Q1 2024 Concrete Pumping Holdings Inc Earnings Call
Participants
Cody Slach; IR; Gateway Group, Inc.
Bruce Young; CEO & Director; Concrete Pumping Holdings, Inc.
Iain Humphries; CFO & Director; Concrete Pumping Holdings, Inc.
Andrew Wittmann; Analyst; Robert W. Baird & Co. Incorporated
Jean Ramirez; Analyst; D.A. Davidson Companies
Stanley Elliott; Analyst; Stifel, Nicolaus & Company, Incorporated
Tim Mulrooney
Avi Jaroslawicz; Analyst; UBS Securities LLC
Presentation
Operator
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, 2024. Joining us today are Concrete Pumping Holdings CEO, Bruce Young; CFO, Iain Humphries; the company's external Director of Investor Relations, Cody Slach.
Before we go further, I would like to turn the call over to Mr. Cody Slach to read the company's safe harbor statement within the meanings of the Private Securities Litigation Reform Act of 1995 that provide important cautions regarding forward-looking statements. Cody, please go ahead.
Cody Slach
Thank you. I would 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 for 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. 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. I'm pleased to report that although we experienced challenging winter weather conditions in our US operations during the first quarter, we continued to deliver double-digit growth in our concrete waste management services and UK operations and maintained revenue growth on a consolidated basis.
In the month of January, heavy rainfall, snow, and freezing temperatures across the United States brought many of our US Concrete Pumping projects to a standstill. As a result, many of our customers' projects were delayed and job sites were closed. We estimate such weather events lowered the expected revenue volume of our Concrete Pumping work by approximately $7 million in January. However, work in February has recently returned to more normalized levels, and we are working closely with our customers to accommodate accelerated project schedules.
In the first quarter, consolidated revenue increased by 4%, primarily driven by continued strong execution in our concrete, waste management and UK operations. In fact, revenues for these segments increased by 14% and 21% year over year respectively and maintained their strong adjusted EBITDA margins. The performance of these two segments demonstrates the benefit of our diversification by end market and by service type.
Additionally, despite the challenges we faced in this quarter, we are pleased with our ongoing efforts to improve the strength of our balance sheet, reducing our revolving ABL loan balance by approximately $6 million while maintaining liquidity at $217 million.
Transitioning to our segments by end market, we continue to experience similar trends that we saw in our fourth quarter. In residential, the structural supply demand imbalance continues to grow, driving strong demand levels and increased activity among homebuilders.
From a regional perspective, we see most development residential construction dollars being allocated within the Mountain region and Texas with a rep which represents undersupplied regions where single-family construction is prominent. While interest rates remain elevated, at this point, we see no signs of slowing in this market due to the affordability imbalance that exists between purchasing a new home versus an existing one. We are optimistic that with expected interest rate cuts in 2024, we will capture additional tailwinds.
In infrastructure, our expanded US national footprint continued to drive strong results as we captured more revenue from the public project investments. We continue to see more investment flowing to numerous projects where we operate, and we plan to aggressively pursue these project opportunities. In particular, growth across the UK continues to develop as HS2 and energy related infrastructure spending has accelerated and capital is being deployed at faster time lines to domestic US government funding.
Within the commercial end market. momentum in larger commercial projects like distribution centers, warehouses, semiconductor fabrication plants and electric vehicle and battery manufacturing plants remain strong, underpinned by the growing reshoring trends here in the US.
With regards to Concrete Pumping demand from light commercial projects, activity continues to be comparatively weaker as interest rate sensitivity and reduced availability of financing from smaller regional banks has stalled some projects. We continue to expect a recovery in the second half of fiscal 2024 as the project funding backdrop improves.
Turning to the cost side of the business, the headwinds we experienced in Q4 largely continued into our first quarter, in addition to the downstream impact margins from adverse weather conditions, persistent inflationary pressures driven by a mix of labor and insurance continue to impact our ability to flow through our revenue performance to the bottom line margin. Such headwinds are expected to continue throughout 2024, but with our continued recalibration across all geographies and end markets, we anticipate a positive offset that should drive margin expansion over time.
Our measures to recalibrate rates and the systems we are implementing to attract and retain employees are right in step for our business and to drive long-term shareholder value. I will now let Iain walk through more details of our financial results before I return to provide some concluding remarks. Iain?
