Concrete Pumping Holdings, Inc. (BBCP) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Concrete Pumping Holdings' financial results for the first quarter ended January 31, 2023. Joining us today are Concrete Pumping Holdings' CEO, Bruce Young; CFO, Iain Humphries; and the company's External Director of Investor Relations, Cody Slach. Before we go further, I'd 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.

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-K, quarterly report on Form 10-Q and other publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. On today's call, we will also reference certain non-GAAP financial measures, including adjusted EBITDA, net debt and free cash flow, which we believe provide useful information for investors. We provide further information about these non-GAAP financial measures and reconciliations to the comparable GAAP measures in our press release issued today or the investor presentation posted on the company's website. I'd like to remind everyone 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 as on the company's website. Additionally, we have posted an updated investor presentation on the company's website. Now, I would like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young. Bruce?

Thank you, Cody, and good afternoon, everyone. I'm pleased to report that our first quarter of 2023 is off to a strong start with 10% revenue growth, which marks our sixth consecutive quarter of double-digit consolidated revenue growth. This consisted of growth across all segments, and was driven by continued market share gains through organic growth and contributions from accretive acquisitions. Our results were in line with our expectations for the quarter and would have exceeded expectations if we had not experienced abnormally severe winter weather in the U.S. and U.K. markets. Now turning to our individual reporting segments. Our U.S. Pumping business increased 7% in the first quarter, driven by our recent strategic acquisitions and strong performance in our commercial end market. We were successful in growing our commercial market share through continued organic growth and successful -- successfully integrating our acquisitions completed in 2022. Of note, our national footprint and breadth of service offerings continues to position us well to win large, complex projects with our customers. Some examples of these projects include office buildings, data centers, chip plants, electric vehicle facilities, battery plants, warehouses and distribution centers within our commercial end market. For reference, in the construction of an average sized battery plant, there is as much concrete as 2 50-storey buildings. And similarly, in an average sized chip plant, there is as much concrete as 4 50-storey buildings. Turning to infrastructure. Our expanded U.S. national footprint continued to drive results as it allowed us to capture more revenue from public project investments. We will continue to work to win projects in the state and local levels and look forward to renewed investment in the U.S. with the enactment of the federal statutes regarding the CHIPS Act and the Infrastructure Investment and Jobs Act. However, at this time, we have yet to see any meaningful new projects emerge that are directly related to the new legislation and projected outlook is somewhat difficult to estimate. During the first quarter, our residential end market remained relatively stable due to the ongoing structural supply-demand and balance that continues to unwind. We recognize the affordability-driven challenge has come from the housing market. And as expected, the moderate change in residential volume in the first quarter was absorbed by other higher-margin work. For example, as a percentage of our total revenue, our residential work volumes trade at 300 basis points with the growth in our commercial market, which typically carries higher margins compared to other end markets. The change in the distribution of our revenue by end market illustrates the advantages of our diverse offering and agility in our fleet management approach. In our U.K. segment, despite foreign exchange headwinds, U.S. dollar revenues increased 6% compared to the prior year quarter. And excluding the FX translation impact, revenue grew by 18%. Our team continues to secure energy, road and rail projects in addition to the work we have previously announced with the concrete intensive high-speed railway project, HS2, which is expected to last beyond 2030. In our -- in Eco-Pan, our Concrete Waste Management business, we continue to deliver exceptional organic revenue with growth of 32% in Q1 2023 compared to the same year ago quarter, driven by our expanded sales team and the value of our enhanced service offering. Going forward, we expect to maintain Eco-Pan's double-digit organic revenue growth, given our continued investment in our team and equipment, its penetration in the market and the continued evolution of the methods used in the concrete construction projects to contain concrete washout material. Shifting to the cost side of the business. As was the case last quarter, our team continues to recalibrate our rates successfully across all business segments. Consequently, we have largely offset higher input costs that remain persistent in our margin dollars that are in line with our expectations if we remove the inflationary pressures. As a result, we continue to realize the expected equipment return on investment for the same volume of work performed. So in summary, we had another great quarter that continues to show the strength of our business. I will let Iain walk through more details on our financial results before I return to provide some concluding remarks. Iain?

