Q3 2023 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 31 2023.

Speaker 1: 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 31, 2020.

Speaker 1: Joining us today are Concrete Pumping Holdings CEO Bruce Young, CFO Ian Humphreys, and the company's external director of investor relations, Cody Slaw. Before we go further, I would like to turn the call over to Mr. Slaw to read the company's Safe Harbor statement within the meaning of the Private Securities Dedication Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please.

Joining us today are concrete pumping holdings' CEO Bruce young.

CFO , Iain Humphries and the company's external director of Investor Relations Cody Slaw before we go further I would like to turn the call over to Mr. Slots to read the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.

Thank you.

Speaker 2: 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 out...

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.

Speaker 2: These statements are subject to numerous risks and uncertainties that could cause the actual results to differ materially from such things.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements for information concerning these risks and uncertainties see concrete pumping Holdings' annual report on Form 10-K quarterly report on Form 10-Q, and other publicly available filings with the SEC.

Speaker 2: For information concerning these risks and uncertainties, see Concrete Pumping Holdings Annual Report on Form 10-K , Quarterly Report on Form 10-Q , and other publicly available filings with the S&P.

Speaker 2: 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.

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 and net debt and free cash flow, which we believe provide useful information for investors we provide further.

Speaker 2: 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.

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 and.

Speaker 2: A webcast replay will also be available via the link provided in today's press release as well as on the company's website. And again, we have posted an updated investor presentation on the company's website.

A webcast replay will also be available via the link provided in today's press release as well as on the company's website and again, we have posted an updated investor presentation on the company's website.

Speaker 2: Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young.

Now I'd like to turn the call over to the CEO of concrete pumping holdings Bruce Young Bruce.

Speaker 3: Thank you, Cody, and good afternoon, everyone. The growth we experienced in the first half of the year accelerated in our record-setting third quarter driven by double-digit revenue growth in every segment of our business.

You Cody and good afternoon, everyone. The growth we experienced in the first half of the year accelerated in our record setting third quarter driven by double digit revenue growth in every segment of our business. In fact, I am pleased to report that our third quarter marked our eighth consecutive quarter of double digit revenue growth. This was attributed to continued market share.

Speaker 3: In fact, I am pleased to report that our third quarter marked our eighth consecutive quarter of double-digit revenue growth. This was attributed to continued market share gain from recent accretive acquisitions and continued organic growth.

Jane for recent accretive acquisitions and continued organic growth.

Speaker 3: By in-market, our business is also performing well. In commercial, we continue to experience momentum in large commercial projects like distribution centers, warehouses, semiconductor fabrication plants, electric vehicle and battery manufacturing plants.

The end market. Our business is also performing well in commercial we continued to experience momentum in large commercial projects like distribution centers warehouses semiconductor fabrication plants electric vehicle and battery manufacturing plants. We expect this demand to continue given U S reassuring trends as companies look to build out their domestic manufacturing.

Speaker 3: We expect this demand to continue given US resharing trends as companies look to build out their domestic manufacturing footprint.

Footprint, however, our concrete pumping demand from light commercial projects has continued to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has stalled some projects. Despite this our expectation for the commercial market in fiscal year 2023 remains strong.

Speaker 3: However, concrete pumping demand from light commercial projects has continued to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has fouled some projects.

Speaker 3: Despite this, our expectation for the commercial market in fiscal year 2023 remains strong given opportunities with large manufacturing, particularly as we head into another strong seasonal quarter for our business.

Given opportunities with large manufacturing, particularly as we head into another strong seasonal quarter for our business.

Speaker 3: Turning to infrastructure, our expanding U.S. national footprint continued to drive strong results as it allowed us to capture more revenue from public project investment.

Turning to infrastructure, our expanding U S national footprint continued to drive strong results as it allowed us to capture more revenue from public project investments. We will continue to work to wind projects at the state and local levels and look forward to REIT to renewed investment in the U S with the infrastructure investment and jobs Act, we continue to see in it.

Speaker 3: We will continue to work to win projects at the stake and local levels and look forward to renewed investment in the U.S. with the Infrastructure Investment and Jobs Act. We continue to see an improved visibility of funds flowing to numerous projects, many of which are located in existing markets where we operate. We plan to aggressively pursue these project opportunities and believe it has the potential to be a five-year plus tailwind for our business.

Visibility of funds flowing to numerous projects many of which are located in existing markets, where we operate.

We plan to aggressively pursue these project opportunities and believe it has the potential to be a five year plus tailwind for our business.

Speaker 3: During the third quarter, a residential end market remained stable due to the continued momentum and new residential housing construction given not only the ongoing structural supply demand imbalance in housing but the fact that home builders have enticed new home buyers with creative home design and financing options.

During the third quarter, our residential end market remained stable due to the continued momentum in new residential housing construction given not only the ongoing structural supply demand imbalance in housing, but the fact that homebuilders have entice new home buyer with grade of home design and financing options during the quarter our commercial mix.

Speaker 3: During the quarter, our commercial mix as a percentage of total revenue remained consistent at 60% of revenue and there was a one percentage point of growth gain in infrastructure to 12% of revenue, once again highlighting the diversity of our business and the agility of our fleet.

As a percentage of total revenue remained consistent at 60% of revenue and there was a one percentage point of gross gain and an infrastructure to 12% of revenue 11, again, highlighting the diversity of our business and the agility of our fleet.

Speaker 3: Shifting to the cost side of our business, impacts from inflation, particularly in the ongoing cost of labor, continue to hamper our ability to leverage our strong revenue growth. Our team continues to recalibrate our rates across all business segments and realize the expected equipment return on investment for the same volume of work performed, but is difficult to fully offset the protracted inflationary headwind.

Shifting to the cost side of our business impacts from inflation, particularly in the ongoing cost of labor continue to hamper our ability to leverage our strong revenue growth. Our team continues to recalibrate our rates across all business segments and realize the expected equipment return on investment for the same volume of work performed but it is difficult to fully offset.

It's a protracted inflationary headwinds importantly, however, we are using our strong free cash flow generation to pay down debt and we are on track to reduce our leverage to three times by the end of the fiscal year.

Speaker 3: Importantly, however, we are using our strong free cash flow generation to pay down debt and are on track to reduce our leverage three times by the end of the fiscal year.

Speaker 3: I will now let Ian walk through more details on our financial results before we return to provide some concluded remarks.

I will now let Ian walk through more details on our financial results before I return to provide some concluding remarks.