Iain Humphries
Thanks, Bruce, and good afternoon, everyone. In the first quarter, consolidated revenue increased 4% to $97.7 million compared to $93.6 million in the same year-ago quarter. The increase was due to strong growth across our concrete waste management service in the UK operations. As Bruce mentioned, this growth was offset by a decrease in volumes in US Concrete Pumping due to the harsh winter weather events experienced across the United States primarily in the month of January.
Revenue in our US Concrete Pumping segment, mostly operating under the Brundage-Bone brand decreased 1% to $66.7 million compared to $67.2 million in the prior year quarter. The decrease was due to weather impacts in January as the severe winter temperatures and freezing rainfall solve many of our customers' projects.
We estimate the extreme weather lowered the expected revenue volume of our US Concrete Pumping work by approximately $7 million in January. For our UK operations, operating largely under the Camfaud brand, revenue improved 21.2% to $15.4 million compared to $12.7 million in the same year-ago quarter. Excluding the impact from foreign currency translation, revenue was up 16% year over year. The increase was primarily due to pricing improvements and operating efficiencies.
Revenue in our US concrete waste management services segment, operating under the Eco-Pan brand increased 14.2% to $15.6 million compared to $13.7 million in the prior year quarter. The increase was driven by strong organic growth and pricing improvements, notwithstanding the first quarter growth rate being hampered by unseasonably harsh January winter weather.
Returning to our consolidated results, gross margin in the first quarter was 34.1% compared to 39% in the same year-ago quarter with a decreased margin primarily related to the weather impacted lower revenue volume and downstream lower equipment and headcount utilization as a result of the extreme winter weather as well as inflationary increases in insurance costs.
General and administrative expenses in the first quarter were $31.9 million compared to $27 million in the same year-ago quarter. The increase was primarily due to higher headcount and wage inflation and a nonrecurring $3.5 million charge as a result of a sales tax rule change dispute in our West region. Excluding the $3.5 million charge, G&A costs as a percent of revenue increased slightly in the first quarter to 29.1% compared to 28.9% in the same year-ago quarter due to the lower revenue volume.
Net loss available to common shareholders in the first quarter decreased to $4.3 million, or $0.08 per diluted share compared to net income of $6 million or $0.11 per diluted share in the same year-ago quarter. Consolidated adjusted EBITDA in the first quarter decreased to $19.3 million compared to $25 million in the same year-ago quarter.
Adjusted EBITDA margin declined to 19.7% compared to 26.8% in the same year-ago quarter. Again, EBITDA decline were driven by the aforementioned impacts from extreme US weather condition and an increase in labor and insurance costs.
In our US Concrete Pumping business, adjusted EBITDA decreased to $10.7 million compared to $16.8 million in the same year-ago quarter. In our UK business, adjusted EBITDA increased 32.8% to $3.2 million compared to $2.4 million in the same year-ago quarter. For our US concrete waste management services business, adjusted EBITDA decreased slightly to $5.4 million compared to $5.8 million in the same year-ago quarter due to the downstream winter weather impact on labor utilization.
Turning to liquidity, at January 31, 2024, we had a total debt outstanding of $388 million, our net debt of $373.3 million. This equates to a net debt to EBITDA leverage ratio of 3.1 times. We had approximately $217 million of liquidity as of January 31, 2024, 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 maturing in 2026 and our asset-based lending facility maturing in 2028. We remain in a strong liquidity position, which provides the ability to responsibly pursue value added investment opportunities like accretive M&A or the organic investment in our fleet of equipment to support our overall long-term growth strategy.
During the third quarter of 2022, we entered into a share repurchase program that authorized the buyback of up to $10 million of our outstanding shares of common stock. In 2023, the Board of Directors approved an additional $10 million increase, and in March of 2024, an additional $15 million was approved.
During the first quarter of 2024, under our share repurchase program, we repurchased approximately 36,000 shares of our common stock for $248,000 or an average price of $6.88 per share. Since our buyback program was initiated, we have repurchased approximately 1.8 million shares of our common stock for a total of $11.8 million or an average price of $6.61 per share. The current share buyback program was $23.2 million remaining as authorized by the Board of Directors through March of 2025. And we believe this demonstrates both our commitment to delivering long-term value to shareholders and our confidence in our strategic growth plan.
