Concrete Pumping Holdings, Inc. (BBCP) on Q2 2022 Results - Earnings Call Transcript

Operator: Good afternoon, everyone and thank you for participating in today's conference call to discuss Concrete Pumping Holdings' Financial Results for the Second Quarter ending April 30, 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, Shyamoli. I’d like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements regarding our business and outlook. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Concrete Pumping Holdings' annual report on Form 10-K, quarterly report on Form 10-Q and other publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On today’s call, we will also reference certain non-GAAP financial measures, including adjusted EBITDA, net debt and free cash flow, which we believe provide useful information for investors. We provide further information about these non-GAAP financial measures and reconciliations to the comparable GAAP measures in our press release issued today or the investor presentation posted on the company’s website. I’d like to remind everyone; this call will be available for replay later this evening. A webcast replay will also be available via the link provided in today’s press release as well as on the company’s website. Additionally, we have posted an updated 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: Thank you, Cody and good afternoon, everyone. The revenue momentum accelerated from our first quarter of 2022 into Q2 with double-digit growth across all segments, reflecting continued market share gain and contributions from recent accretive acquisitions. We are very pleased by our 26% consolidated revenue improvement, and this is another indication that our business model is resilient and further positioned to take market share. By reporting segment, our US Pumping business increased 28% in the second quarter, driven by recent acquisitions and our continued market share gain in all end markets. We continue to grow our residential business, especially with single-family homes and expect this to remain a bright spot for the remainder of the fiscal year. In infrastructure, we experienced a sustained improvement 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 remain encouraged for future growth prospects due to the passage of the Infrastructure Investment and Jobs Act. While we do not assume any meaningful benefits from the Infrastructure Act in our 2022 fiscal year forecast, we are well positioned to capitalize on the increased investment in 2023 and beyond, although, as of now, the magnitude is difficult to estimate. As a result, the infrastructure verticals should become a larger percentage of our overall revenue mix over time. In our commercial business, the improvement trends we experienced last quarter continued into Q2 as projects restarted or broke ground due to the lifting of pandemic restrictions. With the exception of hospitality projects, we saw a continued demand in all commercial segments and the two quarters of expansion creates an encouraging early trend. In our U.K. segment, revenue increased 14% 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 that we have previously announced with the concrete-intensive high-speed railway project, HS2, which is expected to last beyond 2030. In our Eco-Pan business, our Concrete Waste Management business revenue increased 25% for the quarter due to the improved sales approach of our teams -- and our team's ability to execute more in-person selling. As a reminder, we enhanced our Eco-Pan sales team in 2022 to strengthen our position for long-term growth. Going forward, we continue to expect to maintain Eco-Pan's double-digit organic revenue growth. During the quarter, we continued to execute upon our tuck-in M&A strategy, acquiring two assets in the Southern US and one in the United Kingdom. The first asset is a business called Advanced Pumping, and it operates primarily out of Corpus Christi, Texas. This strategic addition will add scale to our South Texas operations and is complementary tuck-in with our existing presence in this area. We also acquired UK Screed & Grout to expand our footprint and service offering in the U.K. Located just outside of Manchester, this addition enhances our presence in Northern England and Midland areas and serves as a platform for valuable geographic growth. Our third acquisition was Landmark Pumping, which provided expansion into new markets in Southern Alabama and the Florida Panhandle. This acquisition positions us well to benefit from favorable market dynamics and provides a new growth platform for our continued geographic expansion. All three acquisitions clearly fit our disciplined criteria of providing opportunities for strong return on investment that position us to expand revenue, grow market share and improve margins over time. They also provide added opportunities to introduce our Eco-Pan service to a wider customer base. Shifting to the cost side of the business, rapid inflation, particularly in diesel fuel, continue to impact year-over-year gross margin comparisons and our team continues to work diligently to recalibrate our rates. To put this headwind into perspective, we experienced a roughly $2 million year-over-year increase in diesel fuel cost in our second quarter