Concrete Pumping Holdings, Inc. (NASDAQ:BBCP) Q4 2022 Earnings Call Transcript

Concrete Pumping Holdings, Inc. (NASDAQ:BBCP) Q4 2022 Earnings Call Transcript January 23, 2023

Operator: Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Concrete Pumping Holdings’ Financial Results for the Fourth Quarter and Fiscal Year ended October 31, 2022. 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 would like to turn the call over to Mr. Slach to read the company’s safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Cody Slach: Thanks, Camilla. 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 to the company’s website. Now, I’d like to turn the call over to the CEO of Concrete Pumping Holdings, Bruce Young.

Bruce?

Bruce Young: Thank you, Cody and good afternoon, everyone. We closed out our 2022 fiscal year on a record high note posting our fifth consecutive quarter of double-digit consolidated revenue growth. This exceptional growth across all segments was driven by continued market share gains and contributions from recent accretive acquisitions underscoring the strength, operational efficiency, and resiliency of our business and execution of our strategic plan. As a result, we were able to drive financial performance records for annual revenue, adjusted EBITDA and net income for the company. Looking at the full fiscal year of 2022, revenue increased 27% to $401.3 million, adjusted EBITDA increased 14% to $118.6 million, and net income increased $43.7 million to $26.9 million.

By reporting segment, revenue in our U.S. Pumping business increased 34% in the fourth quarter, driven by our recent strategic acquisitions and strong performance in our commercial end market. We were successful in growing our commercial market share opportunistically recalibrating rates and capturing pent-up demand driven by the pandemic recovery. Of note, office buildings, data centers, warehouses and distribution centers within our commercial market continue to grow and there has been an encouraging recovery in the hospitality sector. Turning to infrastructure, our expanded national footprint continued to drive results as it allowed us to capture more funds for public project investments. We continue to work to win projects at the state and local levels and look forward to renewed investment in the U.S. with the infrastructure investments in Job Act.

At this time, the infrastructure bills benefits to our business remain uncertain and as such has not been built into our 2023 forecast. During the fourth quarter, our residential segment remains relatively stable due to the ongoing structural supply demand imbalance that continues to unwind. We recognize that higher interest rates have created affordability issues in the housing market, but is important to note that majority of our residential work resides in the Mountain states and in Texas which continue to be resilient versus other areas in the U.S. As expected, the moderate change in residential volume in the fourth quarter was absorbed by other high margin work. For example, our residential work volumes traded to growth with our commercial market in the fourth quarter, which typically carries higher margins in residential work.

As noted in today’s investor deck, at the end of 2022 fiscal year, our mix of U.S. Pumping work was 56% commercial, 33% residential, and 11% infrastructure. The change in the distribution of our revenue by end market and diversity by geography illustrates the advantages of our broad and diverse national platform and the strength of our high value service. In our UK segment, in-spite of foreign exchange headwinds, revenue increased 8% compared to the prior year quarter. 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 rail railway project HS2, which is expected to last beyond 2030. In Eco-Pan, our concrete waste management business we continue to deliver exceptional organic growth with revenue up 42% in the quarter.

This continues to be driven by an improved sales approach and the value of our enhanced service offering. Going forward, we expect to maintain Eco-Pan’s double-digit organic revenue growth given its penetration to market in its relative size to our pumping business. During the last fiscal year, we are opportunistic with several tuck-in acquisitions and greenfield expansion opportunities. It was an exciting year to welcome new teammates into our family of businesses and the operational and integrations were seamless. Shifting to the cost side of our business, as was the case last quarter, persistent high inflation, particularly in diesel fuel continued to impact year-over-year gross margin comparisons. Despite this headwind, our team has continued to execute cost containment actions in the recalibration of our rates have largely offset these inflationary costs and our margin dollars are in-line with our expectations.

As a result, we continue to realize the expected equipment return on investment for the same volume of work performed. As we close out the year and look forward to 2023, we are in a strong position to execute our strategic growth priorities. I will return later to discuss our longer-term growth strategy and provide an updated market outlook. But for now, I will pass the call off to Iain to discuss our results in more detail. Iain?