Moving now to our 2024 full year guidance due to the weather impacted year-to-date start in fiscal 2024, we have revised our expectations for fiscal year revenue to range between $460 million and $480 million and adjusted EBITDA to range between $122 million and $130 million. The target guidance for free cash flow, which we define as adjusted EBITDA, less net replacement CapEx and less cash paid for interest will remain unchanged as at least $75 million. This reflects our ability to control CapEx investments given the current utilization capacity in our fleet due to the previous investments over the last three years, including acquisitions to improve the age of our fleet. Operationally and financially, we continue to have a solid foundation and we have confidence in continuing to execute our growth strategy. With that, I will now turn the call back over to Bruce.
Bruce Young
Thanks, Iain. In summary, we are pleased with the revenue growth in our concrete waste management services and UK operations and are optimistic US pumping will recover through the remainder of the year under normalized weather conditions as evidenced by a stronger February performance. We anticipate continued momentum in our residential and infrastructure end markets near term, and we are optimistic that interest rate reductions in the back half of fiscal year will improve the starts of various commercial projects. In the meantime, we continue to maintain our opportunistic approach to equipment utilization, enabling our fleet management strategy that allows us to capture value driven work and deliver our expected return on invested capital.
On the cost side of the equation, we remain focused on attracting and retaining the best talent in the industry while reducing the impact from inflationary cost pressures through continued rate increases. As always, our focus remains on optimizing end-market market mix to continue to deliver strong top and bottom line growth.
Looking ahead, we believe our end market diversity and mission critical services in the construction industry positions us well for continued growth. We expect to complement organic growth by continuing to evaluate opportunistic accretive M&A while strategically reducing our leverage. With that, I would now like to turn the call back over to the operator for Q&A. Andrew?
Question and Answer Session
Operator
(Operator Instructions) Andrew Wittmann, Baird.
Andrew Wittmann
Great. Good evening, and thanks for taking my question, guys. I wanted to understand the revision to your guidance to begin with here. I understand the $70 million shortfall here in the first quarter. Given that there's so much of the year remaining, I would have thought that you'd have probably been able to make that up in the balance of the year I mean that is about the magnitude of the guidance reduction. So is there something else that is being considered in the guidance cut that we should know about or is that purely just timing and it actually gets pushed into your next fiscal year?
Bruce Young
Yeah, Andy, thanks for the question. So our concern is that many of the contractors have had their projects pushed because of the weather conditions that we had that went beyond the three or four weeks that we had the bad weather. And so while they're starting up now and with the lack of labor to accelerate the start of these projects, have we're a little cautious on how the remainder of the year might play out that way. So we thought that it was best to address that now.
Andrew Wittmann
Got it on. Okay. Is it -- so was the weather affecting like newly starting projects or was it affecting in-flight projects? That sounds like from your answer there that it was affecting projects that have otherwise started and now they're not starting or it's been delayed substantially enough that they don't want to put it in your view? I guess just a little bit more color on that would be helpful to understand.
Bruce Young
Yeah. So it affects both. So the projects that we're currently on, we all know it's very difficult to pour concrete in the extreme weather conditions. So the concrete placement gets delayed. And then the new projects get delayed because the concrete comes right after the excavation and the excavation gets delayed because of the weather conditions as well.
Andrew Wittmann
Okay. For my follow-up question, I want to ask on your M&A outlook. I heard your comments here at the end of your prepared remarks, but obviously you guys have been a little bit more patient, I think with M&A, given the environment that changes, the demand picture that would change the financing picture for the people who might be buying this. There's lots of ramifications from the macro we've been living in here for the past couple of years.
So Bruce, is there -- is the [patient's] changing or do you still feel like it's getting more visibility, more certainty that you feel like you can start maybe being a little bit more aggressive with M&A than you've been in the past 12 months?
Bruce Young
Yeah. Certainly, we can get a little more aggressive. I think what we've talked about in the past with mostly family-owned businesses in our industry and their lack of confidence in getting rates up ahead of inflation, their margins have been affected severely.
So as we look at the value that those businesses bring to us and then with the value of the assets continuing to increase in price, most of businesses we look at are worth the value of their assets. And so that's really where we're waiting for that shift to happen. But we're certainly aggressively looking at each one and when the opportunity looks right, we'll certainly jump on it.
Andrew Wittmann
Okay. I'm going to leave it there guys. Have a good night.
Bruce Young
Thanks, Andy.
