Q2 2024 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 second quarter ended April 32020 for joining.
Joining us today are concrete pumping holdings' CEO, Bruce young CFO, Iain Humphries and the company's external Investor Relations director Coty stock before.
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.
Important cautions regarding forward looking statements 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 forward looking statements regarding our business and outlook. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements for information concerning these rich.
<unk> and uncertainties she concrete pumping Holdings' annual report on Form 10-K quarterly report on Form 10-Q, and other publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise on today's call.
We will also reference certain non-GAAP financial measures, including adjusted EBITDA net debt and free cash flow, which we believe provide useful information for investors. We provide further information about these non-GAAP financial measures and reconciliations to the comparable.
It gives me 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 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 now I'd like to turn the call over to the CEO of concrete pumping holdings.
Bruce F. Young: Bruce Young Bruce.
Thank you Cody and good afternoon, everyone.
On a consolidated level our revenue performance for the second quarter was largely in line with last year and I am pleased with the resilience of our business model and the execution by our team in a dynamic volume environment across our end markets and our U S pumping business, we experienced some softness across a variety of commercial work with commercial projects.
<unk> sensitive to higher for longer interest rates, however, offsetting some commercial softness revenue on our infrastructure and residential sectors grew year over year in the second quarter by 14% and 12% respectively.
Bruce F. Young: Larger commercial projects remained mostly durable, albeit volumes were impacted by interest rate economics and project delays in the second quarter due to unseasonably wet weather in Texas and in southwest and the U K. Our team continued to support a high volume of key commercial and infrastructure projects and have successfully.
Recalibrated race to lessen the impact of cost inflation in the region and our concrete waste management services segment, we sustained double digit growth in the second quarter, despite facing challenging volume and weather related environments that impacted our U S concrete pumping operations.
These factors affected our top line performance, both on a consolidated level and within our U S. Concrete pumping segment. However, we maintain stable performance in our U K operations and strong organic growth momentum in concrete waste management services, delivering 8% year over year adjusted EBITDA growth in both segments.
Transitioning to our segments by end market, we continued to experience similar trends to what we saw in our first quarter within the commercial end market momentum in larger projects has tempered like distribution centers warehouses semiconductor fabrication plants in electric vehicle and battery manufacturing plants amid growing.
<unk> trends in the U S. As I, just mentioned concrete pumping demand and activity on commercial projects were relatively weaker given the interest rate environment. This is not only affected project volumes, but it is also driven competition to be more aggressive on rates, resulting in a reduction in our ability to gain the pricing leverage we win we win.
Normally expect white.
Bruce F. Young: We had initially expected some recovery and an improved project funding landscape in the second half of fiscal 2024 current interest rates have stayed at levels more comparable to what we saw in 2023. This has had the impact of weaker than expected demand environment in the commercial sector over the coming quarters.
We'll closely monitor further evolution in the broader interest rate environment and the shape of the recovery.
Residential construction remains resilient growing 12% year over year in the second quarter with the structural supply demand imbalanced continuing to drive increased homebuilding activity, while interest rates remain elevated homebuilders continue to provide creative solutions to homebuyers and we remain encouraged that demand momentum in this end market will remain.
Stable despite the challenges of affordability between purchasing a new home versus an existing one.
From a regional perspective, we continued to see strong residential construction investments within our mountain region and in Texas, which represent under supplied regions, where single family construction as prominent and infrastructure our expanded U S. National footprint continued to drive strong results growing 12 are growing 14% year over year in the quarter.
As we finally began to see momentum in capital deployment for any infrastructure investment and jobs Act and other public yet project investments as a result, we expect to see infrastructure projects continued to grow in 2024 and beyond as early I I J D projects advance to a major construction phase and.
We will plan to aggressively pursue these opportunities in the U K infrastructure growth has continued to develop as funding is being deployed at faster timelines and domestic U S government investment.
Phase one of Hs to infrastructure spending has continued as originally planned and the U K along with plans for investments and net zero projects such as size, we will see a concrete intensive nuclear power station project to which the U K government has committed approximately $3 billion. This project is similar to scale.
As Hinkley point of nuclear power projects are Canford team has already supported as a result of canfor's previous involvement with Hinkley point. We believe we are well positioned for further involvement in size, we will see once the project is approved.
Moving to the cost side of our business our second quarter performance reflects similar headwinds to what we expected in Q1 <unk>.
