Concrete Pumping Q4 2023 Earnings Call Transcript

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January 11, 2024

There are 9 speakers on the call.

Operator

Afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings Financial Results for Q4 fiscal year ended October 31, 2023. Joining us today are Concrete Pumping Holdings' CEO, Bruce Young, CFO Ian 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 Cation Reform Act of 1995 that provides important cautions regarding forward looking statements. Cody, please go ahead.

Operator

The call.

Speaker 1

Thanks, Camilla. I would 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 company's financial results differ materially from such statements. For information concerning these risks and uncertainties, see Concrete Pumping Holdings' annual report on Form 10 ks, 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 quarter.

Speaker 1

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

Speaker 1

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?

Speaker 2

The call.

Speaker 3

Thank you, Cody, and good afternoon, everyone. We had another strong year in fiscal 2023, driven by the strength and diversification of our business. The fiscal year. 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 2023, revenue increased 10% to $442,000,000 quarter.

Speaker 3

Adjusted EBITDA increased 7% to $125,000,000 and net income increased 12% to $30,000,000 the quarter. Each of our end markets contributed to this performance, particularly as residential construction remains strong and our expanded footprint quarter enabled us to continue to win infrastructure projects. We also continue to execute on our debt reduction initiative, quarter achieving our 3x leverage ratio target at the end of the 2023 fiscal year. Shifting to our 4th quarter performance by end market, Our business performed in line with expectations. In the infrastructure end market, our expanded U.

Speaker 3

S. National footprint continued to drive strong results the quarter as we captured more revenue from public project investments. We continue to see more investment flowing to numerous projects where we operate fiscal year. And we plan to aggressively pursue these project opportunities with the belief that it has the potential to be a 5 year plus tailwind for our business. The During the Q4, our residential end market remained stable due to the continued momentum in new residential housing construction, quarter.

Speaker 3

Given not only the ongoing structural supply demand imbalance in housing, but the fact that homebuilders have enticed a new home buyer with creative home design and financing options. The With interest rates falling subsequent to quarter end and the projection of additional interest rate cuts in 2024, we expect residential housing projects to remain healthy for our business. In the commercial end market, we continue to experience momentum in larger commercial projects quarter, like distribution centers, warehouses, semiconductor fabrication plants and electric vehicle and battery manufacturing plants. Company's financial results continue to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has stalled some projects. The We expect that interest rate cuts in 2024 could help get these projects moving again.

Speaker 3

During the quarter, our commercial mix as a percentage of our total revenue declined 100 basis points year over year to 59%. This was fully absorbed by our 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. The 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 and L.

Speaker 3

The quarter. While we expect these headwinds to continue into the New Year, we are confident the measures we are taking to recalibrate rates and the systems we are implementing the company. To attract and retain our employees are the right steps for our business to drive long term shareholder value. I will now let Ian walk through more details of our financial results before I return to provide some concluding remarks. Ian?

Speaker 2

Thanks, Bruce, and good afternoon, everybody. The In the Q4, revenue increased 5 percent to $120,200,000 compared to $114,900,000 in the same year ago quarter. The quarter. The increase is mainly attributable to growth across each of our segments as a result of organic growth from higher volumes in certain regions and improved pricing. The quarter.

Speaker 2

Revenue in our U. S. Concrete Pumping segment, mostly operating under the Brundage Bone brand, increased 1% to $85,000,000 compared to 84 point $3,000,000 in the prior year quarter. For our U. K.

Speaker 2

Operations operating largely under the Camfra brand, revenue improved 17% to 17,400,000 quarter compared to $14,900,000 in the same year ago quarter. When excluding the foreign exchange translation effects from the British pound, the quarter. Revenue for our U. K. Operations increased approximately 10% in the 4th quarter due primarily to pricing improvements.

Speaker 2

The quarter. Revenue in our U. S. Concrete Waste Management Services segment operating under the Eco Pan brand increased 15% to 18,000,000 quarter compared to $15,600,000 in the prior year quarter. The strong organic increase in revenue was driven by increases in volume quarter and sustained improvement in pricing.

Speaker 2

Returning to our consolidated results. Gross margin in the 4th quarter was quarter, 40.7% compared to 42.3% in the same year ago quarter with the decreased margin mostly being related to the impact of labor inflation. The quarter. General and administrative expenses in the 4th quarter were roughly flat at $29,600,000 compared to $30,300,000 in the same year ago quarter. As a percentage of revenue, G and A costs improved in the 4th quarter to 24.6% quarter compared to 26.4 percent in the same year over quarter.

