The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1. Organization and Description of Business
Organization
Concrete Pumping Holdings, Inc. (the “Company”) is a Delaware corporation headquartered in Denver, Colorado. The Consolidated Financial Statements include the accounts of Concrete Pumping Holdings, Inc. and its wholly owned subsidiaries including Brundage-Bone Concrete Pumping, Inc. (“Brundage-Bone”), Capital Pumping (“Capital”), Camfaud Group Limited (“Camfaud”), and Eco-Pan, Inc. (“Eco-Pan”).
Nature of business
Brundage-Bone and Capital are concrete pumping service providers in the United States ("U.S.") and Camfaud is a concrete pumping service provider in the United Kingdom (“U.K.”). Their core business is the provision of concrete pumping services to general contractors and concrete finishing companies in the commercial, infrastructure and residential sectors. Most often equipment returns to a “home base” nightly and these service providers do not contract to purchase, mix, or deliver concrete. Brundage-Bone and Capital collectively have approximately 100 branch locations across approximately 20 states, with its corporate headquarters in Denver, Colorado. Camfaud has approximately 30 branch locations throughout the U.K., with its corporate headquarters in Epping (near London), England.
Eco-Pan provides industrial cleanup and containment services, primarily to customers in the construction industry. Eco-Pan uses containment pans specifically designed to hold waste products from concrete and other industrial cleanup operations. Eco-Pan has 18 operating locations across the U.S. with its corporate headquarters in Denver, Colorado. In addition, we have concrete waste management operations under our Eco-Pan brand name in the U.K. and currently operate from a shared Camfaud location.
Seasonality
The Company’s sales are historically seasonal, with lower revenue in the first quarter and higher revenue in the fourth quarter of each year. Such seasonality also causes the Company’s working capital cash flow requirements to vary from quarter to quarter and primarily depends on the variability of weather patterns with the Company generally having lower sales volume during the winter and spring months.
Note 2. Summary of Significant Accounting Policies
We describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended October 31, 2022. During the three months ended January 31, 2023, there were no significant changes to those accounting policies.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared, without audit, in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. The enclosed statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at January 31, 2023 and for all periods presented.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
9
Revenue recognition
The Company generates revenues primarily from (1) concrete pumping services in both the U.S. and U.K and (2) the Company’s concrete waste services business, both of which are discussed below. In addition, the Company generates an immaterial amount of revenue from the sales of replacement parts to customers. The Company’s delivery terms for replacement part sales are FOB shipping point. Revenue is disaggregated between two accounting standards: (1) ASC 606, Revenue Recognition ("ASC 606") and (2) ASC 842, Leases ("ASC 842").
Leases as Lessor
Our Eco-Pan pan business involves contracts with customers whereby we are a lessor for the rental component of the contract and therefore, such rental components of the contract are recorded as lease revenue. We account for such rental contracts as operating leases. We recognize revenue from pan rentals in the period earned, regardless of the timing of billing to customers. The lease component of the revenue is disaggregated by a base price that is based on the number of contractual days and a variable component that is based on days in excess of the number of contractual days.
The table below summarizes our revenues as presented in our consolidated statements of operations for the periods ended January 31, 2023 and 2022 by revenue type and by applicable accounting standard:
| | Three Months Ended January 31, | |
(in thousands) | | 2023 | | | 2022 | |
Service revenue - ASC 606 | | | 86,365 | | | | 80,079 | |
Lease fixed revenue – ASC 842 | | | 4,054 | | | | 3,018 | |
Lease variable revenue - ASC 842 | | | 3,156 | | | | 2,351 | |
Total revenue | | | 93,575 | | | | 85,448 | |
Newly adopted accounting pronouncements
Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) - In March 2020, the FASB issued ASU 2020-04, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”). Specifically, to the extent the Company's debt agreements are modified to replace LIBOR with another interest rate index, ASU 2020-04 will permit the Company to account for the modification as a continuation of the existing contract without additional analysis. Companies may generally elect to apply the guidance for periods that include March 12, 2020 through December 31, 2022. Effective October 1, 2021, the Company transitioned all of its GBP borrowings from LIBOR to the Sterling Overnight Index Average ("SONIA") rate. Effective June 29, 2022, the Company transitioned all of its U.S. Dollar borrowings from LIBOR to the Secured Overnight Financing Rate ("SOFR"). See Note 8 for further discussion.
ASU 2016-02, Leases ("ASU 2016-02") - In February 2016, the FASB issued ASU 2016-02, which is codified in ASC 842, Leases (“ASC 842”) and supersedes current lease guidance in ASC 840, Leases. ASC 842 requires a lessee to recognize a right-of-use asset ("ROU") and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In addition, ASC 842 expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases ASC 842: Targeted Improvements, which allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The new standard is effective for emerging growth companies that have elected to use private company adoption dates for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted the guidance for the year ended October 31, 2022, with an effective date of adoption of November 1, 2021.
Recently issued accounting pronouncements not yet effective
ASU 2016-13, Financial Instruments Credit Losses (Topic 326) (“ASU 2016-13”) - In June 2016, the FASB issued ASU No. 2016-13, which, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions. This ASU is effective for smaller reporting companies with fiscal years beginning after December 15, 2022, with early adoption permitted. The Company plans to adopt the guidance during the first quarter of the fiscal year ending October 31, 2024. The amendments of this ASU should be applied on a modified retrospective basis to all periods presented. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.
