Q2 2022 Concrete Pumping Holdings Inc Earnings Call
Good afternoon.
Thank you for participating in conference call to discuss concrete pumping Holdings' financial results for the second quarter ended April 30.
Joining us today are a coffee holding pumping concrete pumping holdings' CEO , Bruce young CFO , Iain Humphries and the company's external director of Investor Relations Cody slot.
Before we go further I would like to turn the call over to Mr. <unk> to read the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 95.
Provides important cautions regarding forward looking statements Cody. Please go ahead.
Thanks, Joey 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 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.
The 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.
<unk>, 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. This call will be available for replay later this evening.
Cast replay will also be available via the link provided in todays press release as well.
All of us on the company's website. Additionally, we have posted an updated investor presentation 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. The revenue momentum and accelerated from our first quarter of 2022 into Q2 with double digit growth across all segments, reflecting continued market share gain and contributions from recent accretive acquisitions. We are very pleased by our 26% consolidated revenue improvement and this is another.
An indication that our business model is resilient and further positioned to take market share.
By reporting segment, our U S pumping business increased 28% in the second quarter, driven by recent acquisitions and our continued market share gain in all end markets. They continue to grow our residential business, especially with single family homes and expect this to remain a bright spot for the remainder of the fiscal year and infrastructure we expect.
<unk> sustained improvement from increased state funding and public project investments such as bridges schools wastewater treatment plants and hospitals.
We will continue to work to wind projects at the state and local level and remain encouraged for future growth prospects due to the passage of the infrastructure investment and jobs Act.
Well, we do not assume any meaningful benefits from the infrastructure Act and our 2022 fiscal year forecast, we are well positioned to capitalize on the increased investment in 2023 and beyond although as of now the magnitude is difficult to estimate.
As a result, the infrastructure vertical should become a larger percentage of our overall revenue mix over time.
In our commercial business the improvement trends, we experienced last quarter continued into Q2 as projects restarted our broke ground due to the lifting of the pandemic restrictions with.
With the exception of hospitality projects, we saw continued demand in our commercial segment and the two quarters of expansion creation encouraging early trend.
And our U K segment revenues increased 14% compared to the prior year quarter due to organic volume growth from the country's continued strong recovery from the impacts of COVID-19, our team continues to secure energy Road and rail projects. In addition to the work that we have previously announced with the concrete intensive high speed Railway project H S T.
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In our eco Pan business, our concrete waste management business revenue increased 25% for the quarter due to the improved sales approach of our teams and our team's ability to execute more in person selling as.
As a reminder, we enhanced our eco pan sales team in 2022 to strengthen our position for long term growth.
Going forward, we continue to expect to maintain eco pan's double digit organic revenue growth.
During the quarter, we continued to execute upon our tuck in M&A strategy acquiring two assets in the southern U S and one in the United Kingdom. The first asset is a business called advanced pumping and it operates primarily out of Corpus Christi, Texas.
This strategic addition will add scale to our South Texas operations and is complimentary tuck in with our existing presence in this area. We also acquired UK screening drought to expand our footprint and service offering in the U K located just outside of Manchester. This addition, enhances our presence in northern England Midland areas to serve.
And serves as a platform for valuable geographic growth.
Our third acquisition was landmark pumping, which provided an expansion into new markets in southern Alabama, and the Florida Panhandle. This acquisition positions us well to benefit from favorable market dynamics and provides a new growth platform for continued geographic expansion.
All three acquisitions, clearly fit our disciplined criteria of providing opportunities for strong returns on investments that position us to expand revenue grow market share and improve margins over time. They also provide added opportunities to introduce our eco Pan service to a wider customer base.
Shifting to the cost side of the business rapid inflation, particularly in diesel fuel continue to impact year over year gross margin comparisons and our team continues to work diligently to recalibrate our rates.
This headwind into perspective, we experienced a roughly $2 million year over year increase in diesel fuel cost in our second quarter or nearly $4 million in the first half of the year. Our team has done an excellent job to us offset diesel price and other supply chain inflation with rate increases. Despite the continued velocity and cost inflation, we're pleased to be.
Realizing the expected return for the same volume of work performed.
Given our performance and near term project visibility we are in a strong position to continue executing on our strategic growth priorities for the rest of 2022, whether that's organic through our through opportunistic M&A now I would like to handle the call over to Iain. So he can provide a detailed overview of our second quarter 2020 to financial results.
I will then return to provide some concluding remarks.
Thanks, Bruce and good afternoon, everyone moving right into our second quarter 2022 results. We are pleased to report that revenue increased by 26% to $96 5 million compared to $76 9 million in the same year ago quarter.
The double digit revenue improvement was driven by a combination of volume growth from our recent acquisitions solid organic growth and improved pricing.
Revenue in our U S concrete pumping segment, mostly offering under the bundled born brand increased 28% to $71 8 million compared to $56 2 million in the same year ago quarter.
Excluding the acquisitions of high Tech and pioneer organic revenue growth for the quarter increased by approximately 15% to $64 9 million.
This increase was driven by improvement in many of our U S markets due to higher construction volumes and pricing improvements.