Speaker 2

For the full year of 2023, when quarter. Excluding the non cash G and A expenses for amortization and stock based compensation, G and A costs as a quarter. Common shareholders in the 4th quarter increased 11% to $9,000,000 or $0.16 per diluted share, quarter compared to $8,100,000 or $0.14 per diluted share in the same year ago quarter. Consolidated adjusted EBITDA in the 4th quarter increased quarter, marginally to $35,800,000 compared to $35,600,000 in the same year ago quarter. Adjusted EBITDA margin was 29.8 quarter compared to 31% in the same year ago quarter.

Speaker 2

And as discussed previously, the slight erosion in margin was driven by quarter. In our U. S. Concrete Pumping business, adjusted EBITDA decreased 7% to 21 $200,000 compared to $22,700,000 in the same year ago quarter. In our UK business, adjusted EBITDA increased 9% Q1

Speaker 4

of 2019 to

Speaker 2

$5,100,000 compared to $4,700,000 in the same year ago quarter. For our U. S. Concrete Waste Management business, Adjusted EBITDA increased 16 percent to $8,800,000 compared to $7,600,000 in the same year ago quarter. The quarter.

Speaker 2

Turning now to free cash flow and liquidity. For the full year of 2023, we delivered 23% growth in free cash flow quarter to approximately $69,000,000 which is compared to $56,000,000 in the prior year. This is after investing approximately $29,000,000 in replacement equipment the quarter and dispersing almost $27,000,000 in cash interest. At October 31, 2023, we had total debt outstanding of $394,000,000 quarter. Our net debt of

Speaker 3

$378,000,000 to

Speaker 2

$8,000,000 a decrease of $42,000,000 over the course of the year, which is a testament to our strong free cash flow generation. The fiscal year. This equates to a net debt to EBITDA leverage ratio of 3x, which was our guided target for the 2023 year end. The quarter. We had approximately $217,000,000 of liquidity as of October 31, 2023, which includes cash on the balance sheet fiscal year 2019 and availability from our ABL facility.

Speaker 2

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, quarter, which provides further optionality to responsibly pursue value added investment opportunities like accretive M and A or the organic investment in our fleet of equipment to support our overall long term growth strategy. During the Q3 of 2022, we entered into a share repurchase program quarter to authorize the buyback of up to $10,000,000 of our outstanding shares of common stock. In January of 2023, the Board of Directors approved an additional $10,000,000 increase. During the Q4 of 2023, Under our share repurchase program, we repurchased approximately 34,000 shares of our common stock for a total of approximately $240,000 quarter at an average price of $7.08 per share.

Speaker 2

During fiscal years 20232022, Under our share repurchase program, we repurchased approximately 1,700,000 shares of our common stock for a total of 11,600,000 for an average price of $6.57 per share. The current share buyback program is authorized by the Board of Directors 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. Moving now into our 2024 full year guidance. We expect fiscal year revenue to range between $465,000,000 quarter and $490,000,000 adjusted EBITDA to range between $127,000,000 and $137,000,000 the fiscal year 2019 and free cash flow, which we define as adjusted EBITDA less net replacement CapEx and less cash paid for interest the fiscal year 2020, we expect to be impacted by continued inflationary cost pressures, fiscal year 2019, primarily labor and insurance costs and expect to offset these costs from the continued rate recalibration and cost efficiency initiatives. Fiscal year.

Speaker 2

Operationally and financially, we continue to have a solid foundation and we have confidence in continuing to execute on our growth strategy.

Speaker 3

Company 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. The Looking ahead, we believe our end market diversity and mission critical service in the construction industry positions us well for continued growth.

Speaker 3

Quarter. We expect to complement organic growth by continuing to evaluate opportunistic accretive M and A while strategically reducing our leverage. The fiscal year. With that, I would now like to turn the call back over to the operator for Q and A. Camilla?

Operator

Thank you, sir. We will now be conducting a question and answer session.

Speaker 5

The fiscal year.

Operator

And our first question will come from the line of Brent Thielman with D. A. Davidson. Please proceed with your question.

Speaker 5

The Hey, great. Thanks. Good afternoon. I guess, Bruce or Ian, first question is just the labor inflation, It looks like it's presenting some compression in the margin on U. S.

Speaker 5

Pumping. Is the proportion of lower margin revenue in that the segment, I guess, still shrinking as new business sort of better reflects today's labor cost environment? Are we quarter. Still sort of 2 or 3 quarters away from seeing some sort of an inflection in margins in that business group. Just be helpful to get your thoughts there.

Speaker 2

The Yes, Brian, good question. Yes, I mean, in short, it is shrinking. So a couple of points on that. And this is obviously part of we mentioned cost initiatives in our prepared remarks. So the labor portion of that is certainly a big feature.

Speaker 2

I mean, as Bruce mentioned, About half of the inflation we've seen this year has been around labor. So it's certainly one of our key focuses. So the margin impact is certainly shrinking, but still some work to do. The And those are a big part of the cost initiatives going forward.