Note 3. Business Combinations and Asset Acquisitions
The Company completed no acquisitions during the first quarter of fiscal 2023 and five acquisitions during fiscal 2022. All acquisitions either added complementary assets in markets in which the Company already operates or expanded the Company's footprint into adjacent markets. With the exception of the acquisition during the fourth quarter of fiscal 2022, all other transactions qualified as asset acquisitions. Except for the acquisition of Pioneer in the first quarter of fiscal 2022 and Coastal in the fourth quarter of fiscal 2022, these acquisitions were not individually significant to our results of operations. The consideration for the acquisitions in fiscal 2022 consisted of cash and was allocated to the acquired long-lived tangible and intangible assets.
August 2022 (Fiscal 2022) Coastal Acquisition
In August 2022, the Company acquired the property, equipment and intangible assets of Coastal Carolina Pumping, Inc. (“Coastal”) for total purchase consideration of $30.8 million, which was paid for using cash and the ABL Facility (defined below). This transaction expanded our operations in the Carolinas and Florida and qualified as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values. There was no goodwill recognized in this transaction.
The following table represents the final allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values with any measurement-period adjustments included:
(in thousands) | | | | |
Consideration paid: | | $ | 30,762 | |
| | | | |
Net assets acquired: | | | | |
Intangible assets | | $ | 2,500 | |
Property and equipment | | | 28,500 | |
Liabilities assumed | | | (238 | ) |
Total net assets acquired | | $ | 30,762 | |
All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections.
Identifiable intangible assets acquired consist of customer relationships of $1.7 million and non-compete agreements valued at $0.8 million. The customer relationships were valued using the multi-period excess earnings method. The non-competes were valued using a direct valuation of economic damages approach. The Company determined the useful life of both the customer relationships and non-compete agreements to be 5 years.
Concurrent with closing of the asset purchase agreement, the Company signed five leases directly with the seller. The leases were entered into at market rates and the Company recognized an ROU asset and liability of $6.5 million related to these leases.
11
November 2021 (Fiscal 2022) Pioneer Acquisition
In November 2021, the Company acquired the assets, no cash, of Pioneer Concrete Pumping Services (“Pioneer”) for total purchase consideration of $20.2 million, of which, $1.0 million was held back (the “Holdback”) to allow for a post-closing joint inspection of Pioneer’s fleet vehicles. The Holdback had not been paid out as of January 31, 2023. This transaction was treated as an asset acquisition. The Company allocated $19.1 million to the purchase of Pioneer's equipment. The remaining $1.1 million was allocated to a definite-lived assembled workforce intangible asset and a definite-lived customer relationships intangible asset. All assets were valued using level 3 inputs. The equipment was valued using a market approach while the intangible assets were valued using an income approach based on management’s projections. The intangible assets will be amortized over 3 to 5 years.
Transaction Costs
Transaction costs include expenses for legal, accounting, and other professionals that were engaged in connection with an asset acquisition or business combination. There were no significant transaction costs incurred in each of the three months ended January 31, 2023 and 2022.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Coastal business combination discussed above as if they had occurred on November 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the Coastal business combinations had been completed on November 1, 2021, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.
The unaudited pro forma financial information is as follows:
| | Three Months Ended January 31, | |
(in thousands) | | 2023 | | | 2022 | |
Revenue | | $ | 93,575 | | | $ | 85,448 | |
Pro forma revenue adjustments by Business Combination | | | | | | | | |
Coastal | | $ | - | | | $ | 4,124 | |
Total pro forma revenue | | $ | 93,575 | | | $ | 89,572 | |
| | | | | | | | |
Net (loss) income | | $ | 6,475 | | | $ | 1,183 | |
Pro forma net income adjustments by Business Combination | | | | | | | | |
Coastal | | $ | - | | | $ | (47 | ) |
Total pro forma net (loss) income | | $ | 6,475 | | | $ | 1,136 | |
Significant pro forma adjustments include:
| ● | Tangible and intangible assets are assumed to be recorded at their estimated fair values as of November 1, 2021 and are depreciated or amortized over their estimated useful lives; and |
| ● | The Company incurred approximately $30.0 million on the ABL Facility (defined below) in connection with the acquisition of Coastal. Interest expense has been adjusted as of November 1, 2020. |
Coastal’s contribution to the Company's first quarter of fiscal 2023 revenue was $4.4 million and net income was $0.7 million.
12
Note 4. Fair Value Measurement
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and current accrued liabilities approximate their fair value as recorded due to the short-term maturity of these instruments, which approximates fair value. The Company’s outstanding obligations on its asset-backed loan ("ABL") credit facility are deemed to be at fair value as the interest rates on these debt obligations are variable and consistent with prevailing rates. The fair value of the ABL credit facility is derived from Level 2 inputs. The carrying values of the Company's finance lease obligations represent fair value. There were no changes since October 31, 2022 in the Company's valuation techniques used to measure fair value.