Speaker 4: Thanks Bruce and good afternoon everyone. By segment, Q3 revenue in our US pumping business increased 13% due to contributions from a recent acquisition of Coastal Carolina on organic volume growth.

Thanks, Bruce and good afternoon, everyone by segment excuse me revenue in our U S pumping business increased 13%.

Contributions from our recent acquisition of coastal Carolina.

<unk> volume growth.

Speaker 4: In our UK segment, operating largely under the Canford brand, US dollar revenues increased 20% compared to the prior year quarter.

Our U K segment operating largely under the comfort brand U S dollar revenues increased 20% compared to the prior year quarter.

Speaker 4: excluding the FX translation impact, revenue grew by 18%.

Excluding the FX translation impact revenue grew by 18%.

Speaker 4: Our team continues to secure energy, road and rail projects in addition to the work we previously announced with the concrete intensive high speed railway project HS2 which is expected to last beyond 2013.

Our team continues to secure energy road and rail projects. In addition to the work we previously announced with the concrete intensive high speed railway projects H S. Two which is expected to last beyond 2030.

Speaker 4: In our US Concrete Waste Management Services segment, operating under the EcoPam brand, we continue to deliver record results, increasing revenue on an organic basis by 29% compared to the same Yurigu quarter.

And our U S concrete waste management services segment operating under the Eco Pan brand, we continue to deliver record results increasing revenue on an organic basis by 29% compared to the same year ago quarter.

Speaker 4: This continues to be driven by exceptional market expansion and penetration created by our sales team and the value of our enhanced service offer.

This continues to be driven by exceptional market expansion and penetration created by our sales team and the value of our enhanced service offering.

Speaker 4: Going forward, we continue to expect to maintain EcoPAN's double-digit organic revenue growth given our continued investment in our team and equipment, its penetration in the market and the continued evolution of the methods used in concrete construction projects to contain concrete waste.

Looking forward, we continue to expect to maintain eagle pounds double digit organic revenue growth given our continued investment in our team and equipment its penetration in the market and the continued evolution of the message used in concrete construction projects to contain concrete waste.

Speaker 4: Returning to our consolidated results, gross margin in the third quarter increased 90 basis points to 41% compared to 40.1% in the same year of the quarter.

Returning to consolidated results gross margin in the third quarter increased 90 basis points to 41% compared to $40. One in the same year ago quarter.

Speaker 4: As Bruce noted earlier, our strong revenue growth in the quarter supported this margin expansion and was partially offset by the cost of higher wage inflation.

As Bruce noted earlier, our strong revenue growth in the quarter supported this margin expansion was partially offset by the cost of higher wage inflation.

General and administrative expenses in Q3 were $30 million versus $27 8 million in the same Utica corner pretty mightily due to headcount additions and higher labor costs related to recent acquisitions.

Speaker 4: General and administrative expenses in Q3 were 30 million versus 27.8 million in the same year ago quarter primarily due to headcount additions and higher labour costs related to recent acquisitions.

Speaker 4: As a percentage of revenue, G&E costs improved to 24.8% in the third quarter compared to 26.6% in the same year-ago quarter.

As a percentage of revenue G&A costs improved to 24, 8% in the third quarter compared to 26, 6% in the same year ago quarter.

Speaker 4: This is illustrative of the operating efficiencies we typically achieve as we scale both organically and through M&E.

This is illustrative of the operating efficiencies, we typically achieve as we scale both organically and through M&A.

While we achieved a $5 5 million year over year improvement our third quarter income from operations net income available to common shareholders was $9 9 million or <unk> 18 per diluted share compared to $12 5 million or 22 cents per diluted share in the same quarter.

Speaker 4: While we achieved a $5.5 million year-over-year improvement or third quarter income from operations, net income available to common shareholders was $9.9 million or $0.18 per diluted share compared to $12.5 million or $0.22 per diluted share in the same year-over-quarter.

Speaker 4: Q3 last year benefited from slightly lower interest and income tax expense as well as a 7.4 million favourable change in the fair value of warrant liabilities compared to a 900,000 benefit in the quarter this year.

Excuse me last year benefited from slightly lower interest and income tax expense as well as a $7 4 million favorable change in the fair value of warrant liabilities compared to a 900000 benefit in the quarter. This year.

Speaker 4: Excluding the impact of the fair value of warrants, our third quarter net income would have been approximately 70% or 3.9 million higher compared to the same year ago quarter.

Excluding the impact of the fair value of warrants our third quarter net income would have been approximately 17% or $3 9 million higher compared to the same year ago quarter.

Speaker 4: Consolidated Adjustity with DA in the third quarter increased 16% to 34.9 million compared to 30 million in the same beautiful quarter.

Consolidated adjusted EBITDA in the third quarter increased 16% to $74 9 million compared to $30 million in the same go to court.

Adjusted EBITDA margin increased slightly to 28, 9% compared to 28, 8% in the same year ago quarter.

Speaker 4: Adjusted EBITDA margin improved slightly to 28.9% compared to 28.8% in the same year ago quarter.

Speaker 4: Moving on to our results by segment, in our US concrete pumping business, adjusted even to 20.5 million compared to 19.8 million in the same year it will quarter.

Moving onto our results by segment in our U S concrete pumping business adjusted EBITDA increased to $20 5 million compared to $19 8 million in the same year ago quarter.

Speaker 4: In our UK business, adjusted EBITDA increased 41% to 5.6 million compared to 4 million in the prior year quarter.

And our U K business.

Adjusted EBITDA increased 41% to $5 6 million compared to $4 million in the prior year quarter.

Speaker 4: For our US Complete Waste Management business, our just-to-date with that improved 44% to 8.2 million compared to 5.7 million in the same year ago quarter.

For our U S concrete waste management business, adjusted EBITDA improved 44% to $8 2 million compared to $5 7 million in the same year ago quarter.

Speaker 4: Turning to liquidity, as at July 31, 2023, we had total debt outstanding of $411 million or net debt of $399 million.

Turning to liquidity.

At July 31, 2023, we had total debt outstanding of $411 million or net debt of $399 million.

Speaker 4: In the third quarter we reduced our net debt by $30 million resulting in a net debt leverage ratio of 3.2 times on a trillion 12 month adjusted EBITDA basis which is our lowest leverage ratio since becoming a public company.

In the third quarter, we reduced our net debt by $30 million, resulting in a net debt leverage ratio of three two times on a trailing 12 month adjusted EBITDA basis, which is our lowest leverage ratio since becoming a public company.

