Concrete Pumping Holdings Inc (BBCP) 2021 Q3 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 third quarter ended July 31, 2021.

Joining us today are Concrete Pumping Holdings' CEO, Bruce Young; CFO, Iain Humphries; and the company's external Director of Investor Relations, 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.

Thanks, Laura. 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 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. Additionally, we have posted an updated investor presentation to 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. Good afternoon, everyone, and thanks for joining today's teleconference. I'm pleased to report that after challenging weather start to the third quarter, we had a strong finish that highlighted the relative resilience and flexibility of our business. At the beginning of the quarter, we experienced well above average rainfall in many of our markets, including Texas, Colorado and Arizona. Because of the higher levels of precipitation, many of our customers' projects in the month of May were delayed. But I am delighted to report that our team performed exceptionally well catching up in June and July and we ended the quarter with 5% year-over-year consolidated revenue growth. This was driven by strong demand within our residential and infrastructure markets and our team's ability to opportunistically improve our rates.

We continue to grow market share and have maintained a strong financial profile with $40.5 million in year-to-date free cash flow that has driven significant improvement in our total available liquidity. Based on our solid results to date, we remain in a strong position to execute our strategic growth priorities and financial outlook in 2021 and beyond.

Within our individual reporting segments, our U.S. Pumping business was slightly lower due to the above-average rainfall that I just discussed, as well as lingering COVID-19 headwinds in some of our commercial projects. Like last quarter, this volume headwind was mostly offset by strong results and market share expansion in our residential business and continued growth in infrastructure.

In our U.K. segment revenue increased 37% due to continued strong recovery from the impacts of COVID-19. In Eco-Pan revenues were up 8% due to organic growth and pricing improvements. Eco-Pan remains an important part of our long-term growth strategy. And during the quarter, we made great strides in further building out our sales team.

Now turning to some end market commentary. We are continuing to see strong demand within the residential market, especially for single-family homes. We have been able to capitalize on this momentum and residential construction continues to be a bright spot for our company today. As for the commercial market, the pandemic continues to cause some weakness as we discussed in our prior earnings calls. We have intentionally tailored our fleet management to capture residential opportunities [where the] commercial market recovers. In the near term, we expect greater share of our overall revenue will come from residential projects. We are continuing to see momentum with our infrastructure projects in the US and the UK. In the UK, our team continues to work on the concrete-intensive, high-speed railway project that we expect will last beyond 2030.

In the US, we've seen increased public funding from state governments for bridges, schools, wastewater treatment plants and hospitals. As for the current infrastructure bill that is being debated in D.C., we believe the federal infrastructure bill will ultimately be passed, although the timing, size and many other details are still unknown. Regardless of whether an infrastructure bill gets passed, we expect to be able to capitalize on increased infrastructure spending at the state level. Importantly, I want to note that our current outlook for fiscal 2021 does not include possible benefits of an infrastructure bill.

Our commercial end market continues to recover along with our nation's recovery from the pandemic. As we reported last quarter, we've seen continued progress in high-growth markets such as fulfillment centers and data centers, both of which are concrete-intensive projects. We are actively bidding projects that require specialty equipment and it is expected that these projects will begin in early 2022.

On the cost side of the business, the most notable headwind that we encountered in the third quarter was from diesel fuel. As a reminder, in our first 2 quarters of this year, fuel was neither a headwind nor a tailwind. In our third quarter not only did we absorb fuel price increases of almost $1 per gallon compared to last year, but we are comparing to a quarter where much less fuel was consumed given the lower traffic congestion due to COVID-related lockdowns.

In times when we face inflationary cost pressures such as diesel fuel increases, we update our prices accordingly, and there is typically a lag as we burn off current workload as previously-agreed pricing.