Thanks, Bruce, and good afternoon, everyone. In the first quarter, revenue increased 10% to $93.6 million compared to $85.4 million in the same year ago quarter. The double-digit revenue growth was a result of volume growth from recent acquisitions, solid organic growth in Eco-Pan and continued pricing improvements. Revenue in our U.S. Concrete Pumping segment mostly operating under the Brundage-Bone brand, increased approximately 7% to $67.2 million compared to $63 million in the same prior year quarter. Excluding the acquisition of Coastal, and I guess the backdrop of the adverse effect of severe winter weather, especially in comparison to the unseasonably warm and dry weather experienced in the same prior -- quarter last year, revenue was largely in line with the same year ago quarter on an organic basis. For our U.K. operations, operating largely under the Camfaud brand, revenue improved 6% to $12.7 million compared to $12 million in the same year ago quarter. When excluding the foreign exchange translation effects from the weakening British pound, revenue for our U.K. operations increased approximately 18% in the first quarter. Revenue in our U.S. Concrete Waste Management Services segment, operating under the Eco-Pan brand, increased 32% to $13.8 million in the first quarter. The strong increase in revenue was driven by our continued investment in our team and equipment, sustained improvement in pricing and the organic growth in Pan pickup volume. We are extremely pleased by our team's dedicated efforts and execution to successfully sell the value of our Eco-Pan offering. Returning to our consolidated results. Gross margin in the first quarter was 39% compared to 39.9% in the same year ago quarter. The slight margin decrease is directly related to continued inflationary pressures, particularly in diesel fuel price. To provide an order of magnitude versus last year's quarter, we estimate gross margin in the first quarter was impacted by more than $1 million or approximately 150 basis points due to the higher cost of diesel fuel. General and administrative expenses in Q1 were $27 million compared to $26.7 million in the same year ago quarter. In the first quarter, we experienced lower amortization cost of intangibles, but this was more than offset by primarily head count and labor cost increases from recent acquisitions. As a percentage of revenue, G&A costs were 28.9% in the first quarter compared to 31.3% in the same year ago quarter. This is illustrative of our operating efficiencies as we scale both organically and through M&A, regardless of the operating environment. Net income available to common shareholders in the first quarter increased to $6 million or $0.11 per diluted share compared to $0.7 million or $0.01 per diluted share in the same year ago quarter. The improvement was a result of the $2.3 million improvement in gross profit due to contributions from both acquired revenue and organic growth and a favorable change in the fair value of warrants. Consolidated adjusted EBITDA in the first quarter increased 7% to $25 million compared to $23.3 million in the same year ago quarter. Adjusted EBITDA margin declined slightly to 26.8% compared to 27.3% in the same year ago quarter. In our U.S. Concrete Pumping business, adjusted EBITDA improved 1% to $14.7 million compared to $14.5 million in the same year ago quarter, driven by our revenue growth. In our U.K. business, adjusted EBITDA was $3.2 million, which is largely in line with the same year ago quarter, as strong revenue growth was offset by inflationary pressures, primarily in diesel fuel costs. In our U.S. Concrete Waste Management business, adjusted EBITDA improved 33% to $6.5 million compared to $4.9 million in the same year ago quarter. Now turning to liquidity. On January 31, 2023, we had total debt outstanding of $425 million or net debt of $421 million (sic) [ $421.2 million ]. We had approximately $110 million (sic) [ $110.2 million ] in liquidity as of January 21, 2023, 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 and asset-based lending facility [Technical difficulty].

Ladies and gentlemen, kindly stay connected, we have lost the line of the management. We will be connecting back soon. Thank you for patiently holding, ladies and gentlemen. We have the management's line reconnected. Over to you, gentlemen.