Iain Humphries: Thanks, Bruce, and good afternoon, everyone. In the fourth quarter of our 2022 fiscal year, revenue increased 31% to $114.9 million, compared to $87.8 million in the same year ago quarter. Strong organic growth, volume growth from recent acquisitions, and ongoing pricing improvement all contributed to the double-digit revenue increase. Revenue in our U.S. Pumping segment, mostly operating under the Brundage-Bone brand, increased 34% to 84.3 million compared to 63 million in the prior year quarter. Excluding the acquisitions of Hi-Tech, Pioneer, and Coastal, revenue increased 17% to 72.4 million on an organic basis due to the higher construction volumes and ongoing price improvements. For our U.K. operations, operating largely under the Camfaud brand, while excluding the foreign exchange translation effects, from the weakening British pound, revenue for our UK operations increased by approximately 25% in the fourth quarter.

This was due to strong volume recovery from the region’s progress in overcoming the effects of COVID-19 along with the recalibration of our pricing. On an as reported U.S. dollar basis, revenue improved 8% to $14.9 million, compared to $13.8 million in the same year ago quarter. Revenue in our U.S. Concrete Waste Management Services operating under the Eco-Pan brand increased 42% to 15.6 million in the fourth quarter. This strong organic increase was driven by robust organic volume growth, market share expansion, and sales conversion by our regional teams. Returning to our consolidated results. Gross margin in the fourth quarter was 42.3%, compared to 42.6% in the same year ago quarter. The slight decrease is directly related to inflationary pressures, particularly related to diesel fuel price escalation.

For the full fiscal year, the cost of diesel fuel inflation was approximately $10 million or 240 basis points impact of the 280 basis point change for the full-year gross margin. General and administrative expenses in Q4 were $30.1 million, compared to $25.6 million in the same year ago quarter. In the fourth quarter, we experienced lower amortization cost of intangibles and lower stock-based compensation expense, but this was more than offset by labor cost headcount increases from recent acquisitions. As a percentage of revenue, G&A costs improved in the fourth quarter to 26.2%, compared to 29.1% in the same year ago quarter. Net income available to common shareholders in the fourth quarter increased 170% to $8.1 million or $0.14 per diluted share, compared to $3 million or $0.05 per diluted share in the same year ago quarter.

The improvement was a result of substantial contributions from both acquired revenue and organic growth. Consolidated adjusted EBITDA in the fourth quarter increased 28% to 36.3 million, compared to 28.3 million in the same year ago quarter. Adjusted EBITDA margin was 31.6%, compared to 32.2% in the same year ago quarter. As discussed previously, the slight erosion in margin was driven by persistent cost inflation, particularly in the cost of diesel fuel. In our U.S. concrete pumping business, adjusted EBITDA improved 29% to 23.4 million compared to 18.1 million in the same year ago quarter, driven by the throughput from our strong revenue growth. In our UK business, adjusted EBITDA was 4.7 million, compared to 4.2 million in the same year ago quarter, a strong revenue growth was offset by currency translation weakness and significant inflation from diesel fuel costs.

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For our U.S. concrete waste management business, adjusted EBITDA improved 42% to 7.6 million, compared to 5.4 million in the same year ago quarter, due to strong organic growth and revenue and disciplined operational efficiency. Turning to liquidity. As of October 31, 2022, we had total debt outstanding of 427 million or net debt of 420 million. We had approximately 111 million in liquidity as of October 31, 2022, which includes cash on the balance sheet and availability from ABL facility. As a reminder, we have no near term debt maturities with our senior notes and asset-based lending facility maturing in 2026. Additionally, we delivered strong free cash flow in fiscal year 2022 of approximately $59 million after 36 million in replacement equipment and dispersing approximately 24 million in cash interest.

We remain in our strong liquidity position, which provides further optionality to pursue value added investment opportunities like accretive M&A, or investment in the reduction of our fleet age to support our overall long-term growth strategy. As a reminder, during the third quarter of 2022, we initiated a share repurchase program that authorized a buyback of up to $10 million of our outstanding shares of common stock. In the fourth quarter, the company repurchased approximately 416,000 shares for approximately $2.7 million. On October 31, 2022, we had approximately $7.3 million remaining under the June 2022 authorization. In today’s earnings release announcement, the Board of Directors have approved an additional $10 million increase to this program and the share buyback program demonstrates both our commitment to delivering value to shareholders and underscores our confidence in our balance sheet, our liquidity and strategic growth plan.