or nearly $4 million in the first half of the year. Our team has done an excellent job to offset diesel price and other supply chain inflation with rate increases. Despite the continued velocity in cost inflation, we are pleased to be realizing the expected return for the same volume of work performed. Given our performance and near-term project visibility, 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 of our second quarter 2022 financial results. I will then return to provide some concluding remarks. Iain? Iain Humphries: Thanks, Bruce, and good afternoon, everyone. Moving right into our second quarter 2022 results; we are pleased to report that revenue increased by 26% to $96.5 million compared to $76.9 million in the same year ago quarter. The double-digit revenue improvement was driven by a combination of volume growth from our recent acquisitions, solid organic growth and improved pricing. Revenue in our US Concrete Pumping segment, mostly operating under the Brundage-Bone brand increased 28% to $71.8 million compared to $56.2 million in the same year ago quarter. Excluding the acquisitions of Hi-Tech and Pioneer, organic revenue growth for the quarter increased by approximately 15% to $64.9 million. This increase was driven by improvement in many of our US markets, due to higher construction volumes and pricing improvements. For our UK operations, operating largely under the Camfaud brand, revenue increased 14% to $13.5 million compared to $11.9 million in the same year ago quarter. The increase was primarily due to organic volume growth from the region's continued recovery from the impact of COVID-19 and pricing improvements. Revenue in our US Concrete Waste Management Services segment, operating under the Eco-Pan brand, increased 25% to $11.3 million in the second quarter of 2022 compared to $9 million in the same year ago quarter. The increase was driven by organic growth, pricing improvements and the continued recovery from the impacts of the pandemic. Returning to our consolidated results; gross margin in the second quarter was 40.4% compared to 43.3% in the same year ago quarter. The decrease in gross margin is directly reflected to inflationary pressures, particularly driven by the continued diesel fuel price escalation that Bruce discussed earlier. To give an order of magnitude of the material impact of these inflationary pressures versus Q2 of last year, we estimate our gross margin in the second quarter was impacted by approximately 210 basis points due to higher diesel fuel costs. General and administrative expenses in Q2 were $28.5 million compared to $26.5 million in the same year ago quarter. The dollar cost increase was primarily due to additional costs following our recent acquisitions and it is notable that as a percentage of revenue, G&A costs in the second quarter improved from 34.4% to 29.6%. Net income available to common shareholders in the second quarter increased to $5.6 million or $0.10 per diluted share, and this compares to a net loss of $11.4 million or $0.21 per diluted share in the same year ago quarter. The improvement was primarily due to the contribution from increased revenue as well as a $2.5 million gain from the change in fair value of warrant liabilities this quarter versus Q2 last year where we recorded an $11.5 million expense. Consolidated adjusted EBITDA in the second quarter increased to $27.7 million compared to $25 million in the same year-ago quarter. Adjusted EBITDA margin was 28.7% compared to 32.6% in the same year ago quarter. In our U.S. Concrete Pumping business, adjusted EBITDA improved to $18.6 million compared to $16.3 million in the same year ago quarter, driven by our strong revenue growth. In our U.K. business, adjusted EBITDA was $3.8 million compared to $4.1 million in the same year ago quarter as strong revenue growth was partially offset by significant inflationary pressures, primarily fuel. For our U.S. Concrete Waste Management business, adjusted EBITDA increased 16% to $4.6 million compared to $4 million in the same year ago quarter. Turning to liquidity; at April 30, 2022, we had total debt outstanding of $405 million or net debt of $402 million. We had approximately $96 million in liquidity as of April 30, 2022, which includes cash on the balance sheet and availability from our ABL facility. We remain in a strong liquidity position, which provides further optionality to pursue value-added investment opportunities like accretive M&A or the reduction of our fleet age 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 allow 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, our 2022 previously stated guidance, we expect full year revenue to range between $360 million and $370 million, adjusted EBITDA to range between $115 million and $120 million. And free cash flow, which we define as adjusted EBITDA less net replacement CapEx less cash interest to range between $55 million to $60 million. While guidance remains unchanged with the rate adjustments made across the business, we expect revenue performance to trend around the top end of the range. 