Concrete Pumping Holdings Inc (BBCP) 2024 Q2 法說會逐字稿

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 30, 2024. Joining us today are Concrete Pumping Holdings' CEO, Bruce Young; CFO, Iain Humphries; and the company's external Investor Relations Director, 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 Securities Litigation Reform Act of 1995 that provides 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 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.

On today's call, we will also reference certain non-GAAP financial measures, including adjusted EBITDA, net debt, and free cash flow, which we believe provide useful information for investors. We provide further information about these non-GAAP financial measures and reconciliations to the comparable GAAP measures in our press release issued today or the 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 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.

In our US pumping business, we experienced some softness across a variety of commercial work with commercial projects remaining sensitive to higher-for-longer interest rates. However, offsetting some commercial softness, revenue in our infrastructure and residential sectors grew year over year in the second quarter by 14% and 12%, respectively.

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 the Southwest. In the UK, our team continued to support a high volume of key commercial and infrastructure projects and have successfully recalibrated rates to lessen the impact of cost inflation in the region.

In 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 US concrete pumping operations. These factors affected our top-line performance, both on a consolidated level and within our US concrete pumping segment. However, we maintained stable performance in our UK 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 continue 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 and electric vehicle and battery manufacturing plants amid growing reshoring trends in the US.

As I just mentioned, concrete pumping demand and activity on commercial projects were relatively weaker given the interest rate environment. This has not only affected project volumes, but it has also driven competition to be more aggressive on rates resulting in a reduction in our ability to gain the pricing leverage we would normally expect.

While 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 will 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 a structural supply-demand imbalance 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 continue to see strong residential construction investments within our mountain region and in Texas, which represent undersupplied regions where single-family construction is prominent.

In infrastructure, our expanded US national footprint continued to drive strong results, growing 14% year over year in the quarter as we finally began to see momentum in capital deployment from the Infrastructure Investment and Jobs Act and other public project investments. As a result, we expect to see infrastructure projects continue to grow in 2024 and beyond as early IIJ projects advance to a major construction phase, and we will plan to aggressively pursue these opportunities.

In the UK, infrastructure growth has continued to develop as funding is being deployed at faster timelines than in domestic US government investment. Phase 1of HS2 infrastructure spending has continued as originally planned in the UK, along with plans for investments in net-zero projects such as Sizewell C, a concrete-intensive nuclear power station project to which the UK government has committed approximately $3 billion.

This project is similar to scale as Hinkley Point, a nuclear power project our Camfaud team has already supported. As a result of Camfaud's previous involvement with Hinkley Point, we believe we are well positioned for further involvement in Sizewell C 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. 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 US pumping business.

While we expect these headwinds to be present in the second half of 2024, we are beginning to see our cost-control initiatives take hold, which in conjunction with expected rate recalibration improvement across our end-markets should yield improved 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 country pumping fleet, unlocking significant free cash flow. This flexibility combined with other cost-control initiatives gives us the confidence that we can maintain our original 2024 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 2.75 times by the end of this fiscal year, tracking steadily towards our long-term target of 2.5 times.

I will now let Iain walk through more details of our financial results before I return to provide some concluding remarks. Iain?

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 US concrete waste management services, and that was more than offset by a volume decline in our US concrete pumping segment, specifically impacted by commercial projects and unseasonably wet weather events. As such, revenue in our US concrete pumping segment mostly operating under Brundage-Bone brand decreased 5% to $74.6 million compared to $78.4 million in the prior-year quarter.

For our UK operations, operating under the Camfaud brand, revenue improved 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, as slightly lower activity volumes in the second quarter were offset by pricing improvements.

Revenue in our US 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 40.3% in the same year-ago quarter, with a 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 $30.2 million in the same year-ago quarter, with the decrease largely related to a non-cash decrease in amortization expense of $900,000. 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 $0.05 per diluted share compared to $5.2 million or $0.09 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 US pumping revenue volumes, weather-impacted labor utilization, and market-related cost increases in commercial insurance. In our US concrete pumping business, adjusted EBITDA decreased 11% to $17.2 million compared to $19.3 million in the same year-ago quarter.