Long-term debt instruments
The Company's long-term debt instruments are recorded at their carrying values in the consolidated balance sheet, which may differ from their respective fair values. The fair values of the long-term debt instruments are derived from Level 2 inputs. The fair value amount of the long-term debt instruments at January 31, 2023 and at October 31, 2022 is presented in the table below based on the prevailing interest rates and trading activity of the Senior Notes.
| | January 31, | | | October 31, | |
| | 2023 | | | 2022 | |
(in thousands) | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | |
Senior Notes | | $ | 375,000 | | | $ | 347,813 | | | $ | 375,000 | | | $ | 339,375 | |
Finance lease obligations | | $ | 251 | | | $ | 251 | | | $ | 278 | | | $ | 278 | |
Warrants
At January 31, 2023 and October 31, 2022, there were 13,017,677 public warrants and no private warrants outstanding. Each warrant entitles its holder to purchase one share of Class A common stock at an exercise price of $11.50 per share. The warrants expire on December 6, 2023, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders.
The Company accounts for the public warrants issued in connection with its IPO in accordance with ASC 815, under which certain provisions in the public warrant agreements do not meet the criteria for equity classification and therefore these warrants must be recorded as liabilities. The fair value of each public warrant is based on the public trading price of the warrant (Level 2 fair value measurement). Gains and losses related to the warrants are reflected in the change in fair value of warrant liabilities in the consolidated statements of operations.
All other non-financial assets
The Company's non-financial assets, which primarily consist of property and equipment, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite lived intangibles), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value.
13
Note 5. Prepaid Expenses and Other Current Assets
The significant components of prepaid expenses and other current assets at January 31, 2023 and at October 31, 2022 are comprised of the following:
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Prepaid insurance |
|
$ |
6,674 |
|
|
$ |
1,550 |
|
Prepaid licenses and deposits |
|
|
1,127 |
|
|
|
751 |
|
Prepaid rent |
|
|
714 |
|
|
|
402 |
|
Other current assets and prepaids |
|
|
4,001 |
|
|
|
2,472 |
|
Total prepaid expenses and other current assets |
|
$ |
12,516 |
|
|
$ |
5,175 |
|
Note 6. Property, Plant and Equipment
The significant components of property, plant and equipment at January 31, 2023 and at October 31, 2022 are comprised of the following:
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Land, building and improvements |
|
$ |
28,827 |
|
|
$ |
28,528 |
|
Finance leases—land and buildings |
|
|
828 |
|
|
|
828 |
|
Machinery and equipment |
|
|
490,374 |
|
|
|
478,162 |
|
Transportation equipment |
|
|
7,728 |
|
|
|
7,133 |
|
Furniture and office equipment |
|
|
3,459 |
|
|
|
3,870 |
|
Property, plant and equipment, gross |
|
|
531,216 |
|
|
|
518,521 |
|
Less accumulated depreciation |
|
|
(108,416 |
) |
|
|
(99,144 |
) |
Property, plant and equipment, net |
|
$ |
422,800 |
|
|
$ |
419,377 |
|
Depreciation expense for the three-month periods ended January 31, 2023 and 2022 is as follows:
|
|
Three Months Ended January 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Cost of operations |
|
$ |
9,061 |
|
|
$ |
7,771 |
|
General and administrative expenses |
|
|
593 |
|
|
|
570 |
|
Total depreciation expense |
|
|
9,654 |
|
|
|
8,341 |
|
Note 7. Goodwill and Intangible Assets
The Company has recognized goodwill and certain intangible assets in connection with prior business combinations.
There were no triggering events during the three-month period ended January 31, 2023. The Company will continue to evaluate its goodwill and intangible assets in future quarters.
14
The following table summarizes the composition of intangible assets at January 31, 2023 and at October 31, 2022:
|
|
January 31, |
|
|
|
2023 |
|
|
|
Weighted Average |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Foreign Currency |
|
|
Net |
|
|
|
Remaining Life |
|
|
Carrying |
|
|
|
|
|
|
Accumulated |
|
|
Translation |
|
|
Carrying |
|
(in thousands) |
|
(in Years) |
|
|
Value |
|
|
Impairment |
|
|
Amortization |
|
|
Adjustment |
|
|
Amount |
|
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship |
|
|
10.8 |
|
|
$ |
195,036 |
|
|
$ |
- |
|
|
$ |
(117,156 |
) |
|
$ |
607 |
|
|
$ |
78,487 |
|
Trade name |
|
|
5.8 |
|
|
|
5,176 |
|
|
|
- |
|
|
|
(2,253 |
) |
|
|
104 |
|
|
|
3,027 |
|
Assembled workforce |
|
|
1.8 |
|
|
|
1,450 |
|
|
|
- |
|