Operator
Jean Ramirez, DA Davidson.
Jean Ramirez
Hi, this is Jean Ramirez for Brent Thielman. I'll start with the question. Can you provide some color on your outlook regarding labor and energy costs for the remaining of the year. And the follow up, after the slow first quarter, how should we think about the inflection on margins for the US Concrete Pumping segment? Yeah, we'll start with the first half.
Iain Humphries
Yeah, so on the labor and energy costs, they're quite stable right now. And fuel has been volatile lately. But it's less than where it was maybe 18 months ago. But there's relative stability in the fuel side of things. We still have wage inflation that we're working through, as Bruce mentioned, on recalibrating rates. But that's something that we'll work on through the rest of the year as we offset that through rate increase0s.
On the US pumping margins for the back half of the remaining quarters in this year, as we mentioned in our original guidance, we are working on recalibrating a lot of cost initiatives. So we would expect to at least get back to the US margins that we've seen in the past and expect to outperform that as well. So other than the Q1 that was impacted more on the operating leverage from the volume of weather that came through, you can expect at least the margins that we've seen before, if not better, in the back half of the year.
Jean Ramirez
And in terms of a full year, do we expect the margins for the full-year end to be just greater than fiscal year '23 or around. Do you mind a little more color on that?
Iain Humphries
Yeah. So based on a slow start with the weather and our updated guidance, it would be at least comparable.
Jean Ramirez
Thank you. And if I could, one more. Could you provide an update on the bidding environment right now and how you work into these large projects that you -- and the work that you want?
Iain Humphries
Yeah, as you know, on the larger projects, we don't have as many people as we're competing against as we would smaller projects.
Bruce Young
And so the bid environment, well, it's active and on the larger commercial projects. It's very much the same as what we have seen in the past.
Jean Ramirez
Thank you. Appreciate the time.
Bruce Young
Thank you.
Operator
Stanley Elliott, Stifel.
Stanley Elliott
Thank you guys for the question. Could you go back and talk a little bit more about the decision to lower the full year. At one point, you guys said there are certain types of projects that maybe we're not seeing some level of softness. Is that because of financing cost? Just trying to get a little more color since you were really at the seasonally weakest part of your fiscal year?
Bruce Young
Yeah. And certainly there's a little caution with our responses. Well, the area that we're seeing the most challenging would be light commercial that is more sensitive to interest rates and inflation and relying on more regional banks. Those projects have either been pushed out or shelved entirely. And so we're waiting to see that come back.
And then we believe as a as the economy improves, there are new projects that will come on in that sector that will give us opportunities for growth as well. But the infrastructure is growing. We're seeing more visibility there. Residential has been very stable for us, and we see that continuing. The large projects are fairly stable. It's just that that light commercial that's causing concern.
Stanley Elliott
And can you talk about like a backlog business, maybe where it is now, how that change? You mentioned it sounds like the order environment and kind of the quoting activity is still pretty strong. But would also seem to imply that you're working through some of the the existing book of business you've been building up.
Bruce Young
Yes, that's right. And as you remember, about 50% of our business we can track is backlog. And that's the larger commercial projects and the infrastructure projects, that really hasn't changed. It's the light commercial projects that are more difficult to track that we're seeing the softness in.
Stanley Elliott
And could you talk a little bit about the restatement piece that you had in the US pumping business. Exactly what was that for? And remind us again why you decided to do it now?
Iain Humphries
Yeah, so every year, Stanley, we're looking at the allocation of resources from across all the segments. So really the adjustment is really a true-up of those central resources that we have within our business and allocate them based on the business segment and growth and use of capital. So it's really the update on the allocation that we've revised.
Stanley Elliott
And then lastly, what are exactly your plans for the buyback? And then you put some time frame around how long it extends out. I think it was March 2025, but you plan on being more active. Just any help from a context there would be great.
Bruce Young
Obviously, we continue to feel like our stock is undervalued. And some of the use of our capital is if we're not using it to buy businesses or equipment, maybe the best use of the capital is buying shares at values that we think are reasonable for us.
Stanley Elliott
Great, guys. Thanks so much. Best of luck.
Bruce Young
Thank you, Stanley.
Operator
Tim Mulrooney, William Blair.
Tim Mulrooney
Bruce, Iain, good afternoon,
Iain Humphries
Hi, Tim. How are you?
