Q4 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 fourth quarter and fiscal year ended October 31st 2023.
Joining us today are concrete pumping holdings' CEO, Bruce young CFO, Ian Humphreys and the company's external director of Investor Relations.
These floor.
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 Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements.
Slaw: Cody. Please go ahead.
Cody: Thanks Camilla.
Cody: To remind everyone that in the course of this call to give you a better understanding of our operations, we will be making certain forward looking statements regarding our business and outlook. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements for.
Cody: 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. 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: <unk>.
Cody: 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.
Cody: We provide further information.
Cody: About these non-GAAP financial measures and reconciliations to 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 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.
Cody: The release as well as on the company's website. Additionally, we have posted an updated investor presentation to the company's site.
Now I'd like to turn the call over to the CEO of concrete pumping holdings Bruce Young Bruce.
Bruce Young: Thank you Cody and good afternoon, everyone. We had another strong year in fiscal 2023, driven by the strength and diversification of our business. As a result, we were able to drive financial performance Records for annual revenue adjusted EBITDA and net income looking at our full fiscal year of 2020 through three revenue any.
Bruce Young: 10% to $442 million adjusted EBITDA increased 7% to $125 million and net income increased 12% to $30 million each of our end markets contributed to this performance, particularly as residential construction remains strong and our expanded footprint enabled us.
Bruce Young: To continue to win infrastructure projects. We also continue to execute on our debt reduction initiatives, achieving our three times leverage ratio target at the end of the 2023 fiscal year shifting to our fourth quarter performance by end market. Our business performed in line with expectations and then in the infrastructure end market.
Bruce Young: Our expanded U S national footprint continued to drive strong results as we captured more revenue for public project investments, we continue to see more investment flow into numerous projects, where we operate and we plan to aggressively pursue these project opportunities with the belief that it has the potential to be a five year plus tailwind for our business.
Bruce Young: During the fourth 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 enticing new homebuyer, what's creative home design and financing options.
Bruce Young: Interest rates falling subsequent to quarter end and the projection of additional interest rate cuts in 2024, we expect residential housing projects remain healthy for our business and.
Bruce Young: In the commercial end market, we continued to experience momentum in larger commercial projects like distribution centers warehouses semiconductor fabrication plants in electric vehicle and battery manufacturing plants. We expect this demand to continue giving U S. Reassuring trends as companies look to build out their domestic manufacturing footprint, however, concrete pumping to me.
Bruce Young: Man 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. We expected interest rate cuts in 2024 could help get these projects moving again.
Bruce Young: During the quarter, our commercial mix as a percentage of our total revenue declined 100 basis points year over year to 59%.
Bruce Young: This was fully absorbed by your infrastructure projects, while residential was flat year over year at 29%. This once again highlights the diversity of our business and the agility of our fleet.
Bruce Young: Shifting to the cost side of our business persistent inflationary pressures, particularly in labor continue to hamper our ability to flow through our strong revenue performance to the bottom line margin, we estimate labor inflation accounted for roughly half of the inflationary headwinds we experienced in our P&L well, we expect these headwinds to continue into the new year as we are.
Bruce Young: The measures we are taking to recalibrate rates and the systems, we are implementing to attract and retain our employees are the right steps for our business to drive long term shareholder value.
Bruce Young: I will now I'll, let Ian walk through more details of our financial results before he reads will return to provide some concluding remarks.
Ian Humphreys: Thanks, Bruce and good afternoon everybody.
Ian Humphreys: In the fourth quarter revenue increased 5% to $120 2 million compared to $114 9 million in the same year ago quarter.
Ian Humphreys: The increase was mainly mainly attributable to growth across each of our segments. As a result of organic growth from higher volumes in certain regions and improved pricing.
Ian Humphreys: Revenue in our U S concrete pumping segment, mostly operating under the Brundage bone brand increased 1% to $85 million compared to $84 3 million in the prior year quarter.
Ian Humphreys: So do you see operations operating largely under the comfort brand revenue increased 17% to $17 4 million compared to $14 9 million in the same year ago Cortina.
Ian Humphreys: When excluding the foreign exchange translation effects from the British pound revenue for our UK operations increased approximately 10% in the fourth quarter due primarily to pricing improvements.
Revenue in our U S concrete waste management services segment operating under the Eco Pan brand increased 15% to $18 million compared to $15 6 million in the prior year quarter.
Ian Humphreys: The strong organic increase in revenue was driven by increases in volume and a sustained improvement in pricing.