Hi. Thanks. This is Iain Humphries. Apologies for the drop in the line. I'm not sure where we dropped, but I will start from our consolidated adjusted EBITDA. In the first quarter, which increased 7% to $25 million compared to $23.3 million in the same year ago quarter, adjusted EBITDA margin declined slightly to 26.8% compared to 27.3% in the same year ago quarter. In our U.S. Concrete Pumping business, adjusted EBITDA improved 1% to $14.7 million compared to $14.5 million in the same year ago quarter, driven by our revenue growth. In our U.K. business, adjusted EBITDA was $3.2 million, which is largely in line with the same year ago quarter as strong revenue growth was offset by inflationary pressures, primarily in diesel fuel costs. For our U.S. Concrete Waste Management business, adjusted EBITDA improved 33% to $6.5 million compared to $4.9 million in the same year ago quarter. Turning to liquidity. As at January 31, 2023, we had total debt outstanding of $425 million or net debt of $421 million. We had approximately $110 million in liquidity as of January 31, 2023, 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 and asset-based lending facility maturing in 2026. We remain in a strong cash flow position -- cash flow and liquidity position, which provides further optionality to pursue value-added investment opportunities like accretive M&A and continued investment in our Eco-Pan and Concrete Pumping fleet to support the overall long-term growth strategy. In the first quarter of 2023, the company repurchased 760,000 shares for $4.9 million. As of January 31, 2023, we had approximately $12.4 million remaining under the share repurchase authorization. Our fiscal year 2023 financial outlook remains unchanged. As a reminder of our 2023 previously stated guidance, we continue to expect fiscal year revenue to range between $420 million and $445 million, adjusted EBITDA to range between $125 million and $135 million, and free cash flow, which we define as adjusted EBITDA less net replacement CapEx, less cash paid for interest, to range between $65 million and $75 million. Operationally and financially, we have a solid foundation and we have confidence in executing our growth strategy. With that, I will now turn the call back over to Bruce.

Thanks, Iain. In summary, the strength of our business was once again on display for this first quarter. We are very pleased with another record quarter driven by double-digit top and bottom line growth and expansion in every segment. We continue to prove out the compelling business proposition of our high-value service and the necessity of our mission-critical service offering in the construction industry, which positions us well for 2023 and beyond. As we think about where our business is positioned, we have high conviction that commercial and infrastructure will continue to have strong demand due to factors we are experiencing today. Given elevated interest rates and recent indicators of consumer spending weakening, it is only practical for us to assume, our residential business volumes may fluctuate and give up some ground to our commercial and infrastructure business throughout the year. However, this is an example of the agility and resilience of our business model and fleet management where construction volumes change in one region or end market, we adjust our fleet management to ensure we optimize equipment utilization. We remain focused on the execution of our growth strategy to continue driving scale through investing in organic growth and M&A and we believe this is the best path to providing superior shareholder value. With that, I would like to now turn the call back to the operator for Q&A. [ Bakaran ]?

[Operator Instructions] We take our first question from the line of Tim Mulrooney with William Blair.

This is Sam Kusswurm on for Tim. I guess to start here, I was hoping you could break down the organic growth for us between volume and pricing, and if the breakout aligns your expectations, or if there are any surprises? And maybe you could comment more broadly about how your pricing conversations have gone with customers? I believe you set rates at the start of the year. I'm wondering if those conversations were receptive and customers were open to the increases.

Yes, Sam, thanks for the question. In Q1, if you break it down by segment, the growth between price and volume on Eco-Pan was about 50-50 between that segment. I would say for the U.S. segment, it's a little harder to define right now in Q1 just based on some of the changes on. You heard us talk about -- you've got the impact of weather and the end market change on pricing. So we'll probably see more clarity on the pricing and organic volume for the U.S. Pumping side in the second quarter. But as a reminder, the guidance for '23 was around 2% on volume and 2% on price.

Maybe switching gears to M&A. I wanted to ask about the acquisition of the Cherokee business. I was curious to use the name Cherokee Materials, and it seemed like it might be more of a supplier of concrete. Maybe you can clarify me on that and just get more of your thoughts on the acquisition in general?

Sam, this is Bruce. So Cherokee does own a ready-mix company -- a small ready-mix company. We did not buy that part of the business. We bought their concrete pumping business and then a machine that basically blows mulch -- beauty bark or mulch to playgrounds and landscaping. But largely what they do outside of that 1 piece of equipment is -- very well tucks in with what we do.

We take the next question from the line of Brent Thielman with D.A. Davidson.

