Concrete Pumping Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 9, 2025

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 Q4 fiscal year ended October 31, 2024. 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 Litigation Reform Act of 1995 that provide important cautions regarding forward looking statements. Cody, please go ahead.

Speaker 1

Thanks, Matt. 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 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. The 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.

Speaker 1

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

Speaker 2

Thank you, Cody, and good afternoon, everyone. The trends we experienced in the 4th quarter largely followed prior quarters with year over year volume driven declines in our U. S. Pumping segment offsetting continued gains in our Concrete Waste Management business. Specifically lingering high interest rates during our 4th fiscal quarter affected the timing of more rate sensitive commercial projects, while increased commercial building vacancy rates continue to delay the start of new construction.

Speaker 2

Conversely, our concrete waste management business sustained its double digit growth fueled by strong market share expansion and our ability to improve pricing. We anticipate this positive momentum will continue. In the U. K, the impacts of sustained higher interest rates on commercial project volume largely followed similar trends we experienced domestically, but our infrastructure projects and improved pricing held up well considering the market backdrop. Despite the challenges in the U.

Speaker 2

S. Pumping market, our disciplined fleet management and cost control strategies enabled us to increase adjusted EBITDA margins and generate robust free cash flow in the 4th quarter. In fact, an $11,000,000 reduction in year over year equipment expenditure, coupled with strong proceeds from sale of the equipment, resulted in a 5% increase in free cash flow compared to last year, allowing us to lower our year over year net debt by $42,000,000 and further reduce our leverage. This flexible capital expenditure strategy combined with our strong unit economics, expanded liquidity, improving balance sheet strength positions us well for a market recovery in fiscal 2025 and beyond. Turning to specific comments by end market.

Speaker 2

Within our commercial end market, we continue to experience softness across a variety of commercial work, especially in light commercial and office buildings, which tend to be more interest rate sensitive. Larger commercial projects remain mostly durable, but continue to move a slower pace given the economic backdrop. Our residential end market remained resilient, especially considering the interest rate environment. In fact, our mix of U. S.

Speaker 2

Concrete pumping work in the residential end market was resilient at 32% of total revenue on a trailing 12 month basis. 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 the structural supply demand imbalance in housing will continue to support homebuilding activity, especially as homebuilders 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 share in our infrastructure markets grew slightly year over year in the Q4. In the U.

Speaker 2

K, infrastructure growth has continued and our strong U. S. National footprint allowed us to win more work. We expect our infrastructure business to grow in fiscal year 2025 due to the funding environment in the UK as well as opportunities domestically from the conversion of our allocated budget funding into project starts within the Infrastructure Investment and Jobs Act. I will now let Ian address our financial results in more detail before I return to provide some concluding remarks.

Speaker 2

Ian?

Speaker 3

Thanks, Bruce, and good afternoon, everyone. I will keep my prepared remarks mostly focused on our Q4 results and analysis of our full year can be found in our supplemental investor presentation as well as within our 10 ks. In the Q4, revenue was $111,500,000 compared to $120,200,000 in the same year ago quarter. The decrease is mostly attributable to a decline in our U. S.

Speaker 3

Concrete pumping segment due to the slowdown in commercial construction volume and an oversaturation of concrete pumps in certain markets. Revenue in our U. S. Concrete Pumping segment, mostly operating under the Brundage Bowen brand, was $74,500,000 compared to $85,000,000 in the prior year quarter. For our UK operations, operating largely under the Camfr brand, revenue was $17,100,000 compared to $17,400,000 in the same year ago quarter.

Speaker 3

When excluding the foreign exchange translation effects from the British pound, revenue for our U. K. Operations decreased approximately 6% in the 4th quarter, primarily due to lower construction volumes. Revenue in our U. S.

Speaker 3

Concrete Waste Management Services segment operating under the Eco Pan brand increased 11% to $19,800,000 compared to $17,800,000 in the prior year quarter. This strong organic increase was driven by increased volumes and sustained improvement in pricing. Returning to our consolidated results. Gross margin in the 4th quarter increased 80 basis points to 41.5% compared to 40.7% in the same year ago quarter. The improved margin was primarily due to continued improvement in our cost control initiatives that include improved labor utilization and repair and maintenance efficiencies.