Now, looking at labor, we continue to endure challenges from availability of qualified workers due to the current tightness in the job market. It remains difficult to attract new and qualified talent, given the various COVID-19 stimulus, keeping some workers on the sidelines. This isn't something that just impacted our business. Various trades across many of our customers' projects also found workers hard to acquire in the current environment. While our business has -- business generally has unique levers to pull to combat labor headwinds like a higher wage base which generally helps attract more sticky talent, the unique environment experienced this quarter was difficult to fully offset. We have acted on both labor and fuel cost inflation by opportunistically raising our rates. In other areas of the supply chain, I am pleased to say that the cement headwinds we mentioned last quarter were short term and did not noticeably affect us or our customers in the third quarter. We were also able to maintain safety uptime and reliability of our equipment by holding a stable and consistent inventory of repair and maintenance parts.

During the quarter, we successfully executed upon M&A strategy by securing a strategic acquisition of 16 concrete pumping trucks from a construction company in Southern California market. We folded majority of those trucks into our Southern California location and redirected some excess equipment into the Las Vegas market. Las Vegas represents a greenfield expansion for us and we're excited to say that we have quickly established a strong team that we believe is the right fit to pursue opportunities that would be an attractive market for our business.

Our new Senior Vice President of Sales and Marketing, Tom O'Malley who is off to a great start is working hard to drive continued development in our US national sales strategy in order to capture additional growth opportunities. In addition, as we announced today, we successfully acquired the assets of Hi-Tech Concrete Pumping Services. Hi-Tech is an established concrete pumping service provider primarily based out of the Houston metro area that shares our core values of safety, people and reliability. Hi-Tech notably improves our market share in the Houston metro area and further strengthens our presence in Southern Texas. The acquisition will be immediately accretive to our earnings and similar to other M&A deals, we structured it as an asset purchase paying $12.3 million in cash for 34 pieces of revenue generating equipment, including 32 boom pumps and 2 placing booms with an average age of approximately 7 years. We have already onboarded Hi-Tech's experienced team and look forward to growing our breadth of services in the fast-growing Houston metro and South Texas markets. Additionally, the acquisition provides a compelling opportunity for us to introduce our Eco-Pan service to Hi-Tech's customers.

Overall, we were pleased with our operational execution and financial performance in the third quarter. I will return to discuss our longer-term growth strategy and provide an updated market outlook. But for now, I will pass the call off to Iain to discuss our third quarter financial results in more depth. Iain?

Thanks, Bruce, and good afternoon, everyone. Consolidated revenue increased by approximately 5% to $80.8 million compared to $77.1 million in the same year-ago quarter. The revenue increase was mainly driven by organic growth in our U.K. operation as the country's construction market continues to recover from the impacts of COVID-related shutdowns. Additionally, our U.S. Concrete Waste Management business, operating under the Eco-Pan brand, reported a record $10.1 million in sales, reflecting an 8% increase compared to the same year-ago period.

Turning now to individual segments. Revenue in our U.S. Concrete Pumping segment mostly operating under the Brundage-Bone brand was $58 million compared to $58.6 million in the same year-ago quarter. The slight decline, as mentioned earlier by Bruce, was primarily a result of the lower construction volume in May due to excessive and above-average rainfall in our south and central regions. However, the team did an excellent job recovering and caught up most of the delay in revenue and volume throughout the months of June and July.

For our U.K. Operations, operating largely under the Camfaud brand, revenue improved 37% to $12.7 million compared to $9.2 million in the same year-ago quarter. This organic growth is primarily attributed to the fact that the prior-year period was heavily impacted by COVID-19 shutdowns. U.K. is now running at near full capacity when compared with the pre-COVID-19 volume and revenue run rate. We remain optimistic about the rest of the year and beyond in the U.K. as regional markets continue to strengthen across the country.

Revenue in our U.S. Concrete Waste Management Services segment increased almost 8% to $10.1 million in the third quarter of 2021 compared to $9.4 million in the same prior-year quarter. The increase was due to solid organic growth, pricing improvements and growth in our roll-off service adoption.

Returning to our consolidated results. Gross profit in the third quarter was $37.2 million compared to $37.8 million in the same year-ago quarter and gross margin was 46.1% compared to 49%. The reduction in margin is reflective of higher fuel costs as a result of the fuel price headwinds and increased traffic congestion that were outlined earlier by Bruce.

