Concrete Pumping Q3 2024 Earnings Call Transcript

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September 4, 2024

There are 7 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 Q3 Ended July 31, 2024. Joining us today are Concrete Pumping Holdings' CEO, Bruce Young CFO, Ian 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.

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 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 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, leverage ratio 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 well as in the company's website. Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young.

Speaker 1

Bruce?

Speaker 2

Thank you, Cody, and good afternoon, everyone. In the Q3, continued organic growth in our U. S. Concrete Waste Management business was offset by a series of factors that impacted volume driven declines in our U. S.

Speaker 2

Concrete Pumping segment. Historic rainfall in Texas and across the Southeast region together with ongoing restrictive monetary policy curtailed construction volumes for the quarter. Higher for longer interest rates have impacted the timing of more rate sensitive commercial projects and higher commercial building vacancy rates have delayed project starts on new build projects. While we believe these circumstances are temporary, they nonetheless have had a negative impact on our financial results. In the UK, the impacts of sustained higher interest rates on volume largely followed the trends we experienced domestically, but our infrastructure projects still held up well considering the market backdrop.

Speaker 2

Meanwhile, we are quite pleased with our Concrete Waste Management business continued to grow organically at a double digit rate, driven by healthy market share growth and continued price improvements in the face of the challenging construction market. We expect the tailwinds in this business to continue for the remainder of this year and beyond. In the Q3, we continue to strengthen our balance sheet by paying down debt, preserving our robust free cash flow and improving our adjusted EBITDA margin, which speaks to our strong financial profile and unit economics as well as our disciplined approach to fleet management, improving cost initiatives and capital investments. Turning to specific comments by end market, we largely experienced similar trends to what we saw in our Q2. With our commercial market, we continue to experience softness across a variety of commercial work, especially light commercial and manufacturing projects, which tend to be more sensitive to the prolonged high interest rate environment we are currently in.

Speaker 2

Larger commercial projects remained mostly durable, albeit momentum is moving at a slower pace, but even these projects haven't been immune to interest rate economics. Weather also played an outside role in the quarter with unseasonably wet weather in Texas and the Southeastern United States continuing to delay projects. As we move further into Q4, we would expect these weather events to subside and to catch up on a portion of this work. Our residential market remained resilient considering the higher interest rate environment with our overall mix of our U. S.

Speaker 2

Concrete pumping work in the residential end market holding at approximately 31% of total revenue on a trailing 12 month basis. From a regional perspective, we continue to see residential construction investments within our Mountain region and in Texas, which represents undersupplied regions where single family construction is prominent. We still expect structural supply demand imbalance in housing will continue to support homebuilding activity, especially as homebuilders remain motivated to entice customers with creative solutions that include rate buy downs and we believe the Federal Reserve's path to interest rate reductions should continue to support this end markets growth. Offsetting some of our commercial market softness, revenue in our infrastructure markets grew year over year in the Q3 by 5% or 1% of total revenue. The combination of more resilience in our U.

Speaker 2

K. Infrastructure projects versus our projects domestically and our expanding U. S. National footprint drove these results. And we are finally beginning to see some momentum in capital deployment from the Infrastructure Investment and Jobs Act and other public project investments.

Speaker 2

As a result, we expect to see infrastructure projects continue to grow for the remainder of 2024 and beyond as early IIJA project advanced to the major construction phase, and we continue to aggressively pursue these opportunities. In the U. K, infrastructure growth has continued to develop as funding is being deployed at faster timelines than domestic U. S. Government investment.

Speaker 2

In summary, while the construction market remains soft, particularly in commercial, we believe that we are best positioned relative to our competitors to execute in the challenging environment due to our unique value proposition to our customers given our national footprint and market diversification and the breadth, depth and agility of our pumping fleet. Furthermore, our strong balance sheet positions us well for continued investment both organically and through accretive M and A. As a result, over the long term, we believe our disciplined execution of our strategic growth plan and our ability to responsibly navigate through macroeconomic cycles will drive superior shareholder value. I will now let Ian address our financial results in more detail before I return to provide some concluding remarks. Ian?