Ian Humphreys: Returning to our consolidated results gross margin in the fourth quarter was 47% compared to 42, 3% in the same year ago quarter with a decrease margin, mostly being related to the impact of labor inflation.
Ian Humphreys: General and administrative expenses in the fourth quarter were roughly flat at $29 6 million compared to $30 3 million in the same year ago quarter.
As a percentage of revenue G&A costs improved in the fourth quarter to 24, 6% compared to 26, 4% in the same go to court.
Ian Humphreys: For the full year of 2023, when excluding the noncash G&A expenses for amortization and stock based compensation G&A costs as a percentage of revenue were approximately 21%, which is consistent with the prior year.
Ian Humphreys: Net income available to common shareholders in the fourth quarter increased 11% to $9 million or 16 cents per diluted share compared to $8 $1 million or 14 cents per diluted share in the same year ago quarter.
Ian Humphreys: Consolidated adjusted EBITDA in the fourth quarter increased marginally to $35 8 million compared to $35 6 million in the same Utica a quarter.
Ian Humphreys: Adjusted EBITDA margin was 29, 8% compared to 31% in the same year ago quarter and as discussed previously the slight erosion in margin was driven by a persistent cost inflation, particularly in the cost of labor.
Ian Humphreys: And our U S concrete pumping business adjusted EBITDA decreased 7% to $21 2 million compared to $22 7 million in the same year ago quarter.
Ian Humphreys: And our U K business adjusted EBITDA increased 9% to $5 1 million compared to $4 7 million in the same year ago quarter.
Ian Humphreys: For our U S concrete waste management business, adjusted EBITDA increased 16% to $8 8 million compared to $7 6 million in the same year ago quarter.
Turning now to free cash flow and liquidity.
Ian Humphreys: For the full year of 2023, we delivered 23% growth in free cash flow to approximately $69 million as compared to $56 million in the prior year.
Ian Humphreys: This is after investing approximately $29 million in replacement equipment, and dispersing almost $27 million in cash interest.
Ian Humphreys: At October 31, 2023, we had total debt outstanding of $394 million or net debt of $307 million to $8 million a degree a decrease of 42 million over the course of the year, which is a testament to our strong free cash flow generation.
Ian Humphreys: This equates to a net debt to EBITDA leverage ratio of three times, which was our guidance target for the 2023 your hand.
Ian Humphreys: We had approximately $217 million of liquidity as of October 31, 2023, which includes cash on the balance sheet and availability from our ABL facility.
Ian Humphreys: As a reminder, we have no near term debt maturities with our senior notes maturing in 2026, and our asset based lending facility maturing in 2028.
We remain in a strong liquidity position, which provides further optionality to responsibly perceived value added investment opportunities like accretive M&A or the <unk> investment in our fleet of equipment to support our overall long term growth strategy.
Ian Humphreys: During the third quarter of 2022, we entered into a share repurchase program authorized the buyback of up to $10 million of our outstanding shares of common stock and <unk>.
Ian Humphreys: It is 2023 the board of directors approved an additional $10 million increase.
Ian Humphreys: During the fourth quarter of 2023 under our share repurchase program, we repurchased approximately 34000 shares of our common stock for a total of approximately $240000 at an average price of $7.08 per share.
Ian Humphreys: During fiscal years, 2023, and 2022 under our share repurchase program, we repurchased approximately one 7 million shares of our common stock for a total of $11 6 million or an average price of $6 57 per share.
Ian Humphreys: The current share buyback program is authorized by the board is that access through March of 2025, and we believe this demonstrates both our commitment to delivering value to our shareholders and our confidence in our strategic growth plan.
Ian Humphreys: Moving now into our 2020 for full year guidance, we expect fiscal year revenue to range between 465 and 490 million adjust.
Ian Humphreys: Adjusted EBITDA to range between 127 and 137 million.
Ian Humphreys: And free cash flow, which we define as adjusted EBITDA less natural placement capex and less cash paid for interest to be at least $75 million.
Ian Humphreys: For fiscal year 2024, we expect to be impacted by continued inflationary cost pressures, primarily labor and insurance costs and expect to offset these costs from the continued rate recalibration and cost efficiency initiatives.
Ian Humphreys: Operationally and financially we continued to have a solid foundation and we have confidence in continuing to execute on our growth strategy with that I will now turn the call back over to Bruce.
Bruce Young: Thanks, Ian in summary, we are incredibly pleased with our record year of revenue and EBITDA accompanied by expansion in every segment, we anticipate ongoing growth in our residential and infrastructure end markets, particularly driven by infrastructure projects and a resilient backlog of residential work on the cost side of the equation, we are focused on attracting.