We continue to prudently monitor and manage other areas of cost. And turning to review our general and administrative overhead, these expenses in Q3 were $25 million, which is 7% lower when compared to $27 million in the same year-ago quarter. When excluding the noncash G&A expenses related to amortization and stock-based compensation, G&A expenses were $17 million or 21% of revenue, which compares to $17.5 million or 23% of revenue in the same year-ago quarter.

As a reminder, in January this year, we accessed the capital markets to pursue our strategic refinance of our debt facilities. And today, this has delivered the expected benefits of lower interest expense, improved balance sheet capacity and lower amounts of cash paid for interest. In the third quarter, interest expense was $6.2 million, which compares to $8.4 million in the same year-ago quarter.

Net income attributable to common shareholders increased to $4.1 million or $0.07 per diluted share, compared to a net loss attributable to common shareholders of $0.2 million or $0.00 per diluted share. The improvement was driven largely by the aforementioned increase in revenue, reduction in G&A expense and lower interest expense.

Adjusted EBITDA in the third quarter was $28.4 million compared to $30 million in the same year-ago quarter. Adjusted EBITDA margin was 35.2% compared to 38.9% in the same year-ago quarter. Looking at adjusted EBITDA by segment, adjusted EBITDA in our U.S. Concrete Pumping business was $18.4 million compared to $21.2 million in the same year-ago quarter. In our U.K. business, adjusted EBITDA increased 20% to $4.1 million compared to $3.4 million in the same year-ago quarter, given the continued recovery in organic revenue growth.

For our U.S. Concrete Waste Management business, adjusted EBITDA improved 10% to $5.3 million compared to $4.8 million in the same prior-year quarter, following an 8% year-over-year organic revenue growth.

Now turning to our capital structure and liquidity. As at July 31, 2021, we had total debt outstanding of $375 million or net debt of $354.8 million. After including our year-to-date CapEx investments of $29.5 million, net debt has been reduced by $22 million and current net debt levels equate to a net debt-to-EBITDA leverage ratio of approximately 3.3 times. As of July 31, 2021, we had approximately $142.2 million in liquidity, which includes cash on the balance sheet and availability from our ABL facility. When compared to our 2020 fiscal year-end, our current liquidity position has improved by almost $83 million or by 240% from $59.3 million as of October 31, 2020. This improvement has greatly enhanced the flexibility of our balance sheet and ability to pursue accretive investment opportunities like M&A, such as the tuck-in strategic acquisitions we are discussing today.

As a reminder, we have no near-term debt maturities with our senior notes and asset-based lending facility maturing in 2026. Our business continues to generate healthy operating free cash flows. We invoice our customers daily for the work we perform and we have minimal working capital requirements since we do not take ownership of the concrete we place.

As an example of the strength of our cash flow model, we generated approximately $40.5 million in year-to-date free cash flow, and this equates to a very healthy free cash flow conversion rate from adjusted EBITDA of approximately 53%. Our ability to generate strong free cash flows allows us to expand our liquidity position, secure opportunistic and accretive investments and delever in line with our strategic goals.

Turning now to provide an update on CapEx investments. We continue to make improvements to our existing concrete pumping fleet age. By improving the age of our fleet, we have safer and more reliable equipment, we have lower repair costs and reduced repair time, providing us more opportunities to capture project wins with our new customers.

Following a slight delay on delivery of equipment orders from earlier in the year, equipment deliveries were back on track in Q3. These delayed equipment deliveries, in addition to the $5.9 million for growth CapEx in Southern California resulted in elevated CapEx in Q3 that we expect will normalize to historical norms in Q4. The improvements to our fleet are critical to drive improved margin performance across the business.

Additionally, an enhanced fleet helps attract qualified employees, which is very important in today's labor market and often improves retention of our existing employees. We continue to apply prudent capital allocation and remain opportunistic with our strategic and accretive CapEx investments.