Speaker 3

General and administrative expenses in the 4th quarter declined 9 percent to $27,000,000 compared to $29,600,000 in the prior year quarter, primarily due to non cash currency translation gains and lower amortization expense. As a percentage of revenue, G and A costs were 24.2 percent in the 4th quarter compared to 24.6% in the prior year quarter. Net income available to common shareholders in the 4th quarter was $9,000,000 or $0.16 per diluted share, and this is largely unchanged compared to the same year ago quarter. Consolidated adjusted EBITDA in the 4th quarter decreased slightly to $33,700,000 compared to $35,800,000 in the same year ago quarter. However, adjusted EBITDA margin increased 40 basis points to 30.2% compared to 29.8% in the same year ago quarter.

Speaker 3

As discussed previously, the improvement in margin on lower revenue was driven by strong variable cost control and a disciplined approach to managing our fleet. In our U. S. Concrete Pumping business, adjusted EBITDA declined to $19,300,000 compared to $23,400,000 in the same year ago quarter. In our UK business, adjusted EBITDA increased 18 percent to $5,200,000 compared to $4,400,000 in the same year ago quarter.

Speaker 3

And for our U. S. Concrete Waste Management business, adjusted EBITDA increased 12% to $9,100,000 compared to $8,100,000 in the same year ago quarter. Additionally, free cash flow increased 26% in the 4th quarter to $24,000,000 compared to $19,000,000 in the same year ago quarter. This includes proactive steps that we've taken to turn our net replacement CapEx negative in the 4th quarter, which further highlights the flexibility we have in our fleet investments.

Speaker 3

Turning to liquidity. At October 31, 2024, we had total debt outstanding of $375,000,000 and net debt of $332,000,000 and this is a decrease of $46,000,000 over the course of the year, which is a testament to our strong free cash flow generation. This equates to a net debt to EBITDA leverage ratio of 3x, which was our guided target for the 2024 fiscal year. We had approximately $378,000,000 of liquidity as of October 31, 2024, which includes cash on the balance sheet and availability from our ABL facility. We remain in a strong liquidity position, which provides 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.

Speaker 3

Now looking at the terms of our credit facilities, our ABL facility will mature in September of 2029 and although our senior notes have more than a year until they come due in February of 2026, we believe there's encouraging momentum in the market that could support an opportunistic refinance. Now moving to our share buyback plan. During the Q4, we repurchased approximately 423,000 shares for $2,500,000 or an average price of $5.89 Since the buyback was initiated in 2022, we have repurchased approximately $18,000,000 of our stock and have an additional $70,000,000 authorized through March of 2025. We believe our share buyback plan demonstrates both our commitment to delivering enhanced value to shareholders and our confidence in our strategic growth plan. Moving now into our 2025 full year guidance.

Speaker 3

We expect fiscal year revenue to range between $425,000,000 $445,000,000 adjusted EBITDA to range between $115,000,000 100 and $25,000,000 and free cash flow, which we define as adjusted EBITDA less net replacement CapEx and less cash paid for interest to be at least $65,000,000 Please note that this outlook assumes a return to our more normal typical seasonality with roughly 45% of our revenue incurred in the first half of twenty twenty five and the balance in the back half of the year. With that, I will now turn the call back over to Bruce.

Speaker 2

Thanks, Ian. In summary, while construction markets remain softer in 2024, particularly in the commercial end market, we believe that we are well positioned relative to our competitors to execute in a challenging environment due to our unique value proposition to our customers given our national footprint, market diversification and the breadth, depth and agility of our equipment fleet. Furthermore, our strong balance sheet and healthy liquidity positions us well for continued growth investments and other strategies to deliver superior shareholder value. As we look towards 2025 and remain focused on the long term strategies, strategic aspect of our business that we can meaningfully influence, including the consistent and disciplined execution of our strategic growth plan, resolute adherence to our leading commercial strategy and prudent cost control through ongoing operational excellence. Equally, we are hopeful that a return of more seasonal weather patterns coupled with an expected improvement in commercial construction volumes will stimulate demand.

