Concrete Pumping Holdings Inc (BBCP) Q1 2022 Earnings Call Transcript

Concrete Pumping Holdings Inc (BBCP 0.46%)
Q1 2022 Earnings Call
Mar 10, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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 ending January 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 -- Investor Relations

Thanks, Maria. 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 Inc.'s 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 investor 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?

Bruce Young -- Chief Executive Officer

Thank you, Cody, and good afternoon, everyone. Our first quarter in 2022 is off to a strong start with over 21% revenue growth in all segments of the business, as we continue to gain market share and benefit from recent accretive acquisitions. On the first day of the quarter, we successfully completed the acquisition of Pioneer Concrete Pumping. Adding Pioneer to our portfolio positions us well to benefit from favorable market conditions and accelerated construction activity in Texas and Georgia, two of our strongest growth areas in Q1.

Additionally, it also provides a complementary growth platform for our Eco-Pan service expansion. This acquisition, along with the other assets we acquired late last year have integrated seamlessly into our business. We have been able to capture expected margin improvements at this point of the integration, as we identify and secure various cost synergies. With our experience in acquiring over 60 different companies in our industry, we are the clear leader in terms of M&A, and we'll continue to pursue opportunistic deals that will be accretive to our earnings and have teams align -- that align with our core values of people, safety, and reliability.

Now turning to our individual reporting segments. Our U.S. pumping business increased 21% for the first quarter, driven by contribution from recent acquisitions and our continued market share gains in residential and infrastructure projects. We continue to experience high demand in residential, especially single-family homes.

We expect residential to remain a bright spot for our company into 2022 even as interest rates rise due to strong demand and limited supply of housing. For infrastructure, we experienced sustained activity from increased state funding in public project investments such as bridges, schools, wastewater treatment plants, and hospitals. We will continue to work to win projects at the state and local level, and we are encouraged by the passage of the Infrastructure Investment and Jobs Act. While we do not assume any meaningful benefit from the Infrastructure Act in our 2022 fiscal year, we are well positioned for 2023 and beyond.

In our commercial business, we experienced a modest improvement during the first quarter, particularly with additional light commercial projects emerging around new residential construction. Additionally, we experienced more demand for our higher-margin specialty equipment. While we continue to experience pockets of softness across the country tied to the dynamic commercial construction environment created by COVID, the trends we are experiencing -- experienced in the first quarter are encouraging. In our U.K.

segment, revenue increased 23% compared to the prior year quarter due to organic volume growth from the country's continued strong recovery from the impacts of COVID-19. Our team continues to secure energy road and rail projects in addition to the work we previously announced with the concrete intensive high-speed rail project, HS2, which is expected to last beyond 2030. In Eco-Pan, our concrete waste management business revenue increased 24% for the quarter due to an improved sales approach and our team's ability to execute more in-person selling. As a reminder, we enhanced our Eco-Pan sales team in 2021 to strengthen our position for long-term growth.

Going forward, we continue to expect to maintain Eco-Pan's double-digit revenue growth. Shifting to the cost side of our business, continued inflationary pressures were the only major headwind we experienced in the quarter, particularly in diesel fuel. The rapid and material price escalation made it challenging to fully offset our rates in the first quarter, and our team has done an excellent job to ensure we are well positioned to offset the inflationary headwinds in 2022. As we close our first quarter, we are in a strong position to continue executing on our strategic growth priorities for the rest of 2022, whether it's organic or through opportunistic M&A.

Now, I would like to hand the call over to Iain, so he can provide a detailed overview on our first quarter 2022 financial results. I will then return to provide some concluding remarks. Iain?

Iain Humphries -- Chief Financial Officer

Thanks, Bruce, and good afternoon, everyone. Moving right into our first quarter 2022 results, we are pleased to report that revenue increased 21% to $85.4 million, compared to 70.4 million in the same year ago quarter. The double-digit improvement was driven by a combination of revenue volume growth from our recent acquisitions, solid organic growth, and improved pricing. Revenue in our U.S.

pumping segment, mostly operating under the Brundage-Bone brand increased 21% to 63.1 million, compared to 52.3 million in the same year ago quarter. Excluding the acquisitions of Hi-Tech and Pioneer, organic revenue growth for the quarter increased by approximately 8% to 56.4 million. This organic growth was driven by improvement in many of our U.S. markets due to higher construction volumes and pricing improvements.