And retaining the best talent in the industry, while reducing the impact from inflationary cost pressures through rate increases as always our focus remains on optimizing end market mix to continue to deliver strong top and bottom line growth.
Bruce Young: Looking ahead, we believe our end market diversity and mission critical service in the construction industry positions us well for continued growth, we expect to complement organic growth by continuing to evaluate 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 canola.
Speaker Change: Thank you.
Speaker Change: We will now begin.
Speaker Change: And answer session.
I'd like to ask a question. Please press star one.
Speaker Change: Pat.
Your line is another question.
Pat: You May press Star two if you would like to turn.
A question from the queue.
For participants using speaker equipment.
Pat: <unk> to pick up your handset before pressing the star.
Pat: One moment please poll for questions.
Speaker Change: Thank you.
Speaker Change: And our first question will come from the line of Brent Thielman with D. A Davidson. Please proceed with your question.
Brent Edward Thielman: Hey, great. Thanks, good afternoon.
Brent Edward Thielman: I guess Bruce or Ian.
Speaker Change: First question is just a labor inflation, but still looks like it's presenting some compression in the margin on U S pumping.
Speaker Change: Is the proportion of lower margin revenue in that segment, I guess still shrinking your business or not a.
Today's labor cost environment are we.
Sort of two or three quarters away from seeing some sort of an inflection in margins in that basin scoop just be helpful to get your thoughts there.
Speaker Change: Yeah, Brian Good question, Yes, I mean in short it is I'm thinking and so I've got a couple of points on that.
Speaker Change: And this is all of us at par or we mentioned cost initiatives and our prepared remarks, so the labor and portion of that is certainly a big feature I mean, as Bruce mentioned down about half of the inflation. We've seen this year has been around labor. So its certainly one of our key focuses so and the margin impact is certainly shrinking and but still some work to do.
Speaker Change: Is that a big part of the cost initiatives going forward yeah. It Brennan I think what I would add to that is it is shrinking now and it will continue to get better as we as the year plays out.
Speaker Change: Yeah.
Speaker Change: Okay, that's great.
Speaker Change: I mean, the outlook for revenue for 2024 does call for reasonably healthy breath.
Speaker Change: On the moving pieces of the market and.
Yes.
Speaker Change: Often the fact, you did see some moderation in U S b growth this quarter.
Speaker Change: Maybe relative to what you've seen in terms of growth rates that cause I guess, Bruce can you just sort of bridge what you anticipate.
For this new fiscal year, and the confidence that you'll see some reacceleration in growth in U S pumping.
Speaker Change: Yeah, and as you know because we operate under so many different geographies that it'll be different in different markets, but what we're seeing is and what we're working very hard on is getting rates up in markets, where we can where and maybe it's different end markets different customers different sizes of equipment things that we've been able to analyze.
Speaker Change: That we need to do a little bit better on we think will drive that and we also see some opportunities for some fairly large projects that were on to now that will be.
Speaker Change: Impactful to our revenues growing over the next year, but you know it's always the same it's just holding our share of gaining share you know kind of winning the battles in the trenches.
And Bruce said those large projects ones that you can effectively been awarded or you've got a high level of confidence here.
Speaker Change: We're gonna be attached to that.
Speaker Change: Yeah. Some of them were currently on some that are we expect to be awarded to us and others that we'll be bidding shortly.
Speaker Change: Okay, Okay, and just my last question would be nice to work them into the three acts.
Speaker Change: This year.
Speaker Change: I guess any further thoughts on you know where you want to be in 2024 and with the balance sheet leverage.
Speaker Change: Yes, I mean, obviously I mean, the starting point as you know Brian for US is the free cash flow number and so again, we're coming out with what we think is a quite a strong indication of free cash flow but.
Speaker Change: But consistent with the themes, we're always looking for the <unk>. The <unk> the best opportunity is to create the most shareholder value. So we will continue to allocate and some are from a capital allocation perspective that free cash flow into the they go through the business in the areas that have the most volume and a lot of it obviously in eco pan as organic but we.
Speaker Change: You also have the inorganic and M&A.
Speaker Change: M&A opportunities if the volumes, though right. So there's a there's a number of options. We think from that free cash flow number and two to keep on doing the things that we have been doing.
Speaker Change: Got it Okay I'll pass it on thank you.
Speaker Change: Thanks Brent.
Speaker Change: Thank you. Our next question will come from the line of Andy Wittmann with Baird. Please proceed with your question.
