Concrete Pumping Q1 2024 Earnings Call Transcript

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March 7, 2024

There are 8 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings Financial Results for the Q1 ended January 31, 2024. Joining us today are Concrete Pumping Holdings' CEO, Bruce Young CFO, Ian Humphries, the company's External Director of Investor Relations, Coddy Slo. Before we go further, I would like to turn the call over to Mr. Cordislaw to read the company's Safe Harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements. Cody, please go ahead.

Speaker 1

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 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 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 statements whether as a result of new information, future events or otherwise.

Speaker 1

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

Operator

as on the company's website.

Speaker 1

Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce?

Speaker 2

Thank you, Cody, and good afternoon, everyone. I'm pleased to report that although we experienced challenging winter weather conditions in our U. S. Operations during the Q1, we continue to deliver double digit growth in our concrete waste management services and U. K.

Speaker 2

Operations and maintain revenue growth on a consolidated basis. In the month of January, heavy rainfall, snow and freezing temperatures across the United States brought many of our U. S. Concrete pumping projects to a standstill. As a result, many of our customers' projects were delayed and job sites were closed.

Speaker 2

We estimate such weather events lowered the expected revenue volume of our concrete pumping work by approximately $7,000,000 in January. However, work in February has recently returned to more normalized levels and we are working closely with our customers to accommodate accelerated project schedules. In the Q1, consolidated revenue increased by 4%, primarily driven by continued strong execution in our concrete waste management in U. K. Operations.

Speaker 2

In fact, revenues for these segments increased by 14% 21% year over year, respectively, and maintained their strong adjusted EBITDA margins. The performance of these two segments demonstrates the benefit of our diversification by end market and by service type. Additionally, despite the challenges we faced in this quarter, we are pleased with our ongoing efforts to improve the strength of our balance sheet, reducing our revolving ABL loan balance by approximately $6,000,000 while maintaining liquidity at $217,000,000 Transitioning to our segments by end market, we continue to experience similar trends that we saw in our Q4. In residential, the structural supply demand imbalance continues to grow driving strong demand levels and increased activity among homebuilders. From a regional perspective, we see most development residential construction dollars being allocated within the Mountain region in Texas, which represents undersupplied regions where single family construction is prominent.

Speaker 2

While interest rates remain elevated, at this point, we see no signs of slowing in this market due to the affordability and balance that exists between purchasing a new home versus an existing one. We are optimistic that with expected interest rate cuts in 2024, we will capture additional tailwinds. In infrastructure, our expanded U. S. National footprint continued to drive strong results as we captured more revenue from the public project investments.

Speaker 2

We continue to see more investment flowing to numerous projects where we operate, and we plan to aggressively pursue these project opportunities. In particular, growth across the U. K. Continues to develop as HS2 and energy related infrastructure spending has accelerated and capital is being deployed at faster timelines to domestic U. S.

Speaker 2

Government funding. Within the commercial end market, momentum larger commercial projects like distribution centers, warehouses, semiconductor fabrication plants and electric vehicle and battery manufacturing plants remain strong underpinned by the growing reshoring trends here in the U. S. With regards to concrete pumping demand from light commercial projects, activity continues to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks have stalled some projects. We continue to expect a recovery in the second half of fiscal twenty twenty four as the project funding backdrop improves.

Speaker 2

Turning to the cost side of the business, the headwinds we experienced in Q4 largely continued into our Q1 in addition to the downstream impact margins from adverse weather conditions, persistent inflationary pressures driven by a mix of labor and insurance continue to impact our ability to flow through our revenue performance to the bottom line margin. Such headwinds are expected to continue throughout 2024, but with our continued rate recalibration across all geographies and end markets, we anticipate a positive offset that should drive margin expansion over time. Our measures recalibrate rates and the systems we are implementing to attract and retain employees are right in step for our business and 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 3

Thanks, Bruce, and good afternoon, everyone. In the Q1, consolidated revenue increased 4% to $97,700,000 dollars compared to $93,600,000 in the same year ago quarter. The increase was due to strong growth across our Concrete Waste Management Services and UK operations. As Bruce mentioned, this growth was offset by a decrease in volumes in U. S.

Speaker 3

Concrete Pumping due to the harsh winter weather events experienced across the United States, primarily in the month of January.