|
|
(565 |
) |
|
|
- |
|
|
|
885 |
|
Noncompete agreements |
|
|
4.4 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
(218 |
) |
|
|
- |
|
|
|
782 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names (indefinite life) |
|
|
- |
|
|
|
55,500 |
|
|
|
(5,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
50,500 |
|
Total intangibles |
|
|
|
|
|
$ |
258,162 |
|
|
$ |
(5,000 |
) |
|
$ |
(120,192 |
) |
|
$ |
711 |
|
|
$ |
133,681 |
|
|
|
October 31, |
|
|
|
2022 |
|
|
|
Weighted Average |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Foreign Currency |
|
|
Net |
|
|
|
Remaining Life |
|
|
Carrying |
|
|
|
|
|
|
Accumulated |
|
|
Translation |
|
|
Carrying |
|
(in thousands) |
|
(in Years) |
|
|
Value |
|
|
Impairment |
|
|
Amortization |
|
|
Adjustment |
|
|
Amount |
|
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship |
|
|
11.0 |
|
|
$ |
193,710 |
|
|
$ |
- |
|
|
$ |
(112,658 |
) |
|
$ |
1,416 |
|
|
$ |
82,468 |
|
Trade name |
|
|
6.1 |
|
|
|
4,836 |
|
|
|
- |
|
|
|
(2,127 |
) |
|
|
239 |
|
|
$ |
2,948 |
|
Assembled workforce |
|
|
2.1 |
|
|
|
1,450 |
|
|
|
- |
|
|
|
(444 |
) |
|
|
- |
|
|
$ |
1,006 |
|
Noncompete agreements |
|
|
4.6 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
(168 |
) |
|
|
- |
|
|
$ |
832 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names (indefinite life) |
|
|
- |
|
|
|
55,500 |
|
|
|
(5,000 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
50,500 |
|
Total intangibles |
|
|
|
|
|
$ |
256,496 |
|
|
$ |
(5,000 |
) |
|
$ |
(115,397 |
) |
|
$ |
1,655 |
|
|
$ |
137,754 |
|
The changes in the carrying value of goodwill by reportable segment for the three-month periods ended January 31, 2023 and 2022 are as follows:
Reportable Segment |
|
As of October 31, 2022 |
|
|
Foreign Currency Translation |
|
|
As of January 31, 2023 |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
147,482 |
|
|
$ |
- |
|
|
$ |
147,482 |
|
U.K. Operations |
|
|
23,630 |
|
|
$ |
1,660 |
|
|
|
25,290 |
|
U.S. Concrete Waste Management Services |
|
|
49,133 |
|
|
$ |
- |
|
|
|
49,133 |
|
Total |
|
$ |
220,245 |
|
|
$ |
1,660 |
|
|
$ |
221,905 |
|
Note 8. Long Term Debt and Revolving Lines of Credit
The table below is a summary of the composition of the Company’s debt balances at January 31, 2023 and at October 31, 2022:
|
|
|
|
|
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
Interest Rates |
|
Maturities |
|
2023 |
|
|
2022 |
|
Revolving loan (short term) |
|
Varies |
|
January 2026 |
|
$ |
50,247 |
|
|
$ |
52,133 |
|
Senior Notes - all long term |
|
6.0000% |
|
February 2026 |
|
|
375,000 |
|
|
|
375,000 |
|
Total debt, gross |
|
|
|
|
|
|
|
425,247 |
|
|
|
427,133 |
|
Less: Unamortized deferred financing costs offsetting long term debt |
|
|
|
|
|
|
|
(4,176 |
) |
|
|
(4,524 |
) |
Total debt, net of unamortized deferred financing costs |
|
|
|
|
|
|
$ |
421,071 |
|
|
$ |
422,609 |
|
On January 28, 2021, Brundage-Bone Concrete Pumping Holdings Inc., a Delaware corporation (the “Issuer”) and a wholly-owned subsidiary of the Company (i) completed a private offering of $375.0 million in aggregate principal amount of its 6.000% senior secured second lien notes due 2026 (the “Senior Notes”) issued pursuant to an indenture, among the Issuer, the Company, the other Guarantors (as defined below), Deutsche Bank Trust Company Americas, as trustee and as collateral agent (the "Indenture") and (ii) entered into an amended and restated ABL Facility (as subsequently amended, the "ABL Facility") by and among the Company, certain subsidiaries of the Company, Wells Fargo Bank, National Association, as agent, sole lead arranger and sole bookrunner, the other Lenders party thereto, which provided up to $125.0 million of asset-based revolving loan commitments to the Company and the other borrowers under the ABL Facility. The proceeds from the Senior Notes, along with certain borrowings under the ABL Facility, were used to repay all outstanding indebtedness under the Company’s then existing Term Loan Agreement (see discussion below), dated December 6, 2018, and pay related fees and expenses.
On July 29, 2022, the ABL Facility was amended to, among other changes, increase the maximum revolver borrowings available to be drawn thereunder from $125.0 million to $160.0 million and increase the letter of credit sublimit from $7.5 million to $10.5 million. The ABL Facility also provides for an uncommitted accordion feature under which the ABL borrowers can, subject to specified conditions, increase the ABL Facility by up to an additional $75.0 million. The $35.0 million in incremental commitments was provided by JPMorgan Chase Bank, N.A.
Summarized terms of these facilities are included below.