As a reminder, in the third quarter, we upsized, our asset base lending facility from $160 million to $225 million, while also extending its maturity to June of 2028.

Speaker 4: As a reminder in the third quarter, we upsized our asset-based lending facility from $160 to $225 million, while also extending its maturity to June of 2020.

Speaker 4: We had approximately 196 million in liquidity as of July 31, 2023, which includes cash on the balance sheet and availability from our EBL facility.

We had approximately 196 million in liquidity as of July 31, 2023, which includes cash on the balance sheet and availability from our ABL facility.

Speaker 4: Throughout the third quarter, we continue to improve our liquidity and leverage by delivering strong free cash flow and as Bruce mentioned, we continue to track towards our target net debt leverage ratio of 2.5x.

For the third quarter, we continued to improve our liquidity and leverage by delivering strong free cash flow and as Bruce mentioned, we continue to track towards our target net debt net debt leverage ratio of two and a half times.

Speaker 4: We believe this strategic deleveraging enhances our ability to pursue accretive investment opportunities and support our overall long-term growth strategy.

We believe this strategic Delevering deleveraging enhances our ability to pursue accretive investment opportunities and support our overall long term growth strategy.

Speaker 4: As a reminder, we have no near-term debt maturities, with our senior notes maturing in 2026 and our asset-based lending facility now maturing in 2028. We remain in a strong position to continue to invest in our asset-based lending facility.

As a reminder, we have no near term debt maturities with our senior notes maturing in 2026, and our asset based lending facility now maturing in 2028.

We remain in a strong free cash flow position.

Speaker 4: and liquidity also provides further optionality to pursue value-added investment opportunities like a creep of M&A, continued investment in the organic growth of EcoPan and our concrete pumping fleet.

And liquidity is also which provides further optionality to pursue value added investment opportunities like accretive M&A continued investment in the organic growth vehicle piling and concrete pumping fleet.

Speaker 4: In the third quarter, the company repurchased approximately 200,000 shares for $1.4 million.

In the third quarter, the company repurchased approximately 200000 shares for $1.4 million.

Speaker 4: As at July 31, 2023, we had approximately $8.7 million remaining under the existing share repurchase authorization.

At July 31, 2023, we had approximately $8 $7 million remaining under the existing share repurchase authorization.

Speaker 4: We are encouraged by what we are seeing in our business and the momentum that we are carrying into the fourth quarter and beyond.

We are encouraged by what we're seeing in our business and the momentum that we're carrying into the fourth quarter and beyond.

Now moving to our fiscal year 2020 financial outlook with one quarter left in 2023, we are narrowing our guidance and expect fiscal year revenue of approximately $440 million.

Speaker 4: Now moving to our fiscal year 2023 financial outlook, with one quarter left in 2023 we are narrowing our guidance and expecting fiscal year revenue of approximately 440 million, adjusted EBITDA of approximately 125 million and free cash flow which we define as adjusted EBITDA, less net replacement capex and less cash paid for interest of approximately 70 million dollars.

Adjusted EBITDA of approximately $125 million.

And free cash flow, which we define as adjusted EBITDA less net replacement Capex and less cash paid for interest of approximately $70 million.

Speaker 4: Additionally, we expect our net debt leverage ratio to be approximately three times by our fiscal year.

Additionally, we expect our net debt leverage ratio to be approximately three times by our fiscal year and.

Speaker 4: Operationally and financially we have a solid foundation and we have confidence in executing our growth strategy.

Operationally and financially we have a solid foundation and we have confidence in executing our growth strategy with that I will now turn the call back over to Bruce.

Speaker 3: Thanks, Ian. In summary, we are very pleased with another record quarter driven by double digit top line growth and expansion in every segment. We continue to prove the compelling business proposition of our high value service and the necessity of our mission critical service offering in the construction industry which positions us well for 2023 and beyond.

Thanks, Ian in summary, we are very pleased with another record quarter, driven by double digit topline growth and expansion. In every segment. We continue to prove the compelling business proposition of our high value service and the necessity of our mission critical service offering in the construction industry, which positions us well for 2023 and beyond.

Speaker 3: We anticipate ongoing growth in our end markets, particularly driven by infrastructure projects, heavy commercial work, and resilient backlog of residential work. On the cost side of the equation, we are paying close attention to fuel costs, which have been volatile all year and recently increasing. However, our focus remains on optimizing end market mix to continue to deliver strong top and bottom line growth as we move into our fourth quarter, which is typically seasonally similar to Q3.

We anticipate ongoing growth in our end markets, particularly driven by infrastructure projects heavy commercial work and resilient backlog of residential work on the cost side of the equation, we are paying close attention to fuel costs, which have been volatile all year and recently, increasing however, our focus remains on optimizing end market mix too.

Continued to deliver strong top and bottom line growth as we move into our fourth quarter, which is typically seasonally similar to Q3.

Speaker 3: We will also continue to focus on maximizing shareholder value by leveraging our unique operational capabilities, high-value service offering, and executing an opportunistic, creative M&A while strategically reducing our leverage. With that, I would now like to turn the call back over to the operator for Q&A. Shemali.

We will also continue to focus on maximizing shareholder value by leveraging our unique operational capabilities high value service offering and executing on opportunistic accretive M&A, while strategically reducing our leverage with that I would now like to turn the call back over to the operator for Q&A Schmeling.

Speaker 1: Thank you, sir. At this time, we will be conducting a question and a...

Thank you Sir.

This time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

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Okay.

Our first question comes from the line of Steven Fisher with UBS.

Speaker 1: Our first question comes from the line of Steven Fisher with UBS. Please proceed with your...

Proceed with your question.

Speaker 5: Thanks, good afternoon and nice to see the revenue performance there. Your implied Q4 growth implies a pretty significant slowdown in the growth rate. I'm wondering if you can just give us a little bit of color by segment where you see that, the bigger slowdown. It seems like possibly the US.

Thanks, Good afternoon, and nice to see the revenue performance there.

Your implied Q4 growth implies a pretty significant slowdown in the growth rate I'm wondering if you can just give us a little bit of color by segment.

Where you see that are the bigger slowdown it seems like possibly the U S concrete pumping might only be growing up a percent or two organically do I have that right.

Speaker 5: creep pumping might only be growing a percent or two organically. Do I have that right? It seems surprising if the resi market is accelerating and infrastructure is kind of growing steadily even with a little bit of a

And it seems surprising if the resin market is accelerating in infrastructure kind of growing steadily even with a little bit of commercial softness.

