Earnings Call Transcript - BBCP Q2 2021

Cody Slach, Director of Investor Relations

Thanks, Paul. 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 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 presentation on the company's website. Now I'd like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young.

Bruce Young, CEO

Thank you, Cody, and good afternoon, everyone. I am very pleased to report that our second quarter continued to highlight the resilience of our business, the flexibility of our projects and the profitability of our business model. We experienced record-setting sub-freezing temperatures in our Texas market that brought our business to a halt for half the month of February; the same cold weather front also affected construction activities in our central region, especially when compared to the unseasonably favorable weather conditions experienced in the prior year. However, as a testament to our resilient business model, we delivered a second quarter that returned solid consolidated revenue growth, strong margins and free cash flow performance that was in line with our internal expectations. This included continued growth in our market share, strength in our residential and infrastructure projects and the continued recovery in our commercial work.

Iain Humphries, CFO

Thanks, Bruce, and good afternoon, everyone. Moving right into our second quarter 2021 results. Consolidated revenue increased by 4% to $76.9 million compared to $74 million in the same year-ago quarter. The revenue increase was mainly driven by organic growth in the UK operations, as the UK construction market continues to emerge from the impacts of Brexit and COVID-related shutdowns. Additionally, our U.S. concrete waste management business operating under the Eco-Pan brand showed improved momentum and solid organic growth of almost 9% when compared to the same year-ago quarter. Turning now to review our individual segment performance, revenue in our U.S. Concrete Pumping segment, mostly operating under the Brundage-Bone brand, was $56.2 million, compared to $57.5 million in the same year-ago quarter. The slight decline is attributed to the construction volume impact of the prolonged cold weather front that dominated the Lower 48 in February and, in particular, our south and central regions, including Texas, Oklahoma, Kansas and Colorado. For our UK operations, operating largely under the Camfaud brand, revenue improved 41% to $11.9 million, compared to $8.4 million in the same year-ago quarter. This organic growth is largely attributed to the fact that the prior year period was impacted by COVID-19 shutdowns, as the UK abruptly locked down at the onset of the pandemic. We are pleased to report that the UK is now running at over 90% of our pre-COVID-19 revenue run rate and we are optimistic about the rest of the year as the UK region continues to recover rapidly. Revenue in our Concrete Waste Management Services segment increased almost 9% to $9 million in the second quarter of 2021, compared to $8.3 million in the same year-ago quarter. This increase is due to the solid organic volume growth, pricing improvements, and growth in our roll-off service adoption. As Bruce mentioned, we expect to return to double-digit growth in this segment as the U.S. continues to reopen and our sales teams are able to meet with customers in person. Returning to our consolidated results, gross profit in the second quarter improved to $33.3 million, compared to $31.9 million in the same year-ago quarter, and gross margin improved 30 basis points to 43.3%, compared to 43%. The margin expansion is reflective of the improvement in revenue volumes and the disciplined control over our variable costs. General and administrative expenses in Q2 were $26.5 million, compared to $26.4 million in the same year-ago quarter. The increase in G&A expenses of less than 1% shows the revenue increase of 4% due to our teams’ successful efforts in putting cost containment measures in place at the onset of COVID-19.

Bruce Young, CEO

Thanks, Iain. In the second quarter of 2021, we were pleased with our organic growth and the trajectory of our business. We are gradually returning to a normalized state in both the U.S. and UK and we look forward to driving scale through continued organic growth as well as strategic M&A. Regarding our organic growth strategy, we have exciting news to share as we enhance our U.S. national sales strategy to capture additional growth opportunities. In our Eco-Pan business, we continue to build our U.S. sales team and strategic locations to enhance the reach of our service and communicate the disruptive economic value of our service offering to new customers. In our U.S. Pumping business, we are delighted to announce that we have recently hired Tom O'Malley as our Senior Vice President of Sales and Marketing. Tom joins our executive team after 25 years as a Senior Executive with Schwing America, which is a leading global supplier of concrete pumping equipment. We are very pleased to welcome Tom to our team and his first-class industry expertise will be valuable in driving the continued development of our U.S. national sales strategy. Now turning to our acquisition strategy that I’ve shared in prior earnings calls, we have clear criteria for how we approach potential acquisitions. We continue to balance our disciplined capital allocation priorities to responsibly grow our business while maintaining a healthy balance sheet and financial flexibility. Our priorities remain focused on value-enhancement acquisitions, prudent organic capital investment, and a consistent return of value to our shareholders. We continue to prioritize high-returning capital investments that enable revenue growth and improve operational efficiencies to drive margin expansion. The acquisition deals that we are looking at comprise a robust pipeline and our team has consistently maintained a very disciplined approach to M&A, which is what you will see us continue to do. We are very clear in these areas we want to grow and will continue to develop our market-leading share position as this ultimately is important for accretive value creation. Looking forward to the rest of the year, in the U.S., residential construction continues to be an area of momentum and strength for our business and we expect continued demand for these projects for the rest of the year. In our infrastructure projects, we also expect continued momentum, especially in areas like the UK. In commercial, we are seeing the continuation of increased investment in heavy industrial warehouses and data centers as e-commerce accelerates and people remain working from home. We expect this investment to aid the recovery of our commercial business in the second half of this fiscal year. In Eco-Pan, we will focus on driving growth despite pandemic-related challenges and greatly look forward to accelerating the momentum as the year progresses. With that, I’d now like to turn the call back over to Paul for Q&A.