Speaker 3

Thanks, Bruce, and good afternoon, everyone. In the Q3, consolidated revenue was $109,600,000 compared to $120,700,000 in the same year ago quarter. As Bruce mentioned, the decline in revenue was mostly driven by a volume decline in our U. S. Concrete Pumping segment, partially offset by continued strong organic growth in Concrete Waste Management Services.

Speaker 3

As such, revenue in our U. S. Concrete Pumping segment, mostly operating under the Brundage Bone brand, decreased 14% to $75,200,000 compared to $87,300,000 in the prior year quarter. The decrease is primarily attributable to lower volumes caused by a general slowdown in commercial construction work mostly due to the impact from higher interest rates, oversaturation of concrete pumps in certain markets and higher than normal rainfall throughout the quarter specifically in our Texas and Southeast regions. We estimate that the impact of adverse weather in the 3rd quarter caused approximately $6,000,000 of project revenue delays.

Speaker 3

For our UK operations operating under the Camfrab brand, revenue decreased 8% to $15,900,000 compared to $17,300,000 in the prior year quarter. Excluding the impact from foreign currency translation, revenue was down 9% year over year. Strength in the UK's infrastructure work did not outweigh a volume driven slowdown in other commercial projects due to higher interest rates. Revenue in our U. S.

Speaker 3

Concrete Waste Management Services segment operating under the Eco Pan brand increased 15% to $18,500,000 compared to $16,100,000 in the prior year quarter. The increase was driven by robust organic growth and pricing improvements. Returning to our consolidated results, gross margin in the 3rd quarter was 40.6% compared to 41% in same year ago quarter. Given the volume declines, we are pleased to preserve our gross margin and this was achieved through continued focus on cost initiatives that include labor cost efficiency and our repair and maintenance supply chain. General and administrative expenses in the 3rd quarter decreased to $27,900,000 compared to $29,900,000 in the same year ago quarter, largely due to non cash decreases and amortization expense of $1,000,000 and lower labor costs of $800,000 As a percentage of revenue, G and A costs were 25.5% in the 3rd quarter compared to 24.8% in the prior year quarter.

Speaker 3

Net income available to common shareholders in the 3rd quarter was $7,100,000 or $0.13 per diluted share compared to $9,900,000 or $0.18 per diluted share in the same year ago quarter. Consolidated adjusted EBITDA in the 3rd quarter decreased to $31,600,000 compared to $34,900,000 in the same year ago quarter, but adjusted EBITDA margin was consistent year over year at approximately 29%. Our ability to preserve adjusted EBITDA margins in a lower demand environment shows the benefits of our scale, our ability to prudently manage our fleet and the efforts by our team to protect the value of the specialty service offering we have. In the U. S.

Speaker 3

Concrete Pumping business, adjusted EBITDA was $20,100,000 compared to $22,700,000 in the same year ago quarter. In our U. K. Business, adjusted EBITDA was $4,200,000 compared to $4,800,000 in the same year ago quarter. For our U.

Speaker 3

S. Concrete Waste Management Services business, adjusted EBITDA was $7,300,000 compared to $7,500,000 in the same year ago quarter. Turning to liquidity. At July 31, 2024, we had total debt outstanding of $375,000,000 or net debt of 3 $348,700,000 This equates to a decrease in net debt from the Q2 of 2024 to the Q3 of nearly $25,000,000 and a net debt to EBITDA leverage ratio of 3.1 times. We had approximately $236,300,000 of liquidity as of July 31, 2024, which includes cash on the balance sheet and availability from our ABL facility.