Speaker 4: Hi Steve, this is Ian. Thanks for the question. Typically, as you know, our fourth quarter is quite comparable to Q3 and I think that's what we're projecting for Q4. We have $120 million of revenue in Q3. Other than the Labor Day holiday, which can slow things down, usually the Q4 is quite compatible and I think that's what we've given for Q4 guidance.

Yeah, Hi, Steve This is Ian and thanks for the question and typically as you know our fourth quarter is quite comparable to Q3 and I think that's what we're projecting for Q4 with $120 million of revenue in Q3 other than the labor day holiday, which can slow things down usually Q4 is quite compatible and I think that's what we've given for.

For Q4 guidance.

Speaker 4: So, the way I guess to think about Q4 is somewhat compatible to Q3 on the top line and marginal growth on the EBITDA side. By segment we would expect, as Bruce mentioned in his comments, ongoing momentum from each of the segments as we go into the fourth quarter. So, like I said Q4 is largely compatible to Q3 and I think that's what we've underscored on our guidance for the full year.

So the way to think about Q4 is somewhat compatible and to QC on the top line.

And it's a marginal growth on the EBITDA side by segment, we would expect as Bruce mentioned in his call Ms Leigh and ongoing momentum from each of the segments as we go into the fourth quarter. So like I said Q4 is largely comparable to Q3 and I think that's what we've underscored on our guidance for the full year.

Speaker 5: OK, can you maybe just give us a sense for what the price versus volume was in Q3 and what you've assumed? Yes. Q4, particularly in concrete pumping, the US concrete pump.

Okay and can you maybe just give us a sense for what the price versus volume was in Q3, and what you've assumed yes, Q4, particularly in concrete pumping in the U S concrete pumping.

Speaker 4: Yeah sure, so also we have some M&A in this year so maybe the best way to look at the growth for the third quarter was about 16% and that's broken down 5% from M&A which was mostly volume on the US pumping side, 6% on volume and 5% on price.

Yeah sure. So also we have we have some M&A in this year. So maybe the best way to look at the growth for the third quarter was about 16% and that's broken down 5% from M&A, which was mostly volume I'm on the pumping side and 6% on volume and 5% on price.

Speaker 4: Maybe some further context, if you look, and it's quite the same Steve for a year to date basis, the 12% growth for the year, 12 or 13% for the year to date is about, it's the same 5% on M&A and about 4% on volume and 3% on price. We expect that to be quite comparable in the fourth quarter as well, which have been quite consistent for the full year.

Maybe some further context, if you look in is quite the same Steve for a year to date basis.

12% growth for for the year, it's over 30% for the year to date is about 5% on.

M&A out of it for own volume and three on price so.

We expect that to be quite comparable in the fourth quarter as well, which have been quite consistent for the full year.

Okay.

Speaker 5: And then maybe just looking out a little bit further, if we annualize your second half adjusted to dots.

And then maybe just looking out a little bit further I mean, if we annualize your second half adjusted EBITDA.

Speaker 5: That would give us around $140 million of adjusted EBITDA, which happens to be the consensus for 2024. I know there's seasonality in your second half is usually a bit stronger than the first half, but is that somewhere in the right neighborhood of how we should be thinking about 2024 at this early point? How much visibility do you have at this point to 2024 to be able to comment on that?

That would give us around $140 million of adjusted EBITDA, which happens to be the consensus for 2024 I know there's seasonality in your second half is usually a bit stronger than the first half, but I mean is that kind of somewhere in the right neighborhood of of how we should be thinking about 'twenty 'twenty four it at this early point.

How much visibility do you have.

At this point to 'twenty four to kind of be able to comment on that.

Speaker 3: Steve, this is Bruce. Thanks for the question. It's still a little too early for us to put that type of a projection out there. We do see infrastructure improving. We are now starting to see some of that revenue flow through our business, however, it's been a little slow in coming. The residential market looks pretty stable and we expect, you know, we'll learn more over the next few months as we look into next year. The large projects are good. It's still the, you know, trying to understand where the light commercial work goes into next year is the one thing that we need to get more understanding on before we put that guidance out in January .

Steve This is Bruce thanks for the question, it's still a little too early for us to put that type of a projection out there we do see infrastructure improving we are now starting to see some of that revenue flowed through our business. However, its been a little slow in coming the the residential market looks pretty stable and we expect we'll learn more as one.

The next few months as we look into next year. There's large projects are good it's still the I'm trying to understand where it is light commercial work goes into next year is the one thing that we need to get more understanding on before we put that guidance out in January .

Speaker 5: Terrific, thank you very much.

Terrific. Thank you very much.

Thank you.

Our next question comes from the line of Channel Rooney with William Blair. Please proceed with your question.

Speaker 1: Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your...

Yeah.

Speaker 6: Hi, Bruce and Ian. This is Luke McPheton on for Tim. Thanks for taking my question.

Hi, Bruce and in looking at that and on for Tim. Thanks for taking my questions.

Speaker 6: So I know you're doing well. Thanks so much. So I know you addressed commercial and marketing.

Sorry.

Doing well thanks, so much so I know you addressed commercial end markets have.

Speaker 6: a bit in your prepared remarks, but could you comment further on how clients have been dealing with higher interest rates? Are there certain areas where you've noticed greater pullback or have certain clients expressed hesitation with new projects given the higher interest rate environment?

A bit in your prepared remarks, but could you comment further on how clients have been dealing with higher interest rates.

Are there certain areas, where you'd noted notice greater pull back or have certain clients expressed hesitation with new projects given the higher interest rate environment.

Speaker 3: What we're seeing, and thanks for the question, Tim, is it's more in the lighter commercial projects that are a lot more sensitive to that sort of thing. The large projects, anything that comes, you know, chip manufacturing plants, electric vehicle plants, anything at large scale like that. We're not really seeing much pullback or concern about the interest rates, but it's more of the smaller projects where it really affects their returns.

Well, what we're seeing is and thanks for the question Tim is it's more on the lighter commercial projects that are a lot more sensitive to that sort of thing.

The large projects that you know of anything that comes to you know.

Chip manufacturing plants are electric vehicles.

Vehicle plants anything at large scale like that we're not really seeing much pull back or concern about the interest rates, but it's more of the smaller projects, where it really affects their returns.

Great and.

Speaker 6: Great. And then if you could maybe talk further about the man trends that relates to the Government Infrastructure Act. Are you seeing, are you starting to see some projects related to those initiatives break ground or are we still broadly more in the funding allocation and bidding process?