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: Thanks, Iain. Overall, we are very pleased with our Q2 results and a strong first half of the year performance. It certainly gives us confidence in the trajectory of our business for the remainder of 2022. We anticipate continued strength in all 3 end markets of commercial, residential and infrastructure. Given the rapid inflation we experienced in diesel fuel, we are pleased with our team's performance in offsetting these costs with limited disruption. As we think about where our business is positioned for fiscal 2023, we have conviction that commercial and infrastructure will continue to have a strong demand due to factors we are experiencing today. We remain focused on driving our scale through organic growth and strategic M&A; last quarter, we shared that we have earmarked approximately $20 million to $25 million towards organic growth CapEx and specifically new equipment. The growth equipment will mostly arrive in the second half of 2022, delivering revenue growth and earnings benefit for 2023 and beyond. Additionally, as announced with today's earning release, the Board of Directors has approved a share repurchase program that authorized the repurchase of up to $10 million of the company's common stock through June 15, 2023. We are committed to strategically deploy capital to drive long-term value for our shareholders. We believe that the current macro environment, combined with the strength of our balance sheet, presents an attractive buying opportunity for our stock. This new share repurchase plan is a reflection of the confidence our Board has in our market opportunity and our strategy to invest for long-term growth. With that, I'd now like to turn the call back over to the operator for Q&A. Shyamoli]? Operator: And our first question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: I guess, first question, just around diesel fuel with the actions you guys have taken on the pricing side, when might we kind of think about your ability to neutralize that effect on the margins that a couple of quarters out; any thoughts around that. Iain Humphries: Yes. So as you know, Brent, we're working hard to keep that going. Obviously, since Q1 to Q2, the fuel inflation has continued. I'd say our team has done a nice job to make sure that we can offset that through the current quarter. So our pricing continues to grow and actually outpaces some of the original guidance that we've got. So it's something we continue to work on as we're looking at diesel prices come through to make sure we can catch up on that inflationary cost. Brent Thielman: Okay. And then maybe on the Eco-Pan business, I imagine the same effect is sort of happening there on the margins. I mean just maybe your medium-term, long-term confidence and kind of getting the margins back up to that high 40s, 50% level as we get through some of these inflationary pressures or has there been some permanent changes in that business? Bruce Young: Yes. So Brent, there's a couple of things there. We're certainly dealing with inflation with Eco-Pan as well, but we've invested into a lot of new markets now, and so we have start-up costs in those markets. And as we create that route density in those new markets, that should continue to improve our margins. Brent Thielman: Got it. Okay. And then the acquisitions, the Hi-Tech and Pioneer deals, are those contributing margins below the segment average? Iain Humphries: The margins are largely in line with the rest of the performance of the business. Obviously, they're still dealing with the same inflationary pressures. But the margins are -- the businesses are now fully integrated into our heritage business, and the margins are back in line with where we would expect them to be. Brent Thielman: Got it. Okay. Thanks guys. I'll turn it up. Operator: Our next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question. Unidentified Analyst: This is Sam filling in for Tim. Bruce, Iain, hope you both are doing well. I guess, I'll start with some margin questions here. Adjusted EBITDA margins, they contracted close to, call it, 400 basis points. I think you provided the impact from higher fuel charges, but could you help round out the 400 basis points for us, maybe share how much higher labor costs impacted you or other large cost buckets? Iain Humphries: Yes. The biggest piece is, as we mentioned on our prepared remarks around fuel, where it's around on a year-to-date basis, probably 250 basis points. The labor component is around maybe 110, 120 basis points. So between fuel and labor, that's a big portion of it that we see something coming through. But like I mentioned on the earlier piece on pricing, the pricing pace that we've got is outpacing where we would expect it to be, and that will help continue to manage the margin piece. Unidentified Analyst: Got you. Maybe tipping into pricing. I believe in the prior quarter, you mentioned 70% of your contracts had some of these new terms added to protect pricing, be it shorter contracts or fuel surcharges. I'm wondering if you could update us on that figure as it stands today. And maybe just hear your thoughts generally around how effective these changes have been to kind of offset some of this inflation. Bruce Young: Yes. So we've done a really good job of offsetting a lot of inflationary items. Obviously, fuel continues to go up, and we try to chase that up. We do have price escalators, fuel surcharges