Senior Notes
Summarized terms of the Senior Notes are as follows:
|
● |
Provides for an original aggregate principal amount of $375.0 million; |
|
● |
The Senior Notes will mature and be due and payable in full on February 1, 2026; |
|
● |
The Senior Notes bear interest at a rate of 6.000% per annum, payable on February 1st and August 1st of each year; |
|
● |
The Senior Notes are jointly and severally guaranteed on a senior secured basis by the Company, Concrete Pumping Intermediate Acquisition Corp. and each of the Issuer’s domestic, wholly-owned subsidiaries that is a borrower or a guarantor under the ABL Facility (collectively, the "Guarantors"). The Senior Notes and the guarantees are secured on a second-priority basis by all the assets of the Issuer and the Guarantors that secure the obligations under the ABL Facility, subject to certain exceptions. The Senior Notes and the guarantees will be the Issuer’s and the Guarantors’ senior secured obligations, will rank equally with all of the Issuer’s and the Guarantors’ existing and future senior indebtedness and will rank senior to all of the Issuer’s and the Guarantors’ existing and future subordinated indebtedness. The Senior Notes are structurally subordinated to all existing and future indebtedness and liabilities of the Company’s subsidiaries that do not guarantee the Senior Notes; and, |
|
● |
The Indenture includes certain covenants that limit, among other things, the Issuer’s ability and the ability of its restricted subsidiaries to: incur additional indebtedness and issue certain preferred stock; make certain investments, distributions and other restricted payments; create or incur certain liens; merge, consolidate or transfer all or substantially all assets; enter into certain transactions with affiliates; and sell or otherwise dispose of certain assets. |
16
The outstanding principal amount of the Senior Notes as of January 31, 2023 was $375.0 million and as of that date, the Company was in compliance with all covenants under the Indenture.
ABL Facility
Summarized terms of the ABL Facility, as amended, are as follows:
|
● |
Borrowing availability in U.S. Dollars and GBP up to a maximum aggregate principal amount of $160.0 million and an uncommitted accordion feature under which the Company can increase the ABL Facility by up to an additional $75.0 million; |
|
● |
Borrowing capacity available for standby letters of credit of up to $10.5 million and for swing loan borrowings of up to $10.5 million. Any issuance of letters of credit or making of a swing loan will reduce the amount available under the ABL Facility; |
|
● |
All loans advanced will mature and be due and payable in full on January 28, 2026; |
|
● |
Amounts borrowed may be repaid at any time, subject to the terms and conditions of the agreement; |
|
● |
Borrowings in GBP bear interest at the SONIA rate plus an applicable margin currently set at 2.0326%. The applicable margins for SONIA are subject to a step down of 0.25% based on excess availability levels; |
|
● |
Through June 29, 2022, borrowings in U.S. Dollars bore interest at either (1) an adjusted LIBOR rate plus an applicable margin of 2.25% or (2) a base rate plus an applicable margin of 1.25%. After June 29, 2022, borrowings in U.S. Dollars bear interest at (1) a base rate plus an applicable margin currently set at 1.0000% or (2) the SOFR rate plus an applicable margin currently set at 2.0000%. The applicable margins for U.S. Dollar loans are subject to a step down of 0.25% based on excess availability levels; |
|
● |
U.S. ABL Facility obligations are secured by a first-priority perfected security interest in substantially all the assets of the Issuer, together with Brundage-Bone Concrete Pumping, Inc., Eco-Pan, Inc., Capital Pumping LP (collectively, the "US ABL Borrowers") and each of the Company's wholly-owned domestic subsidiaries (the "US ABL Guarantors"), subject to certain exceptions; |
|
● |
U.K. ABL Facility obligations are secured by a first priority perfected security interest in substantially all assets of Camfaud Concrete Pumps Limited and Premier Concrete Pumping Limited, each of the Company's wholly-owned U.K. subsidiaries, and by each of the US ABL Borrowers and the US ABL Guarantors, subject to certain exceptions; and |
|
● |
The ABL Facility also includes (i) a springing financial covenant (fixed charges coverage ratio) based on excess availability levels that the Company must comply with on a quarterly basis during required compliance periods and (ii) certain non-financial covenants. |
The outstanding balance under the ABL Facility as of January 31, 2023 was $50.2 million and as of that date, the Company was in compliance with all debt covenants.
In addition, as of January 31, 2023, the Company had $1.1 million in credit line reserves and a letter of credit balance of $4.2 million.
As of January 31, 2023, we had $106.2 million of available borrowing capacity under the ABL Facility. Debt issuance costs related to revolving credit facilities are capitalized and reflected as an asset in deferred financing costs in the accompanying consolidated balance sheets. The Company had debt issuance costs related to the revolving credit facilities of $1.6 million as of January 31, 2023.
At January 31, 2023 and October 31, 2022, the weighted average interest rate for borrowings under the ABL Facility was 5.2% and 4.4%, respectively.
The amended ABL Facility was treated as a debt modification. The Company capitalized an additional $0.3 million of debt issuance costs related to the July 29, 2022 ABL Facility amendment.
17
Note 9. Accrued Payroll and Payroll Expenses
The following table summarizes accrued payroll and expenses at January 31, 2023 and at October 31, 2022:
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Accrued vacation |
|
$ |
2,663 |
|
|
$ |
2,705 |
|
Accrued payroll |
|
|
3,802 |
|
|
|
2,763 |
|
Accrued bonus |
|
|
1,865 |
|
|
|
4,835 |
|
Accrued employee-related taxes |
|
|
2,796 |
|
|
|
2,760 |
|
Other accrued |
|
|
304 |
|
|
|
278 |
|
Total accrued payroll and payroll expenses |
|
$ |
11,430 |
|
|
$ |
13,341 |
|
Note 10. Accrued Expenses and Other Current Liabilities
The following table summarizes accrued expenses and other current liabilities at January 31, 2023 and at October 31, 2022:
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Accrued insurance |
|
$ |
9,333 |
|
|
$ |
12,133 |
|
Accrued interest |
|
|
11,612 |
|
|
|
5,996 |
|
Accrued equipment purchases |
|
|
2,589 |
|
|
|
7,644 |
|
Accrued property, sales and use tax |
|
|
1,490 |
|
|
|
1,671 |
|
Accrued professional fees |
|
|
1,836 |
|
|
|
831 |
|
Other |
|
|
3,223 |
|
|
|
3,881 |
|
Total accrued expenses and other liabilities |
|
$ |
30,083 |
|
|
$ |
32,156 |
|
Note 11. Income Taxes
For the first fiscal quarter ended January 31, 2023, the Company recorded an income tax expense of $0.6 million on pretax income of $7.1 million. For the same quarter a year ago, the Company recorded an income tax benefit of $0.0 million on pretax income of $1.2 million. The effective tax rate for the three-month period ended January 31, 2023 was primarily impacted by the respective change in fair value of warrant liabilities, all of which is not recognized for tax purposes.