For our U.K. Operations, operating largely under the Camfaud brand, revenue increased 23% to 12 million, compared to 9.8 million in the same year ago quarter. This increase was primarily due to our organic volume growth from the region's continued recovery from the impact of COVID-19 and pricing improvements. Revenue in our U.S.

concrete waste management services segment, operating under the Eco-Pan brand increased 24% to 10.5 million in the first quarter of 2022, compared to 8.4 million in the same year ago quarter. The increase was driven by organic volume growth and growth in pan pickups and also including some pricing improvements. While Q1 is typically a seasonally slower growth quarter for us, we are extremely pleased by our team's dedicated efforts and execution to successfully sell our Eco-Pan service offering. Returning to our consolidated results.

Gross profit in the first quarter increased to 34.1 million, compared to 29.9 million in the same year ago quarter, while gross margin was 39.9%, compared to 42.4%. The decrease in margin is directly related to inflationary pressures, particular -- particularly in the elevated diesel fuel prices that Bruce discussed earlier. To provide an order of magnitude of the impact of these inflationary pressures versus Q1 of last year, we estimate our gross margin was impacted by approximately 220 basis points due to the higher diesel fuel costs. General and administrative expenses in Q1 were 26.7 million, compared to 22.4 million in the same year ago quarter.

The higher expense was primarily driven by increased labor expense due to the additional headcount following our recent acquisitions and some moderate wage inflation. Net income available to common shareholders in the first quarter increased to $0.7 million or $0.01 per diluted share, compared to a net loss of 12.8 million or $0.24 per diluted share in the same year ago quarter. Finally, adjusted EBITDA in the first quarter increased to 24 million, compared to 22.4 million in the same year ago quarter. Adjusted EBITDA margin was 28.1%, compared to 31.7% in the same year ago quarter.

It is worth noting that adjusted EBITDA in our first quarter included the disruption from the Teamsters union strike in the Seattle, Washington area. Our business has not signaturated Teamsters union. However, the strike in Seattle does affect the delivery of concrete to construction sites. Due to our team's responsiveness and effective fleet management, we were able to minimize our exposure through this interruption and despite construction volumes being impacted by approximately 40% in that market, our branch performed -- our branch performance delivered positive EBITDA and positive cash flow.

In our U.S. concrete pumping business, adjusted EBITDA was 15.2 million, compared to 15.3 million in the same year ago quarter, primarily due to inflationary pressures, such as higher fuel and labor costs. In our U.K. business, adjusted EBITDA improved 20% to 3.3 million, compared to 2.7 million in the same year ago quarter.

This reflects the continued construction volume recovery of the U.K. market from the impacts of the pandemic. For our U.S. concrete waste management business, adjusted EBITDA increased 33% to 4.9 million, compared to 3.7 million in the same year ago quarter.

Turning to liquidity. On January 31, 2022, we had total debt outstanding of 391 million or net debt of 388 million. The slight uptick in debt on a sequential basis from our 2021 fourth quarter is due to the investment made in the acquisition of Pioneer. We had approximately 108 million in liquidity at January 31, 2022, which includes cash on the balance sheet and availability from our ABL facility.

We have a strong liquidity position, greatly enhancing our ability to pursue accretive investment opportunities like M&A or the investment in organic growth equipment to support our overall long-term growth strategy. As a reminder, our business continues to generate healthy operating free cash flows. We invoice our customers daily for the work we perform and have minimal working capital requirements since we do not take ownership of the concrete we place. Our ability to generate strong operating free cash flows and strong margins allows us to expand our liquidity position and delever in line with our strategic goals, regardless of the macroeconomic environment.

Our fiscal year 2022 financial outlook remains unchanged. As a reminder, of our 2022 previously stated guidance, we continue to expect full year revenue to range between 360 and $370 million, adjusted EBITDA to range between 115 and $120 million and free cash flow, which we define as adjusted EBITDA less net replacing capex less cash interest to range between 55 to $60 million. Operationally and financially, we have a solid foundation, and we are actively working to execute on our growth strategy. With that, I will now turn the call back over to Bruce.

Bruce Young -- Chief Executive Officer

Thanks, Iain. Overall, we are pleased with our first quarter of 2022 and the path it has set us on for the rest of the fiscal year. We remain focused on driving our scale through organic growth and strategic M&A. Looking ahead, we anticipate that 2022 is a year in which we see a return to a more normalized state, as underlying demand fundamentals reset and U.S.

and U.K. economies gain further momentum. In the first quarter of 2022, we were pleased to report over 21% revenue growth across all segments, and we continue to gain scale through organic growth as well as strategic M&A. Last quarter, we shared that we have earmarked approximately 20 to $25 million toward organic growth capex and specifically new equipment.