Persistent inflation, largely a mix of labor and commercial insurance have remained affecting our consolidated profitability performance along with downstream margin impacts from lower revenue volumes in our U S pumping business, while we expect these headwinds to be present in the second half of 2024, we are beginning to see our cost control.
All initiatives take hold which in conjunction with expected rate recalibration improvement across our end markets should yield <unk>.
<unk> margins as we navigate lower commercial project volumes, we are tightening our financial outlook to the lower end of our initially stated range. Additionally, as a result of the investments we made in our fleet over the last several years, we are well placed to optimize the utilization of our existing concrete pumping fleet unlocking significant free cash.
Cash flow.
This flexibility combined with other cost control initiatives gives us the confidence that we can maintain our original 2020 for free cash flow target of at least $75 million. We continue to use this free cash flow generation to pay down debt and we are on track to reduce our net leverage to approximately 275 times.
By the end of fiscal of this fiscal year tracking steadily towards our long term target of two five times.
I will now let Ian walk through more details of our final financial results before I return to provide some concluding remarks.
Thanks, Bruce and good afternoon, everyone.
In the second quarter consolidated revenue was $107 1 million compared to $107 8 million in the same year ago quarter as Bruce mentioned, the slight year over year decrease was attributable to strong continued growth in U S concrete waste management services and that was more than offset by a volume decline our U S concrete pumping.
Segment, specifically impacted by commercial projects and unseasonably wet weather events.
As such revenue in our U S concrete pumping segment, mostly operated under the Brundage bone brand decreased 5% to $74 6 million compared to seven to $8 4 million in the prior year quarter.
For our U K operations operating under the comfort brand revenue into 2% to $15 5 million compared to $15 2 million in the prior year quarter.
When excluding the impact from foreign currency translation revenue was largely in line with last year slightly lower activity volumes in the second quarter were offset by pricing improvements.
Revenue in our U S concrete waste management services segment operating under the Eco Pan brand increased 19% to $16 9 million compared to $14 2 million in the prior year quarter.
The increase was driven by robust organic growth and pricing improvements.
Turning to our consolidated results gross margin in the second quarter was 39% compared to 43% in the same year ago quarter with the decreased margin primarily related to lower revenue volumes lower labor utilization driven by the adverse impact of weather conditions.
And market rate increases in commercial insurance premium costs.
General and administrative expenses in the second quarter decreased to $29 7 million compared to $70 2 million in the same year ago quarter with a decrease largely related to a noncash decrease in amortization expense of $900000.
G&A costs as a percentage of revenue decreased slightly in the second quarter to 27, 7% compared to 28% in the same year ago quarter.
Net income available to common shareholders in the second quarter was $2 6 million or five cents per diluted share compared to $5 2 million or nine cents per diluted share in the same year ago quarter.
Consolidated adjusted EBITDA in the second quarter decreased 4% to $27 5 million compared to $28 8 million in the same year ago quarter.
Adjusted EBITDA margin declined to 25, 7% compared to 26, 7% in the same year ago quarter.
Again, the EBITDA declines were driven by the aforementioned impacts from lower U S pumping revenue volumes, whereas it impacted labor utilization and market related cost increases and commercial insurers.
And our U S concrete pumping business adjusted EBITDA decreased 11% to $17 2 million compared to $19 3 million in the same year ago quarter.
Our U K business adjusted EBITDA increased 8% to $4 1 million compared to $3 8 million in the same quarter.
For our U S concrete waste management business adjusted EBITDA also increased 8% $6 2 million compared to $5 7 million in the same year ago quarter.
Turning now to liquidity.
Oh, sorry, Yes, 2024, we had total debt outstanding of $391 4 million or net debt of $373 5 million.
This equates to a net debt to EBITDA leverage ratio of three two times.
We had approximately $216 9 million of liquidity as at April 32024, which includes cash on the balance sheet and availability from our ABL facility.
As a reminder, we have no near term debt maturities with our senior notes maturing in 2026, and our asset based lending facility even shooting in 2028.
We remain in a strong liquidity position, which provides further optionality to responsibly pursue value added investment opportunities like accretive M&A.
Are the organic investment in our fleet of equipment to support our overall long term growth strategy.
During the third quarter of 2022, we entered into a share repurchase program. The authorized a buyback of up to $10 million of our outstanding shares of common stock and.
In January 2023, the board of directors approved an additional $10 million increase in March 2020 for an additional $15 million was approved.
