced this quarter was difficult to fully offset.
We have acted on both labor and fuel cost inflation by Opportunistically, raising our rates and.
In other areas of the supply chain I am pleased to say that the C met headwinds, we mentioned last quarter. We're short term it did not noticeably affect us or our customers in the third quarter.
We were also able to maintain safety uptime and reliability of our equipment by holding a stable and consistent inventory of repair and maintenance parts.
During the quarter, we successfully executed upon M&A strategy by securing a strategic acquisition of 16 countries pumping trucks from our construction company in Southern California market. We folded the majority of those trucks into our southern California location and redirected some excess equipment into the Las Vegas market.
Las Vegas represents a greenfield expansion for us and we're excited to say anyway have quickly established a strong team that we believe is the right fit to pursue opportunities.
Would be an attractive market for our business.
Our new our new senior Vice President of sales and marketing Tom O'malley, who is off to a great start is working hard to drive continued development in our U S National sales strategy in order to capture additional growth opportunities. In addition, as we announced today, we successfully acquired the assets of high Tech concrete pumping services Hi Tech is an established.
Concrete pumping service provider, primarily based out of the Houston Metro area that shares our core values of safety people and reliability high tech, notably and improves our market share in the Houston Metro area and further strengthens our presence in southern Texas.
The acquisition will be immediately accretive to our earnings and similar to other M&A deals we structured it as an asset purchase paying $15.0 million in cash were 34, four pieces of revenue generated equipment, including 32 bone puffs and two placing booms with an average age of approximately seven years.
We have already on boarded and Hy Tech's experienced team and look forward to growing our breadth of services in the fast growing Houston Metro in South Texas markets. Additionally, the acquisition provides a compelling opportunity for us to introduce our eco Pan service to high Tech customers.
Overall, we are pleased we were pleased with our operational execution and financial performance in the third quarter I will return to discuss our longer term growth strategy and provide an updated market outlook, but for now I will pass the call off to <unk> to discuss our third quarter financial results in more depth.
Thanks, Bruce and good afternoon, everyone.
Consolidated revenue increased by approximately 5% to $88 million compared to $78.0 million in the same quarter.
The revenue increase was mainly driven by organic growth in our UK operation as the country's construction market continues to recover from the impacts of Covid related shutdowns.
Additionally, our U S concrete waste management business operating under the Eco Pan brand reported a record $11.0 million in sales, reflecting an 8% increase compared to the same year ago period.
Turning now to our individual segments revenue in our U S. Concrete pumping segment, mostly operated under the Brundage bone brand was $58 million compared to $64.0 million in the same year ago quarter.
The slight decline as mentioned earlier by Bruce was primarily a result of the law.
Construction volume in May due to excessive and above average rainfall in our service and central regions.
However, the team did an excellent job recovering most of the delay in revenue and volume throughout the months of June and July.
So our UK operation is opera.
Largely under the comfort brand revenue improved 37% to $19.0 million compared to $11.0 million in the same year ago quarter.
This organic growth is primarily attributed to the fact that the prior year period was heavily impacted by COVID-19 shutdowns.
U K is now running at near full capacity when compared with pre COVID-19 volume and revenue run rate.
We remain optimistic about the rest of the year and beyond in the U K as regional markets continue to strengthen across the country.
Revenue in our U S concrete waste management services segment increased almost 8% to $11.0 million in the third quarter of 2021 compared to $13.0 million in the same prior year quarter.
The increase was due to solid organic growth pricing improvements and growth in our roll off service adoption.
Returning to consolidated results gross profit in the third quarter was $39.0 million compared to $45.0 million in the same beautiful corner and gross margin was 46, 1% compared to 49%.
The reduction in margin.
<unk> of higher fuel costs are result of fuel price headwinds and increased traffic congestion.
<unk> earlier by Bruce.
We continue to prudently monitor and manage other areas of cost and turning to review, our general and administrative overhead expenses, and QC or $25 million, which is 7% lower when compared to $27 million in the same year ago quarter.
