Earnings Call
Concrete Pumping Holdings, Inc. (BBCP)
Earnings Call Transcript - BBCP Q1 2023
Cody Slach, Director of Investor Relations
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 would 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?
Bruce Young, CEO
Thank you, Cody, and good afternoon, everyone. I am 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 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 successfully integrating our acquisitions completed in 2022. Of note, our national footprint and breadth of service offerings continued 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 size battery plant, there's as much concrete as two 50 storey buildings and still early in an average size chip plant, there's as much concrete as four 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 at 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 imbalance that continues to unwind. We recognize the affordability-driven challenges arising 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 traded 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 advantages of our diverse offering and agility in our fleet management approach. In our U.K. segment, despite foreign exchange headwind, 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 incentive, high-speed railway project HS2, which is expected to last beyond 2030. In Eco-Pan, our country 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 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 will remain resilient 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 Ian walk through more details on our financial results before I return to provide some concluding remarks.
Iain Humphries, CFO
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 in 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 $676.2 million, compared to $63 million in the same prior year quarter. Excluding the acquisition of coastal and against 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. But 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 headcount 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, a 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. We had approximately $110 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 maturing in 2026.
Operator, Operator
Ladies and gentlemen, kindly stay connected. We have lost the line of the management. We will be connecting back soon. Please stay connected. Thank you.
Iain Humphries, CFO
Hi, thanks. This is Iain Humphries apology for the drop in the line. I'm not sure where we dropped. 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.
Bruce Young, CEO
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 good 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.
Operator, Operator
Thank you. We will now conduct a question-and-answer session. Our first question comes from Tim Mulrooney with William Blair. Please proceed.
Sam Kusswurm, Analyst
Hey, this is Sam Kusswurm on for Tim. Bruce, Iain, I hope you're doing well.
Iain Humphries, CFO
Hi, Sam.
Bruce Young, CEO
Hey, Sam.
Sam Kusswurm, Analyst
I guess, let's start here. I was hoping you could break down your organic growth for us between volume and pricing and if the breakout aligns with your expectations or if there are any surprises. And maybe you could comment more broadly on how your pricing conversations have gone with customers. I believe you said rates in the start of the year. I'm wondering if those conversations were receptive and customers were open to increases?
Iain Humphries, CFO
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 the impact of weather and the end market change on the 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.
Sam Kusswurm, Analyst
Got you. That's very helpful. Maybe switching gears to M&A, you know, I wanted to ask about your acquisition of the Cherokee businesses, 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 that for me and just give me more of your thoughts on the acquisition in general.
Bruce Young, CEO
Hi, Sam. This is Bruce. So Cherokee does own a ready-mixed company, a small ready-mixed company. We did not buy that part of the business. We bought their concrete pumping business and then a machine that basically blows March, our beauty bar or molds to playgrounds and landscaping, but largely what they do outside of that one piece of equipment is very well coupled with what we do.
Sam Kusswurm, Analyst
Got it. Appreciate the color. I’ll leave it there. Thanks.
Bruce Young, CEO
Thank you.
Operator, Operator
Thank you. We'll take our next question from the line of Brent Thielman with D.A. Davidson. Please go ahead.
Brent Thielman, Analyst
Hey, thanks. Good afternoon, guys.
Iain Humphries, CFO
Hi, Brent.
Brent Thielman, Analyst
Hey, I just 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 it's fast forward to this quarter, it looks like you're about flat organic. So can we infer that made up to some degree like that and volume completely offset it? Understanding there's a lot of weather in the quarter here, but just trying to flush that out a little more on the organic side.
Iain Humphries, CFO
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, I mean, you have a change in the end market, like seeing the price pull through, it's a little trickier to see just looking at the summary level. But the recalibration of rates continues within the team.
Brent Thielman, Analyst
Okay. Okay, that's great. And then, I guess, sticking to that segment, the compression in margins is quarter, I guess versus the prior year was certainly more severe than what I think you saw last quarter. Is that really just skewed to adverse weather and the ability 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?
Iain Humphries, CFO
Yes. I'll address the latter part of that question first. Regarding the margin profile, we anticipate it will remain consistent with last year's performance moving forward. We do not foresee any changes in that regard. The only significant shift in the quarter was the weather conditions observed during this period. As you pointed out, extremely cold and wet weather impacted the country substantially from mid-December to mid-January, which has a marginally negative effect on our margins. Additionally, I should mention that we noted in our prepared remarks a change of approximately 100 basis points related to fuel costs. From a year-over-year standpoint, fuel prices will begin to stabilize alongside the inflation we have experienced. These combined factors are what we observed in the first quarter.
Brent Thielman, Analyst
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, thoughts for expansion?
Bruce Young, CEO
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 or 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.