Great. Good afternoon, guys. Thank you for taking my questions.
Speaker Change: Yes, I just wanted to start with a question on the revenue outlook here for 'twenty four I guess the implied growth rate there is about five to almost 11%.
Speaker Change: I just wanted to kind of understand what's in the low and the high end of the range is it fair to think of the low end being.
Basically all price and flattish volumes and then volumes positive to get to the high end. Ian is that is that one way of thinking about it is that the correct way to think about it how are you thinking about it.
Ian Humphreys: Yeah, I think that's fair Andy.
Ian Humphreys: I think you're right on I mean, obviously, we're doing continuously the calibration as we mentioned, but you're right on the low end, there's an assumption of flight flatter volume and then as we get to that mid point I mean, as you know the split between volume and pricing is can be somewhat equal. So if we talk just around the midpoint. It's.
Ian Humphreys: Let's say three or 5% on the volume three of 5% on the price and obviously that will flex based on them on the volume piece. So I think youre thinking about it right.
Speaker Change: Okay that makes sense and then I guess just on the on the implicit EBITDA margins in the 24 guidance I wanted to dig into that I mean, they're basically implied down.
Speaker Change: A couple of hundred basis points and heard the commentary on labor or did you guys say that you are expecting that challenge to continue here into 2024.
Speaker Change: But I am just wondering is there more to it that we should be thinking about is there.
Is the competition competing differently.
Speaker Change: As a as the growth opportunities broadly speaking or maybe not as robust and is that a factor that goes into the margins or maybe Bruce what are the other considerations, we should be thinking about that's implicit in that margin rate for 'twenty four.
Bruce Young: Yeah, I think the biggest thing is the competitive environment that we're in a we've talked about this on our last call where.
Bruce Young: There's not a lot of discipline, we're competing against family offices for the most part that don't have the confidence in themselves to get rates up ahead of inflation and so and we know and because we've always had to do this is the largest players kind of drive that and get out in front of that and so far we're finding creative ways to get out in front of that but there is some concern about how that will play out through.
Bruce Young: Of the year.
Speaker Change: Got it Okay. That's helpful perspective, and then I guess maybe.
Maybe my last question here is.
Just on the commercial side.
Speaker Change: I'm just wondering if you wanted to give some commentary about what you're seeing there. Obviously this is this has been the toughest part that's not new but.
Speaker Change: Are there green shoots to be seen here or are you seeing.
Speaker Change: Delays at all on some of the projects that you're kind of eyeing down or even cancellations.
Speaker Change: <unk>.
Speaker Change: Like peak rates in the case that you made in your prepared remarks. It seems like its directionally positive I, just wondering what youre seeing on the ground in terms of.
Speaker Change: The movement of these commercial including the light commercial jobs through the bid to build process.
Speaker Change: Process.
Speaker Change: Yes, so things haven't changed a lot from the last quarter. The larger projects are going there's still some concern about the light commercial.
Speaker Change: That activity, we don't see this doesn't create a backlog like what we get on the larger projects, where we know about them six to eight months a year in advance that the lighter commercial ones. Sometimes it's just two or three months. So we are we don't have as much visibility, but we do believe as interest rates lighten up and demand becomes greater that we'll see that.
Speaker Change: Increase.
Speaker Change: Okay. Thank you for the context I appreciate it have a have a good evening.
Thanks, Andy Thanks, Andy.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Luke Mcfarlane with William Blair. Please proceed with your question.
Speaker Change: Yeah.
Luke Mcfarlane: Hey, Bruce and Ian Thanks, So much for taking my questions Tonight.
Luke Mcfarlane: Maybe just one here you know I know you kind of mentioned just in terms of.
Luke Mcfarlane: On the commercial side.
Luke Mcfarlane: Abi index, it's kind of been a negative territory for a while now I think the hope is that we start to see that improve somewhat as we move through 2024.
Luke Mcfarlane: I was just curious kind of how you guys think about your nonresidential construction business and.
Luke Mcfarlane: I think the hope is that it improves but maybe.
Speaker Change: From your perspective, more front end weighted versus backend weighted just anything there would be helpful. Thanks, so much.
Speaker Change: Yeah. Thanks look I think the Abi is where our concern with like commercial is that where it was doing quite well until a few months ago or at least to even and now is it's gone back. We we do have some concerns that that'll affect light commercial the larger projects are they seem to be going but we expect that that will improve over the next.
Speaker Change: Few months and then we'll see light commercial pick up in the second half of the year.