When excluding the noncash G&A expenses really it's all amortization and stock based compensation G&A expenses were $17 million or 21% of revenue, which compares to $22.0 million or 23% of revenue in the same year ago quarter.
As a reminder, and JV this year, we accessed the capital markets to pursue our strategic refinance of our debt facilities. At today. This has delivered the expected benefits of lower interest expense improved balance sheet capacity and lower amounts of cash paid for interest.
In the third quarter interest expense was $8.0 million.
Which compares to $12.0 million in the same year ago quarter.
Net income attributable to common shareholders increased to $5.0 million or <unk> <unk> per diluted share compared to a net loss attributable to common shareholders of $2 million or zero cents per diluted share.
The improvement was driven largely by the aforementioned increase in revenue reduction in G&A expense and lower interest expense.
Adjusted EBITDA in the third quarter was $32.0 million compared to $32 million in the same year ago quarter.
Adjusted EBITDA margin was 35, 2% compared to start to eight 9% in the same year ago quarter.
Looking at adjusted EBITDA by segment adjusted EBITDA in our U S concrete pumping business was $22.0 million compared to $23.0 million in the same Europe quarter in our U K business adjusted EBITDA increased 20% to $5.0 million compared to $7.0 million in the same year ago quarter, given the continued recovery.
That organic revenue growth.
For our U S concrete waste management business, adjusted EBITDA improved 10% to $8.0 million compared to $12.0 million in the same prior year quarter falling up 8% year over year organic revenue growth.
Now turning to our capital structure and liquidity.
As at July 31, 2021, we had total debt outstanding of 375 billion, our net debt of $362.0 million.
After including our year to date Capex investments of $34.0 million net debt has been reduced by $22 million and current net debt levels equate to a net debt to EBITDA leverage ratio.
Proximately six three times.
As of July 31, 2021, we had approximately $144.0 million in liquidity, which includes cash on the balance sheet and availability from our ABL facility.
When compared to our 2020 fiscal year and our current liquidity position has improved by almost $83 million or by 240% from $62.0 million. Other October 31.2020.
This improvement has greatly enhanced the flexibility of our balance sheet and ability to pursue accretive investment opportunities like M&A such as the tuck in strategic acquisitions, we are discussing today.
As a reminder, 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.
Invoice our customers daily for the work people farm and we have minimal working capital requirements. Since we do not take ownership of the concrete we place.
As an example of the strength of our cash flow model, we generated approximately $19.0 million and year to date free cash flow and this equates to a very healthy free cash flow conversion rate from adjusted EBITDA of approximately 53%.
Our ability to generate strong free cash flows allows us to expand our liquidity position secure opportunistic and accretive investments and delever and align with our strategic goals.
Turning now to provide an update on Capex investments, we continued to make improvements to our existing concrete pumping fleet age by improving the age of our fleet, we are safer and more reliable equipment. We have we have lower repair costs and reduced repair time, providing us more opportunities to capture a project wins with our.
New customers.
Following a slight delay on delivery of equipment orders from earlier in the year equipment deliveries were back on track in Q3.
These delayed equipment deliveries in addition to the $14.0 million for growth Capex in Southern California resulted in elevated Capex in Q3 that we expect will normalize to sculpt historical norms in Q4.
The improvements to our fleet are critical to drive improved margin performance across the business.
Additionally, and enhance fleet helps attract qualified employees, which is very important in today's labor market and often improves retention of our existing employees.
We continue to apply a prudent capital allocation and remain opportunistic with our strategic and accretive Capex investments.
Now moving to our full year 2021 outlook, we contained to continue to expect a full year revenue to range between 303 hundred $10 million adjust.
Adjusted EBITDA to range between 105, and $110 million and free cash flow, which we define as adjusted EBITDA less net capex less cash interest to range between $52.0 million or $57.0 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 third quarter of 2021, we were pleased with our ability to grow revenue. Despite weather disruptions and the continued impact of COVID-19, we are gradually returning to a normalized state in both U S and U K and during the quarter, we took steps to drive scale through continued organic growth as well as strategic M&A and our eco Pan.
