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