Speaker 3

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 to support our overall long term growth strategy. During the Q3 of 2022, we entered in a share repurchase program that authorized the buyback of up to $10,000,000 of our outstanding shares of common stock. In January of 2023, our Board of Directors approved an additional $10,000,000 increase and in March of 2024 an additional $15,000,000 was approved. During the Q3 of 2024, we repurchased approximately 370,000 shares of our common stock for $2,500,000 or an average price of $6.64 per share.

Speaker 3

Since the program was initiated, we have repurchased approximately 2,300,000 shares for $15,500,000 or an average price of $6.68 per share. The current share buyback program has $19,500,000 remaining and is authorized through March of 2025. And we believe this demonstrates both our commitment to delivering long term shareholder value and our confidence in our strategic growth plan. Moving now into our 2024 full year guidance. While we had expected some recovery and an improved project funding landscape in the second half of fiscal twenty twenty four, our restricted monetary policy has driven higher for longer interest rates and this has weakened the near term demand environment, particularly in our commercial end market.

Speaker 3

As we navigate lower commercial project volumes, we are adjusting our financial outlook for fiscal 2024. We now expect revenue to range between $420,000,000 $430,000,000 and adjusted EBITDA to range between $108,000,000 $113,000,000 We now expect free cash flow, which we define as adjusted EBITDA, less net replacement CapEx, less cash paid for interest to be at least $67,000,000 and expect to end the year with a leverage ratio of approximately 3 times. Our ability to drive strong free cash flow on lower expected volumes stems from our ability to optimize equipment utilization and flex our CapEx investments based on demand. This flexibility is also supported by previous investments we've made over the last 3 years, including from acquisitions to maintain sufficient capacity in our fleet utilization. With that, I will now turn the call back over to Bruce.

Speaker 2

Thanks, Ian. Turning to the final quarter of our fiscal year, as I mentioned previously, we still expect the demand environment to be variable in our concrete pumping business given current market conditions. However, we believe the scale, breadth and agility of this business has optimized our position for recovery as macro improve must select lower interest rates arise. We are encouraged by our performance in our infrastructure business and believe underlying demand trends will continue into fiscal year 2025. The same goes for residential as market imbalances favor the development of new housing.

Speaker 2

On the cost side of the equation, we are beginning to see our cost control initiatives take hold, which should drive margin growth as our commercial end market improves. Our position 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. And as always, our focus remains on optimizing end market mix to maximize top and bottom line growth. Today's market environment does not deter our long term approach to growing our business. We still expect to complement our organic growth initiatives by continuing to evaluate opportunistic accretive M and A while

Operator

you. And our first question comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Speaker 4

Great. Good afternoon, guys, and thank you for taking my questions here. I guess I wanted to dig in a little bit to kind of current market conditions and some of the actions you're taking to react to those. When I look at the revenue guidance that's implied for the Q4 and compared to the EBITDA that's also implied in the Q4, I guess the revenue is seeing more impact than the EBITDA line. And you mentioned, Bruce, that you're taking actions that are taking hold on your cost structure.

Speaker 4

I thought it'd be helpful for us to hear a little bit more detail about what you're doing to achieve that. And particularly, among other things, if you could also address specifically how you're managing the repair and maintenance expense on your units today? Are you deferring some of that now, just recognizing that the demand isn't as strong? You're still staying kind of up to date on that stuff? Thanks.

Speaker 2

Yes. So thanks, Andy. I would start with we are not deferring any maintenance on our assets. We keep them to the same standard that we always have. We have done a lot better job of purchasing parts that we've seen a little deflation in parts.

Speaker 2

We've done a better job of managing the labor to maintain that equipment and really stay on top of that with better preventative maintenance out in front of that, which we started a year or so ago and now we're starting to see some of the benefit of that. On the revenue side of the business, while we're quite disappointed in where the summer has been for us, where we expected Q3 to come out with a little better start is summer weather, well, we hope for summer weather improvement, which turned out to be quite challenging in Q3. But even with that, the commercial market just didn't react like we had expected them to. We've done an awful lot of analysis on our market share with concerns that we might be losing share during that period of time. We're very comfortable that we are not losing share during that period of time.