Speaker 2

In fact, we expect that overall construction volumes in the U. S. And U. K. In 2025 will increase by low single digits and pricing will increase the same.

Speaker 2

As Ian mentioned, our 2025 outlook is predominantly back half weighted, which reflects typical seasonality, but also considers our estimation that the incoming administration's pro growth onshoring agenda combined with the gradual easing of interest rates can accelerate our domestic concrete pumping and Eco Pan business when these policies take hold. In the U. K, our team continues to secure nationally critical energy, road and rail projects in addition to the well documented HS2 project as the new government seeks to drive broader economic and productivity growth. With that, I would now like to turn the call back over to the operator for Q and A. Matt?

Operator

Great. Thank you so much.

Speaker 4

We'll now be

Operator

conducting a question and answer First question is from Andrew Wittmann from Baird. Please go ahead.

Speaker 5

Great. Thanks for taking my questions and good afternoon guys. I guess just wanted to drill in a little bit on the CapEx here. So you flipped the net CapEx here to slightly negative disposing more than you purchased. I was just hoping maybe you could just help us think about 25,000,000 I heard the greater than 65,000,000 of free cash flow under your definition.

Speaker 5

But maybe can you break it down a little bit? How much kind of gross CapEx do you think is going to go into new fleets? And how much are the sales going to remain elevated? Just if you could help us just understand how you're thinking about the overall CapEx budget for 'twenty five?

Speaker 3

Yes, absolutely. And thanks for the question, Andy. So yes, just to recap on 'twenty four, I mean, as you know, during the year, based on the volume demand, we had sufficient capacity in our fleet. So we invested less on the replacement side, and it was roughly around 4% of revenue. Now our more normalized target for replacement is around 6% or 7% of revenue, and that's what we have placed into the guidance for 2025 with the expectation that we feel good about the fleet that we have and the capacity that we've got, but really making sure that we capacity that we've got.

Speaker 3

But really making sure that the uptime that we would expect is more reflective of that more normal 6% or 7% of revenue. In addition to that, we've would say, Andy, we may have like $3,000,000 or $4,000,000 on the growth side for Eco Pan. But again, as we look for volume and come through the year, then we'll consider that within the guidance, especially the starting point, if that's helpful. On the trade side, we would expect unusual trade activity. I mean as you know about 5% of our fleet will age out each year.

Speaker 3

We don't expect that to change.

Speaker 5

Got it. Okay. Thank you for that. I guess maybe the next thing I wanted to dig into, you kind of had a comment there on the senior notes coming due about a year from now. You said something about the market conditions may allow you to refinance.

Speaker 5

Are you thinking right now the primary path is refinance senior notes with new senior notes? Or would you expand the ABL? What's kind of the pricing the way you're approaching that since it sounds like you're kind of thinking about it already?

Speaker 3

Yes, we are. I mean, obviously, we have a number of options available to us and we're looking for best execution. So yes, we think the market has some momentum right now. So we think that it's a good time to be considering like that window and we'll be opportunistic as we see that market play out, Andy. Obviously, as you know, we upsized the ABL at the end of last year.

Speaker 3

So we think we have some good structural elements for good execution.

Speaker 5

Got it. And then Bruce, just for you, obviously getting EBITDA margins up year over year on tough volumes is always a testament to how you're running the business. Could you maybe just talk about some of the major buckets that allowed you to drive that kind of performance, maybe things like fuel? It sounded there was a comment on repair and maintenance as well that you made. Maybe if you could drill into like how much that helps you?

Speaker 5

And are you starting to defer stuff because the utilization rates of the equipment maybe aren't as high, so you can defer that and grab it later when the equipment is more in demand? And maybe if you could just address how labor is factoring into your P and L as well if you're able to optimize that further?

Speaker 2

Sure. As it comes to fuel pricing, fuel pricing has gotten better for us over the last several months. And so we have had some benefit of that. We believe we've done a much better job of managing our labor within the business to improve the margin as well. And then pricing on spare parts for repair and maintenance have gone back to lower levels than what we had seen the previous year and we've been able to take advantage of some large orders to improve that.