At January 31, 2023 and October 31, 2022, the Company had deferred tax liabilities, net of deferred tax assets, of $74.9 million and $74.2 million, respectively. Included in deferred tax assets at January 31, 2023 and October 31, 2022 were net operating loss carryforwards of $25.9 million. The Company has a valuation allowance of $0.1 million as of both January 31, 2023 and October 31, 2022 related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.
Note 12. Commitments and Contingencies
Insurance
As of January 31, 2023 and October 31, 2022, the Company was partially insured for automobile, general and worker's compensation liability. The Company has accrued $6.2 million and $7.0 million, as of January 31, 2023 and October 31, 2022, respectively, for estimated (1) losses reported and (2) claims incurred but not reported, which is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
The Company offers employee health benefits via a partially self-insured medical benefit plan. Participant claims exceeding certain limits are covered by a stop-loss insurance policy. As of January 31, 2023 and October 31, 2022, the Company had accrued $1.0 million and $3.3 million, respectively, for estimated health claims incurred but not reported based on historical claims amounts and average lag time. These accruals are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. The Company contracts with a third party administrator to process claims, remit benefits, etc. The third party administrator required the Company to maintain a bank account to facilitate the administration of claims. The account balance was $0.2 million as of January 31, 2023 and October 31, 2022, and is included in cash and cash equivalents in the accompanying consolidated balance sheet.
Litigation
The Company is currently involved in certain legal proceedings and other disputes with third parties that have arisen in the ordinary course of business. Management believes that the outcomes of these matters will not have a material impact on the Company’s financial statements and does not believe that any amounts need to be recorded for contingent liabilities in the Company’s consolidated balance sheet.
Letters of credit
The ABL Facility provides for up to $10.5 million of standby letters of credit. As of January 31, 2023, total outstanding letters of credit totaled $4.2 million, the vast majority of which had been committed to the Company’s general liability insurance provider.
Note 13. Stockholders’ Equity
The Company’s amended and restated certificate of incorporation authorizes the issuance of 500,000,000 shares of common stock, par value $0.0001, and 10,000,000 shares of preferred stock, par value $0.0001. Immediately following December 6, 2018, there were:
|
● |
28,847,707 shares of common stock issued and outstanding; |
|
● |
34,100,000 warrants outstanding, each exercisable for one share of common stock at an exercise price of $11.50 per share; and |
|
● |
2,450,980 shares of zero-dividend convertible perpetual preferred stock (“Series A Preferred Stock”) outstanding, as further discussed below |
Grants of new restricted stock awards and exercises of stock options are issued out of outstanding and available common stock.
As discussed below, on April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the Company's public warrants and 1,707,175 shares of common stock were issued in exchange for the Company's private warrants. As of January 31, 2023 and October 31, 2022, there were 13,017,677 public warrants outstanding.
On May 14, 2019, in order to finance a portion of the purchase price for the acquisition of Capital, the Company completed a public offering of 18,098,166 of its common stock at a price of $4.50 per share, receiving net proceeds of approximately $77.4 million, after deducting underwriting discounts, commissions, and other offering expenses. In connection with the offering, certain of the Company’s directors, officers and significant stockholders, and certain other related investors purchased an aggregate of 3,980,166 shares of its common stock from the underwriters at the public offering price of $4.50, representing approximately 25% of the total shares issued (without giving effect to the underwriters’ option to purchase additional shares).
The Company’s Series A Preferred Stock does not pay dividends and is convertible (effective June 6, 2019) into shares of the Company’s common stock at a 1:1 ratio (subject to customary adjustments). The Company has the right to elect to redeem all or a portion of the Series A Preferred Stock at its election after December 6, 2022 for cash at a redemption price equal to the amount of the principal investment ($25,000,000) plus an additional cumulative amount that will accrue at an annual rate of 7.0% thereon. As of January 31, 2023, the additional cumulative amount totaled $7.4 million, which would be recognized when redemption is probable. The Series A Preferred Stock will rank senior in priority and will have a senior liquidation preference to the Common Stock. In addition, if the volume weighted average price of shares of the Company’s common stock equals or exceeds $13.00 for 30 consecutive days, then the Company will have the right to require the holder of the Series A Preferred Stock to convert its Series A Preferred Stock into Company common stock, at a ratio of 1:1 (subject to customary adjustments such as adjustments for anti-dilution events for instance stock splits or reverse stock split).
Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. The preferred stock contains a redemption feature contingent upon a change in control, which is not solely within the control of the Company. As such, the preferred stock is presented outside of permanent equity.
Warrant Exchange
On April 1, 2019, the Company commenced an offer to each holder of its publicly traded warrants (the “public warrants”) and private placement warrants that were issued in connection with Industrea’s initial public offering on April 17, 2017 (the “private warrants”) to receive 0.2105 shares of common stock in exchange for each outstanding public warrant tendered and 0.1538 shares of common stock in exchange for each private warrant tendered pursuant to the offer (the “Offer” or “Warrant Exchange”).
On April 26, 2019, a total of 9,982,123 public warrants and 11,100,000 private warrants were tendered for exchange pursuant to the Offer. On April 29, 2019, 2,101,213 shares of common stock were issued in exchange for the tendered public warrants and 1,707,175 shares of common stock were issued in exchange for the tendered private warrants. A negligible amount of cash was paid for fractional shares. The fair value of common stock issued in exchange for the warrants, totaling $26.3 million, was recognized in additional paid in capital.
Share Repurchase Program
In January 2023, the board of directors of the Company approved a $10.0 million increase to the Company’s share repurchase program. This authorization will expire on March 31, 2024 and is in addition to the repurchase authorization of up to $10.0 million through June 15, 2023 that was previously approved in June 2022. The repurchase program permits shares to be repurchased in the open market, by block purchase, in privately negotiated transactions, in one or more transactions from time to time, or pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”). Open market purchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Exchange Act and other applicable legal and regulatory requirements. The repurchase program may be suspended, terminated, extended or otherwise modified by the Board without notice at any time for any reason, including, without limitation, market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, capital and liquidity objectives, and other factors deemed appropriate by CPH’s management.
For the three-month period ended January 31, 2023 the Company purchased an aggregate of 760,457 shares of our common stock for a total of $4.9 million resulting in an average price per share of $6.48.
Note 14. Stock-Based Compensation
Pursuant to the Concrete Pumping Holdings, Inc. 2018 Omnibus Incentive Plan, the Company granted stock-based awards to certain employees in the U.S. and U.K.
The following table summarizes realized compensation expense related to stock options and restricted stock awards in the accompanying condensed consolidated statements of operations:
|
|
Three Months Ended January 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Compensation expense – stock options |
|
$ |
132 |
|
|
$ |
174 |
|
Compensation expense – restricted stock awards |
|
|
1,008 |
|
|
|
1,306 |
|
Total |
|
$ |
1,140 |
|
|
$ |
1,480 |
|
Note 15. Earnings Per Share
The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share. For purposes of calculating earnings (loss) per share (“EPS”), a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights and the Company’s Series A Preferred Stock) is required to utilize the two-class method for calculating EPS unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period is calculated by taking the net income (loss) for the period, less both the dividends declared in the period on participating securities (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) for the period. Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares. To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options outstanding and Series A Preferred Stock outstanding as of the beginning of the period.
At January 31, 2023, the Company had outstanding (1) 13.0 million warrants to purchase shares of common stock at an exercise price of $11.50, (2) 2.0 million outstanding unvested restricted stock awards, (3) 1.1 million outstanding unexercised incentive stock options, (4) 0.4 million outstanding unexercised non-qualified stock options, and (5) 2.5 million shares of Series A Preferred Stock, all of which could potentially be dilutive. The dilutive effects of the 2.5 million shares of preferred stock and 13.0 million warrants were excluded from the calculation of diluted net income per share for the three-month periods ended January 31, 2023 and 2022, as their impact would have been anti-dilutive.
The table below shows our basic and diluted EPS calculations for the three-month periods ended January 31, 2023 and 2022:
| | Three Months Ended January 31, | |
(in thousands, except share and per share amounts) | | 2023 | | | 2022 | |
Net income (numerator): | | | | | | | | |
Net income attributable to Concrete Pumping Holdings, Inc. | | $ | 6,475 | | | $ | 1,183 | |
Less: Accretion of liquidation preference on preferred stock | | | (441 | ) | | | (441 | ) |
Less: Undistributed earnings allocated to participating securities | | | (235 | ) | | | (40 | ) |
Net income attributable to common stockholders (numerator for basic earnings per share) | | $ | 5,799 | | | $ | 702 | |
Add back: Undistributed earning allocated to participating securities | | | 235 | | | | 40 | |
Less: Undistributed earnings reallocated to participating securities | | | (232 | ) | | | (39 | ) |
Numerator for diluted earnings (loss) per share | | $ | 5,802 | | | $ | 703 | |
| | | | | | | | |
Weighted average shares (denominator): | | | | | | | | |
Weighted average shares - basic | | | 53,601,707 | | | | 53,667,290 | |
Weighted average shares - diluted | | | 54,457,125 | | | | 54,712,478 | |
| | | | | | | | |
Basic earnings (loss) per share | | $ | 0.11 | | | $ | 0.01 | |
Diluted earnings (loss) per share | | $ | 0.11 | | | $ | 0.01 | |
Note 16. Segment Reporting
The Company’s revenues are derived from four reportable segments: U.S. Concrete Pumping, U.K. Operations, U.S. Concrete Waste Management Services and Corporate. Any differences between segment reporting and consolidated results are reflected in Intersegment below. The Company evaluates the performance of each segment based on revenue, and measures segment performance based upon EBITDA (earnings before interest, taxes, depreciation and amortization). Non-allocated interest expense and various other administrative costs are reflected in Corporate. Corporate assets primarily include cash and cash equivalents, prepaid expenses and other current assets, and real property. The following provides operating information about the Company’s reportable segments for the periods presented.