Then if you could maybe talk further about the man trends as it relates to the government infrastructure Act are you seeing are you starting to see some projects related to those initiatives break ground or are we still broadly more in the funding allocation and bidding process.

Speaker 3: We actually have seen some of those bits let here recently, some fairly large projects, nothing that we've gotten to the bid stage for us to secure that work, but we're encouraged by that. And so we do see into 2024, that being a much better opportunity than was this year.

We actually have seen some of those bids led here recently some fairly large projects are.

Nothing that we've gotten are you know to the bid stage for us to secure that work, but we're encouraged by that and so we do see into 2024 that being a much better opportunity than it was this year.

Speaker 6: Great. And then if I could just squeeze in one more here. Obviously, no, you won't provide formal guidance for 2024 until your fourth quarter. But just maybe as we look towards the next year, are there any broader themes that you should keep in mind as it relates to your growth and margin?

Great and then if I could just squeeze in one more here.

Obviously, no you won't provide formal guidance for 'twenty 'twenty four and so your fourth quarter, but just maybe as we look towards next year are there any broader themes that you should keep in mind as it relates to your growth and margins.

Okay.

Speaker 4: Yeah, I mean, again, it really comes back for us, as we recalibrate based on the supply and demand on project site. As Bruce mentioned, his comments, the inflation impact, certainly around labor, it'd be more protective this year. So we would expect that to start easy as we recalibrate rates. And then from a margin perspective, obviously we've seen some quite stellar performance on the E.C.PAN and the UK site. And we expect that to continue to help improvement in March.

Yeah, I mean again, it really comes back for us as we recalibrate rates and based on the supply and demand on project sites and as Bruce mentioned in his comments the inflation impact certainly on labor that'd be more protect protected this year and so we would expect that to start he says really calibrate rates and then from a margin perspective.

Obviously, we've seen some.

Quite stellar performance on the equal upon the UK site and when do you expect that to continue to help improvement of margin.

Speaker 3: What I would add to that is in 2022 we did a really good job of getting rates out up ahead of inflation, at least with inflation. It was much harder in 2023. It's a much more competitive environment. The work that's out there isn't as great as it was in 2020, so it made it much more competitive and it was more of battling for market share and harder to get rates. We see the markets improving into 2024 and so the margin should improve with rates. Great, thanks so much guys.

Yeah, Ken what I would add to that is that in 2022, we did a really good job of getting rates out up ahead of inflation or at least with inflation. It was much harder in 2023, it's a much more competitive environment.

The work that's out there isn't as great as it was in 2020. So it made it much more competitive and it was more of battling for market share and harder to get rates, we see the markets improving into 'twenty four and so the margin should improve with rates.

Great. Thanks, so much guys.

Thanks.

And as a reminder, if anyone has any questions you May press star one to join the question and answer.

Speaker 1: may press star 1 to join the question and answer. Our next question comes from the line of Andy Whitman with Baird. Please proceed.

Our next question comes from the line of Andy Wittmann with Baird.

Yeah.

Oh, great. Thanks for taking my questions and good afternoon guys.

Speaker 7: Oh, yeah, great. Thanks for taking my questions. And good afternoon, guys. Um, I guess I wanted to just zoom in here on the residential portion of your business.

I wanted to just zoom in here on the residential portion of your business. Obviously, the rising rates here had been a factor off and on but the confidence or the uptick that you saw sequentially in demand there was maybe a little surprising to some so and it sounds like you've got a fairly deep.

Speaker 7: Obviously, the rising rates here had been a factor off and on, but the confidence or the uptick that you saw sequentially in demand there was maybe a little surprising to some. So and it sounds like you've got a fairly decent outlook as you look forward as well. So I was just wondering, like, if you could put a little bit more detail on the comments that you made.

The outlook as you look forward as well. So I was just wondering like if you could put a little bit more detail on the comments that you made Bruce around residential as to why you believe that that is shored up and may remain so.

Speaker 7: Bruce around residential as to why you believe that that is shored up and may remain so

Thanks for the question Andy.

Speaker 3: Thanks for the question, Andy. So as we look at the residential markets we're in, and it's largely in

So as we look at the residential markets, we're in and it's largely in the mountain States.

Speaker 3: the mountain states, Idaho, Utah, Arizona, and Texas is where we do most of our residential work and the demand is still quite high in those markets. We've seen a lot of the large home builders have bought down interest rates, have built houses on smaller lots, maybe not as many features to keep them more affordable. And honestly, we've been really impressed with what they've been able to do to keep that flow going and we see that continuing.

Idaho, Utah, Arizona, and Texas, where we do most of our residential work and the demand is still quite high and that and in those markets. We've seen a lot of the large homebuilders have bought down interest rates have built houses on smaller lots are maybe not as many features to keep them more affordable.

And honestly, we we've been really impressed with what they've been able to do to keep that flow going and we see that continuing.

Speaker 7: I see. Okay. And then maybe one for Ian, which you notice there is a $12.8 million non-current liability that popped on the balance sheet this quarter. I was just wondering what that is. Is that like an urn out or something or?

I see okay.

And then maybe one for Ian just noticed there was a $12 8 million non current liability that popped on the balance sheet. This quarter. I was just wondering what that is is that like an earn out or something or maybe can you just talk about with that but then yeah.

Speaker 4: Yes, it's really a presentation change on our self-insurance. So we think it provides, I mean it's in line with CAP and we think it provides a bit more visibility on our self-insurance program.

Yeah. So we've got a presentation change them on our self insurance and so we don't get it provides I mean, it's in line with GAAP and we think it provides a bit more visibility on our self insurance program. So from a from a if you think about it so from first of all from a net liability perspective on our commercial insurance is still out on like $5 8 million, which is consistent with prior call.

Speaker 4: So if you think about it, first of all, from a net liability perspective on our commercial insurance, it's still around like 5.8 million, which is consistent with prior quarters. So it's really a change in the presentation, Andy. So the way that it works from self-insurance between your attention programs and your excess deductibles, it's really a gross up of that presentation. So on the asset side, there's about 24 million and the liability side is about an 18 million. So it's net the same number, it's just a change in presentation.

So there's really a change in the presentation, Andy So the way that it works from self insurance between your attention programs and your access deductibles I'm actually.

Actually a gross up of that presentation. So on the asset side, there's about $24 million in the liability side is about an $18 million. So it's just it's not the same number but it's just a change in presentation.