During the second quarter of 2024 under our share repurchase program, we repurchased approximately 171000 shares or common stock for $1.3 million.
At an average share price of seven <unk>.
$7 as far as two cents per share.
Speaker Change: Since our buyback program was initiated through April 2024, we have repurchased approximately 2 million shares of our common stock for a total of $13 $1 million or an average price of $6 67 per share.
The kind of share buy back program with $21 9 million still remaining and as authorized by the board of directors through March of 2025, and we believe this demonstrates both our commitment to delivering long term value to shareholders and our confidence in our strategic growth plan.
Moving now into our 2020 for full year guidance due to the reduced commercial project volumes and adverse weather impacts through the first half of fiscal 2024, we have devised that expectations for fiscal year revenue to range between 455 and $465 million and adjusted EBITDA.
Speaker Change: Range between 120 $125 million.
As Bruce mentioned free cash flow, which we define as adjusted EBITDA less net replacement Capex less cash paid for interest will remain as at least $75 million given the strength of our balance sheet cost control initiatives, we have put in place and our ability to improve equipment utilization and flex.
Capex investments based upon demand.
This flexibility also is supported by previous investments we've made over the last three years, including from acquisitions to improve capacity in our fleet utilization.
As a result, and as Bruce mentioned earlier, we are targeting a net leverage ratio of approximately 275 times by the end of this fiscal year.
In terms of costs, we will continue working to offset inflationary cost pressures through our continued ratably calibration and cost efficiency initiatives with.
Both operationally and financially we believe we are entering the second half of fiscal 2024 with a solid flexible foundation.
With that I will now turn the call back over to Bruce.
Thanks, Ian and.
In summary, we made we remain pleased with the momentum we have maintained in our concrete waste management services, along with the stability of our U K operations with our residential and infrastructure end markets. We expect project momentum to continue.
We're keeping a close eye on project volume patterns and further interest rate movements within our commercial end market, while visibility remains challenged at present, we believe the scale breadth and agility of our U S pumping business has optimized our position for recovery as macro improvements arise our positioning has further benefited by our operational.
Flexibility and sustained opportunistic approach to equipment utilization as we can pursue more value driven work rather than focus solely on more volume based projects. We will continue our cost optimization focus through maintaining our efforts on attracting and retaining the best talent in our industry, while working to reduce the impact of inflation.
Speaker Change: Shneur any cost pressures through disciplined cost initiatives and continued rate increases as always our focus remains on optimizing end market mix to drive towards top and bottom line growth, we expect to complement our organic growth initiatives by continuing to evaluate opportunistic accretive M&A, while strategically reducing our <unk>.
Leverage with that I would now like to turn the time back over to the operator for Q&A She Molly.
Speaker Change: Okay.
Molly: Thank you Sir.
At this time, we'll be conducting a question and answer the question.
If you would like to ask a question. Please press star one on your telephone keypad a.
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And our first question comes from the line of Tim Mulrooney with William Blair.
Please proceed with your question.
Yeah.
Hi, Bruce This is Mike Mcfadden on for Tim Mulrooney, Thanks for taking our questions today.
Just the first one here on the guidance.
Just curious as it pertains to the revised outlook does that primarily reflect the pressures you saw during this quarter and the first half of the year.
Molly: Or does it also incorporate a more cautionary outlook on the back half of this year, perhaps as it relates to commercial project activity.
Yes, it's a good question. Thanks for that so we do think that the second half of the year is going to have some of the same concerns that we've seen in the first half of the year, we did have.
Several weather delays in the first half of the year that we don't expect but we do feel like to Merck commercial market is going to be a little sluggish through the remainder of this year.
Understood helpful. And then maybe switching gears here in terms of some of the early rollout from II Jay infrastructure investment what types of projects are you seeing come through first as it relates to to that.
That investment opportunity and how much visibility do you have into future projects tied to to the IH a yeah.
Yeah as you know it's been difficult to for us to really identify where that work is coming from there aren't any really large projects like what we would see in the U K, but what we are seeing is a health care. We're doing you know several hospitals across the country Road and bridge work as is coming around nicely.
We're doing some quite a few projects on airports and those sorts of things as well as is water and wastewater. So it's a little bit of a mixed bag across the board, but it's starting to build momentum and we're starting to get build a little more of a backlog and so we do emphasis anticipate that getting better through this year and even stronger next year than for several.
Years to come.
Great. Thanks, so much.
Thank you.
Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Hey, Bruce Ian Thank you guys for the question.
Okay.
Could you guys talk a little bit about the weather impact how many days did you guys mess or where maybe you would even if from a utilization perspective, how we were this quarter versus ever since the prior year.
Yeah, Hi, suddenly and.
Speaker Change: So on the weather I mean, as you know we don't typically see the weather that we've seen in the second quarter in the second quarter. So we lost about <unk>.
Speaker Change: Like $2 million of revenue I'm of unexpected weather wasn't that second quarter.
Utilization did pick up sequentially, but not as much as we would've seen in the in the <unk> in the prior year of course, it was maybe like two percentage points difference from the prior year.
Just with some of those weather delays.
And then could you comment on kind of what what you've seen in may and even into June. We've we've heard that that you know weather has been.
Difficult in parts of the country in May as well.
Yeah, whether in and made it mean it continued I mean, I would say when it happens and the boy who was in the first month of our quarter and our ability to catch up through the rest is bought in college so.
I mean, it's nice to see some of the weather break and we expect that we can catch up on anything through niche that is actually the court and we factor that into the revised update that we gave that and any shortfall, we would and recoveries of projects keep going.
Speaker Change: And the waste business nice growth there.
Is that are you guys moving into new markets is it is it kind of.
Speaker Change: Better.
You uptake in existing markets and it may be kind of how much more of the the U S. Do you have left to cover with with that product.
Yeah. So our growth there is comes from two things we've moved into a few new markets basically adjacent markets to markets. We're currently in that are very easy for us to service and we're gaining more penetration in the markets that we're currently in and we.
We still want to only 7% of that market. So we still believe that we have quite a bit of runway ahead.
And I guess lastly, you mentioned a fairly competitive environment on rates in some cases does that make you guys went up but like accelerate the M&A are you know in terms of kind of consolidating some of the markets to kind of alleviate some of those concerns or how.
How should we think about the M&A environment are you sitting here today.
Yeah. So thanks for the question on that now we are looking at several businesses right now our industry in general has been.
Inflation has hurt our industry to the point, where we haven't been able to get rates out in front of inflation. So it's been challenging over the last couple of years most of the businesses or looking at have challenging margin issues, where when we put a reasonable multiple on EBITDA, it's still not worth the value of their assets and so that complicates things a little bit but.
We're looking at that we think that'll start shifting into next year and and we look forward to continuing to do more consolidation and that certainly could help with the rates.
Speaker Change: Perfect. Thank you so much and best of luck.
Right. Thanks Stanley.
Thank you. Our next question comes from the line of Abbvie Jeremy.
Speaker Change: With UBS.
Two questions.
Hey, Bruce.
Speaker Change: I'll be on for Steve Fisher.
Wondering if you could just kind of wondering.
Wondering if you can kind of just frame the impact of the slowdown in commercial projects. So.
I know you said about $2 million of revenue was lost due to weather. So still leaves us negative for the quarter in terms of your revenue, but how would you frame like industry revenues.
Yes, I would say that the balance of that related to this demands and slowdown now one thing I would comment and we talked about this a little bit earlier in our prepared remarks, I mean, as you've seen from our business when the.
Speaker Change: Exchange. This is when we see the mix change and you'll see that in what we put out on the mix between the end market. So.
The year over year like commercial is now around 55%. So that's about 5% dropped from from the prior year, but we picked up momentum in infrastructure and residential has been quite solid so even though the volumes change I mean, that's where and this agile business model. We've got we move in through those volumes and houses.
That continues we would expect to like Chase the project work and depending on the end market.
Okay got it and then.
In eco Pan it seemed like.
The sizable step down in margins quarter to quarter.
Give us some more color there I know you called out insurance cost in corporate allocations, but like was price cost negative for the concrete waste management business or.
What I'm thinking about the margins for that business moving forward.
Yeah. So we I mean, we still have to take the margins and even the payback on the equipment and the growth that we've got there is still quite compelling I mean last year. The margin was about 41% today. Its 36% are still really compelling payback in margin on that business, which feeds right into our free cash flow. So we're still encouraged to invest into the growth of that.
And it really lines up nicely with the Ottawa is that we expect them from from that type of business.
Alright got it I'll leave it there thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
And just as a reminder, if anyone has any questions you May press star one to join the question yet.
Our next question comes from the line of mirrors with D. A Davidson. Please proceed with your question.