Speaker 4

Revenue in

Speaker 3

our U. S. Concrete Pumping segment, mostly operating under the Brundage Bone brand, decreased 1% to $66,700,000 compared to $67,200,000 in the prior year quarter. The decrease was due to weather impacts in January as the severe winter temperatures and freezing rainfall stalled many of our customers' projects. We estimate the extreme weather lowered the expected revenue volume of our U.

Speaker 3

S. Concrete pumping work by approximately $7,000,000 in January. For our U. K. Operations, operating largely under the Camfaud brand, revenue improved 21.2 percent to $15,400,000 compared to $12,700,000 in the same year ago quarter.

Speaker 3

Excluding the impact from foreign currency translation, revenue was up 16% year over year. The increase was primarily due to pricing improvements and operating efficiencies. Revenue in our U. S. Concrete Waste Management Services segment operating under the EcoPam brand increased 14.2% to $15,600,000 compared to $13,700,000 in the prior year quarter.

Speaker 3

The increase was driven by strong organic growth and pricing improvements, notwithstanding the Q1 growth rate being hampered by unseasonably harsh January winter weather. Returning to our consolidated results. Gross margin in the Q1 was 34.1% compared to 39% in the same year ago quarter, with the decreased margin primarily related to the weather impacted lower revenue volume and downstream lower equipment and headcount utilization as a result of the extreme winter weather as well as inflationary increases in insurance costs. General and administrative expenses in the Q1 were $31,900,000 compared to $27,000,000 in the same year ago quarter. The increase was primarily due to higher headcount and wage inflation and a non recurring $3,500,000 charge as a result of a sales tax rule change dispute in our West region.

Speaker 3

Excluding the $3,500,000 charge, G and A costs as a percent of revenue increased slightly in the first quarter to 29.1% compared to 28.9% in the same year ago quarter due to the lower revenue volume. Net loss available to common shareholders in the first quarter decreased to $4,300,000 or $0.08 per diluted share compared to net income of $6,000,000 or $0.11 per diluted share in the same year ago quarter. Consolidated adjusted EBITDA in the first quarter decreased to $19,300,000 compared to $25,000,000 in the same year ago quarter. Adjusted EBITDA margin declined to 19.7% compared to 26.8% in the same year ago quarter. Again, EBITDA declines were driven by the aforementioned impacts from extreme U.

Speaker 3

S. Weather condition and an increase in labor and insurance costs. In our U. S. Concrete Pumping business, adjusted EBITDA decreased to $10,700,000 compared to $16,800,000 in the same year ago quarter.

Speaker 3

In our U. K. Business, adjusted EBITDA increased 32.8 percent to $3,200,000 compared to $2,400,000 in the same year ago quarter. For our U. S.

Speaker 3

Concrete Waste Management Services business, adjusted EBITDA decreased slightly to $5,400,000 compared to $5,800,000 in the same year ago quarter due to the downstream winter weather impact on labor utilization. Turning to liquidity. At January 31, 2024, we had a total debt outstanding of $388,000,000 or net debt of $373,300,000 dollars This equates to a net debt to EBITDA leverage ratio of 3.1x. We had approximately 217,000,000 dollars of liquidity as of January 31, 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.

Speaker 3

We remain in a strong liquidity position, which provides the ability 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 program that authorized the buyback of up to $10,000,000 of our outstanding shares of common stock. In 2023, the Board of Directors approved an additional $10,000,000 increase and in March of 2024, an additional $15,000,000 was approved. During the Q1 of 2024, under our share repurchase program, we repurchased approximately 36,000 shares of our common stock for $248,000 or an average price of $6.88 per share. Since our buyback program was initiated, we have repurchased approximately 1,800,000 shares of our common stock for a total of $11,800,000 or an average price of $6.61 per share.

Speaker 3

The current share buyback program with $23,200,000 remaining is 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 to our 2024 full year guidance. Due to the weather impacted year to date start in fiscal 2024, we have revised our expectations of fiscal year revenue to range between $460,000,000 $480,000,000 and adjusted EBITDA to range between $122,000,000 $130,000,000 The target guidance for free cash flow, which we define as adjusted EBITDA less net replacement CapEx and less cash paid for interest will remain unchanged as at least $75,000,000 This reflects our ability to control CapEx investments given the current utilization capacity in our fleet due to the previous investments over the last 3 years, including acquisitions to improve the age of our fleet. Operationally and financially, we continue to have a solid foundation and we have confidence in continuing to execute our growth strategy. With that, I will now turn the call back over to Bruce.