Got it thank you.

Speaker 7: I think what else I wanted to ask about here.

I think what else I wanted to ask about here I guess I guess just.

Speaker 7: You guys have been talking about HS2 for a long time, and I know I ask about this on a lot of conference calls. It's been a contributor to your growth in the UK for a while. Do you think that if you look into 24 with the scheduling that's out there, that there's another year of growth for the HS2 program? Or when does it start leveling off in terms of its annual revenue contribution, recognizing that it's still...

You guys have been talking about H S too for a long time and I know I asked about this in a lot of conference calls.

It it's been a contributor to your growth in the U K for a while.

Do you think that if you look into 'twenty four with the scheduling that's out there that there's another year of growth.

For the H H S. Two programmer or windows to start leveling off in terms of its annual revenue contribution recognizing that otherwise.

Speaker 7: forecast and have many more years of construction happen.

It's forecasted to have many more years of construction happening.

Speaker 3: We see it growing slightly into next year and then leveling off there for the next several years.

We see it drawing slightly into next year, and then leveling off there for the next several years.

Okay Alright.

Speaker 7: All right, great. I think that's all the questions I had for this evening. Thank you for your time. Thanks, Andy. And this time, this concludes our webinar.

Alright, great I think that's all the questions I had for this evening. Thank you for your time. Thanks.

Thanks, Andy.

Yeah.

And at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Young for closing remarks.

Thanks, you Molly 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 fiscal 2023 results and provide 2024 guidance in January thank you.

Speaker 3: Thanks, Yamali. 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 fiscal 2023 results and provide 2024 guidance in January . Thank you. And ladies and gentlemen, this does conclude today's teleconference.

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

[music].

Operator: 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 31, 2023. Joining us today are Concrete Pumping Holdings CEO, Bruce Young, CFO, Iain Humphries, and the company's external director of Investions Relations, Cody Slach.

Cody Slach: Before we go further, I would like to turn the call over to Mr. Slach, to read the company's safe harbor statement within the meaning of the Private Security's litigation reform act of 1995. That provides important questions regarding for the statement. Cody, please go ahead. Thank you. I'd like to remind everyone that in the course of this call to give you a better understanding of our operations, we will be making certain for looking statements regarding our business and outlook.

Cody Slach: These statements are subject to numerous risks and uncertainties that could cause the actual result to differ materially from such statements. For information concerning these risks and uncertainties, see Concrete Pumping Holdings annual report on Form 10K, quarterly report on Form 10K 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.

Cody Slach: On today's call, we will also reference certain non-gap financial measures, including Adjusted Evidaw, NetNet, and Free Cash Flow, which we believe provide useful information for investors. We provide further information about these non-gap financial measures and reconciliations to the comparable gap measures in our press release issue today, or the investor presentation posted on the company's website.

Operator: I'd like to remind everyone that this call will be available for replay later this evening. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website, and again we have posted an updated investor presentation on the company's website.

Bruce Young: 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 growth we experienced in the first half of the year accelerated in our record setting third quarter driven by double-digit revenue growth in every segment of our business. In fact, I'm pleased to report that our third quarter marked our eighth consecutive quarter of double-digit revenue growth. This was attributed to continued market share gain from recent accrued acquisitions and continued organic growth.

Bruce Young: By end market, our business is also performing well. In commercial, we continue to experience momentum in large commercial projects like distribution centers, warehouses, semiconductor fabrication plants, electric vehicle and battery manufacturing plants. We expect this demand to continue given US research trends as companies look to build out their domestic manufacturing footprint. However, a concrete pumping demand from like commercial projects has continued to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has sought spelt some projects.

Bruce Young: Despite this, our expectation for the commercial market in fiscal year 2023 remains strong given opportunities with large manufacturing, particularly as we head into another strong seasonal quarter for our business. Turning to infrastructure, our expanding US national footprint continued to drive stronger results as it allowed us to capture more revenue from public project investments. We will continue to work to win projects at the stake in local levels and look forward to renewed investment in the US with the Infrastructure Investment and Jobs Act.

Bruce Young: We continue to see an improved visibility of funds flowing to numerous projects, many of which are located in existing markets where we operate. We plan to aggressively pursue these project opportunities and believe it has potential to be a five year plus tailwind for our business. During the third quarter, our residential and market remains stable due to the continuum momentum and new residential housing construction given not only the ongoing structural supply demand imbalance in housing, but the fact that home builders have enticed new home buyer with creative home design and financing options.

Bruce Young: During the quarter, our commercial mix as a percentage of total revenue remained consistent as 60% of revenue and there was a one percentage point of growth gain and infrastructure to 12% of revenue once again highlighting the diversity of our business and the agility of our fleet. Shifting to the cost side of our business impacts from inflation, particularly in the ongoing cost of labor, continued to hamper our ability to leverage our strong revenue growth.

Bruce Young: Our team continues to recalibrate our race across all business segments and realize the expected equipment return on investment for the same volume of work performed but is difficult to fully offset the protracted inflationary headwinds. Importantly, however, we are using our strong free cash flow generation to pay down debt and are on track to reduce our leverage three times by the end of the fiscal year.

Iain Humphries: I will now let Ian walk through more details on our financial results before we return to provide some included remarks. Thanks Bruce and Graffmann and everyone. By segment, P3 revenue in our US pumping business increased 13% due to contributions from a recent acquisition of coastal Carolina and organic volume growth. In our UK segment, operating large down to the comfort ground, US dollar revenues increased 20% compared to the prior year quarter. Excluding the FX translation impact, revenue grew by 18%.

Iain Humphries: Our team continues to secure energy, road and rail projects, in addition to the work we previously announced with concrete intensive high-speed railway project HS2 which is expected to last beyond 2030. In our US concrete waste management services segment, operating under the equal pound brand, we continue to deliver record results, increasing revenue on an organic basis by 29% compared to the same year ago quarter. This continues to be driven by exceptional market expansion and penetration, created by our sales team and the value of our enhanced service offering.

Iain Humphries: Going forward, we continue to expect to maintain equal pounds double digit organic revenue growth given our continued investment in our team and equipment, its penetration in the market and the continued evolution of the methods used in concrete construction projects to contain concrete waste. Returning to our consolidated results, gross margin in the third quarter increased 90 basis points to 41%, compared to 40.1 in the same year ago quarter. As Bruce noted earlier, our strong revenue growth in the quarter supported this margin expansion and was partially offset by the cost of higher wage inflation.