Speaker 2

And there's just being more aware of preventative maintenance and making sure that we get out on top of things before they become serious issues. We have not deferred any maintenance at all on any units. So we feel like we've done a good job of controlling those rates, getting those margins down and really preparing ourselves for the future.

Speaker 5

Got it. Okay. I think I'll leave it there for the evening. Thank you so much.

Speaker 3

Thanks, Andy.

Operator

Next question is from Tim Mulrooney from William Blair. Please go ahead.

Speaker 4

Bruce, Ian, good afternoon.

Speaker 6

Hey, Tim. So it looks like

Speaker 4

your guidance is going for about 7% EBITDA growth at the midpoint for the full year. This is kind of following a 7% decline or so in the back half of fiscal twenty twenty four. So it sounds like you're expecting a nice inflection here. Just curious how you're thinking about the cadence of EBITDA growth as you move through the year? Do you expect it to be pretty steady?

Speaker 4

Or is the expectation that this growth will be more front end or back end loaded?

Speaker 3

Yes, Tim. It really ties to that return to more normal seasonality that we mentioned in our prepared remarks. And if you look at 2024, we were more out to 46 weighted on the front half of the year and we now expect to be more back to the sort of 45, 55. So the cadence of EBITDA, I mean, obviously Q1 is a slower quarter for us, obviously being through winter. So we would expect margin to build through the year, ultimately resulting in at least a 1% margin pickup through the end of the year.

Speaker 3

So we expect some improvement as we go through the year, but it's likely going to be more back end weighted just like the change in that revenue phasing.

Speaker 4

Okay, got you. Thank you. And kind of building off of the conversation you're having with Andy, you mentioned previously, I think last quarter maybe or 2 quarters ago, you're running at about 70% fleet utilization, down a bit from that 80% target. Curious where utilization currently stands today?

Speaker 3

Yes, it's right around that 70%. And so again, it comes back to the fleet utilization and the expectations as we go into 2025. We think there's an opportunity in there, which also I mean to your earlier point, Tim, on margin contribution. We think we have capacity to improve that as the demand moves.

Speaker 4

Okay, got it. Moving to the infrastructure business, which I think you said grew a little bit in the Q4 was good to hear. But now you've got this incoming administration, you focus on cost reductions. Do you see any risk to the funding environment for some of the large infrastructure projects that you work on, whether or not they're tied to the IIJA, maybe in both cases? Or has most of that money been set aside for these projects or already kind of set aside or deployed?

Speaker 2

Yes. So we see this as an opportunity for us, Tim, where the money has been set aside for those projects. It's been allocated to those projects, but it hasn't been awarded to contractors yet. And a lot of that has to do with the amount of challenges that the municipality states have had to get meet the requirements. And we believe as they lessened some of those requirements, whether they're environmental or labor, that it may accelerate some of those projects and we should see infrastructure pick up this year and into 2026.

Speaker 4

All right. Thank you very much. I'll leave it there and

Speaker 6

have a good night.

Speaker 2

All right. Thanks, Tim.

Operator

Our next question is from Steven Fisher from UBS. Please go ahead.

Speaker 7

Thanks. Good afternoon. Just to follow-up again on that sort of return to normal seasonality. Is there a particular quarter that you expect that U. S.

Speaker 7

Concrete pumping revenues to inflect back to positive year over year growth from what we're seeing now the declines?

Speaker 3

Yes, Steve. It's likely going to be more into the Q3 and that's really back to that back half weighting and that gets us back to that more normalized 45, 55 split. That's where I would expect and the inflection to be. It will be close through the end of the second quarter, but I would say the start of the Q3.

Speaker 7

Okay. That's helpful. And you mentioned, Bruce, that the current level of activity is sort of a continuation of trends you've seen for a little while now. I mean, I'm just I'm curious how your customer conversations changed if they did at all after the election?