Hi, Thank you for the time you cited over saturation of concrete pumps in certain markets. That's a headwind and could you talk about or provide some color about.
What markets.
Are you referring to.
And.
What is Glenn.
What is the company planning on doing to mature this is not a.
The headwind in the second half.
Yes so.
The way in our industry most of the equipment comes from overseas and so the manufacturers planned a year or so in advance of what they are going to order for trucks, and then get the pumping units or overseas mounted on those trucks and so I think everyone anticipated the market would be stronger in 2023, and 2024 to where it ended.
I've been meaning does it were more concrete pumps you brought into this market that they were able to find owners for those machines.
As a as markets go forward they'll order less machines over there'll be and in fact for 2024, there's quite a few fewer machines going in the market than what you would see in 2023 and I think we'll see that again in 2025 as the as the market catches up with the volume of equipment that are here. So.
Certainly we're careful within our own business to make sure that we're running at the right utilization and that's why you'll see that our capex spend is much less this year and with utilization being down.
Because of anticipated growth not being there will sell off assets it will be a benefit to us and and over the next year or so we'll see that settle out.
So just to clarify I'm waiting to say in certain markets you referred like U S versus abroad or are you referring to certain markets across the U S that just overbooked.
Yeah, I I've seen all of the U S. So I would say when we say the over saturation, we're talking about the country now the U K sees it similarly, but not to the same extent, but largely it's an issue in the U S where there's just too much equipment across U S. And then of course, you know that equipment ends up affecting all end markets.
Got it I appreciate that.
And going back to weather on U S pumping would revenue and volume have been flat otherwise if you had favorable weather and could you just provide us a glimpse of what you've seen post the quarter threw me Rick.
And whether any of that.
Yeah, so yeah.
We would have been larger in language, where we'd expect to be she looked at the mix of mean revenue, 1% down 2% reduction in I'm not came from from volume. So yeah. If that if the weather had cooperated and at least flat would've been more than a language, where we'd expect to be in.
In may it. It's it's early in the quarter I'm totally called out anything specific other than for the way they've done and what the country mission would be part of.
We've factored that into the updated guidance for the rest of the year in terms of what we expect Q3 and Q4 two to look like and really what that percentage mix like it looks like given it will make up about 55%.
The full year guide, which is in line with where we usually try and between 45% of work in the first half and 55% in the second half.
Speaker Change: Got it and then just one more for me.
Just deciding or looking at under utilization is the primary overhang on margins.
Speaker Change: Is the kind of environment, where you're at.
Is it price exceeding costs within the business or are we looking at that a little different.
Do you mean in terms of the price that we're charging for the work that we do.
Yeah, Yeah, and then just looking at the margins.
Speaker Change: Are you guys.
Yeah. The Marshall, it's mostly yeah. So when you get a volume change or a volume slowdown there was really underutilization, but it's it it doesn't materially change our return on investment based on the margin that we get into people that kind of equipment that we've got so as we think about it more from an investment in the assets that we've got we expect to catch up on that it's not.
Speaker Change: Permanent change in the profile for.
So, yes weather causes delays, which causes I bet softness in utilization, but.
It's certainly something that we are familiar with recovering from.
That's it thank.
Thank you so much.
Thank you.
Yeah.
Thank you. Our next question comes from Steven Fisher with UBS. Please proceed with your question.
Thanks, Good afternoon, sorry, I got on a little late and I think you made some comments about.
Steven Fisher: Some of the larger projects in terms of semiconductors.
And evs in batteries, but I just I wanted to see if you could just clarify or maybe elaborate on what you're seeing on those types of scale projects relative to some of the more you know kind of smaller or medium sized general commercial projects. Thank you.
Yeah, Steve what we're seeing are several of those large projects that are in the planning stage has been pushed out.
We're not seeing any of them being cancelled, they're just being delayed and so we do anticipate them. Starting later in the year or into next year. So we are encouraged about the long term opportunities. There. It's just affected us in the short term.
Any color on any.
Particular driver.
Drivers of of those delays had more labor concerns inflation and market demand any sense of what the is there any consistency there.
Yeah, we're thinking it's more along the lines of <unk>.
Inflation and interest with the total cost of the project I don't think there's the labor concerns that we've had in the past or is there currently.
Okay terrific. Thank you.
Thank you.
Thank you.
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, 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 third quarter financial fiscal 2024 results since September thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
[music].
Okay.
Steven Fisher: Okay.
[music].
Right.