| | Three Months Ended January 31, | |
(in thousands) | | 2023 | | | 2022 | |
Revenue | | | | | | | | |
U.S. Concrete Pumping | | $ | 67,187 | | | $ | 63,069 | |
U.K. Operations | | | 12,708 | | | | 12,022 | |
U.S. Concrete Waste Management Services | | | 13,773 | | | | 10,457 | |
Corporate | | | 625 | | | | 625 | |
Intersegment | | | (718 | ) | | | (725 | ) |
Total revenue | | $ | 93,575 | | | $ | 85,448 | |
| | | | | | | | |
Income (loss) before income taxes | | | | | | | | |
U.S. Concrete Pumping | | $ | (1,489 | ) | | $ | (1,340 | ) |
U.K. Operations | | | (140 | ) | | | (254 | ) |
U.S. Concrete Waste Management Services | | | 3,780 | | | | 2,343 | |
Corporate | | | 4,968 | | | | 412 | |
Total income before income taxes | | $ | 7,119 | | | $ | 1,161 | |
| | Three Months Ended January 31, | |
(in thousands) | | 2023 | | | 2022 | |
EBITDA | | | | | | | | |
U.S. Concrete Pumping | | $ | 15,063 | | | $ | 13,951 | |
U.K. Operations | | | 2,380 | | | | 2,509 | |
U.S. Concrete Waste Management Services | | | 5,815 | | | | 4,417 | |
Corporate | | | 5,181 | | | | 625 | |
Total EBITDA | | $ | 28,439 | | | $ | 21,502 | |
| | | | | | | | |
Consolidated EBITDA reconciliation | | | | | | | | |
Net income | | $ | 6,475 | | | $ | 1,183 | |
Interest expense, net | | | 6,871 | | | | 6,261 | |
Income tax expense (benefit) | | | 644 | | | | (22 | ) |
Depreciation and amortization | | | 14,449 | | | | 14,080 | |
Total EBITDA | | $ | 28,439 | | | $ | 21,502 | |
|
|
Three Months Ended January 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
10,374 |
|
|
$ |
9,808 |
|
U.K. Operations |
|
|
1,827 |
|
|
|
1,985 |
|
U.S. Concrete Waste Management Services |
|
|
2,035 |
|
|
|
2,074 |
|
Corporate |
|
|
213 |
|
|
|
213 |
|
Total depreciation and amortization |
|
$ |
14,449 |
|
|
$ |
14,080 |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
(6,178 |
) |
|
$ |
(5,483 |
) |
U.K. Operations |
|
|
(693 |
) |
|
|
(778 |
) |
Total interest expense, net |
|
$ |
(6,871 |
) |
|
$ |
(6,261 |
) |
|
|
|
|
|
|
|
|
|
Transaction costs |
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
3 |
|
|
$ |
21 |
|
Total transaction costs |
|
$ |
3 |
|
|
$ |
21 |
|
Total assets by segment for the periods presented are as follows:
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Total assets |
|
|
|
|
|
|
|
|
U.S. Concrete Pumping |
|
$ |
692,013 |
|
|
$ |
693,048 |
|
U.K. Operations |
|
|
108,546 |
|
|
|
103,255 |
|
U.S. Concrete Waste Management Services |
|
|
158,982 |
|
|
|
157,370 |
|
Corporate |
|
|
28,523 |
|
|
|
27,834 |
|
Intersegment |
|
|
(105,999 |
) |
|
|
(94,018 |
) |
Total assets |
|
$ |
882,065 |
|
|
$ |
887,489 |
|
The U.S. and U.K. were the only regions that accounted for more than 10% of the Company’s revenue for the periods presented. There was no single customer that accounted for more than 10% of revenue for the periods presented. Revenue for the periods presented and long-lived assets as of January 31, 2023 and October 31, 2022 are as follows:
|
|
Three Months Ended January 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Revenue by geography |
|
|
|
|
|
|
|
|
U.S. |
|
$ |
80,867 |
|
|
$ |
73,426 |
|
U.K. |
|
|
12,708 |
|
|
|
12,022 |
|
Total revenue |
|
$ |
93,575 |
|
|
$ |
85,448 |
|
|
|
January 31, |
|
|
October 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
U.S. |
|
$ |
365,734 |
|
|
$ |
366,814 |
|
U.K. |
|
|
57,066 |
|
|
|
52,563 |
|
Total property, plant and equipment, net |
|
$ |
422,800 |
|
|
$ |
419,377 |
|
Note 17. Subsequent Events
On February 27, 2023, the Company acquired the assets of Cherokee Pumping, Inc. and Cherokee Materials, LLC (together “Cherokee”), a concrete pumping and materials placement service provider in Atlanta, Georgia, for an aggregate purchase price of $6.3 million, which was paid using cash on hand. As of the date of issuance of the Company's interim financial statements, the purchase price allocation for this transaction has not yet been completed.