Brent Thielman, Analyst
Okay. Fair enough. Thanks guys. Appreciate it.
Bruce Young, CEO
Thank you.
Operator, Operator
Thank you. We'll take next question from the line of Andrew Wittmann with Baird. Please go ahead.
Andrew Wittmann, Analyst
Yes, I'd like you to elaborate on some previous comments. Regarding fuel, it seems like by this fiscal second quarter, you're approaching a neutral position. Iain, could you share your thoughts on this? Also, your guidance for percentage margins this year is slightly higher than the actual results from 2022. Do you anticipate margin improvements starting in the second quarter, or do you think that will happen more in the latter half of the year?
Iain Humphries, CFO
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 normalized on the fuel price. We haven't seen it come down yet on pricing, but it certainly is stabilizing, Andy.
Andrew Wittmann, Analyst
Okay, I would like to know if you have any comments on the weather in the second quarter and how it is impacting you, if at all, so far.
Iain Humphries, CFO
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 expected.
Andrew Wittmann, Analyst
Got it. Okay. 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 so 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 long-term lots of things could change when you're talking about a plan that's going to go almost another decade under at least the existing plan?
Iain Humphries, CFO
Yes. So the current projects that we're currently on aren't have not been put on hold. This may affect the startup of additional sections. So if there is an issue, it would be more into next year than this year.
Andrew Wittmann, Analyst
Okay. Okay. 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?
Bruce Young, CEO
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 two 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.
Andrew Wittmann, Analyst
Got it. Okay. I'll leave it there. Thank you very much.
Bruce Young, CEO
Thanks, Andy.
Operator, Operator
Thank you. We’ll take our next question from Stanley Elliott with Stifel. Please go ahead.
Stanley Elliott, Analyst
Hey, Bruce. Hey, Iain, thank you guys for taking the question.
Bruce Young, CEO
Hi, Stanley.
Stanley Elliott, Analyst
Of the four 20, four 45 revenue numbers you guys have out, could you help us remind us again what is embedded on the residential side? Is that like down 20% down more, down less, just trying to triangulate some of the end markets?
Iain Humphries, CFO
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 somewhere between the 25% and 30% of revenue, and I think that's where we're going to find ourselves this year.
Stanley Elliott, Analyst
Are you seeing improved response times from your OEMs regarding capital expenditures? Will they be able to meet all your requests? Is there a possibility that some of your capital expenditures may need to be postponed until next year? Any insights on this would be appreciated.
Iain Humphries, CFO
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.
Stanley Elliott, Analyst
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 put with how that trajectory the business could ramp?
Iain Humphries, CFO
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.
Stanley Elliott, Analyst
And finally, you all mention battery plants and some of the larger mega projects that everyone is excited about. When do you expect to see not only those projects starting but also when you'll begin pouring concrete for them?
Iain Humphries, CFO
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.
Stanley Elliott, Analyst
Perfect guys. That's it for me. Thanks so much for the best of luck.
Bruce Young, CEO
All right. Thanks, Stanley.
Operator, Operator
Thank you. We'll take our next question from the line of Steven Fisher with UBS. Please go ahead.
Steven Fisher, Analyst
Thanks. Good afternoon.
Bruce Young, CEO
Hi, Steve.
Steven Fisher, Analyst
Hi, in terms of how you manage the fleets and utilization? To what extent is it getting any easier or harder to maintain utilization that you're targeting? Is it requiring more like logistical efforts or costs to keep things at the utilization that you'd like? I'm wondering if there's maybe some cost there that might be flowing into the profit lines that you hadn't anticipated before?
Iain Humphries, CFO
We haven't seen a significant change in the fleet sizes at our locations. The only factor that may influence this is our specialty equipment, particularly the placing booms used for high-rise buildings. There has been increased activity in that area, and it's all being utilized fully, which has necessitated some adjustments, but nothing unusual beyond that.
Steven Fisher, Analyst
Okay. And you talked about your view of customer 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?
Bruce Young, CEO
We are observing some supplier issues, particularly related to steel and steel structures. However, we haven't encountered any concerns regarding concrete, cement, or aggregates this year. Overall, any delays in projects due to these issues have been relatively minor.
Steven Fisher, Analyst
Great. 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?
Iain Humphries, CFO
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.
Steven Fisher, Analyst
Are you not seeing interest rates having any significant impact on the non-residential segment in general?
Iain Humphries, CFO
Not at this point in time, it’s actually gotten quite strong and we expect it to continue.
Bruce Young, CEO
Thank you.
Operator, 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. Over to you, sir.
Bruce Young, CEO
Thank you. We’d like to thank everyone for listening to today's call and we look forward to speaking with you and we report our second quarter fiscal 2023 results in June. Thank you.
Operator, Operator
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.