Speaker 2

Thanks, Ian. In summary, we are pleased with the revenue growth in our concrete waste management services in UK operations and are optimistic U. S. Pumping will recover through the remainder of the year under normalized weather conditions as evidenced by a stronger February performance. We anticipate continued momentum in our residential and infrastructure end markets near term, and we are optimistic that interest rate reductions in the back half of fiscal year will improve the starts of various commercial projects.

Speaker 2

In the meantime, we continue to maintain our opportunistic approach to equipment utilization, enabling our fleet strategy that allows us to capture value driven work and deliver our expected return on invested capital. On the cost side of the equation, we remain focused on attracting and retaining the best talent in the industry while reducing the impact from inflationary cost pressures through continued rate increases. As always, our focus remains on optimizing end market mix to continue to deliver strong top and bottom line growth. Looking ahead, we believe our and mission critical services in the construction industry positions us well for continued growth. We expect to complement organic growth by continuing to evaluate opportunistic accretive M and A while strategically reducing our leverage.

Speaker 2

With that, I would now like to turn the call back over to the operator for Q and A. Renju?

Operator

Thank you. We will now be conducting a question and answer The first question comes from the line of Andrew Wittmann with Baird. Please go ahead.

Speaker 4

Great. Good evening and thanks for taking my question guys. I guess I wanted to understand the revision to your guidance to begin with here. I understand the $70,000,000 shortfall here in the Q1. I guess given that there's so much to the year remaining, I would have thought that you would have probably been able to make that up in the balance of the year.

Speaker 4

I mean that is about the magnitude of the guidance reduction. So is there something else that is being considered in the guidance cut that we should know about? Or is that purely just timing and it actually gets pushed into your next fiscal year?

Speaker 2

Yes, Andy, thanks for the question. So our concern is that many of the contractors have had their projects pushed because of the weather conditions that we had that went beyond the 3 or 4 weeks that we had the bad weather. And so while they're starting up now and with the lack of labor to accelerate the start of these projects, are a little cautious on how the remainder of the year might play out that way. So we thought that it was best to address that now.

Speaker 4

Got it. Okay. Is it so was the weather affecting like newly starting projects or was it affecting in flight projects? It kind of sounds like from your answer there that it was affecting projects that have otherwise started and now they're not starting or have been delayed substantially enough that you don't want to put it in your view. I guess just a little bit more color on that would be helpful to understand.

Speaker 2

Yes. Yes. So it affects both. So the projects that we're currently on, it's very difficult to pour concrete in extreme weather conditions. So the concrete placement gets delayed.

Speaker 2

And then the new projects get delayed because the concrete comes right after the excavation and the excavation gets delayed because of the weather conditions as

Speaker 4

well. Okay. I guess for my follow-up question, I wanted to ask on your M and A outlook. I heard your comments here at the end of your prepared remarks. But obviously, you guys have been a little bit more patient.

Speaker 4

I think with M and A, given the environment that changes the demand picture, that changes the financing picture for the people who you might be buying. There's lots of ramifications from the macro we've been living in here for the past year, couple of years. So, I guess, Bruce, is there is the patients changing or do you still feel like or do you feel like it's getting more visibility, more certainty that you feel like you can start maybe being a little bit more aggressive with M and A than you've been in the past 12 months?

Speaker 2

Yes. Certainly, we can get a little more aggressive. I think what we've talked about in the past with mostly family owned businesses in our industry and their lack of confidence in getting rates up ahead of inflation, their margins have been affected severely. So as we look at the value that those business bring to us and then with the value of the assets continuing to increase in price, most of the business we look at aren't worth the value of their assets. And so that's really where we're waiting for that shift to happen, but we're certainly aggressively looking at each one and when opportunity looks right, we'll certainly jump on it.

Speaker 4

Okay. I'm going to leave it there guys. Have a good night.

Speaker 3

Thanks, Andy.

Operator

Thank you. Next question comes from the line of Gene Ramirez with D. A. Davidson. Please go ahead.

Speaker 5

Hi, this is John Ramirez for Brent Thielman. I'll start with a question. Can you provide some color on your outlook regarding labor and energy costs for the remaining of the year? And I guess as a follow-up, after the slow first quarter, how should we think about the inflection on margins for the Concrete the U. S.