Moving now into the 2023 full-year guidance. We 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. We are consistently enhancing our fleet of operating equipment to ensure safety and reliability, minimizing repair downtime, and optimizing equipment utilization, which help us capture additional market share and project wins with new customers. 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: Thanks, Ian. In the fourth quarter of 2022, we are pleased to report continuation of double-digit revenue growth and a return to a more normalized operating environment. Looking more broadly in 2022, we took deliberate steps to drive scale through continued organic growth, as well as strategic M&A. Our Eco-Pan business continued to deliver exceptional double-digit growth as we expanded the value of our service offering and grew our Eco-Pan sales force. Additionally, throughout the year, we were able to recalibrate rates in all of our businesses to combat the rapid and persistent cost inflation pressures. I want to thank our entire team for this truly remarkable effort. 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 the factors that we are experiencing today.

Given interest rates rising in recent indicators of consumer spending weakening, it’s only practical for us to assume our residential business volumes may fluctuate and give some ground to our commercial and infrastructure business in 2023. However, this is an example of the agility and resilience of our business model and fleet management. Where construction volumes change in one region our end market, we adjust our fleet manage to ensure we optimize equipment utilization. In summary, we are very pleased with our fourth quarter and full-year 2022 results against a challenging backdrop and are optimistic about our business momentum heading into 2023. With almost 30% year-over-year consolidated revenue growth in 2022, we are delighted with the 30% year-over-year organic growth in our Eco-Pan business, the exceptional execution and contribution of our M&A strategy, and the expansion into new markets with promising long-term fundamentals.

We fully expect expanded federal and state level infrastructure investment and the commercial market recovery to support growing construction activity for years to come. We remain focused on the execution of the growth strategy to continue to drive scale through investing in organic growth and M&A and believe that this is the best path to provide superior shareholder value. With that, I would now like to turn the call back over to the operator for Q&A. Camilla.

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Q&A Session

Operator: Thank you, Mr. Young. And our first question will come from Tim Mulrooney with William Blair. Please proceed with your question.

Unidentified Analyst: Hey, this is filling in for Tim. Bruce, Iain, hope you both are doing well.

Iain Humphries : Hi Sam.

Bruce Young: Hi, Sam. How are you?

Unidentified Analyst: Doing pretty good. We’ve spoken before about the Infrastructure Act, but maybe it would be also helpful to talk about the CHIPS Act. It seems likely you will be having a lot of semiconductor fabs being built in the U.S. and I guess I’m wondering if you could give us a sense of both the type of needs for facility like this? And if a large chunk of that would come from concrete pumping?

Bruce Young: Yes. So the CHIPS Act has helped us and there are several large facilities that we are currently working on and several that we’re bidding into the future. And those types of facilities are very concrete intensive. And so, yes, that’s a very good thing for us.

Unidentified Analyst: And maybe just as far as like the timing of these projects, I know some of the Infrastructure Act might benefit the fiscal year though you guys don’t have in your guidance, but is that something we can also maybe expect from the CHIPS Act or is that maybe €“ is the benefit from that maybe 2024 at the earliest?

Iain Humphries: Yes, I would say late 2023 into 2024.

Unidentified Analyst: Okay. Thanks. And then maybe just one more from us related to the outlook, but in regard to your fiscal outlook, just hoping you can maybe share what customer end market mix, you guys are consequently compared to fiscal 2022? And then maybe what the margin impact of that change might be?

Iain Humphries: Yes. So, as we mentioned in the script, the work is shifting from residential into more commercial market. And with the commercial markets, we’re using more of our specialty equipment and our larger booms and pumping higher volumes. So, our revenue per hour is higher and our margins are greater in that market. And we expect that to continue through the remainder of this year.

Unidentified Analyst: Great. We’ll leave it there then. Thanks guys.

Iain Humphries: Thank you.

Operator: And our next question will come from Andy Wittmann with Robert W. Baird. Please proceed with your question.