Tim Mulrooney
Doing all right. Thank you. Let's start with your your outlook here. It looks like you guys are calling for about 6% revenue growth at the midpoint. Can you kind of break that down for us between your growth expectations for US Concrete versus the the UK business and Eco-Pan?
Iain Humphries
Yeah. So on the organic side, if you look at the midpoint, it's really 2% or 3% on volume and 29% or 3% on price. Quality beyond that is at the lower end of that range. And there would be an assumption that price and volume is on the flatter side. And on the higher end, we would expect to capture more share, more price, and more volume on the top end.
Tim Mulrooney
Is that the total business there or is that for the US pumping business specifically, Iain?
Iain Humphries
Yeah, that's for the total business. What you can expect to see on the year-over-year change for the Eco-Pan and the UK business, Eco-Pan, as you know, has been growing north of 20% year over year. The first quarter was a little softer on that based on the volume of weather they had to deal with.
Obviously we guided consistently to at least double-digit growth, and we would expect to continue that for the Eco-Pan business. And as you can see that the organic growth on the UK is continuing to move along quite a nice pace and to acquire the 20% year-over-year growth on. So that's moving along as we would expect towards the back end of the year.
Tim Mulrooney
Okay. So no real change there. Continued strong growth in those businesses. And that Eco-Pan business, so I saw the revenue was higher, but EBITDA was a little lower. It sounds like from weather-related impacts. And would you expect margins to be up year over there for the remainder of the year? Or are there other factors at play here for Eco-Pan?
Iain Humphries
Yeah, the impact in Q1, it was really a downstream impact of where they've got weather. They're less sensitive to it than the US pumping business, but not immune to that. So there's a little bit softness in the operating leverage just from that downstream effect of labor utilization when there's difficult weather.
Tim Mulrooney
Okay. So otherwise, though, you'd expect continued margin accretion in that business as we continue to build out density, et cetera?
Iain Humphries
Yeah, we would expect to continue to stand strong margins on the Eco-Pan business, yeah for sure.
Tim Mulrooney
Okay. Cool. Last one from me. I think I recall you talking on your fourth quarter earnings call about some undisciplined pricing from industry competitors, which crimp stability a little bit to take rates higher. Did you see that dynamic carry over into this quarter?
Bruce Young
We have seen some of it carryover, but it is improving as equipment prices go up and companies are doing quite as well as what they had in the past. We're seeing them looking being more thoughtful about how they bid work as well. And certainly that helps us out as well.
Tim Mulrooney
Okay. That's it for me. Thank you very much.
Bruce Young
Thanks, Tim.
Operator
(Operator Instructions) Avi Jaroslawicz, UBS.
Avi Jaroslawicz
Hey, guys. Thank you on for Steve Fisher. So I'm just trying to understand some of the math and communications around what happened in the first quarter in US pumping where revenues had a [USD7 million] impact from weather, and the adjusted EBITDA was down about $6 million. So we kind of be considering that as roughly what you guys expected in the margin for the first quarter as in like will you -- anyways expecting adjusted EBITDA to be down for the segment year over year, regardless because if you didn't, but it sounds like that $7 million is expected to come in with a very high incremental margin. So just trying to understand if I'm missing something there.
Iain Humphries
Yeah. First of all, that's not the margins to expect for the US pumping business going forward. When we have weather events, obviously, the downstream effect from interrupted volume reduces the operating leverage. So yes, don't expect that margin performance going forward.
It's going to be more consistent, if not improving, like I said earlier, through the rest of the year. So as we accelerate, where we can, the volume of work, clearly we get operating leverage, which improves margin, improves utilization of our equipment and our people. So certainly the Q1 event and the effect of that is more amplified than the normal run rate. And as we become more efficient like I said, the margin will improve.
Bruce Young
And what I would add to that is we have variable costs in labor and fuel and repair and maintenance. But in January, we still did the normal repair and maintenance that we would have done on that equipment just because it was scheduled and the people and equipment were there to do in the parts supply. But that'll that'll actually and offset through the remainder of the year and because it is ultimately variable to our total costs.
Avi Jaroslawicz
Okay. Got it. That makes sense to me. That's all I have.
Iain Humphries
Thank you.
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 comments.
Bruce Young
Thank you, Andrew. We'd like to thank everyone for listening to today's call, and we look forward to speaking to you when we report our second-quarter fiscal 2024 results in June. Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