In our UK business, adjusted EBITDA increased 8% to $4.1 million compared to $3.8 million in the same year-ago quarter. For our US concrete waste management business, adjusted EBITDA also increased 8% to $6.2 million compared to $5.7 million in the same year-ago quarter.

Turning now to liquidity, at April 30, 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 3.2 times. We had approximately $216.9 million of liquidity as at April 30, 2024, 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 maturing in 2028. We may remain in a strong liquidity position, which provides further optionality to responsibly pursue value-added investment opportunities like accretive M&A or 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 that authorized the buyback of up to $10 million of our outstanding shares of common stock. In January 2023, the Board of Directors approved an additional $10 million increase and in March 2024, an additional $15 million was approved.

During the second quarter of 2024, under our share repurchase program, we repurchased approximately 171,000 shares of our common stock for $1.3 million at an average share price of $7.42 per share. Since our buyback program was initiated through April 30, 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 current share buyback program with $21.9 million still remaining and is authorized by the Board of Directors through March of 2025. And we believe this demonstrates both our commitment to delivering a long-term value to shareholders and our confidence in our strategic growth plan.

Moving now into our 2024 full-year guidance, due to the reduced commercial project volumes and adverse weather impacts through the first half of fiscal 2024, we have revised our expectations for fiscal-year revenue to range between $455 million and $465 million and adjusted EBITDA to range between $120 million and $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 2.75 times by the end of this fiscal year.

In terms of cost, we will continue working to offset inflationary cost pressures through a continued rate recalibration and cost-efficiency initiatives. 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, Iain. In summary, we make we remain pleased with the momentum we have maintained in our concrete waste management services, along with the stability of our UK operations. With our residential and infrastructure end-markets, we expect project momentum to continue.

We are 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 US pumping business has optimized our position for recovery as macro improvements arise.

Our positioning is 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 inflationary 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 leverage.

With that, I would now like to turn the time back over to the operator for Q&A. Shamali?

Thank you, sir. At this time, we will be conducting a question-and-answer session. (Operator Instructions)

Tim Mulrooney, William Blair.

Hi, Bruce and Iain. This is Luke 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 in the first half of the year, or does it also incorporate a more cautionary outlook on the back half of this year, perhaps as it relates to commercial project activity?

Yeah, that'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 that 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 IIJ infrastructure investment, what types of projects are you seeing come through first as it relates to that investment opportunity, and how much visibility do you have into future projects tied to the IIJ? Thanks.

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 UK, but what we are seeing is healthcare. We are doing several hospitals across the country; road and bridge work is coming around nicely. We're doing quite a few projects on airports and those sorts of things as well as 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 build a little more of a backlog. So we do anticipate that getting better through this year and even stronger next year and for several years to come.

Stanley Elliott, Stifel.

Hey, Bruce and Iain, and thank you, guys, for the question. Could you guys talk a little bit about the weather impact? How many days did you guys miss? Or maybe even from a utilization perspective, how we were this quarter versus the prior year?

Yeah. Hi, Stanley. And so on the weather, as you know, we don't typically see the weather that we've seen in the second quarter. So we lost about like $2 million revenue of unexpected weather in that second quarter. Utilization did pick up sequentially, but not as much as we would have seen in the prior-year quarter. So it is maybe like 2 percentage points different from the prior year, just with some of those weather delays.

Could you comment on kind of what you've seen in May and even into June? We've heard that weather has been difficult in parts country in May as well.

Yeah, weather in May -- it continued. Obviously, when it happens in the works in the first month of a quarter, our ability to catch up through the rest as we would encourage. So I mean, it's nice to see some of the weather break, and we expect that we can catch up on anything through the rest of the quarter. And we factor that into the revised update that we gave that any shortfall we would recover as the projects keep going.

And the waste business, nice growth there. Are you guys moving into new markets? Is it better uptake in existing markets? And maybe kind of how much more of the US do you have left to cover with that product?

Yeah. So our growth there 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 still are in 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 rate in some cases. Does that mean you guys want to like accelerate the M&A in terms of kind of consolidating some of the markets to kind of alleviate some of those concerns? Or how should we think about the M&A environment you're sitting here today?

Yeah. Thanks for the question on that. Now, we are looking at several businesses right now. Our industry in general spend -- 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 businesses we're looking at have challenging margin issues to 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 will start shifting into next year, and we look forward to continuing to do more consolidation, and that certainly could help with the rates.