The equipment is expected to begin arriving in the second half of 2022, delivering revenue and earnings benefit for 2023 and beyond. On the M&A front, we continue to have a robust pipeline of acquisitions that our management team is evaluating. We remain very disciplined in our approach to M&A and plan to pursue accretive opportunities to increase our penetration across our existing geographic footprint and allow us to enter new markets. Looking beyond 2022, we remain well positioned to capitalize on attractive market fundamentals and secular demand trends across our geographic footprint.

We fully expect expanded federal and state level infrastructure investment, continued single-family housing strength, and the commercial market recovery to support growing construction activity for years to come. With these trends, we have confidence in our hard working team to continue winning work across our concrete pumping and Eco-Pan business. With that, I'd now like to turn the call back over to Maria for Q&A.

Questions & Answers:

Operator

[Operator instructions]. Our first question is from Andy Wittmann with Baird. Please proceed with your question.

Andy Wittmann -- Baird -- Analyst

Thanks. Good afternoon, guys. I thought I'd start where probably anybody would start would just be about the inflationary characteristics that you're seeing in the business, particularly around diesel fuel. Obviously, it didn't prevent you from kind of making your numbers in the quarter, but your margins did get penalized by this, obviously.

In the second quarter here, the fuel prices are moving even faster and obviously to a higher level, yet, you guys said in your comments that I think that you'll be able to offset this for the year. So I guess the question is, what are you doing right now to give you confidence in that comment that you'll be able to offset these things? Have you hedged -- have you changed the terms of the way you write the contract? Anything you can do to get us comfortable with the fact and your ability to manage through this incredible move that we've seen, particularly in diesel prices.

Iain Humphries -- Chief Financial Officer

Thanks, Andy. That's a great question. It is something that we're very focused on, and we'll continue to be focused on things that have changed since we had our last earnings call. We've shortened the length of our agreements, especially in the residential market, where we may have had annual agreements prior.

We're trying to get closer to three-month agreements and being able to make the offsets more real time than what we have had in the past. And then on our commercial and infrastructure projects, we're putting surcharges for fuel, for instance, as fuel price goes up $0.25, there's an additional charge that goes to our hourly charge on our ticket. So those are the two things that we've largely done within our business to try to get out of in front of the inflationary areas. We think we've done a fairly good job of really mitigating all the other areas that we're dealing with inflation in.

Andy Wittmann -- Baird -- Analyst

Got it. Just to follow up on that. What percentage of your contracts that you're going to be executing, I guess, for the rest of this fiscal year are covered by these new terms, whether they're shorter or they've got the surcharges? Is this substantially everything? Or is it pockets of it? Just want to understand how broad-based these new ways of finding your terms are being rolled out.

Iain Humphries -- Chief Financial Officer

Our operations management feel like we're about 70% of our agreements that have that in place now, and we're looking to improve on that.

Andy Wittmann -- Baird -- Analyst

OK. Great. And then maybe one more here. I guess, the pace and the trend lines that you're feeling in the commercial side of your business, this has obviously been an important piece of the business, you've replaced it really well during this pocket of softness from COVID.

But it sounds like there's some green shoots that you didn't say that word, but there also seems like there's some areas that aren't really coming back. As you sit here today, parts of the way through the second quarter, Bruce, are you confident that this summer is going to look more like a normal summer? Or do you still think it's going to -- the commercial business is going to be in recovery through this construction season?

Bruce Young -- Chief Executive Officer

I think it will be in recovery. However, it is recovering now. In Q1, we saw movement of 1% of our total revenue moved toward commercial. We're bidding more work more of our specialty equipment that we've talked about in the past is being bid out and actually, we're winning work for this summer to use up more of that equipment than what we had used in 2021.

So we feel confident that it will be -- we'll be improving through this year. But I don't think it will get back to where we were in 2020 or earlier until really 2023.

Andy Wittmann -- Baird -- Analyst

Got it. And then just one final question for me. The lack of any commentary on weather suggests to me that the weather was probably pretty good. Was that the case overall that the weather was actually -- would you say that the weather was unusually good this quarter just out of curiosity?