Andy Wittmann: All right, great. Good evening, gentlemen. Thanks for taking my question. First, I guess, I wanted to acknowledge the disclosure here that you have on your free cash flow, including the CapEx footnote here that talks about how you’re doing asset purchases and you’re splitting out the growth investment? I think that’s helpful for all of us to get a better sense of what the underlying cash flow is. So, it also generates questions. So, I wanted to start there. Just footnote here Iain, it mentions $31 million of M&A in the fourth quarter. It was also $31 million called out separately on its own line here, it looks like in the fourth quarter. I’m assuming that’s the same $31 million, but I’m not supposed to take 31 of the CapEx line as well. Is that right?

Iain Humphries: Yes. That’s right, Andy. And the way to think about it, I mean, looking at the €“ if we take the full-year, including obviously we have a business combination in there, the way you think about the 124 million investment for the full-year, there’s like 36 million in replacement, in organic growth and in M&A. So that’s maybe more helpful color as well.

Andy Wittmann: Yes, that’s just some total of what your footnotes say there. It is helpful. So, I guess then here as it relates to the guidance that you gave for free cash flow, you kind of mentioned the free cash flow definition here being around net replacement CapEx. So, I guess can you give the net replacement CapEx guidance that is the number that gets you to the free cash flow guidance that you’ve given here?

Iain Humphries: Yes. So, I guess if you take the mid-point for next year’s free cash flow, it’s €“ you really subtract call it 36 million in replacement CapEx and 24 million in cash interest. So that would get you to a mid-point of around 70 million for the free cash flow. And then the replacement as you know Andy is largely consistent with the percent of revenue that we’ve done year-over-year.

Andy Wittmann: Got it. Is there €“ what is the growth CapEx number then that we should be expecting in order to generate the EBITDA range that you’ve given? not all coming for free. There’s some growth CapEx and that’s going to be needed to fund the range that you’re talking about.

Iain Humphries: Yes. So, really the growth CapEx was invested in 2022. So, what we’ve got for the guide for next year is, 2022 is growth investment into next year. So, another way to think about that year-over-year change, so call it 8%. We have 4% pickup from the full-year of M&A and then we’ll get 2% from volume and 2% from price and that volume would come from the growth investment in 2022. So, if there’s additional growth investment in 2023, then there would be a pickup to the current guidance range that we give.

Andy Wittmann: Sorry, are these the numbers you’re talking €“ I was asking about the growth CapEx numbers. It sounds like you’re giving numbers that give income statement lines, what’s the growth CapEx needed to drive the income statement range that you’ve given?

Iain Humphries: There’s no growth CapEx contemplated in next year’s free cash flow.

Andy Wittmann: Okay. So for fiscal 2022, there’s 36 of replacement, 31 of growth capital, and 51 in M&A. So, you’re saying that it is going to be around $36 million replacement, no growth capital this year and then whatever you do in M&A is M&A. So, that’s a $30 million plus tailwind versus the prior year?

Iain Humphries: Andy, one thing you would add to that is, through all our acquisitions that we did last year, they were all very underutilized and we got a lot of additional assets through those acquisitions that helps that growth in the future as well.

Bruce Young: Yes. So, thinking about it on the revenue dollar terms, Andy. So, coastal was obviously done at the end of 2022. So, if you just take the percentage given that 8% pickup, 4% on M&A would be 16 million, 2% on volume would be , another 2% would be another . So, that’s really the bridge from 2022 to the mid-point of 2023 without any growth investment.

Andy Wittmann: Okay. That’s interesting and I guess specifically with the Eco-Pan business growing so well and that being basically all organic, I’m surprised that there’s no CapEx needed for that business to grow it. .

Iain Humphries: No, no, no, you’re not. So, that would come out of the free cash flow. So, looking at

Andy Wittmann: Right. So CapEx.

Iain Humphries: Yes. Correct. And that number

Andy Wittmann: How does CapEx for that?

Iain Humphries: That will be around 9 million.

Andy Wittmann: Okay.

Iain Humphries: So, our free cash flow number is just on the replacement side. It doesn’t contemplate the growth investment.

Andy Wittmann: Okay. So, there’s $9 million for , is there anything in other fleets that you need to grow the business?

Iain Humphries: No. The growth for Eco-Pan is Pan’s and equipment.