Speaker 2

But what we are seeing is that a lot of the major projects that would use our specialty type equipment, placing booms, high rise pumps, that sort of thing, we're not getting near the utilization out of that that we would have expected this summer, meaning that a lot of those larger projects are either delayed or are just aren't being planned at all. So those are some of the things that we're seeing. However, we really are focused on making sure that our business is really strong and better positioned for the recovery of the markets.

Speaker 4

That's helpful color. I appreciate that. And just for my follow-up question, I know you guys are probably planning for 2025 and obviously after next quarter you'll probably guide for that. But I guess just for early thinking here, given that the trends were what they were in the quarter, I mean, do you feel like overall that 25% is a is it an up year or is it down year? And then maybe even more specifically on as you think about the margins in 2025%, you guys talked about weather in all three quarters so far this year.

Speaker 4

Regardless of the outcome, is it fair to think that your gross margins could be flat to up?

Speaker 2

Yes. Well, certainly weather has an impact on our margins and with better weather, which this has to be one of the worst years for weather we've seen in my history in the business, which is lengthy. So with that, we expect margins to improve. But just becoming more efficient, as markets slow down, you find ways to be much better at what you do, where you're not constantly chasing after work. And so we think those things will improve the margins as well over time.

Speaker 2

Looking at the forecast, the ABI, the Architectural Building Index and seeing some softness there, we really expect the first half our 2025, which starts in November, to be very similar to what we're seeing now. And then hopefully, things will start picking up towards the second half of next year.

Speaker 4

Thank you very much for the insight. Appreciate it.

Speaker 3

Thanks, Andy.

Operator

Thank you. Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Speaker 5

Hi, Bruce and Ian. This is Luke McFadden on for Tim Mulrooney. Thanks for taking our questions today. So I guess just starting here, some recent data from Dodge pointed towards early signs of potential improvement in the non residential construction market. They also called out that a September rate cut would likely make conditions even more accommodative for projects starts going forward here.

Speaker 5

Curious just to get your viewpoint on that and how future rate cuts could impact your business over the next 6 to 12 months?

Speaker 2

Thanks for the question, Luke. Now with Dodge, they load up all the project value in the beginning of the project, which means they still need to do the excavation and other such things before they get to the concrete stage. While we do see some activity in bidding, by the time it gets to the concrete stage of the project, we see that coming into our second half of next year.

Speaker 5

Very helpful. And then if I can just follow-up here, related to utilization rates, could you just provide some color there as it relates to recent utilization rates in the business? It seems like some of those headwinds from last quarter like weather and equipment oversaturation were present again here this quarter. But just hoping to maybe get an update on what you're seeing from a utilization standpoint in the business today?

Speaker 2

Yes. Thanks for that. We are very on utilization. Our utilization currently runs around 70%, where we can be efficient running as with high utilization as 80%. So we're looking at getting our fleet right, still to have a few older machines that will sell as we're waiting for the markets to come back around.

Speaker 2

But yes, we have an awful lot of capacity for opportunity as it comes as well.

Speaker 3

Yes, Luke, one thing I'd add to that. I mean, and that's what you've seen. We've talked a lot about our free cash flow and you've seen us protect that free cash flow this year for the utilization rates that Bruce mentioned. So I mean, as we mentioned in our prepared remarks, we have sufficient capacity in our fleet right now. So that's why you're probably seeing lesser investment this year we focus on the balance sheet because we still have a good amount of capacity to use in that fleet utilization today.

Speaker 3

So as we see that pickup with volumes, then obviously we'll see some extra utilization come through on the fleet of equipment.

Speaker 5

Understood. Thank you very much.

Operator

Thank you. Our next question comes from the line of Brent Thielman with D. A. Davidson. Please proceed with your question.