Iain Humphries: General and administrative expenses in Q3 were 30 million versus 27.8 million in the same year ago quarter, primarily due to headcut additions and higher labor cost related to recent acquisitions. As a percentage of revenue, G and A costs improved to 24.8% in the third quarter compared to 26.6% in the same year ago quarter. This is illustrative of the operating efficiencies, we typically achieve as we scale both organically and through M&A. While we achieved a 5.5 million year over year improvement in our third quarter income from operations, net income available to common shareholders was 9.9 million or 18 cents per diluted share compared to 12.5 million or 22 cents per diluted share in the same year ago quarter.

Iain Humphries: Q3 last year benefited from slightly lower interest in income tax expense as well as a 7.4 million favourable change in the fair value of one liabilities compared to a 900,000 benefit in the quarter this year. Excluding the impact of the fair value of warrants, our third quarter net income would have been approximately 70% or 3.9 million higher compared to the same year ago quarter. Consolidated adjustity with that and the third quarter increased 16% to 34.9 million compared to 30 million in the same year ago quarter.

Iain Humphries: Adjustity with that margin improved slightly to 28.9% compared to 28.8% in the same year ago quarter. Moving on to our results by segment in our US concrete pumping business, adjusted increased to 20.5 million compared to 19.8 million in the same year ago quarter. In our UK business, adjusted EBITDA increased 41% to 5.6 million compared to 4 million in the prior year quarter. For our US Concrete West Management business, adjusted EBITDA and proved 44% to 8.2 million compared to 5.7 million in the same year ago quarter.

Iain Humphries: Turning to liquidity, as at July 31, 2023, we had totaled the outstanding of 411 million or net debt of 399 million. In the third quarter, we reduced our net debt by $30 million, resulting in a net debt leverage ratio of 3.2 times on a trillion 12 month adjusted EBITDA basis, which is our lowest leverage ratio since becoming a public company. As a reminder in the third quarter, we upsized our asset base landing facility from 168 to 225 million while also extending its maturity to June of 2022.

Iain Humphries: We had approximately $196 million in liquidity, as of July 31, 2023, which includes cash on the balance sheet and availability from our ABL facility. Throughout the third quarter, we continue to improve our liquidity and leverage by delivering strong free cash flow, and as Bruce mentioned, we continue to track towards our target net debt leverage ratio of 2.5 times. We believe this strategic delivering enhances our ability to pursue a creative investment opportunities, and support our overall long-term growth strategy.

Iain Humphries: As a reminder, we have no near-term debt maturitys, with our senior notes maturing in 2026 and our asset base landing facility now maturing in 2028. We remain in a strong free cash flow position, and liquidity is also, which provides further optionality to pursue value-added investment opportunities, like a creative M&A, continued investment in the organic growth of equal-pan and our concrete pumping fleet. In the third quarter, the company repurchased approximately $200,000 shares for $1.4 million. As at July 31, 2023, we had approximately $8.7 million remaining under the existing shared-y purchase authorization.

Bruce Young: We are encouraged by what we are seeing in our business, and the momentum that we are carrying into the fourth quarter and beyond.

Bruce Young: Now moving to our fiscal year 2023 financial outlook, with one quarter left in 2023, we are now running our guidance and expecting fiscal year revenue of approximately $440 million. Adjust the EBITDA of our approximately $125 million, and free cash flow, which we define as adjusted EBITDA, less net replacement capex, and less cash paid for interest of approximately $70 million. Additionally, we expect our net debt leverage ratio to be approximately three times by our fiscal year end. Operationally and financially, we have a solid foundation, and we have confidence in executing our growth strategy.

Bruce Young: With that, I will now turn the call back over to Bruce. Thanks, Ian.

Bruce Young: In summary, we are very pleased with another record quarter driven by double digit top-line growth and expansion in every segment. We continue to prove the compelling business proposition of our high-value service and the necessity of our mission critical service offering in the construction industry, which positions us well for 2023 and beyond. We anticipate ongoing growth in our end markets, particularly driven by infrastructure projects, heavy commercial work, and a resilient backlog of residential work.

Bruce Young: On the cost side of the equation, we are paying close attention to fuel costs, which have been volatile all year and recently increasing. However, our focus remains on optimizing and market mix to continue to deliver strong top-and-bottom line growth as we move into our fourth quarter, which is typically seasonally similar to Q3.

Bruce Young: We will also continue to focus on maximizing shareholder value by leveraging our unique operational capabilities, high-value service offering, and executing an opportunistic creative M&A while strategically reducing our leverage.

Operator: With that, I would now like to turn the call back over to the operator for Q&A. You may first start to, if you would like to remove your question from the Q. Participants using Speaker Equipment, and maybe necessary to pick up your hand to it before pressing the start keys.

Steven Fisher: Our first question comes from the line of Steven Fisher with UBS. Please proceed with your question. Thanks, good afternoon, and nice to see the revenue performance there.

Iain Humphries: Your implied Q4 growth implies a pretty significant slowdown in the growth rate. One of you can just give us a little bit of color by segment where you see that the bigger slowdown. It seems like possibly the U.S. Concrete pumping might only be growing up a percent or two organically. Do I have that right?

Iain Humphries: It seems surprising if the rezzy market is accelerating and infrastructure is growing steadily, even with a little bit of commercial softness. Hi, Steve. This is Ian. Thanks for the question. Typically, as you know, our fourth quarter is quite compatible to Q3, and I think that's what we're projecting for Q4. We have 120 million of revenue in Q3, other than the Labor Day holiday, which can slow things down. Usually, the Q4 is quite compatible, and I think that's what we've given for Q4 guidance.

Iain Humphries: So the way, I guess, to think about Q4 is somewhat compatible to Q3 on the top line, and marginal growth on the EBITDA site. By segment, we would expect, as Bruce mentioned in his comments, like ongoing momentum from each of the segments as we go into the fourth quarter. So, like I said, Q4 is largely compatible to Q3, and I think that's what we've underscored on our guidance for the full year.

Iain Humphries: Okay, can you maybe just give us a sense for what the price versus volume was in Q3 and what you've assumed. Yeah, it's you for particularly in concrete pumping, the US concrete pumping. Yeah, sure.

Iain Humphries: So also, we have some M&A in this year. So maybe the best way to look at the growth for the third quarter was about 16%. And that's broken down 5% from M&A, which was mostly volume M on the US pumping side. 6% on volume and 5% on price. Maybe some further context. If you look and it's quite the same state for a year-to-date basis, the 12% growth for the year, 12% or 13% for the year-to-date is about, it's the same 5% on M&A and about 4 on volume and 3 on price. So we expect that to be quite compatible in the fourth quarter as well, which have been quite consistent for the full year.