Speaker Change: Great.
Speaker Change: Just one more on our end here in our residential was again, a bright spot in the quarter.
Speaker Change: November we saw new single family homes jump up again can.
Speaker Change: Can you discuss any of the nuances around what you saw in the residential market during the fourth quarter and in particular in E. G.
Speaker Change: Dr fees that were particularly strong I know.
Speaker Change: The the mountain region was strong for you last quarter, but anything specific there.
It's just it's the same story that the homebuilders have done a really good job of making homes affordable and the supply demand has been in our favor for that and we see that picking up into this year and we expect residential could be even much better as the year plays out as interest rates come back down.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Hey, guys. This is Andrew on for Stanley. Thank you for taking my question.
Andrew: I'm wondering if you could talk about M&A, a little bit more it seems like the appetite is certainly they're getting the balance sheet, but what what is the landscape looking like as we entered the new year and where are the opportunities.
Speaker Change: So we're very interested in doing good M&A deals and and the challenge that we've seen with with inflation. Many of the small competitors haven't done a very good job of getting their rates up with inflation. So their cash flow margins are down substantially and the value of their assets are either.
Speaker Change: They're holding strong or are going up in value with the with the increased cost of new assets and so it's been difficult for us to buy them at the right values. We think that will start shifting during the year, but we will we always have an appetite for that we've created a balance sheet that puts us in a good position for that and we will will just be thoughtful about doing the right deals.
Speaker Change: And then related to the UK.
Speaker Change: Hey pumping segment, how are you thinking about growth into this year.
And do you have any concerns about the delays or cancellations in the high speed rail project over there.
Speaker Change: Not at this time, we feel really good about our workload for the U K going into 2024.
The Hs two project that we're currently on and are the portions that were on there they're locked in and so we expect that to continue strong throughout this year and we're finding a lot of other infrastructure dollars that are being spent in the U K as well on other types of projects that are are helping that growth now the commercial markets in the U K or a little.
Flattish very similar to the U S, but the growth potential on the infrastructure work is really the great opportunity we have in U K for 'twenty four.
Speaker Change: Thank you.
Speaker Change: Thanks, Andrew.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Quick question.
Thank you Pat.
Our next question will come from the line of Steven Fisher with UBS. Please proceed with your question Hi. Thanks.
Steven Fisher: Good afternoon.
Steven Fisher: I missed the first part of the call. So I'm not sure. If you covered this or not but in terms of the.
Steven Fisher: The drivers of the commercial softness it sounds like.
How much of that is financing availability and perhaps.
Well level.
Steven Fisher: Creating a challenge versus any other factors I think last quarter. You had said it was a little bit more challenging for some of like smaller warehouses and things to get financing. So how much is that still a factor has that intensified as the weekend, maybe talk about that a little bit. Please.
Steven Fisher: It seems like it stayed fairly close to the same quarter over quarter for us we watch that fairly closely.
Steven Fisher: We do anticipate as rates come down that should get easier for those projects to get funded.
Steven Fisher: Can we expect to see some positive impact from that in the second half of the year.
Steven Fisher: Okay, and then I guess just in terms of seasonality.
Steven Fisher: Seasonality in the near term.
Steven Fisher: Obviously, we're well through your first quarter, so anything to call out about.
Steven Fisher: What's been happening over the last couple of months curious how these rate increases that you're trying to put through.
Those had been received and just anything for modeling purposes, we should be aware of in terms of near term seasonality.
Speaker Change: Yeah, Steve Good question I mean, typically the seasonality is going to be quite consistent as we go through Q1, two for what we expect to actually maybe a slightly stronger second half than the first half with the with the expected change in rates, we'll see we'll see some of those light commercial projects come online. So we're we're usually as you know.
Speaker Change: 45, 55, we think it might be $54 56 for the stronger back half of the year just with that impact.
Speaker Change: Okay, and how would the rate increase has been accepted by the marketplace.
Yeah as you know rate increases are always challenging, especially in a market that we're dealing and today we're.
Speaker Change: We're having good success, we do believe we provide a great service that we're a great teammate to our customers in and it's really on us and our sales team to go out and prove out that value.
Speaker Change: Okay. Thank you very much.
Speaker Change: Steve.
Speaker Change: Okay.
Speaker Change: Thank you.
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 remark.
Bruce Young: Thank you Camilla, we'd like to thank everyone for listening to today's call and we look forward to speaking with you. When we report our first quarter fiscal 2024 results in March.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.
Speaker Change: You for your participation.
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