Speaker 5

Concrete Pumping segment? Yes, I guess we'll start with the first half.

Speaker 3

Yes. So on the labor and energy costs, they're quite stable right now. I mean, fuel has been volatile of lately, but it's less than where it was maybe 18 months ago. But is relative stability in the fuel side of things. We still have wage inflation that we're working through, as Bruce mentioned, on recalibrating rates.

Speaker 3

But that's something that we'll work on through the rest of the year as we offset and that through rate increases. And on the U. S. Pumping margins for the back half or remaining quarters in this year, as we mentioned in our original guidance, we are working on recalibrating a lot of cost initiatives. So we would expect to at least get back to the U.

Speaker 3

S. Margins that we've seen in the past and I'd expect to outperform that as well. So other than the Q1 that was impacted more on the operating leverage and from the volume of weather that came through, Though you can expect at least the margins that we've seen before, if not better, in the back half of the year.

Speaker 5

And in terms of a full year, do we expect the margins for the full year end to be just greater than fiscal year 'twenty three or around do you mind providing a little more color on that?

Speaker 3

Yes. So I mean, based on the slow start with the weather and our updated guidance, it would be at least comparable.

Speaker 5

Thank you. And if I could one more. Could you provide an update on the bidding environment right now and how you're working through these large projects that you in the words that you won?

Speaker 2

Yes. As you know, on the larger projects, we don't have near as many people as we're competing against as we would smaller projects. And so the bid environment, well, it's active. And on the larger commercial projects, it's very much the same as what we have seen in the past.

Speaker 5

Thank you. I appreciate the time.

Speaker 3

Thank you.

Operator

Thank you. Next question comes from the line of Stanley Elliott with Stifel. Please go ahead.

Speaker 6

Hey everybody. Thank you guys for the question. Could you all go back and talk a little bit more about kind of the decision to kind of lower the full year? At one point, you guys said there were certain types of projects and maybe we're not seeing some level of softness. Is that because of financing costs?

Speaker 6

Just trying to get a little more color since we're really at the seasonally weakest part of your fiscal year.

Speaker 2

Yes. And certainly there's a little caution with our response as well. The area that we're seeing the most challenging would be like commercial that is more sensitive to interest rates and inflation and relying on more regional banks. Those projects have either been pushed out or shelved entirely. And so we're waiting to see that come back.

Speaker 2

And then we believe as the economy improves, there are new projects that will come on in that sector that will give us opportunities for growth as well. But the infrastructure is growing. We're seeing more visibility there. Residential has been very stable for us and we see that continuing. The large projects are fairly stable.

Speaker 2

It's just that light commercial that's causing concern.

Speaker 6

And can you all talk about like a backlog of business, maybe where it is now? How that's changed? You mentioned it sounds like the order environment and kind of the quoting activity is still pretty strong, but would also seem to imply that you're working through some of the kind of the existing book of business that you had been building out?

Speaker 2

Yes, that's right. And as you remember about 50% of our business we track is backlog and that's the larger commercial projects and the infrastructure projects. That really hasn't changed. It's the light commercial projects that are more difficult to track that we're seeing the softness in.

Speaker 6

And could you talk a little bit about the restatement piece that you had in the U. S. Pumping business? Exactly what was that for? Why remind us again why you decided to do it now?

Speaker 3

Yes. So every year, Stanley, we're looking at the allocation of resources from across all the segments. So really, the adjustment is really a true up of those central resources that we have within our business and allocate them allocating them based on the business segment and growth and use of capital. So it's really the update of the allocation that we've revised.

Speaker 6

And then lastly, kind of what are exactly your plans for the buyback? I know you put some timeframes around how long it extends out. I think it was March 20 25, but do you plan on being more active? Just any help for the context there would be great.

Speaker 2

Obviously, we continue to feel like our stock is undervalued and some of the use of our capital if we're not using it to buy businesses or equipment maybe the best use of the capital is buying shares at values that we think are reasonable for us.

Speaker 6

Great, guys. Thanks so much. Best of luck.

Speaker 2

Thanks, Stanley.

Operator

Thank you. Next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.

Speaker 7

Bruce, Ian, good afternoon.

Speaker 2

Hi, Tim. How are you?

Speaker 7

Doing all right. Thank you. Let's start with your outlook here. It looks like your guide is calling for about 6% revenue growth at the midpoint. Can you kind of break that down for us between your growth expectations for U.