Speaker 3

Yes. Hey, Brandon, I think what I would add to that is, it is shrinking now and will continue to get better as the As the year plays

Speaker 5

out. Okay.

Speaker 1

That's great.

Speaker 5

I mean the outlook for revenue for 2024, I mean, it does call for reasonably healthy growth. I mean, just in light of kind of moving pieces of the market. And I guess, also the fact that you did see some moderation in U. S. Pumping growth this quarter, maybe relative to what you've seen in terms of growth Great, Zach.

Speaker 5

So I guess, Bruce, can you just sort of bridge what you anticipate for this new fiscal year that the confidence that You see some reacceleration in growth in U. S. Pumping?

Speaker 3

Yes. And as you know, because we operate under so many different geographies the 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 the And maybe it's different end markets, different customers, different sizes of equipment, things that we've been able to analyze that we need to do a little bit better on, we think will drive that. We also see some opportunities and some fairly large projects that we're on to now that will be impactful to the quarter. Our revenues growing over the next year.

Speaker 3

But it's always the same. It's just holding our share, gaining share, kind of winning the battles in the trenches.

Speaker 5

And Bruce, are those large projects ones that you've effectively been awarded or you've got a high level of confidence You're going to be attached to this.

Speaker 3

Yes, some that we're currently on, some that we expect to be awarded to us and others that will be bidding shortly.

Speaker 5

The Okay. And just my last question, I mean, nice work getting into the 3x this year. I guess any further thoughts Where you want to be in 2024 with the balance sheet leverage? Yes.

Speaker 2

I mean, obviously, I mean, the starting point, as you know, Brian, for us 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 consistent with the themes, we're always looking for the The best opportunity to create the most shareholder value. So we'll continue to allocate from a capital allocation perspective the That free cash flow into the growth of the business in the areas that have the most value. A lot of it, obviously, in Eco Pan is organic, but we also have the inorganic

Speaker 5

the M

Speaker 2

and A opportunities if the values are right. So there's a number of options, we think, from that free cash flow number And to keep on doing the things that we have been doing.

Speaker 5

Got it. Okay. I'll pass it on. Thank you.

Speaker 3

The Thanks, Brent.

Operator

Thank you. Our next question will come from the line of Andy Wittmann with Baird. Please proceed with your question.

Speaker 6

Great and good afternoon guys. Thank you for taking my questions. I guess I just want to start with the A question on the revenue outlook here for 2024. I guess the implied growth rate there is about 5% to almost 11%. The I just I wanted to kind of understand what's in the low and the high end of the range.

Speaker 6

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 one way of thinking about it? Is that the correct way to think about it? How are you thinking about it?

Speaker 2

Yes, I think that's fair, Andy. I think you're right on I mean, obviously, we're doing continued rate recalibration, as we mentioned. But you're right, on the low end, That is an assumption of like flatter volume. And then as we get to that midpoint, I mean, as you know, the split between volume and pricing can be somewhat equal. So if we talk just around the midpoint, it's, let's say, 3% or 5% on the volume, 3% or 5% on the price.

Speaker 2

And obviously that will flex based on the volume piece. So I think you're thinking about it right.

Speaker 6

Okay. That makes sense. And then I guess the quarter. Just on the implicit EBITDA margins in the 2024 guidance, I wanted to dig into that. I mean, they're basically implied down a couple of 100 basis points and heard the commentary on labor, heard you guys say that you're expecting that challenge to continue here into 2024.

Speaker 6

But I'm just wondering, is there more to it that we should be thinking about? The Is the competition competing differently as the growth opportunities broadly speaking are 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 2024?

Speaker 3

The Yes, I think the biggest thing is the competitive environment that we're in. We talked about this on our last call where 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. The And so and we know and because we've always had to do this as the largest players kind of drive that and get out in front of that. And so we're finding Creative ways to get out in front of that, but there is some concern about how that will play out through the year.

Speaker 6

Got it. The Okay. That's helpful perspective. And then I guess maybe my last question here is just on the commercial side, the Just wondering if you want to give some commentary about what you're seeing there. Obviously, this has been the toughest spot that's not new, but Are there green shoots to be seen here?

Speaker 6

Or are you seeing delays at all on some of the projects that you're kind of eyeing down the quarter. I'm just wondering what you're seeing on the ground in terms of the movement of these commercial, including the light commercial the jobs through the bid to build process.

Speaker 3

Yes. So things haven't changed a lot the From the last quarter, the larger projects are going. There's still some concern about the light commercial. We don't see it doesn't create a backlog like what we get on the larger projects where we know about them 6, 8 months, a year in advance. The The lighter commercial ones, sometimes it's just 2 or 3 months.

Speaker 3

So we don't have as much visibility, but we do believe as interest rates

Speaker 6

Thank you for the context. I appreciate it. Have a good evening.

Speaker 2

Thanks, Andy.

Speaker 3

Thanks, Andy.