Andy Wittmann: Got it. Okay. And then I guess just if you could €“ I want to drill into the margin outlook here. It’s basically like the EBITDA margin guidance is flat year-over-year, but you’re making a definitional change here on adjusted EBITDA, you’re now going to not include director’s compensation and public company’s costs, which is by the way a very positive change and actually a little bit of surprise you’ve been it to this point. But I guess my question is, what are the other sources of variance? 2022 was a year that obviously had some margin pressures from diesel. It sounds like you’re expecting that to €“ like it sounds like after a year of those challenges on diesel that you’re getting the rates up. So, I guess I’m just curious as to if we should be thinking about margin recovery, it sounds like, Bruce you made a comment that you’re recovering dollars, but what about the prospect of recovering margin percentage?

What are the variables that are out there that could allow that to occur?

Bruce Young: Fuel is the biggest one that we deal with there. Everything else is stabilized at a new level and then really it comes down to just getting better rates over time.

Andy Wittmann: Got it. Are you seeing €“ the labor had been somewhat of a challenge as well, has that stabilized, and do you feel like that’s under better control today than it was maybe 6 or 9 months ago?

Bruce Young: Yes, it’s definitely more stable today than what we had seen over the last year.

Andy Wittmann: Got it. Okay. Thanks, guys.

Bruce Young: Thanks, Andy.

Operator: And our next question will come from Brent Thielman with D.A. Davidson. Please proceed with your question.

Brent Thielman: Hey, thanks. Bruce, Iain. Bruce, just on the rate increases you’ve pushed through the business over the last 12 plus months, what is the approach, kind of going forward that now we’re seeing through fuel prices flattening out in your operations sound like they’re still pretty busy, so, maybe you can continue to push on REIT? How do you approach that going forward with some of these costs leveling out?

Bruce Young: Well, as you know, our customers all have a responsibility to their owners to get the best rate on all their services so we have to be able to prove out value. I think we’ve done a pretty good job. I think as you can see the results from last year that we were able to meet with our customers and really partnering with them on what it took to provide the same level of service going forward. And I think we’ll continue to do that. I would say that all of our customers knew that inflation was a real factor and they weren’t just getting it from us, they were getting it from everyone and they were accommodating to that. I think going forward, they’ll be a little more thoughtful about that. And really we’ll just have to continue to prove out our value.

Brent Thielman: And Bruce, are there any other, sort of supply chain and efficiencies that continue to impact the business today that are worth calling out or are we really just talking about fuel when you think about recovery and margin percentage?

Bruce Young: The only other thing would be from a capital standpoint, the equipment is starting to get more expensive where I think we’ve talked in the past that we paid in 2020 the same price for it, the same size concrete pump that we would have paid in 2006 or 2007. So, they’re really €“ the pricing on the equipment really didn’t go up. Our manufacturers got hit pretty hard through the last couple of years with inflation. So, we’re seeing the new equipment costs going up, but everything else is fairly stable.

Brent Thielman: Okay. I mean, it sounds like you guys are pretty confident, what weakness does come from residential, I guess, spending this year up since will ultimately be offset by what you get from the commercial and infrastructure markets? Your comments on sub segments of commercial like the CHIPS Act, which clearly look like a tailwind. Are you seeing jobs on the infrastructure side that you’re tracking coming forward that you expect to participate in? Maybe just help us, kind of around the visibility you do see in those two markets that may help offset whatever comes in resi?

Bruce Young: We do have more visibility on the dollar amount that we’d be going each of the states through the Infrastructure Act. Tracing that down to the job site is still a little bit more difficult, although it’s becoming more clear and going forward and there’s real dollars, there are significant dollars that should impact our revenues in a very positive way going forward. We’re still trying to just sort through that, but it’s still a little bit too early to tell and that’s what we mentioned in the script that we’re leaving any growth for infrastructure out of our forecast going forward, but we think that over this next year that’s going to become very clear for us.

Brent Thielman: Okay. All right. Great. I’ll pass it on. Thank you.

Bruce Young: Thanks Brent.

Operator: 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.

Bruce Young: Thank you, Camilla. We’d like to thank everyone for listening in to today’s call and we look forward to speaking with you when we report our first quarter fiscal 2023 results in March. Thank you.

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