For our U K operations operating largely under the comfort brand revenue increased 14% to $13 $5 million compared to $11 9 million in the same year ago quarter.
The increase was primarily due to organic volume growth from the region's continued recovery from the impact of COVID-19 and pricing improvements.
Revenue in our U S concrete waste management services segment operating under the Eco Pan brand increased 25% to $11.3 million in the second quarter of 2022 compared to $9 million in the same year ago quarter.
The increase was driven by organic growth pricing improvements and the continued recovery from the impacts of the pandemic.
Returning to our consolidated results gross margin in the second quarter was 44% compared to 46, 3% in the same year ago quarter.
The decrease in gross margin is directly related to inflationary pressures.
Really driven by the continued diesel fuel price escalation that Bruce discussed earlier.
To give an order of magnitude of the material impact of these inflationary pressures versus Q2 of last year, we estimate our gross margin in the second quarter was impacted by approximately 210 basis points due to higher diesel fuel costs.
General and administrative expenses in Q2 were $28 5 million compared to $26 5 million in the same year ago quarter.
The dollar cost increase was primarily due to additional costs. Following our recent acquisitions and it is notable that as a percentage of revenue G&A costs in the second quarter improved from 34, 4%.
99, 6%.
Net income available to common shareholders in the second quarter increased to $5 6 million or 10 cents per diluted share and this compares to a net loss of $11 4 million or 21 cents per diluted share in the same year ago quarter.
The improvement was primarily due to the contribution from increased revenue as well as a two and a half million gain from the change in fair value of warrant liabilities. This quarter versus Q2 last year, where we go to Carter's and 11 and a half million dollar expense.
Consolidated adjusted EBITDA in the second quarter increased to $27 $7 million compared to $25 million in the same year ago quarter.
Adjusted EBITDA margin was 28, 7% compared to 32, 6% in the same year ago quarter.
And our U S concrete pumping business adjusted EBITDA improved to $18 6 million compared to $16 3 million in the same year ago quarter, driven by our strong revenue growth.
And our U K business adjusted EBITDA was $3 8 million compared to $4 1 million in the same year ago quarter. Our strong revenue growth was partially offset by significant inflationary pressures primarily fuel.
For our U S concrete waste management business, adjusted EBITDA increased 16% to $4 6 million compared to 4 million in the same year ago quarter.
Turning to liquidity.
April 32022, we had total debt outstanding of $405 million or net debt of 402 million. We had approximately 96 million in liquidity as of April 32022, which includes cash on the balance sheet and availability from our ABL facility.
We remain in a strong liquidity position, which provides further optionality to pursue value added investment opportunities like accretive M&A or the reduction of our fleet age to support our overall long term growth strategy.
As a reminder, our business continues to generate healthy operating free cash flows we invoice our customers daily for the work we perform I have minimal working capital requirements. Since we do not take ownership of the concrete we place our ability to generate strong operating free cash flows and strong margins all of us to expand our liquidity position.
And Delever in line with our strategic goals, regardless of the macroeconomic environment.
Our fiscal year 2022 financial outlook remains unchanged.
The remainder of our 2020 to previously stated guidance, we expect full year revenue to range between 360 and $370 million.
Adjusted EBITDA to range between 115 $120 million.
And free cash flow, which we define as adjusted EBITDA less net replacement capex less cash interest to range between $55 million to $60 million.
Our guidance remains unchanged with the readjustments made across the business, we expect revenue performance to trend around the top end of the range operationally and financially we have a solid foundation 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 overall, we are very pleased with our Q2 results and a strong first half of the year performance. It certainly gives us confidence in the trajectory of our business for the remainder of 2022, we anticipate continued strength in all three end markets of commercial and residential and infrastructure given the rapid inflation, we experienced in DC.
Fuel we are pleased with our team's performance and offsetting these costs with limited disruption as we think about where our business is positioned for fiscal 2023, we have conviction that commercial and infrastructure will continue to have a strong demand due to factors we are experiencing today.
We remain focused on driving our scale through organic growth and strategic M&A last quarter. We shared that we have earmarked approximately 20% to $25 million towards organic growth capex and specifically new equipment there.
Gross equipment will mostly arrive in the second half of 2022, delivering revenue growth and earnings benefit for 2023 and beyond <unk>.
Additionally, as announced with today's earnings release, the board of Directors has approved a share repurchase program that authorized the repurchase of up to $10 million of the company's common stock through June 15th 2023.
We are committed to strategically deploy capital to drive long term value for our shareholders. We believe that the current macro environment.
Bind with the strength of our balance sheet presents an attractive buying opportunity for our stock this new share repurchase plan as a reflection of the confidence our board has in our market opportunity and our strategy to invest for long term growth.
With that I'd now like to turn the call back over to the operator for Q&A Schmeling.
Thank you Sir.
At this time, we will be conducting.
A question and answer session, if you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue you May press star two.
Okay.
A participant you speaker equipment, it may be necessary to pick up your handset before pressing the star one.
While we pull for questions.
Yeah.
And our first question comes from the line of Brent.
Gentlemen, with D. A Davidson. Please proceed with your question.
Hey, Thanks, good afternoon Christine.