I just -- I wanted to come back to the last question. I think last quarter in the U.S. Pumping business, you had priced up something like 14%. And I guess if I fast forward to this quarter, it looks like you're about flat organic. So can we infer that rate up at some degree like that and volume completely offset it, understanding there's a lot of weather in the quarter here, but just trying to flesh that out a little more on the organic side.

Yes. On the organic side, I mean, the pricing recalibration, as Bruce mentioned, I mean, it continues. Obviously, the headwind in the quarter was mostly around the weather. So when you have the weather impact and then you have a change in the end market, like seeing the price pull-through is a little trickier to see just looking at the summary level. But the recalibration of rates, it continues within the team.

And then I guess, sticking to that segment, the compression in margins this quarter, I guess, versus the prior year was certainly more severe than what I think you saw last quarter. Is that really just due to adverse weather, inability to get out of work, just not getting the leverage you need? Anything else in there to think about in the margins? And I guess just fast forwarding, how do you think about -- or what should we be thinking about for margins in that segment as we get into the busier period here in the second quarter, third quarter?

Yes. I'll take the last part of that question, Brent, first. So on the margin profile, I mean we expect to see the same as we performed in -- even just in last year going forward. So we don't expect any change there. The only real change in the quarter was the severity of the weather that we've seen in the current quarter. And you're right. I mean, any time that you have much colder and much wetter weather across the country, I mean it was really from the mid part of December through the mid part of January. Obviously, that has an adverse effect slightly on margins. And the last thing you never mentioned, we had it in our prepared remarks, there was about 100 basis point change just in fuel. So from a year-over-year perspective, I mean, the fuel price will start to lap the inflation that we've seen. But the combination of those effects are really what we've seen in the first quarter.

Okay. Just last one. Great progress again on Eco-Pan. Maybe just a reminder where you've got some density in that business right now and kind of your next markets thought for expansion.

Yes. So obviously, the margins are getting better as we create route density in many of these smaller markets that we started over the last few years are creating that density now as we get enough volume there. So that's been a really good part of the story. We do have a few areas that we're moving into as we speak, but nothing that we want to announce publicly.

We take the next question from the line of Andrew Wittmann with Baird.

I guess, I'm just going to have you guys expand a little bit on some prior comments here. But just on the fuel, it kind of feels like as of this fiscal second quarter, you're going to start getting to a pretty neutral position, I think. Iain, maybe you could just comment on that? And do you expect -- I mean your percentage margin guidance for the year is up slightly over the actual '22 results. Do you believe that the second quarter is going to start showing some margin improvement? Or do you think that that's going to come more in the second half of the year?

Yes. Good question, Andy. Yes, I mean, as we've seen before and with our normal seasonality of business, I mean, Q1, as you know, is our slowest and often lowest margin part of our business. So yes, the answer is, we expect to see progression on the margin through the year. We still feel good about the guide for the full year in terms of margin performance as well. And back to your comment on fuel, I mean, we are starting to see some stabilization on the diesel fuel price. So we've got that inflation aspect of diesel fuel where we expect to lap that quite soon. So there will be a normalization on the fuel price. We haven't seen it come down yet on pricing, but it certainly is stabilizing, Andy.

Okay. All right. I guess -- and then where do I want to go next. I guess, any comments on the weather in the second quarter, how that's affecting you or not affecting you so far?

To this point, February was about where we expected it to be and March has been kind of back to normal. So we think Q2, we should have very normal revenues as expected.

I guess yesterday, in Parliament, HS2 came up as a topic and some discussion now of slowing it down due to the inflationary factors that are still common in the global economy right now. I was just wondering if you've had any marching orders or how this factors into your plan either in the near or intermediate term, recognizing that the long-term lots of things could change when you're talking about a plan that is going to go almost another decade under at least the existing plan?

Yes. So the current projects that we're currently on aren't -- have not been put on hold. This may affect the start-up of additional sections. So if there is an issue, it would be more into next year than this year.

And then I guess just on residential, can you talk about -- I guess, what does that backlog look like right now, realizing you gave us some detail on the mix percentage change that we'll do the math on, in terms of trying to understand how the residential market performed overall? But what's the backlog in that business telling you about the summer build season?