Speaker 6

Hey, Bruce. Hey, Ian. Bruce, maybe just to start, where are you seeing this over saturation of equipment? And I guess in the spirit of protecting your margins, what's your response as a company to potentially more competitive pricing or sort of bidding conditions out there?

Speaker 2

Yes. So with the manufacturers, all the equipment that is used in our industry in the U. S. Either comes from Germany, China or South Korea. And so it takes several years of planning to get equipment sold into the U.

Speaker 2

S. And with forecast with the infrastructure bill and commercial forecast from a couple of years ago, I think we expected as an industry that volumes would be greater. And so that equipment did come into the market. It did go into the hands of those who might become competitors of ours or those that are competitor of ours, creating an oversaturation of equipment in the market. Folks are trying to get that equipment out into the field.

Speaker 2

And with that, there's some pricing pressure that we've dealt with this year. We've been able to maintain our pricing in our concrete pumping service this year, but we haven't been able to increase it. And we think a lot of that has to do with the oversaturation. But again, as I mentioned earlier, we're focused on market share as well and making sure we maintain our market share as we're dealing with that pressure.

Speaker 6

Okay. Appreciate that, Bruce. And then, I guess coming back to just how things have evolved, maybe over even the last few months, particularly this demand environment and the progression. And it sounds like some of these interest rate sensitive sectors have sort of moderated even more, Bruce, than what you thought a few months ago. I thought I heard you made a comment about some of the large projects potentially losing a little momentum.

Speaker 6

Can you expand on that and what you're seeing there?

Speaker 2

Yes. So things with large manufacturing plants, whether it's VB plants, battery plants, chip plants, those things aren't going at the rate that we would have anticipated. There's still an awful lot in the planning and bidding stage that we expect to come in the second half of next year and beyond. You also have the infrastructure bill, which we did expect that, again, that we would get larger infrastructure projects that we would be in the process of working on currently. We're starting to see a little more activity there.

Speaker 2

We are bidding on some fairly substantial infrastructure projects that would take us late into next year and beyond. But we just kind of I think as an industry and in our business, we expect to do more activity on that this year.

Speaker 6

Got it. Maybe just last one, Bruce. Any concern in your ability to sustain this sort of rate of growth in Eco Pan with just just with slower overall industry activity?

Speaker 2

That is a it's an interesting question. We have been able to maintain fairly strong growth with Eco Pan even in a softer environment, just with the idea that we've been able to show people that we can keep their sites clean for largely the same cost as what they're using now and make it more efficient for them. So while in the concrete pumping business, we're really not taking on any new industry type work. Eco Pan is kind of revolutionizing an industry where we're showing people the benefit of it in replacing historical method that we've been able to prove out to be inefficient.

Speaker 6

Okay. Very good. Thank you.

Speaker 2

Thanks, Brent.

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 remarks.

Speaker 2

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 Q4 fiscal 2024 results in January 2025. Thank you.

Operator

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

Speaker 3

participation.

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Key Takeaways

  • Q3 revenue declined 9% to $109.6 M, driven by a 14% drop in U.S. Concrete Pumping volume due to historic rainfall and higher interest rates.
  • U.S. Concrete Waste Management Services grew 15% year-over-year on robust organic growth and pricing improvements, with double-digit market share gains expected to persist.
  • Infrastructure revenue increased 5% YoY (1% of total revenue) on U.S. and U.K. projects, and early IIJA funding is driving ongoing momentum in public-sector work.
  • The balance sheet strengthened with $25 M of net debt paydown to $349 M (3.1x net leverage), $236 M of liquidity and no near-term maturities, supporting continued investment.
  • Fiscal 2024 guidance was revised to revenue of $420–430 M, adjusted EBITDA of $108–113 M, and free cash flow ≥$67 M, reflecting a more cautious commercial outlook.
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Earnings Conference Call
Concrete Pumping Q3 2024
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