Hey, good afternoon, Brian .
I guess first question just around diesel feel with the actions you guys have taken on the on the pricing side when might we kind of think about your ability to neutralize that effect on the margins that a couple of quarters out any thoughts around that.
Yes, I mean, as you know, but we're working hard to keep that going obviously since Q1 to Q2 the fuel inflation has continued.
I'd say, our team's done a nice job to make sure that we can offset that through through the current quarter.
So our pricing continues to grow and actually outpaces and some of the original guidance that we've got so it's something that we continue to work on them as we're looking at diesel price come through them to make sure we can catch up on our inflationary cost.
Okay.
Okay, and then maybe on the eco Pan business I imagine same effect is sort of happening there on the margin I mean, just maybe your medium term long term confidence in kind of getting the margins back up to that you know high 40% to 50% level as we as we get through some of these inflationary pressures are that there've been confirmed.
The changes in that business.
Yeah, so spreads Theres a couple of things there, we're certainly dealing with inflation with eco pan as well, but we've invested into a lot of new markets now and so we have start up costs in those markets and as we create that route density in those new markets that should continue to improve our margins.
Yeah.
Got it Okay, and then the acquisitions.
The high Tech and pioneer deals I mean are those contributing margins below the segment average.
The margins are largely in line with the rest of the performance of the business and obviously, we're still dealing with the same inflationary pressures, but the margins are I mean, the businesses I know fully integrated into our heritage business and the margins are our vacuum language, where we would expect them to be.
Got it okay. Thanks, guys I'll turn it over.
Thanks Brent.
Our next question comes from the line.
Tim Mulrooney with William Blair. Please proceed with your question.
Hey, this is Sam filling in for Tim Bruce and I Hope you both are doing well.
Hi, Sam.
I guess I'll start with the margin question here.
Adjusted EBITDA margin contracted close to call. It 400 basis points I think you provided the impact from higher fuel charges.
But could you help round out the 400 basis points for us maybe share how much higher labor cost impacted you were rather large cost buckets.
Yes. The biggest pieces is as we mentioned on our prepared remarks around fuel where I mean, its around them on a year to date basis, probably 250 basis points and the labor component is around maybe 110 120 basis points, so between fuel and labor that's a big portion of it.
That we see someone coming through but like I mentioned on the earlier piece on pricing.
The pricing piece that we've got is outpacing where we would expect it to be in and that will help continue to manage.
Is the margin piece.
Got you, thanks, maybe pivoting into pricing.
You know I I believe in the prior quarter, you mentioned, 70% of your contracts.
Had some of these new terms added to protect pricing.
Our contracts are fuel surcharges I'm wondering if you could update us on that figure as it stands today and maybe just hear your thoughts generally around how effective these changes have been kind of offset some of this equation.
Yeah. So we've done a really good job of offsetting a lot of inflationary items. Obviously fuel continues to go up and we try to chase setup. We have we do have price escalators are fuel surcharges that we continue to add as fuel price goes up.
But largely we're in about the same position about about 50% to 60% of our bar work is more backlog work that they were locked into or locking in residential to shorter periods of time trying to understand where inflation is going to take us, but I think in general our team has done a really good job of getting rates up with inflation.
Okay. That's helpful and maybe last question for me here are related more to your commercial business you highlighted the resurgence a commercial in your prepared remarks I was hoping you could provide more detail on some of the project types or even customers that are driving this resurgence and maybe on the customer front could you share with us more.
<unk> product with new customers, who are winning over or good thing customers that are just accelerating some of their own activity.
Yeah. So it was kind of all of the above that you probably know we are on a thousand different jobs every day with our different equipment and so it's varies from different end markets to different segments in the commercial market. So theres not any one that really drives that but we are seeing a continued growth in data centers.
Office buildings are coming back are largely we're seeing at a.
The large manufacturing everything others in hospitality seems to be improving a little by little.
Okay.
Good that's great to hear I'll leave it there thanks.
Thanks, Tom.
And again as a quick reminder, if anyone has any questions. You May press star one on your telephone keypad to join the queue.
The next question we have is from the line of Robert Silk with there.
With your question.
Hey, there. Thanks for taking the question I just wanted to clarify on three acquisitions are those businesses or did you literally just acquire the equipment and so it's more of a capex purchase and then how much incremental revenue are you expecting out of those acquisitions for 'twenty two.
Yeah.
Yeah, so the the where am asset purchases, which is really in line with the way that we've done the typical deals in the past so it's really adding equipment into our fleet. I mean, you think about it like organic growth and from the back half of the year. So we just give them recently completed those deals.
In the back half of the year and they would generate maybe seen a half million of revenue or something of that magnitude.
Got it. Thank you that's all for me.
Thanks Robert.
Yeah.
Yeah.
Uh huh.
And we have reached the end of the question and answer session now.
Now no call back, but with the young for closing remarks.
Thank you sure Molly we'd like to thank everyone for listening today's call and we look forward to speaking with you. When we report our third quarter fiscal 2022 results in September . Thank you.
Okay.
And ladies and gentlemen. This does concludes today's teleconference and you may disconnect your lines at this time.
You for your participation.
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