Operator, Operator

Our first question comes from Andy Wittmann with Robert W. Baird. Please proceed with your question.

Andy Wittmann, Analyst

Hey guys. Good afternoon. Thanks for taking my questions. Maybe Iain, I was just hoping that you could help us get our arms around the magnitude of the weather in the quarter. Can you talk about what those two weeks in those market costs maybe in terms of revenue that got pushed out of the quarter, presumably into another quarter or not canceled? But can you also just talk about the mechanism; is it all just delayed? Do you work extra hard and kind of make it up here in the current quarter and then kind of back on track? Or does some of that work just kind of nominally roll over to the next fiscal year? Just want to see if we can understand that mechanism better.

Iain Humphries, CFO

Yes, Andy. We did actually catch up from where we were back in February and the resulting impact on the second quarter was right around the $1 million revenue mark that you see as being slightly behind in the second quarter. And in terms of how that might play over the rest of the year, we expect that we’ll recover that in subsequent quarters. So that the 2% impact is not something that we expect we will not be able to catch up on, and our customers have actually done quite a good job recovering from that quite severe weather in February where some locations were closed for about half of the month.

Andy Wittmann, Analyst

Got it. Okay. So, it’s $1 million in the U.S. segment, 2%, so you guys kind of think of the quarter as kind of flat ex-weather, I guess that makes sense. And then, Bruce, just on the impact of the cement plants being closed and the tightness in the cement markets. I was hoping you could just put a little bit more context on that. In particular, I guess, how widespread are these issues? It sounds like there are pockets that maybe are not everywhere. Could you talk about if the tightness is getting worse or if it’s getting better here even subsequent to the quarter, just so we can understand the impact on your business? Is this a new factor? Do you guys feel like you are going to be able to work through this and supplement with other work that’s going to get you back to the original guidance or do you feel like this is not your fault, but like this is a negative to your ability to drive to the revenue guidance that you put out?

Bruce Young, CEO

Yes, certainly, it’s a little bit of a headwind but we are comfortable that we can work through it to meet our original guidance. That’s where we reaffirm that. It’s more regional and it can be at any point in time during the week when they just run out of cement. We may be delayed; some of those markets are shutting down for half a day on Friday and that sort of thing. But it hasn’t been a significant impact to us yet. We don’t think it will be during the summer, but we are certainly watching that and making sure that we bring the assets to the areas that aren’t as affected.

Andy Wittmann, Analyst

Got it. I guess, maybe just my last question here. So, what are you seeing on the infrastructure side of the business in the U.S.? Certainly, it’s been strong in the UK for some time. We are certainly getting to a more of the construction season the way I think about it for that stuff. Is work going to break this year on healthy state projects with potential stimulus, or do you think that’s really more of a 2022 phenomenon? Just wondering if states are kind of going after state and local governments in getting back out there and awarding contracts, so that these things are in your belt and just kind of curious about the pace of that.

Bruce Young, CEO

Sure, we are seeing some improvements at the state level with projects that were put on hold that are now starting and new projects are being planned that will help us towards the end of this year and into next year. But there is reason to be a little bit more optimistic about that.

Andy Wittmann, Analyst

Got it. Thanks guys. I’ll leave it there.

Bruce Young, CEO

Thanks, Andy.

Operator, Operator

Thank you. Our next question comes from Sam Kusswurm with William Blair. Please proceed with your question.

Sam Kusswurm, Analyst

Hey guys. Hope you all are doing well. On the labor side of things here, setting aside wage inflation for a second, I want to focus more on labor availability. Has it been more difficult lately to find and retain skilled workers and have employee retention rates of frontline workers changed at all in recent months?

Bruce Young, CEO

That’s a great question. I think the biggest challenge our industry faces, not just us, but the entire construction industry, is labor. We’ve done a pretty good job of retaining the employees that we have, but bringing new employees in has been a little more challenging for us. We are hoping that as some of the stimulus packages conclude and folks are needing to get back to providing for their families, that this will open up a little bit more for us, but we’ve been able to balance it to this point. It’s not getting worse, and hopefully it will continue to get better.

Sam Kusswurm, Analyst

Great, great. Maybe switching to M&A here. In your last earnings call and today, you mentioned having several NDAs with potential acquisition targets. I was hoping just to get an update on your M&A pipeline here. Are there still acquisition targets out there for you guys? If so, what are the primary hurdles that you face in terms of closing an acquisition?