Now moving to our full year 2021 outlook. We continue to expect our full year revenues to range between 300 and $310 million, adjusted EBITDA to range between 105 and $110 million and free cash flow, which we define as adjusted EBITDA less net CapEx, less cash interest to range between 47.5 and $52.5 million. Operationally and financially, we remain strong and we are actively working to execute on our growth strategy.

With that, I will now turn the call back over to Bruce.

Thanks, Iain. In the third quarter of 2021, we are pleased with our ability to grow revenue despite weather disruptions and the continued impact of COVID-19. We are gradually returning to a normalized state in both US and UK and during the quarter, we took steps to drive scale through continued organic growth as well as strategic M&A. In our Eco-Pan business, we are also focused on growth as we build out our sales team in strategic locations to enhance the reach of our service and communicate the disruptive and economic value of our service offering to new customers.

While we are excited to be speaking about the 2 complementary tuck-in acquisitions on this call, we continue to have a robust pipeline of other acquisitions that our team is assessing, and we remain very disciplined in our approach to consummate a deal. Hi-Tech is a great example of us sticking to that disciplined capital allocation approach as we believe this acquisition clearly fits our criteria of what we look for a high-returning capital investment that will enable revenue growth and improve operating efficiencies to drive margin expansion.

Overall, we continue to balance our disciplined capital allocation priorities to responsibly grow our business while maintaining a healthy balance sheet and financial flexibility. Remain focused on prudent organic capital investment, the consistent return of value to our shareholders and value-enhancing acquisitions. We look forward to continuing to develop our leading market share position organically and through acquisitions.

For the last quarter of the year, we expect that residential construction will continue to be an area of momentum and strength for us for our U.S. business as demand remains high for these projects. In infrastructure, we are also seeing continued momentum, especially in areas like the UK where we have always been infrastructure-heavy. For commercial, we continue to see heightened demand for heavy industrial warehouses and data centers given the current e-commerce and work from home trends. We expect our commercial business will continue to recover in the last quarter of this fiscal year as commercial construction investment continue and as the economy recovers from the impacts of COVID-19.

Lastly, we expect Eco-Pan to continue accelerating especially as our sales team ramped up, and we were able to sell in person.

With that, I'd like to now turn the call back over to the operator for Q&A. Laura?

(Operator Instructions) Our first question comes from the line of Tim Mulrooney with William Blair.

So last quarter you guys highlighted some potential project delays from a supply and shortage of concrete. Did that impact your business in the third quarter as well? And if so, could you quantify it for us?

Yes. We talked about the cement shortage and how that had affected ready-mix concrete in the last earnings call. It turned out in Q3 it wasn't as impactful as Q2 was. And really, it wasn't a meaningful impact for the quarter. Now we have other supply chain issues with steel and other supplies on projects that have had some impact on us. But to this point, they haven't been meaningful.

Okay. That's good to hear. And you anticipated my next question, Bruce, because you did talk about supply chain constraints in your press release this afternoon. Those are not related to concrete. It's related to cement -- excuse me, it's related to other things like steel. Would you say that those constraints relative to last quarter have gotten better or worse or about the same?

I would say that they're about the same as what they were in the last quarter and we see them steadily improving.

Okay. So not getting -- not actively getting worse. And then as it relates to the uncooperative weather in Texas and Colorado and Arizona, I apologize if I missed this in your prepared remarks, but any estimate how much that impacted your fiscal third quarter, pushing revenue out in the future quarters?

Yes. Tim, this is Iain. It never -- we caught up. I mean, in our prepared remarks, we largely caught up on that weather element. It was probably about $2 million of revenue that was impacted in May. I mean, the catch-up was almost all recovered through June and July. There's maybe about $500,000 of revenue that was left behind. So not a substantial amount will get pushed. So the team did a remarkable job catching up on that volume in June and July.