Bruce Young -- Chief Executive Officer

I would say the weather was average for this quarter. As we've talked in the past, with our geographic footprint, we're going to deal with some weather somewhere every quarter. And so we -- it was no different in this last quarter. And so really, we think our geographic footprint kind of helps us through that.

Andy Wittmann -- Baird -- Analyst

Thank you, and good evening.

Bruce Young -- Chief Executive Officer

Thanks, Andy.

Operator

Our next question is from Steven Fisher with UBS. Please proceed with your question.

Steven Fisher -- UBS -- Analyst

Thanks. Good afternoon. Wondering if you could give us some updated thoughts on expected organic growth for this year. I know you've got the total revenue guidance out there, but Q1 coming in at 11% seemed it was a bit faster than you expected.

So I'm wondering kind of what you're expecting for the next few quarters here? And then if there's any sort of upside potential that you think could come out of this, what you're seeing now?

Iain Humphries -- Chief Financial Officer

Yes. Hi, Steve, good question. You're right. I mean the pace of the organic growth in the first quarter, I mean, thinking back to what we had said in January, we thought around the organic growth of maybe 5% or 6%, clearly, we've outpaced that in the first quarter.

So that's really taking the benefit of the good weather that Bruce mentioned just earlier. So I mean, from a volume perspective, previously, we had said that part of the organic growth is maybe around 2% or 3%. It's probably closer to 5% or 7% now. So that's really where the pickup is coming through.

The pricing part of the organic growth, I would say, is largely the same, but maybe toward the top end of the 4% to 7% price gauge that we gave. So yes, the organic pace of the business right now is a little in front of where we expect. So it's nice to see the momentum really outpaced what we had originally thought in a couple of months ago.

Steven Fisher -- UBS -- Analyst

OK. That's helpful. And I guess within the U.S. concrete pumping business, how broadly are you seeing acceleration across your geographies and customer base? Are there -- to what extent are there still any kind of pockets of slower activity that you're seeing and where might those be?

Iain Humphries -- Chief Financial Officer

Nothing specific. I mean outside of the volume change that we mentioned in our remarks around Washington, the rest of the pace of volume in our business is largely around those expectations, I just mentioned on volume and also on pricing. So outside of that Seattle, Washington area, not really. But I would say -- I mean, our team have done a great job through the fleet management and the nimbleness of making sure that we can place our equipment in the right areas to manage through even unexpected volume changes.

Steven Fisher -- UBS -- Analyst

Got it. Thanks very much.

Iain Humphries -- Chief Financial Officer

Thanks, Steven.

Operator

Our next question is with Zane Karimi with D.A. Davidson. Please proceed with your question.

Zane Karimi -- D.A. Davidson -- Analyst

Good afternoon. Thank you for taking my questions. So first off here, thinking about replacement parts and the dynamics there, are there any supply disruptions impacting your ability to get equipment replacement parts for new equipment altogether? Do you think this is more of an issue for your competitors with less scale?

Iain Humphries -- Chief Financial Officer

Hi. Yes. I mean, as you -- as you maybe know from and comments we've made in the past, we buy our parts from many different suppliers and OEMs. So we're not really relying on any one provider for those parts.

Now we do stock the needed amount of parts in our inventory, so that we can keep on cycling through the parts that we have at our local locations, so that we're not dependent on rapid or overnight shipments. So we look to maintain really a modest level of inventory to service our needs. So no real meaningful disruption in that part of our supply chain because we're usually quite well out in front of that and really thought buying at good pricing and making sure, again, that the timing gets those items to the needed locations when we need it.

Bruce Young -- Chief Executive Officer

What I would add to that, Iain, is with the new equipment, they are delayed slightly, but nothing has been delayed to the point, where we can't service our customers the way they expect.

Zane Karimi -- D.A. Davidson -- Analyst

OK. Good to hear there. And also on M&A front, one of the strategies you commented on earlier with regard to drivers for this year was M&A. Can you give us an update on the M&A funnel, what you're seeing and potentially any new competitors in the bidding process?

Iain Humphries -- Chief Financial Officer

Our M&A pipeline remains full. We are actively negotiating with several businesses currently. It hasn't really changed. Values we place on the businesses are very similar to what we've seen in the past.

We've always had some minor competition on deals and that really hasn't changed for us so much either.