Steven Fisher: Okay, and then maybe just looking out a little bit further. If we annualize your second half adjusted EBITDAB, that would give us around $140 million of adjusted EBITDAB, which happens to be the consensus for 2024.

Bruce Young: I know there's seasonality when your second half is usually a bit stronger than the first half, but I mean, is that kind of somewhere in the right neighborhood of how we should be seeking about 2024 at this early point? I mean, how much visibility do you have at this point to 24 to kind of be able to comment on that?

Bruce Young: Steve, this is Bruce. Thanks for the question. It's still a little too early for us to put that type of a projection out there. We do see infrastructure improving. We are now starting to see some of that revenue flow through our business, however it's been a little slow in coming. The residential market looks pretty stable and we expect, you know, we'll learn more over the next few months as we look into next year. The large projects are good. It's one thing that we need to get more understanding on before we put that guidance out in January.

Steven Fisher: Terrific. Thank you very much. Thank you.

Operator: All right, next question comes from the line of Tim Mulrooney. Will you there? Please proceed with your question.

Bruce Young: Hi, Bruce and Ian. This is Luke McFadden on for Tim. Thanks for taking my questions. So I know you're doing well. Thanks so much. So I know you addressed commercial and markets. I've been here prepared remarks, but could you comment further on how clients have been dealing with higher interest rates? Are there certain areas where you've noted noticed greater pullback or have certain clients expressed hesitation with new projects given the higher interest rate environment?

Bruce Young: Thanks. Well, what we're seeing is, and thanks for the question, Tim. It's more in the lighter commercial projects that are a lot more sensitive to that sort of thing. The large projects, you know, anything that comes, you know, chip manufacturing plants, electric vehicle plants, anything at large scale like that. We're not really seeing much pullback or concern about the interest rates, but it's more of the smaller projects where it really affects their returns. Great.

Bruce Young: And then if you could maybe talk further about the management of the relates to the government infrastructure act, are you seeing, are you starting to see some projects related to those initiatives break ground, or are we still broadly more in the funding allocation and bidding process? We actually have seen some of those bids let here recently, some fairly large projects, nothing that we've gotten, you know, to the bid stage for us to secure that work, but we're encouraged by that.

Bruce Young: And so we do see into 2024, that being a much better opportunity than it was this year. Great.

Bruce Young: And then if I could just squeeze in one more here, obviously, no, you won't provide formal guidance for 2024 until your fourth quarter, but just maybe as we look towards the next year, are there any broader themes that we should keep in mind as it relates to your growth in margins? Yeah, I mean, again, it really comes back for us as we recalibrate rates based on the supply and demand on project sites.

Bruce Young: As Bruce mentioned in his columns, the inflation impacts certainly are in labor. It'd be more protected this year. So we would expect that to start eases as we recalibrate rates. And then from a margin perspective, obviously, we've seen some quite stellar performance on the ECOPAN on the UK site, and we expect that to continue to help improvement in margin. What I would add to that is, in 2022, we did a really good job of getting rates out up ahead of inflation, or at least with inflation.

Bruce Young: It was much harder in 2023. It's a much more competitive environment. The work that's out there isn't as great as it was in 2020. So it made it much more competitive, and it was more of battling for market share, and harder to get rates. We see the markets improving into 24, and so the margins should improve with Great. Thanks so much, guys. Thanks.

Operator: Hey, guys, and as a reminder, if anyone has any questions, you may press star on one to join the question in there.

Andy Wittmann: Our next question comes from the line of Andy Wittmann with Baird. Thank you for seeing me. Oh, yeah, great.

Bruce Young: Thanks for taking my questions and good afternoon, guys. I guess the one to just zoom in here on the residential portion of your business. Obviously, the rising rates here had been a factor off and on, but the confidence or the uptick that you saw sequentially in demand there was maybe a little surprising to some. So, and it sounds like you've got a fairly decent outlook as you look forward as well. So, I was just wondering like if you could put a little bit more detail on the comments that you made, Bruce, around residential as to why you believe that that is short up and may remain so.

Bruce Young: Thanks for the question, Andy. So, as we look at the residential markets we're in, and it's largely in the Mountain States, Idaho, Utah, Arizona, and Texas, where we do most of our residential work, and the demand is still quite high in those markets. We've seen a lot of the large home builders have bought down interest rates, have built houses on smaller lots, maybe not as many features to keep them more affordable. And honestly, we've been really impressed with what they've been able to do to keep that flow going, and we see that continuing. I see. Okay.

Iain Humphries: And then maybe one for Ian, we just noticed there was a $12.8 million non-current liability that popped on the balance sheet this quarter. I was wondering what that is. Is that like an urn out or something, or maybe can you just talk about what that is? Yeah, it's really a presentation change on our self-insurance. So, we don't get provides, I mean, it's in line with CAP, and we think it provides a bit more visibility on our self-insurance program.

Iain Humphries: So, from a, if you think about it, so from, first of all, from a net liability perspective on our commercial insurance, it's still around like 5.8 million, which is consistent with prior quarters. It's really a change in the presentation, Andy. So, the way that it works from self-insurance between your attention programs and your access to the doctorables, it's really a gross up of that presentation. So, on the asset side, there's a bit 24 million and the liability side is about 18 million. So, it's net the same number. It's just a change in presentation. Got it. Thank you.

Andy Wittmann: I think what else I wanted to ask about here.

Bruce Young: I guess you guys have been talking about HS2 for a long time, and I know I asked about this on a lot of conference calls. It's been a contributor to your growth in the UK for a while. Do you think that as you look into 24 with the scheduling that's out there, that there's another year of growth for the HS2 program, or when does it start leveling off in terms of its annual revenue contribution recognizing that it still has these forecasts that have many more years of construction happening? We see it growing slightly into next year and then leveling off there for the next several years. Okay. All right, great.

Andy Wittmann: I think that's all the questions I had for this evening. Thank you for your time.

Operator: Thanks, Andy, and his time to conclude our question and answer session.

Bruce Young: I would now like to thank you for that over to Mr. Young for close remarks. Thank you, Molly. 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 fiscal 2023 results and provide 2024 guidance in January. Thank you.

Operator: And ladies and gentlemen, this does conclude today's conference. You may disconnect a lot at this time. Thank you for your participation.