Okay. That's good to hear, Iain. One more for me, and I'll pass it along. On this Hi-Tech acquisition, I guess, 2 parts here, number 1, was this acquisition multiple for the business? Was it in the normal range of what you typically expect to pay for a company of this size or have acquisition multiples increased in recent years? And secondarily, I think investors like to see opportunistic bolt-on acquisitions like this. Can you provide us with a sense for how many of these types of bolt-on opportunities there are in the US?

Sure. So with the Hi-Tech business, as you know, as we look at businesses, we look at 4x EBITDA or 1.25x the value of their concrete pumping assets or the average of those 2. And the Hi-Tech acquisition threaded the needle on that. So it was right in line with where we expected it to be. And as far as for future opportunities, we have several very similar, some larger, some smaller in the pipeline right now that we're currently looking at.

Our next question comes from the line of Stanley Elliott with Stifel.

Bruce, can you talk a little bit about the rate? You mentioned being opportunistic and pushing that higher. How much should we think that rate increased over the course of the quarter?

Yes. So our rate increase over the quarter was a little over 1% for the quarter. Now we really started getting hit with the fuel cost early on in the quarter. And as you know, about 50% of our work is work that we've pre bid. And so we already have agreements, and we don't have the ability to get the rate up on that. And so as those jobs wind down and new job start, we basically put our cost tools to work and determine what the rate should be on future bidding on projects. And so while it's improving, it will -- as those projects run out and if fuel stays at the level it's at and other issues, we'll certainly factor that in over the next couple of quarters.

And when you think about kind of the CapEx as a percent of sales, should we think about that -- I don't want to get too far ahead, but thinking about that in similar terms next year? The reason I'm bringing it up -- I brought it up is you mentioned U.K. running near capacity, you talked about a lot of the infrastructure projection where we'll need to move the CapEx higher to meet demand in some of these markets.

Our utilization rates are still in the high 70%s, where we target about 85%. So we have quite a bit of capacity to go before we have to start adding organic units. So I think for the near term, I think the percentages we've given you in the past 10% to 12% of revenue for CapEx are going to be pretty consistent.

Perfect. And then lastly for me, single-family continues to be quite strong. Any concerns about some of your builders being able to find land to put down the pads, put down the roads, et cetera?

Certainly in certain markets, that's becoming tighter and tighter. But the pricing on houses has gotten to the point where they can afford to move into some of those properties that were unaffordable prior. And so I see that still moving on.

(Operator Instructions) Our next question comes from the line of Justin Hauke with Robert Baird.

Appreciate the time here. I wanted to ask -- I don't think you quantified it on the diesel specifically. I think you gave the amount of diesel increase, but not the dollar cost and just maybe how that weighed on the gross margin, if you could quantify that just for the quarter.

Justin, this is Iain. So on the fuel price, as you know, it went up at almost $1 from about $2.40 a gallon to about $3.40 a gallon year-over-year. So there's about a 40% increase in fuel prices year-over-year in that quarter. The dollar effect on the quarter was about $1.5 million.

$1.5 million. Okay. That's helpful. And I guess my -- I am sorry, were you saying something?

No, go ahead, Justin.

Okay. The second question, just I wanted to clarify on the acquisition -- I guess it's an acquisition, the [HD] construction that you called out that was in the quarter, is that a business or did you literally just acquire equipment there and so it's more of a CapEx purchase?

This came through -- there's a fairly large general contractor in Southern California that bought -- started buying equipment in 2014 and -- with the idea that they would go after the infrastructure play. And after 6 or 7 years of running that business, he's decided that it wasn't for him. And so negotiated a deal with us to buy those assets for asset value.

Okay. All right. That makes sense. And I guess just -- maybe the last question I have here is on Eco-Pan, you've given the stat in the past about the growth of the number of pans in the field just as kind of a leading indicator. What was that increase in the quarter, just so we can kind of think about the trajectory there?

Yes. The increase in the quarter was largely around the revenue increase. So the pans and the field counts continues to improve in line with the organic growth in revenue.

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.

Thank you, Laura. 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 and full year -- full fiscal year 2021 results in January. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.