Yes. So the backlog tells us that it's going to continue to slow down. But we're very fortunate that our commercial market is becoming much stronger with very large projects. So as you've seen over the last 2 quarters, as it slowed down, we've been able to pick up the commercial and infrastructure to offset that and we think that's going to continue through the year.

[Operator Instructions] We take our next question from the line of Stanley Elliott with Stifel.

Bruce and Iain, of the $420 million, $445 million revenue number you guys have out, could you help us or remind us again what is embedded on the residential side? Is that like down 20%, down more, down less? Just trying to kind of triangulate some of the end markets.

Yes. So we haven't really publicly announced where we think that shift will end up. Now as you know, last year, we got to a point where our end market had grown to the point where 37% of our revenue was residential. That's really the highest it's been since the GFC. More normal for us is somewhere between the 25% and 30% of revenue and I think that's where we're going to find ourselves this year.

And on the CapEx piece, are you getting better velocity from your OEMs? Are they going to be able to fill all of the requests that you have out? Is there a risk that some of your CapEx has to slip into next year? Just anything you could help us where -- with that would be great.

There is a possibility that, that may happen. We've done a pretty good job in the U.S. of getting things delivered fairly timely. It's a little more challenging in the U.K. But there could be some slippage, but it won't be a lot.

And with the Eco-Pan business performing as well as it has, are you seeing anything on the competitive landscape, other people moving into the markets? Anything to help us kind of with how that trajectory of the business could ramp?

Yes. So we do have some small copycats that have been around for a few years. Nothing that has started over the last couple of years that has been significant towards us. But really, it's a race to market. We've got great relationships. We've got a great team building that out. And I think you'll see really good results going forward with that.

And then finally, you all talked about battery plants in some of these larger mega projects, which everybody is excited about. When do you start -- when do you think you're going to start to see not only those breaking ground, but actually when you will start to pump concrete for those projects?

We've recently received contracts on several of those projects, and they'll be breaking ground within this next quarter. So we see the impact of that coming quite strong over the summer and into next year.

We'll take the next question from the line of Steven Fisher with UBS.

In terms of how you manage the fleet and utilization, to what extent is it getting any easier or harder to maintain utilization that you're targeting? Is it requiring more logistical efforts or costs to keep things at the utilization that you'd like? I'm wondering if there's maybe some costs there that might be flowing into the profit lines that you hadn't anticipated before?

We really haven't had a significant change in the size of fleets in each location. The only thing that might weigh into that is our specialty equipment or placing booms and equipment that we use more high-rise -- on high-rise buildings. There's been a lot more activity with that and it's becoming -- I mean it's all utilized now to the point where we've had to move a little bit of that around. But nothing out of the ordinary outside of that.

And you talked about your view of customers being able to deliver machines. So I guess I'm curious about your view of supply chain impacts on the broader construction industry and what you're seeing there in terms of how that might be affecting projects or project timing?

That's something that we see a little bit of. There are some supplier issues especially when it comes to steel and steel structures, things along those lines. We don't see -- we're not hearing that there's any concerns with any concrete cement aggregates, that sort of thing this year. So, for the most part, any jobs that have been delayed because of that have been minor.

And then just lastly, if there's any comments you could have giving a little more color on any momentum within the commercial side of the business, which types of markets are doing -- are you seeing increasing momentum? Which ones are sort of holding steady? Anything losing momentum?

Yes. In our commercial sector, we're gaining positive momentum in nearly every segment. Even hospitality has gotten much better for us this year than what we've seen after it was completely stopped when COVID hit. But the manufacturing facilities and the chip plants, they're all very large and there's large amounts of concrete in those and those projects will run for some period of time. And that's really our sweet spot. That's what we do best at.

And so are you not seeing interest rates having any particular impact on -- I know you talked about resi, obviously, but not having any particular impact on the non-resi piece in general?

Not at this point in time. It's actually gotten quite strong and we expect it to continue.

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. Over to you, sir.

Thank you, Bakaran. We'd like to thank everyone for listening to today's call and we look forward to speaking with you when we report our second quarter fiscal 2023 results in June. Thank you.

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