that we continue to add as fuel price goes up. But largely, we're in about the same position, about 50% to 60% of our work is more backlog work that we're locked into. We're locking in residential to shorter periods of time trying to understand where inflation is going to take us. But I think, in general, our team has done a really good job of getting rates up with inflation. Unidentified Analyst: Okay. That's helpful. And maybe last question for me here, related more to your commercial business. You highlighted the resurgence of commercial in your prepared remarks. I was hoping you could provide more detail on some of the project types or even customers that are driving this resurgence. And maybe on the customer front, could you share if this is more a product of new customers you're winning over or existing customers that are just accelerating some of their own activity? Bruce Young: Yes. So it's kind of all of the above. You probably know, we are on 1,000 different jobs every day with our different equipment. And so it's varies from different end markets to different segments in the commercial market. So there's not any one that really drives that, but we are seeing continued growth in data centers. The office buildings are coming back. Largely, we're seeing that the large manufacturing, everything other than hospitality seems to be improving a little by little. Unidentified Analyst: Thanks you. I'll leave it there. Thanks. Operator: The next question we have is from the line of Robert Schultz with Baird. Robert Schultz: Hey there. Thanks for taking the question. I just wanted to clarify on the three acquisitions. Are those businesses? Or did you literally just acquire the equipment, and so it's more of a CapEx purchase? And then how much incremental revenue are you expecting out of those acquisitions for '22? Iain Humphries: Yes. So there were asset purchases, which is really in line with the way that we've done typical deals in the past. So it's really adding equipment into our fleet. Think about it like organic growth and from the back half of the year. So just given we've recently completed those deals in the back half of the year, they would generate maybe $3.5 million of revenue or something in that magnitude. Robert Schultz: Good it. Thank you. That's all for me. Operator: And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Mr. Young for closing remarks. Bruce Young: Thank you, Shyamoli. We'd like to thank everyone for listening to today's call, and we look forward to speaking with you when we report our third quarter fiscal 2022 results in September. Thank you. Operator: And ladies and gentlemen, this does conclude today's teleconference, and you may disconnect your lines at this time. Thank you for your participation.
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Concrete Pumping Holdings, Inc. (NASDAQ:BBCP) - A Deep Dive into Its Market Position and Analyst Expectations

  • Concrete Pumping Holdings, Inc. (NASDAQ:BBCP) has shown strong revenue growth across its main segments, indicating a robust business model.
  • Strategic initiatives focused on operating leverage, price increases, and higher-margin projects are expected to drive margin improvements for BBCP.

Concrete Pumping Holdings, Inc. (NASDAQ:BBCP) operates in the niche market of concrete pumping and waste management services, with a strong presence in the United States and the United Kingdom. Since its inception in 1983, BBCP has grown to become a key player in the industry, offering specialized services through its Brundage-Bone and Camfaud brands for concrete pumping, and Eco-Pan for waste management. The company's extensive fleet and broad service range cater to various sectors, including commercial, infrastructure, and residential projects.

Analyst Andrew Wittmann from Robert W. Baird has recently set a price target of $7.50 for BBCP shares, slightly below the previous average but still indicative of confidence in the company's growth prospects. This target is supported by several key factors, including government stimulus and a potential reversal in the interest rate cycle, which are expected to benefit the commercial and infrastructure markets. Furthermore, BBCP has shown strong revenue growth across its main segments, including U.S. Concrete Pumping, U.K. operations, and Eco-Pan, suggesting a robust business model capable of capitalizing on market opportunities.

The company's focus on operating leverage, price increases, and higher-margin projects, particularly within its Eco-Pan business, is anticipated to drive margin improvements. These strategic initiatives are crucial for BBCP's ability to enhance its financial performance and shareholder value in the long term. The emphasis on expanding the share of the high-margin Eco-Pan business further underscores the company's commitment to optimizing its service portfolio for better profitability.

Investors and stakeholders should closely monitor upcoming earnings reports, company announcements, and market trends for more insights into Concrete Pumping Holdings' strategic direction and financial health. This will help clarify the future trajectory of its stock price and validate the confidence expressed by analysts like Andrew Wittmann in the company's potential for growth.