Operator

The quarter.

Speaker 5

Thank you.

Operator

Our next question comes from the line of Luke McFadgen with William Blair. Please proceed with your question.

Speaker 5

The

Speaker 7

Hey, Bruce and Ian, thanks so much for taking our questions tonight. Maybe just one here. I know you kind of mentioned just in terms of on the commercial side, the ABI index, it's kind of been a negative the territory for a while now. I think the hope is that we start to see that improve somewhat as we move through 2024. The quarter.

Speaker 7

Just curious kind of how do you guys think about your non residential construction business and I think the hope is that it improves, but maybe if that's

Speaker 3

call. Thanks, Luke. I think the ABI is where our concern with light commercial is at where it was doing quite well until a few months ago or at least even. And now it's gone back. We do have some concerns that that will affect light commercial.

Speaker 3

The larger projects, They seem to be going, but we expect that that will improve over the next few months and then we'll see light commercial pickup in the second half of the year. The quarter.

Speaker 7

Great. And just one more on our end here. Residential was again at a bright spot in the quarter. The In November, we saw new single family homes jump up again. Can you discuss any of the nuances around what you saw commercial market during the Q4 and in particular any geographies that were particularly strong?

Speaker 7

I know the mountain region was strong for you last quarter, but Anything specific there?

Speaker 3

Yes. It's the same story. The homebuilders have done a really good job of making homes for the quarter. 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

Speaker 7

the

Operator

Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.

Speaker 5

The

Speaker 4

Hey guys, this is Andrew on for Stanley. Thank you for taking my question. I was wondering if you could talk about M and A a little bit more. The It seems like that Aptite is certainly there given the balance sheet, but what is the landscape looking like as we enter the New Year And where are the opportunities?

Speaker 3

Yes. So we're very interested in doing good M and A deals. And the challenge that we've 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 the quarter were down substantially and the value of their assets are either holding strong or going up in value with the increased cost of new assets. And so it's been difficult for us to buy them at the right values.

Speaker 3

We think that will start shifting during the year, but we always have an appetite for that. We've Create a balance sheet that puts us in a good position for that and we'll just be thoughtful about doing the right deals.

Speaker 4

The And then related to the UK Pumping segment, how are you thinking about growth into this year? And do you have any concerns about the the delays or cancellations in the high speed rail project over there?

Speaker 3

Not at this time. We feel really good about our workload for the UK going into 2024. The The HS2 project that we're currently on or the portions that we're on, they're locked in and so we expect that to continue to be strong throughout this year. The And we're finding a lot of other infrastructure dollars that are being spent in the UK as well and other types of projects that Infrastructure work is really the great opportunity we have in U. K.

Speaker 3

For 2024.

Operator

For the quarter. Our next question will come from the line of Steven Fisher with UBS. Please proceed with your question.

Speaker 8

Thanks. Good afternoon. I apologize I missed the first part of the call, so not sure if you covered this or not. But in terms of the The drivers of the commercial softness, it sounds like. How much of that is financing the availability and perhaps actual level creating a challenge versus any other factors.

Speaker 8

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? The Has that intensified? Is it weakened? Maybe talk about that a little bit, please.

Speaker 3

Yes. It seems like it stayed fairly close to the same quarter over quarter for us. We watch that fairly closely. We do anticipate as rates come down that should get easier for those projects to get funded. And we expect to see some positive impact from that in the second half of the year.

Speaker 8

Okay. And then I guess just in terms of seasonality in the near term, obviously, we're well through your your Q1. So anything to call out about what's been happening over the last couple of months? Curious how these rate increases that you're trying to put through, how those have been received and just anything for modeling purposes we should be aware of in terms of near term seasonality?

Speaker 2

The Yes, Steve, good question. I mean typically the seasonality is going to be quite consistent as we go through Q1, Q4. What we expect actually is maybe the A slightly stronger second half than the first half with the expected change in rates. We'll see some of those light commercial projects come online. So We're usually, as you know, sort of 45, 55.

Speaker 2

We think it might be 54, 56 for the stronger back half of the year just with that impact.

Speaker 8

Okay. And how the rate increases been accepted by the marketplace?

Speaker 3

Yes. As you know, rate increases are always challenging, especially in a market that we're dealing in today. We're having good success. We do believe we provide a great service. We're a great teammate to our customers the And it's really on us and our sales team to go out and prove out that value.

Speaker 8

Okay. Thank you very much.

Speaker 2

Quarter. Thanks, Steve.

Operator

Thank you. At this time, this concludes our question and answer session. Call. I would now like to turn the call back over to Mr. Young for closing remarks.

Speaker 3

Thank you, Camilla. We'd like to thank everyone for listening to today's call, and we look forward to

Speaker 5

the fiscal

Operator

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

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Concrete Pumping Q4 2023
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