Speaker 7

S. Concrete versus the UK business in Eco Pan?

Speaker 3

Yes. So on the organic side, if you look at the midpoint, it's really 2% or 3% on growth on volume and 2% or 3% on price. What I would say beyond that is at the lower end of that range, there would be an assumption that like price and volume is on the flatter side. And on the higher end, we would expect to capture more share and more price and more volume on the top end.

Speaker 7

Is that the total business there or is that for the U. S. Pumping business, specifically Ian?

Speaker 3

Yes, that's for the total business. What you can expect to see on the year over year change for the Eco Pan and the U. K. Business. I mean, Eco Pan, as you know, has been growing north of 20% year over year.

Speaker 3

The Q1 was a little softer on that based on the volume of weather they had to deal with. Obviously, we've guided consistently to at least double digit growth, and we would expect to continue that for is continuing to move along at quite a nice pace. I mean, so in the U. K. Is continuing to move along at quite a nice pace.

Speaker 3

I mean, so in the quarter, they had 20% year over year growth. So that's moving along, I mean, as we would expect towards the back end of the year.

Speaker 7

Okay. So no real change there, continued strong growth in those businesses. On that EcoPEM business, I saw that revenue was higher with EBITDA was a little lower. It sounds like from weather related impacts, I mean, do you expect margins to be up year over year for the remainder of the year or are there other factors at play here for Eco Pan?

Speaker 3

Yes, the impact in Q1, it was really a downstream impact of where they've got weather. I mean, they're less sensitive to it than the U. S. Pumping business, but not immune to that. So there's a little softness in the operating leverage just from that downstream effect of labor utilization when there's difficult weather.

Speaker 7

Okay. So otherwise though you'd expect continued margin accretion in that business as you continue to build out density, etcetera?

Speaker 3

Yes. We would expect to continue strong margins on the Eco Pan business yet for sure.

Speaker 7

Okay, cool. Last one from me. I think I recall you talking on your 4th quarter earnings call about some undisciplined pricing from industry competitors, which crimped your ability a little bit to take rates higher. Did you see that dynamic carryover into this quarter?

Speaker 2

We have seen some of it carry over, but it is improving. As the equipment prices go up and companies aren't doing quite as well as what they had in the past, We're seeing them looking being more thoughtful about how they did work as well and certainly that helps us out as well.

Speaker 7

Okay. That's it for me. Thank you very much.

Speaker 2

Thanks, Tim.

Operator

Thank you. Next question comes from the line of Avi Yaroslavich with UBS. Please go ahead.

Speaker 7

Hey guys, thank you. On for Steve Fisher. So I'm just trying to understand some of the math and implications around what happened in the Q1 in U. S. Pumping.

Speaker 7

Revenue was had a $7,000,000 impact from weather and the adjusted EBITDA was down about 6,000,000 dollars So should we kind of be considering that as roughly what you guys expected in the margin for the Q1? As in like, were you anyways expecting adjusted EBITDA to be down through the segment year over year regardless because if you didn't, then it sounds like that $7,000,000 was expected to come in with a very high incremental margin. So just trying to understand if I'm missing something there?

Speaker 3

Yes. First of all, I mean, that's not the margin to expect for the U. S. Pumping business and going forward. I mean, when we have weather events, obviously, the downstream effect from interrupted volume reduces the operating leverage.

Speaker 3

So yes, don't expect that margin performance going forward. It's going to be more consistent, if not improving, like I said earlier, through the rest of the year. So as we accelerate where we can, the volume of work, clearly, we get operating leverage, which improves margin. It improves utilization of our equipment and our people. So certainly the Q1 event and the effect of that is more amplified than the normal run rate.

Speaker 3

And as we become more efficient, I said, the margin will improve.

Speaker 2

And what I would add to that is, we have variable costs in labor and fuel and repair and maintenance. But in January, we still did the normal repair and maintenance that we would have done on that equipment just because it was scheduled and the people and equipment were there to do it and the parts supply. But that will actually offset through the remainder of the year because it is ultimately variable to our total cost.

Speaker 7

Okay. Got it. That makes sense to me. That's all I had. Thank you.

Speaker 6

Thank you.

Operator

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

Speaker 2

Thank you, Renju. We'd like to thank everyone for listening to today's call and we look forward to speaking to you when we report our Q2 fiscal results fiscal 2024 results in June. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may

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