Zane Karimi -- D.A. Davidson -- Analyst

OK. Thank you. And last one for me. On Eco-Pan and maybe some of the disruptions you saw up in Seattle, but can you update us on the progress with your market penetration initiatives with Eco-Pan?

Iain Humphries -- Chief Financial Officer

Yes. So Eco-Pan has been a really good story for us this year. If you remember back in 2020, we had 20% revenue growth or near 20% revenue growth. Last year, it was difficult for us to have in-person selling.

In fact, the second half of 2020, it was that way as well, and so it's very difficult for us to increase our share. As the market started opening up last summer, where our sales folks could get out and meet with folks in person, and during that period of time, we expanded our sales force. We've done a really good job of increasing that penetration in nearly every market that we're in.

Zane Karimi -- D.A. Davidson -- Analyst

Great. Thank you very much.

Operator

Our next question is from Stanley Elliott with Stifel. Please proceed with your question.

Brian Brophy -- Stifel Financial Corp. -- Analyst

Hi. Good afternoon. This is Brian Brophy on for Stanley. I was hoping you can talk a little bit about the labor side.

Last quarter, you mentioned that was an area of pretty tightness for both you and your customers. Have things begin to ease there? Or what are you seeing in that regard?

Bruce Young -- Chief Executive Officer

It's still a bit of a challenge for our customers and our business. It does seem to have gotten better here in the last couple of months, and we're encouraged that it may continue to improve throughout this year.

Brian Brophy -- Stifel Financial Corp. -- Analyst

Thanks. And then you talked about 220-basis-point diesel impact in the quarter to margins. What are you guys embedding for the full year?

Iain Humphries -- Chief Financial Officer

I mean, right now, I mean, we're obviously looking at price inflation that we've never seen before. So really, what we're doing around the change in expected pricing going forward, is really modifying the pricing that Bruce mentioned, as we go along. We have good momentum in our pricing initiatives right now. But I mean, as we mentioned earlier, we're looking to make sure that we stay on top of how we adjust the price of our service to really and accommodate that.

And obviously the change in fuel prices through the first quarter was the largest part of what we've seen in the margin change. And we'll continue to modify those initiatives, as we see the -- that part of the supply chain costs move.

Brian Brophy -- Stifel Financial Corp. -- Analyst

All right. Got it. Thanks. I'll pass it on.

Iain Humphries -- Chief Financial Officer

Thanks.

Operator

[Operator instructions]. Our next question is with Tim Mulrooney with William Blair. Please proceed with your question.

Tim Mulrooney -- William Blair -- Analyst

Bruce, Iain, good afternoon.

Iain Humphries -- Chief Financial Officer

Hey, Tim.

Tim Mulrooney -- William Blair -- Analyst

Housing starts, they slowed a little bit to start off the year. Can you talk a little bit about your outlook in some more detail on the residential side of the business? Maybe you could frame it and in terms of how that business grew in 2021 and what your expectations are for this year?

Bruce Young -- Chief Executive Officer

So our first quarter, it stayed about where we would have expected it to be. There have been a few pockets, where there the foundation portion of the project, it got out in front of some of the supplies of getting other things done, but that hasn't been too impactful to us. The demand side is still quite strong. And from everything that we're following and the customers we're talking to, we expect it should stay strong for us through the remainder of the year.

Tim Mulrooney -- William Blair -- Analyst

OK. That's helpful. And just lastly for me on Eco-Pan. I noticed that EBITDA grew faster than revenue in the first quarter, which was a little surprising to me given the inflationary environment, particularly with diesel.

Is most of this from pricing and leverage on higher volumes or other factors to take into account as well?

Bruce Young -- Chief Executive Officer

I think the route density is really playing out really well for Eco-Pan, as we do better at creating more density within our own markets, that route density improves our margins. That's really always been a big part of our strategy.

Tim Mulrooney -- William Blair -- Analyst

That's helpful. Thanks, Bruce.

Bruce Young -- Chief Executive Officer

Thanks, Tim.

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 -- Chief Executive Officer

Thank you, Maria. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our Q2 financial results in June. Thank you.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Cody Slach -- Investor Relations

Bruce Young -- Chief Executive Officer

Iain Humphries -- Chief Financial Officer

Andy Wittmann -- Baird -- Analyst

Steven Fisher -- UBS -- Analyst

Zane Karimi -- D.A. Davidson -- Analyst

Brian Brophy -- Stifel Financial Corp. -- Analyst

Tim Mulrooney -- William Blair -- Analyst

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