Thank you. Avi Jaroslawicz, UBS.

Hey, Bruce, Iain. Avi on for Steve Fisher. Wondering if you could 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 it 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 their demands slowdown. Now, one thing I would comment -- and we talked about this a little bit earlier in our prepared remarks -- as you've seen from our business, when the volumes change, this is when we see the mix change, and you'll see that and what we -- on the mix between the end market.

So year over year -- like commercial is now around 55%. So it's about a 5% drop from the prior year. But we've picked up momentum in infrastructure, and residential has been quite solid. So even though the volumes change, that's where this agile business model we've got -- we move through those volumes. And as that continues, we would expect to chase the project work and depending on the end market.

Okay, got it. And then in Eco-Pan, it seemed like a sizeable step down in the margins quarter to quarter. Can you give us some more color there? I know you called out insurance costs and corporate allocations, but was price cost negative for the concrete waste management business -- or how should we be thinking about the margins for that business moving forward?

Yeah. So I mean, we still think that the margins and even the payback on the equipment and the growth that we've got there is still quite compelling. Last year, the margin was what? 41%. Today, it's 36%. So still a really compelling payback and 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 ROIs that we expect from that type of business.

Thank you. (Operator Instructions) Jean Ramirez, D.A. Davidson.

Hi. Thank you for the time. You cited oversaturation of concrete pumps in certain markets as a headwind. Could you talk about or provide some color about what markets are you referring to? And what is the plan -- and what does the company plan on doing to make sure this is not a headwind in the second half?

Yeah. So the way -- in our industry, most of the equipment comes from overseas. And so the manufacturers plan a year or so in advance of what they're going to order for trucks and then get the pumping units from overseas mounted on those trucks. And so I think everyone anticipated the market would be stronger in 2023 and 2024 to where it ended up being, meaning that there were more concrete pumps 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 will be -- 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 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 that will be a benefit to us. And over the next year or so, we'll see that settle out.

So just to clarify, when you say in certain markets, you're referring like US versus abroad, or are you referring to certain markets across the US that just overbooked?

Yeah. I'm saying all of the US. So when we say the oversaturation, we're talking about the country. Now the UK sees it similarly, but not to the same extent, but largely it's an issue in the US, where there's just too much equipment across the US. And that equipment ends up affecting all end-markets.

All right. I appreciate that. Going back to weather on US 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 through May regarding weather impact?

Yeah. So the volume would have been largely in line with where we'd expect to be. If you look at the mix of -- revenue, 1% down; 2% reduction on that came from volume. So yeah, if the weather had cooperated, at least flat would have been more in line with where we'd expect to be.

And May, it's early in the quarter to really call out anything specific around what the weather have done and what the contribution would be. But we'll factor that into the updated guidance for the rest of the year in terms of what we expect Q3 and Q4 to look like and really what that percentage mix looks like, given it will make up about 55% of the full-year guide, which is in line with where we usually trend between 45% of work in the first half and 55% in the second half.

Got it. And then just one more from me. Just deciding or looking at underutilization as the primary overhang on margins, is the current environment where you're at -- is it price exceeding costs within the business, or are we looking at that a little different?

And do you mean in terms of the price that we're charging for the work that we do?

Yeah. And then just looking at the margins, are you guys (multiple speakers)

Yeah, the margin, it's mostly -- yeah. So when you go volume change or a volume slowdown, there's really underutilization, but it doesn't materially change our return on investment based on the margin that we get and the payback on 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 a permanent change in the profile for that. So yes, weather causes delays, which causes a bit of softness in utilization, but it's certainly something that we are familiar with recovering from.

Thank you. Steven Fisher, UBS.

Thanks. Good afternoon. Sorry, I got on a little late. I think you made some comments about some of the larger projects in terms of semiconductors and EVs and batteries. But I just I wanted to -- 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 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 have been pushed out. We're not seeing any of them being canceled; 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 (technical difficulty) any particular drivers of those delays? Is it more labor concerns, inflation, end-market demand? Any sense of what the -- is there any consistency there?

Yeah, we're thinking it's more along the lines of 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 there currently.

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, Shamali. 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 fiscal 2024 results in September. Thank you.

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