Speaker 2

The conversation with the customers are a lot more optimistic. Now there are several things that I think that have to happen before that shifts into more positive results for us. And that's why we're thinking more towards the second half of the year than the first half of the year. But there are projects that were delayed that are now ramping up that we should be placing concrete on in the next quarter, sizable projects. We see other projects that we think that have been put on hold that we think they will be starting as well.

Speaker 2

So we're starting to be a lot more optimistic about the second half of the year.

Speaker 7

Okay. And you mentioned that there's imbalance of supply and demand, too many concrete pumps in certain markets. Can you clarify, is that referring to certain geographic markets? Or is it sort of end vertical markets or maybe both and just maybe some detail on what specifically you're referring to there?

Speaker 2

We've talked about this before, but all the concrete pumps come from overseas whether they come from South Korea, China or Germany. And so they're always ordered well in advance. And so the oversupply came when 2023 2024 really didn't meet the level of growth that we and the industry had anticipated or the manufacturers had anticipated. So they had those assets. They did a good job of getting them out of their facilities into concrete pumpers hands.

Speaker 2

But as we've talked to the manufacturers for 2025, their expectations are much, much lower And we expect that that will play out. It will improve for us over this year and into next year.

Speaker 7

Okay. Thank you very much.

Speaker 3

Thanks, Steve. Thanks,

Operator

Next question is from John Ramirez from D. A. Davidson. Please go ahead.

Speaker 6

Hi, good afternoon. Thank you for the time. Hi. Just following regarding the U. S.

Speaker 6

Concrete pumpings inflection in 3rd quarter, Could you talk about what sort of demand conditions are baked in into this outlook?

Speaker 3

Yes. I mean, around demand conditions, I mean, I think this is where we're I mean, Bruce mentioned in some of his prepared remarks around like manufacturing and reshoring and really the new administration coming in on the back of the optimism and really what the Federal Reserve are doing, improving that momentum. We think it will still take about 5 to 6 months for that to cycle through into like new project starts and improve momentum. So that's why we think that it's going to be more back end weighted next year.

Speaker 6

Got it. And regarding the margin for U. S. Concrete Pumpings, given this some of the over saturating comments that you mentioned, do you expect the margins to be around the same levels experience in fiscal 2024?

Speaker 3

Yes. So we've got margin improvement projected for the consolidated business in 2025 compared to 2024, and we've got some nice momentum certainly in Q4 versus Q3 on the U. S. Pumping side. We expect that will continue into 2025.

Speaker 3

So we expect margin improvement through the business actually including the U. S. Pumping business based on the controllable elements that we actually can influence.

Speaker 6

Could you provide some additional color to what this improvement looks like? Is it a 1% increase overall? Yes.

Speaker 3

If you take the I mean, if you just take the midpoint of the guide compared to 24%, it's about a 1% improvement year over year.

Operator

I appreciate that.

Speaker 6

And going back to Waste Management, and forgive me if I missed it, but could you talk about what caused the big jump in margins from the Q3 to the Q4 there?

Speaker 3

It wasn't one thing in specific. I mean obviously we continue to invest in that business to really expand margins over time. So you will see some slight margin fluctuation as we invest in the business for growth. I mean, obviously, if you look at the year over year comparison, the businesses, I think we grew about 15% year over year. So you might see some small margin engagement, but obviously still a very healthy margin and a great free cash flow part of our business that we're going to drive that continued organic growth on over time.

Speaker 6

And just one last last one from me. Going back to U. S. Pumping margins, what sort of outlook do you guys see regarding pricing? Do you expect any sort of pressure in fiscal 2025?

Speaker 2

We do expect there'll be some more some additional pressure in 2025 until the market starts shifting and then that pressure will ease on us. And we do expect that we will get have success with price increases this year and into the next.

Speaker 6

Is there sort of timing or is

Speaker 3

there yes,

Speaker 6

is there a timing to see when this pressure eases off or is it just quarter by quarter cases?

Speaker 2

It's quarter by quarter.

Speaker 6

Yes. I appreciate it. Thank you so much for the time. Thank you. Thank you.

Operator

This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.

Speaker 2

Thank you, Matt. We'd like to thank everyone for listening to today's call and we look forward to speaking with you when we report our Q1 fiscal 2025 results in March. Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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