Business. We're also focused on growth as we build out our sales team and strategic locations to enhance the reach of our service and communicate the disruptive and economic value of our service offering to new customers.
While we are excited to be speaking about the two complementary tuck in acquisitions on this call. We continue to have a robust pipeline of other acquisitions that our team is assessing and we remain very disciplined in our approach to consummate a deal high Tech is a great example of a sticking to that disciplined capital allocation approach as we believe this acquisition clearly.
Fits our criteria of what we look for a high returning capital investment that will enable revenue growth and improve operating efficiencies to drive margin expansion.
Overall, we continue to balance our disciplined capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and financial flexibility. We remain focused on prudent organic capital investment to consistent return of value to our shareholders and value enhancing acquisitions, we'll look forward to continuing to develop.
Our leading market share position organically and through acquisitions for.
For the last quarter of the year, we expect that residential construction will continue to be an area of momentum and strength for us for our U S business as demand remains high for these projects and infrastructure. We are also seeing continue continued momentum, especially in areas like the U K, where we have always been infrastructure heavy for commercial we continue to see heighten.
Demand for heavy industrial warehouses and data centers, given the current e-commerce and work from home trends, we expect our commercial business will continue to recover in the last quarter of the.
This of this fiscal year as commercial construction investment continue and as the economy recovers from the impacts of COVID-19, Lastly, we expect eco pan to continue accelerating, especially as our sales team ramped up and we were able to sell in person.
With that I'd love to now turn the call back over to the operator for Q&A Laura.
Thank you Sir.
We will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Cuomo indicate your line is in the question queue. You may start to move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Our first question comes from the line of Tim Mulrooney with William Blair. You May proceed with your question.
Good afternoon, Bruce good afternoon.
Hi, Tim.
So last quarter, you guys highlighted some potential project delays.
Supply chain shortage of concrete does.
Does that impact your business in the third quarter as well and if so could you could you quantify it for us.
Yes, we've talked about the cement shortages and how that had affected ready mix concrete in the last earnings call. It turned out in Q3. It wasn't as impactful as is Q2 was and really it wasn't a meaningful impact for the quarter and now we have other supply chain issues with steel and other supplies on projects.
<unk> had some impact on us but to this point they haven't been meaningful.
Okay. That's good to hear and you anticipated. My next question Bruce because you did talk about supply chain constraints in your press release this afternoon.
Those are not related to <unk>.
To concrete.
Excuse me it's related to other things like steel would you say that those constraints relative to last quarter have gotten better or worse or about the same.
I would say that there are about the same as what they were in the last quarter and we see them steadily improving.
Okay, so not getting not actively getting worse.
And then as it relates to the uncooperative weather in Texas, and Colorado, and Arizona I apologize if I missed this in your prepared remarks, but.
Any estimate how much that impacted your fiscal third quarter, but pushing revenue out in the future quarters.
Yeah, Tim this is Ian it Nevertheless, we call in our prepared remarks, we largely caught up on that well whether element.
It was probably about $2 million of.
Revenue was impacted in me, but I mean, the catch up was almost all recovered through June and July was maybe about 500000 of revenue.
That was left behind so.
A substantial amount will get pushed so the team's done a remarkable job touching up on that volume in June July.
Okay. That's good that's good to hear and one more for me and I'll pass it along on this high Tech acquisition I guess two parts here number one.
With this acquisition multiple for the business within the normal range.
Typically we expect to pay for a company of this size or you'll have.
Multiples increase in recent years and secondarily I think investors like to see opportunistic bolt on acquisitions like this but can you can you provide us with a sense for how many of these.
Types of bolt on opportunities there are in the U S.
Sure so with the high Tech business as you know as we look at businesses, we look at four times EBITDA.
Or 125 times the value of their country pumping assets or the average of those two and in the Hi Tech acquisition thread the needle on that so it was right in line with where we expected it to be.