Bruce Young, CEO

Yes. I don’t know that there are any primary hurdles; it’s just a matter of getting the right acquisition that’s a good fit for us. We have several active conversations going on and we are hoping that we’ll be able to act on some of those at some time in the future.

Sam Kusswurm, Analyst

Cool. Well, I appreciate the commentary.

Bruce Young, CEO

Alright. Thanks, Sam.

Operator, Operator

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

Brent Thielman, Analyst

Hey. Thanks. Good afternoon, Bruce, Iain. So a question on Eco-Pan and maybe just an update on the sales force growth initiatives. Where do you feel like you are with that? And is your expectation right now that that still might cause a little bit of margin headwind here over the next couple of quarters? And maybe just a follow-up to that, how do you think about returning to that double-digit growth pace that you’ve seen in that business over the course of this year?

Bruce Young, CEO

Yes. Brent, thanks for asking that question. So, as you know, with concrete pumping, most contractors know that if they can’t drive a ready-mix truck to the placement site, the concrete pump is the best, most efficient, and safest way to place the concrete. With Eco-Pan, it’s about taking people from using some kind of a legacy system to using our system and showing them how it’s more environmentally compliant and cost-effective at the same time. That’s something that’s more difficult to do in a virtual environment. We’ve done a good job of gaining some market share and growing the business, but not at the rate that we had in the past. Now that offices are getting back to work and they have the ability to meet with folks, we expect that to accelerate and we expect to move back to double-digit growth by the end of the year.

Brent Thielman, Analyst

Okay. That’s great. And then, can you guys comment on utilization levels in the pumping business, I guess, between the U.S. and UK? And whether it’s an average for the quarter or where do you see the quarter? Just curious about what the differences are between the two regions.

Iain Humphries, CFO

Yes. I mean, the differences between the regions are largely on the availability. We look at utilization by job in the UK and we look at utilization by hours in the U.S. because, typically, we get multiple jobs in the U.S. as opposed to the UK. In terms of percentages, they are actually quite comparable and consistently around the second quarter of our business. We usually see utilization rates in the high 70s and that’s where we are today. So, that’s quite comparable with last year. The utilization trends that we see in our business are where we would expect them to be for the second quarter.

Brent Thielman, Analyst

Okay. And then, you all had that price adjustment go into effect in January. I guess, I am just wondering, as inflation gets to be a little more of a base with labor always being challenging, what’s your anticipation of additional price adjustments needed at this stage in the fiscal year?

Iain Humphries, CFO

We are following that very closely. The two things that we are most concerned about are labor inflation and petroleum products, such as fuel. Right now, we’ve been able to keep those fairly consistent with where our expectations are, but we’ll continue to watch that and adjust as necessary.

Brent Thielman, Analyst

Okay. Thank you guys.

Iain Humphries, CFO

Thanks, Brent.

Operator, Operator

Thank you. Our next question comes from Steven Fisher with UBS. Please proceed with your question.

Steven Fisher, Analyst

Thanks. Good afternoon, guys. Just in terms of seasonality, your guidance implies around 55% of EBITDA in the second half. I might have thought the second half would be a higher percentage of that given just kind of weather patterns affecting your business and the first half issues of COVID and the severe weather. So I am wondering if maybe your second-half guidance implies some conservatism in there at the moment.

Iain Humphries, CFO

Yes. Hi, Steve. As we’ve said before, typically, we see our business deliver 55% across our fiscal year. So that’s why we have reaffirmed guidance. We are right around that range that we would expect to be performing. So the expectation for the second half is around that 55% mark as you mentioned. We are on pace to deliver that in the second half of the year.

Steven Fisher, Analyst

Okay. And in terms of inflation, I guess, how would you anticipate this will affect your CapEx over the rest of the year or maybe into next year? Could you also comment on how you are preparing for the potential pressure on fleet pricing?

Iain Humphries, CFO

Yes. As we look for the CapEx requirements stemming from that shift, we are in early discussions about what those pricing measures would look like. We are currently not seeing any meaningful change in pricing at this moment. We are the largest purchaser of this type of equipment in the U.S. and the UK, so we have some scale in purchasing and work well with the OEMs. Therefore, we haven’t seen any meaningful price changes at this moment.

Steven Fisher, Analyst

Okay. Thank you very much.

Iain Humphries, CFO

Thanks, Steve.

Operator, Operator

Thank you. There are no further questions at this time. This does conclude our Question-and-Answer Session. I would now like to turn the call back over to Mr. Young for any closing comments.

Bruce Young, CEO

Thank you, Paul. We’d like to thank everyone for listening to today’s call and we look forward to speaking with you when we report our third quarter fiscal 2021 results in September. Thank you.

Operator, Operator

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.