And as far as for future opportunities.
We have several very similar some larger some smaller in the pipeline right now that we're currently looking at.
That's great. Thanks for taking my questions guys.
Thanks, Tim.
Our next question comes from the line of Stanley Elliott with Stifel. You May proceed with your question.
Hey, everybody. Thank you guys for taking taking the call.
Bruce could you talk a little bit about the rate you mentioned being opportunistic in pushing that higher.
How much should we think that rate increased.
Over the course of the quarter.
So our rate increase over the quarter was two.
A little over 1% for the quarter now, we really started getting hit with the with the fuel cost early on in the quarter.
And then as you know about 50% of our work is work that we've pre bid and so we already have agreements and we don't have the ability to get the right up on that.
And so as those jobs wind down and new jobs start we basically put our cost our tools to work and determine what the rate should be on future bidding on projects and so.
Well it's a.
It's improving at all.
As those projects run out and if fuel stays at the level its at and and other issues will certainly factor that in as to over the next couple of quarters.
And when you think about kind of the capex as a percent of sales.
Should we think about that I don't want to get too far ahead, but thinking about that in similar terms next year and the reason I'm, bringing it up I brought it up is you mentioned UK running near capacity you talked about a lot of the infrastructure projects. They have to have such a long duration are we looking at a situation, where we will need to move to capex higher too.
To meet demand in some of these markets.
Our utilization rates are still in the high Seventy's, where we target about 85%. So we have quite a bit of capacity to go before we have to start adding organic units. So I think for the near term I think the percentages. We've given you in the past that 10% to 12% of revenue for Capex are going to be pretty consistent.
Perfect and then lastly for me single family continues to be quite strong.
Any concerns about some of your builders being able to find land.
To put down the pads put down the roads et cetera.
It's certainly in certain markets, that's becoming tighter and tighter but the pricing on houses has gotten to the point, where they can afford to move into someone's properties that were.
Unaffordable prior and so I see that still moving on.
Great guys. Thank you very much and best of luck. Thank.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, one moment, while we poll.
Quick question.
Our next question comes from the line of Justin Hauke with Robert Baird. You May proceed with your question.
Good evening.
The time here.
Wanted to ask I don't think you quantified it.
Diesel specifically I think he gave the.
Amount of diesel increase but not the dollar cost and just maybe how that weighed on the gross margin. If you could quantify that just for the quarter.
Yeah, Hi, Justin this is Ian so on the fuel price, Matt as you know it went up at almost $1 from <unk>.
Of the two four a gallon to three four a gallon year over year sort of a 40% increase in fuel price year over year in the quarter. The dollar effect on the quarter was about $1 million and a half.
Okay. Thanks, that's helpful.
And I guess.
Yes.
Okay.
<unk>.
No go ahead Joseph.
Hey.
The second question just wanted to clarify on that.
The acquisition or I guess, it's an acquisition the HD construction that you called out that was in the quarter is that a business or did you literally just acquire equipment there and so it's more of a capex purchase.
This came through a theres a fairly large general contractor in southern California that started buying equipment in 2014 and with the idea that they would go after the infrastructure play and.
After six or seven years of running that business. He has decided that it wasn't for him and so we offer that portion of his business up for sale and largely just negotiated a deal with us to buy as assets for asset value.
Okay, alright that makes sense.
And I guess, just maybe the last question I have here is on eco Pan.
He's given the stat in the past about the the growth of the number of pans in the field just as kind of a leading indicator what was that increase in the quarter. Just so we can kind of think about.
The trajectory there.
Yes, the increase in the core was largely around the revenue increase of the ponds in the field continues to improve.
In line with the organic growth in revenue.
Got it okay.
I've got here, thank you very much.
Thanks Joseph.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Young for closing remarks.
Thank you Laura if we'd like to thank everyone for listening to today's call and we look forward to speaking with you. When we report our fourth quarter and full year full fiscal year 2021 results in January thank you.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
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